An economic recession and political corruption over the past two years has not set the best stage for the oil and gas industry in Brazil. A low oil price and large investment cuts have added to the challenges facing the country’s oilfield service industry. The service companies are fighting for new contract awards, and with a recovering market towards 2020, there are some interesting projects in the pipeline.

Petrobras recently revised down its 2017-2021 business plan, when compared to their latest review in January, as a response to the low oil prices and the domestic market environment challenges. In the current business plan, Petrobras has an investment target of $74.1 billion, which is a 25% reduction from the previous plan. By prioritizing the deepwater field developments, Petrobras still expects their liquids production to grow steadily into the next decade with a targeted production of 2.77 million bbl/d 2021. This is in line with what they have communicated for a while, and it means that they want to keep production numbers unchanged while they increase their focus on reduced spending and financial discipline in order to improve cash flows.

Based on fundamentals and market observations, we expect oilfield service revenue from field investments by the deepwater giant to face a yearly decline of 9% from 2014 to 2018 as shown in the figure below. The seismic and EPCI segments are the ones declining the most, 11% and 12% respectively in the same period.

If Petrobras is going to deliver on their stated production targets, we expect 2018 to mark the trough with a yearly increase in oilfield service purchases of 7% towards 2021. The drilling and subsea contractors represent the service segments expected to grow the most, with a strong 10% as new fields are being developed towards the end of this period. In order to move forward according to their business plan, Petrobras also needs to make some progress on their tendering activity for the new floating production units. The Libra Pilot and Sepia tenders, where local content requirements have contributed to delays in the award of contracts, now seem to have picked up speed with a second round-bid process. Even Sepia, which is fully owned by Petrobras, is moving forward due to relaxations with local content requirements.

According to Petrobras, 2020 will be the first year of oil from Buzios-5 and the Marlim revitalization. There has been speculation that new tenders for these FPSOs will come out by the end of the year, however, it is likely that these will follow after completion of the Libra and Sepia awards in early 2017. These contracts will bring a lot of value to the service chain, and since Petrobras is the sole owner of these fields it will be interesting to see if the tenders will have some relief from local requirements to better facilitate the international players. If Petrobras also assumes the risk related to these deviations from current regulation, we might see a faster process in awarding contracts as more competitive players enter the stage. At length, this might also lead to a change on the regulator side, which will add another catalyst to the bidding processes.

In the current business plan, there are also new project entries when compared with the previous plan. Petrobras has now introduced the Libra 2 and Itapu units, scheduled to start production in 2021. This is good news for the industry and these are the next tenders that the industry should expect coming out from Petrobras. If Petrobras is going to keep on track, according to timeline and at the same time allowing for some delays, we might see these tenders coming out in late 2017. If Petrobras also want to continue their growth in liquids production in the next decade, it is essential that they sanction and develop the above-mentioned fields; otherwise, we expect to see numbers declining after 2021.

Join Rystad Energy at Rio Oil and Gas 2016.
Rio de Janeiro, Brazil, October 24-27.
Pavilion 3, Stand Q9.
Industry presentations to be held at the booth.
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This article is for information and discussion purposes only and does not form a recommendation
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