Lula Launches Fleet Program for Petrobras

Luiz Inacio Lula da Silva, President of the Republic, recently participated in the Petrobras Fleet and Support Vessel Modernization and Expansion Program launch ceremony, in Niteroi (Rio de Janeiro). This is the biggest vessel contracting plan of its sort ever in Brazil, with a high level of job generation and national content of 70 to 80%. Petrobras' president, Jose Sergio Gabrielli de Azevedo, and Company executives attended the event.

The program President Lula launched foresees orders, in Brazil, for 146 new units to support Petrobras' offshore oil exploration and production activities, for an estimated total of $5 billion. Petrobras also confirmed it intends to contract drilling vessels, semi-submersible drilling platforms, and large vessels.

Aligned with the Prominp (Program for the Mobilization of the National Oil and Natural Gas Industry), the initiative is part of the Federal Government's Productive development Plan, which was launched last May 12th, at the BNDES. By ensuring a large volume of orders to be delivered in the next six years, the new program will make a significant contribution to revitalizing the Brazilian Naval industry, a sector which has been getting special attention and incentive measures since the early stages of President Luiz Inácio Lula da Silva's administration.

An extremely positive effect of the Petrobras Fleet and Support Vessel Modernization and Expansion Program will be the increase in job offers. Building each of the 146 vessels is expected to generate nearly 500 positions. Also, when the fleet is fully operational, there will be openings for nearly 3,800 crew members. According to the chartering agreements to be signed, only Brazilian nationals will be allowed to man the vessels. Additionally, by contract, the new fleet is required to have 70% to 80% national content, depending on the type of vessel.

Seven bidding procedures will be held during the six years of the program. The first, which is already in progress, foresees the contracting of 24 vessels. The others will be held through 2014 and have contractual terms of eight years. All of the vessels, once built, will be chartered to Petrobras by the bidding companies.

Of the 146 scheduled vessels, 54 will be used to handle very large anchors, ten as tugboats, and 64 will be used in supply activities. In addition to these, another 18 vessels will be contracted to carry out oil collection operations, as required by the Brazilian Environmental and Renewable Natural Resource Institute (Ibama) to cover oil exploration and production areas. All of them belong to the Petrobras' Third Maritime Support Fleet Renewal plan, approved last December.

The Third Maritime Support Fleet Renewal plan is the outcome of Petrobras' policy to modernize its maritime support fleet on an ongoing basis. The Fleet Modernization Plan was approved in November 2003, when 20 existing vessels were contracted and underwent upgrades and deep technical changes and then reincorporated to the national fleet. The Second Fleet Modernization Plan was approved in July 2004, and called for the contracting of 38 new vessels. Of these, 7 are currently in operation, 17 under construction, and 14 are in the contract signature phase.

Petrobras also intends to contract 40 drilling vessels and semi-submersible drilling platforms to operate in deep and ultra-deep waters. The plan calls for the construction and delivery of these new units by 2017, and priority will be given to construction in Brazil. These units will be allocated to meet the portfolio's total demand: exploration of blocks that have been acquired, discovered field development and production – including a few in the pre-salt layer –, new discoveries, new blocks to be acquired, and maintenance.

Over and beyond vessels for offshore activities, Petrobras is buttressing the Brazilian naval industry's growth with several other actions. A memorandum of understandings signed last year with Noroil Empresa de Navegação Ltda. aims at studying and analyzing the viability for future chartering agreements for two oil tankers to be built in Brazil. The planned vessels are of the VLCC (Very Large Crude Carrier) type and will have capacity for 300,000 tons.

To meet the logistics demands that will be created to move Petrobras' production, the company plans to contract 19 more vessels under long-term chartering agreements to be signed with Brazilian riggers, always with the consideration of having these vessels built in Brazil in mind.

During the launch of the Petrobras Fleet and Support Vessel Modernization and Expansion Program, Transpetro, a Petrobras subsidiary, presented the second stage of the Program for the Modernization of the Oil Tanker Fleet (Promef), through which it will give continuity to the program that was first kicked-off in 2005, when 26 oil tankers were bid for by Brazilian shipyards. The second stage of the program foresees a new lot of 23 new medium to large vessels.

With the Promef, Transpetro commenced a program that seeks to revitalize the Brazilian naval industry and to renew its self-owned fleet of 54 oil tankers, with currently average 17 years of age. The initiative also aimed at being in compliance with the UN resolution that determines the substitution of the global oil tanker fleet for vessels built with double hulls.

Launched in 2005, the first stage of the Promef alone will result, by 2011, in the payment of upwards of R$205 million in taxes, including ICMS, ISS, PIS/Cofins, CSLL (Social Contribution on Net Profit), and Income Tax. Furthermore, some 22,000 jobs are expected to be generated and it is hoped that there will be a positive impact on the Country's payment balance in the order of $270 million.

The foreseen investments not only meet the needs of Petrobras' exploration and production development portfolio, but also those of oil and derivative transportation, and they are aligned with the Company's Strategic Planning insofar as growing its oil and natural gas production is concerned.