NEW YORK (Dow Jones Newswires), November 6, 2008
The credit crunch is complicating Brazil's plan to use the discovery of massive new offshore oilfields to jumpstart its domestic oilfield services industry.
Government To The Rescue
Petrobras, however, has several options it can exhaust before calling in companies like Noble, and the company has a strong incentive to stick with its original plan to hire Brazilian firms.
In addition to boosting Brazil's oilfield services and shipping industries, Petrobras is eager to trim costs by utilizing the country's low-cost labor and easy access to high-quality steel and other raw materials.
"There is a political component to this," said Erasto Almeida, a Latin America analyst with Eurasia Group, a consultancy. "Clearly, it's the priority to develop a national oil industry, equipment providers and all."
Brazil's government, which also sees economic development opportunities in the country's emergence as an oil power, has already stepped in to assist other sectors affected by the credit crunch. The government-affiliated Brazilian National Development Bank could be used to finance projects. The government also injected 10 billion Brazilian reals ($4.72 billion) into the country's Merchant Marine Fund, which could support funding for Brazilian shipbuilders, including firms constructing oil platforms and tankers for Petrobras.
The government also raised the financial ceiling imposed on Brazilian banks lending to Petrobras by BRL8 billion ($3.78 billion).
If emergency financing fails, Brazil would next encourage the stronger domestic rig builders to acquire the weaker ones, said Adriano Pires at the Brazilian Center for Infrastructure, a Rio de Janeiro-based consultancy.
"In all of the confusion surrounding the (financial) crisis, some companies are going to fail and there will be consolidation," Pires said.
The financial health of the firms that won Petrobras rig contracts varies. Odebrecht has won three deepwater rig orders. The Rio de Janeiro infrastructure construction firm reported $17.7 billion in revenue last year. Delba Group, by contrast, is virtually unknown outside Brazil, but is tasked with building six rigs for Petrobras.
"Delba is a tiny operation ... they've had virtually no luck in getting financing," said Judson Bailey, an analyst with Jefferies & Co. in Houston. "Odebrecht is much larger; they should be able to get financing."
Delba declined repeated requests for comments.
Miguel Gradin, vice president of Odebrecht's oil and gas segment, said the company's solid financial base means it can afford to wait for the current financial storm to blow over. The company already has financing completed for a rig under construction in Abu Dhabi. Financing for two other rigs on order from docks in South Korea is "at an advanced stage," to be completed when there is greater liquidity in credit markets, Gradin said.
More important, Gradin said, is that the company's rig orders will come in on time - and on budget.
Even if some new rig orders fall through, the credit crunch could make it easier for Petrobras to find the rigs it needs. The global economic downturn has sent oil prices tumbling to around $65 a barrel, from nearly $150 in July. The lower price has already emboldened producers to take a tougher line when negotiating contracts with rig operators, said Bob Long, chief executive at Transocean Inc., owner of the world's largest offshore rig fleet.
Should that trend continue, Petrobras may catch a break if the company needs to hire rigs at market rates to replace orders for new rigs that fall through, said Pires, the infrastructure consultant.
"The crisis is going to cause a deceleration in all of the oil companies' investment plans," Pires said. "That means that prices will come down and equipment availability will go up."
Petrobras has said it will push ahead with deepwater drilling projects off Brazil's coast, even if the price of oil falls as low as $35 a barrel. Transocean believes most deepwater drilling will continue as planned so long as oil prices stay above $60 a barrel, Long said Wednesday in a conference call with analysts.
Copyright (c) 2008 Dow Jones & Company, Inc.
Most Popular Articles
From the Career Center
Jobs that may interest you