FMC Technologies Boosts Brazil Base, Banks on Future Oil Output

RIO DE JANEIRO - Subsea-equipment manufacturer FMC Technologies is investing in Brazil to meet growing demand for the company's offshore oilfield products, while also confronting the challenge of developing its own supply chain to adhere to stringent local content rules, the president of the company's local operations said in an interview.

FMC Technologies has invested $200 million over the past five years to ramp up output of products such as wet Christmas trees, an ensemble of underwater pipes and valves designed to manage the flow of oil and natural gas from a deep-water well, and other pieces of equipment that help get oil from the sea floor to platforms on the surface, said FMC CBV president Nelson Leite during the Rio Oil & Gas 2012 conference.

"Brazil is an important market," Mr. Leite said, noting that about 50% of the country's offshore oil production passes through FMC equipment. The company holds an 80% market share in underwater manifolds and about 35% of the wet Christmas tree market, Mr. Leite said. Earlier this year, FMC inked a $1.5 billion deal to make up to 130 of the Christmas trees for pre-salt fields operated by Brazilian state-run energy giant Petroleo Brasileiro, or Petrobras.

Development of the pre-salt fields, a cluster of deep-water discoveries made of the coast of Rio de Janeiro and Sao Paulo states that holds billions of barrels of crude, has forced the company to increase its production capacity compared with just a few years ago, Mr. Leite said. While that means more sales and revenue, rules that require an ever-increasing percentage of the goods and services to be sourced locally also means more work developing the company's supply chain, the executive added.

"I talk about increased volume because of the pre-salt, but the supply chain has to be prepared for [the increased volume]," Mr. Leite said. "That's the big challenge for the industry."

FMC has put a lot of effort into ensuring that its suppliers have the capacity to deliver production materials, Mr. Leite said.

"Our strategy is to achieve high local content on budget, on time," the executive said.

One of the key areas that has helped is a financing program started by Petrobras in June 2011, called Progredir, Mr. Leite said. Progredir makes low-cost financing available to Petrobras's suppliers, especially small and medium-sized companies further down the supply chain that typically face greater financing costs.

Progredir "is helping. It's helping our suppliers," Mr. Leite said. FMC's deal to provide wet Christmas trees to Petrobras was made part of the program, allowing FMC's suppliers to use the contract as a basis for financing, the executive said.

"We need more" programs like Progredir, Mr. Leite said. "The biggest part of costs for small companies is the cost of financing."

Mr. Leite also said that Brazil needs to continue to attract investment from overseas oil companies and service providers to quickly develop the country's petroleum riches. Brazil took a step in the right direction late Tuesday, when the government announced that the long-delayed 11th-round concession auction would be held in May 2013 pending approval of a new oil royalties law by Congress. The first auction of government-held subsalt fields is expected in November next year.

"To develop fast, [Brazil] needs all of the oil companies to come here," Mr. Leite said.

While Mr. Leite declined to comment on the impact of the Brazilian real's recent depreciation against the U.S. dollar, he indicated that recent efforts by the government and Brazilian Central Bank to curtail foreign-exchange volatility were positive for the business community.

"A stable currency is far and away better than a currency that is going way up or way down," Mr. Leite said.

Copyright (c) 2012 Dow Jones & Company, Inc.


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