Petrobras Focuses on Costs Ahead of Rig, Platform Tenders

RIO DE JANEIRO (Dow Jones Newswires), Jun. 30, 2009

Brazilian state-run energy giant Petrobras continues to take a hard line on cost cuts as it prepares to launch tenders for drilling rigs and production platforms.

The tenders will likely come to market soon, Chief Financial Officer Almir Barbassa said at a meeting with reporters.

"We're in the final phase of the concession process," Barbassa said. The company is hammering out details for financing drill rigs, a complex task, the executive added.

The rigs and platforms up for bid may include several that were previously canceled because of high costs. In 2008, the company announced ambitious plans to contract 40 rigs and platforms to explore and develop a string of offshore discoveries. The order was part of an effort to stimulate growth in the domestic oilfield-services sector and revitalize Brazil's once robust shipping industry.

The company could also save by using the nation's inexpensive manual labor and powerful position as Brazil's largest employer to squeeze efficiencies from domestic suppliers and foreign companies setting up shop here.

Petrobras wants to increase the amount of "national content" used to build rigs and platforms, generating a "win-win" situation for the country, Barbassa said.

"There are growing opportunities to attract companies to Brazil," he added.

The sheer scale of the order and prospects for continued demand as Petrobras develops the so-called offshore subsalt oil deposits should entice rig and platform builders to set up shop in Brazil, the CFO said. Barbassa participated in an April roadshow to several Asian countries with strong maritime industries as part of a recruiting effort.

The tender package could include fresh efforts to build the P-61 and P-63 platforms, which were canceled in January because of higher-than-expected costs. The two platforms are earmarked for the Papa Terra field in the Campos Basin, with production expected to start in 2013.

The two platform projects were still being revised, Barbassa said.

Also likely coming up for bid would be the P-58 floating production, storage and offloading vessel, or FPSO, as well as two FPSOs for the Guara and Iara subsalt pilot tests. The tender for the P-62 platform, which will be installed at the Campos Basin's Roncador field, was also expected to be launched this year.

Petrobras has been able to lower costs on platforms by waiting out suppliers in the wake of the global financial crisis and economic slowdown. According to Barbassa, the company reduced tenders for the P-55 and P-57 platforms to between $1.2 billion and $1.3 billion from initial estimates of $1.8 billion, for example.

Shallow-water drilling rigs operating in water depths of about 1,500 meters have also reacted favorably, with prices falling.

But for the deepwater rigs, key to Petrobras' development of the Santos Basin subsalt region, the price movement has not been as hoped. Oil found in Brazil's subsalt area lies at a water depth of more than 2,000 meters, as well as under an additional 5,000 meters of sand, rock and salt.

"[Prices for] deepwater drilling equipment has moved very little," Barbassa said, noting that the segment had experienced extreme shortages last year when oil peaked at near $150 a barrel.

But the company was seeing some positive changes as the second quarter comes to a close, Barbassa said.

Efforts to standardize equipment for platforms, rigs and refineries under construction will also help cut costs further, the executive said.

"We are simplifying the process wherever it can be simplified," he added.

Copyright (c) 2009 Dow Jones & Company, Inc.