Early end to contracting hiatus unlikely

The crisis surrounding Petrobras – the state-controlled oil company in Brazil – seems to be showing next to no signs of abating, which means that offshore support vessel (OSV) operators are likely to have a difficult time of it for the rest of this year and, possibly, for much of next year too.

That is the feedback emanating from various sources in Brasilia, Santos, Sao Paulo and especially Rio de Janeiro, the epicentre of the Brazilian oil and gas industry, where, sources say, the appointment of a new CEO – Aldemir Bendine – to replace the beleaguered previous leader Maria das Gracas Foster has not improved matters and has even made them worse, according to some reliable sources.

There were other changes at board level that were supposed to sweep away possible links with corrupt ‘secret deals’ to channel money to the PT party (of president Dilma Rousseff) and her supporters, but nothing seems to stop the mud from sticking and nothing seems able to shift the oil giant out of its current inertia, which includes a virtual freeze on all new charter contracts.

Petrobras has promised that production will rise from 2014’s 2.1 million barrels of oil and gas equivalent (boe) up to 4.2 million barrels by the year 2020, but Sete Brasil, the company that was set up to build the urgently needed drillships to assist that aim, seems to be on the verge of going bust after being heavily implicated in the Lava Jato (Car-wash) scandals that are embroiling Petrobras. A number of staff and board members were all found to have “strong links” with the PT party.

When Mauro Rodrigues da Cunha, the only independent board member of Petrobras, said, during the last days of March, he was not standing for re-election to the board, it sent another negative message to international investors and the Brazilian oil and gas market and was another crushing blow against the state-controlled company. The same week, OAS, one of Petrobras’s biggest contractors (implicated by the Lava Jato investigations), filed for bankruptcy, and many are predicting there will be more to come from those who gained most from close links with the reigning PT party of Dilma Rousseff.

“The whole Petrobras pyramid of strange contracts and kickbacks for companies prepared to pay crooked politicians is unravelling,” said one Petrobras insider. “We need leadership, and we need to get on with our jobs, but instead everyone is watching their backs. We have technical guys making suggestions that OSVs are needed, but they are being ignored.

“Previously, even when there was political uncertainty and some political appointees in the hierarchy, if the tech guys said a contract urgently needed to be extended, it would be, but not any more. Petrobras today is very different from a few years back, and we need a big broomstick to sweep away all the rotten apples.”

Because of this inertia, there has been no movement on Prorefam (the programme to upgrade the Brazilian flag OSV fleet) since last December, and there is unlikely to be any for the next few months. There have also been very few contract extensions, so OSV owners are becoming nervous as charter contracts head towards their completion dates. With charter rates in the North Sea being weak and the US Gulf enforcing the Jones Act, there are not too many ‘quick-fix’ alternatives for available OSVs from Brazil. One broker said, “Maybe Angola and the west coast of Africa, but that is about it right now.”

And so the anxiety of the Brazilian-based OSV operators – almost exclusively based in Rio de Janeiro – grows on an almost daily basis.

“Various companies submitted their proposals for Prorefam at the end of last year,” explained Armando Freigedo Rodrigues, a director with the Aquapar consultancy in Rio de Janeiro, “but there has been no news since then, and I don’t think there will be until Petrobras finalises its official financial returns for 2014. Because of the overpricing of assets in recent years, no-one is quite sure of the value of Petrobras any more, which makes it very difficult for the auditors.”

An example of the overpricing was the furore that has followed the Abreu de Lima refinery project in Ipojuca, Pernambuco. The original price to build it was US$10 billion, but now the estimate is US$20 billion, and no-one knows how many of the contracts are the correct price and how many are the inflated prices that help pay PT and its supporters their ‘cut’ from all Petrobras contracts. Venezuela under the late Hugo Chavez was a partner originally, but then Brazil’s neighbours to the north pulled out, leaving Brazil and Petrobras with the entire bill.

As one seasoned Brazil watcher said, “These ‘takes’ from politicians have been going on for decades, but where it changed with PT is that the percentage went up from 2 per cent to 4 per cent up to 5–10 per cent, and the concentration of power that gives them is immense. The country should have changed the government last October, but now we are faced with another four years of Rousseff and PT.”

And the investigations are also spreading out to Brazil’s shipyards. Everyone has been asking the same question for years: why, when Brazilian labour is relatively cheap, are Brazilian vessels up to 50 per cent more expensive than the international rates? Some are now saying that contracts for OSVs in Brazil, especially the Prorefam newbuilds, which are linked to long-term Petrobras charter contracts, may also be tainted by a Lava Jato type scam, but there is no evidence of this as yet.

Ronaldo Lima, the president of the Brazilian Association for Offshore Support Companies (ABEAM), said that he was one of the “optimists” in that he thought the current slump would last only 14 months rather than the “20 months” that most of his colleagues are forecasting.

He told OSJ, “These past few months have been worrying times for the entire oil and gas industries, for all sectors, not just the offshore support vessel sector. It seems like everything has gone wrong, and people keep on asking me, ‘How much longer will it last?’, and I think the downturn, especially with Petrobras, will continue throughout 2015 and through to the middle of next year. Many others say till at least the end of 2016. ”

Mr Lima believes Brazil, and Petrobras in particular, is suffering from three main problems that have created a ‘perfect storm’. The dramatic slump in oil prices, the rapidly weakening real (the Brazilian currency), especially against the rampant US dollar, and then the Lava Jato (Car-wash) investigations into Petrobras contracts have all combined to create a “complete mess”.

Another Rio-based oil industry consultant said that Bendine, who came from the Banco do Brasil, has been appointed to “clean up the mess” but in a way that will be “positive for the government of Rousseff”.

The consultant said, “This guy [Bendine] is a PT supporter and is only there to whitewash as much of the mess as is possible and limit the damage to Rousseff. He also knows nothing about the industry.”

When asked about the completion of the 7th and 8th rounds of Petrobras’s Prorefam, Lima responded, “Forget it! We won’t see any movement on that for a while, maybe after Petrobras finally files their balance sheets to the markets.”

Lima and his members are also disappointed that there have been no signs of leadership yet from the new president of Petrobras.

“We know he’s there,” said Mr Lima, “because the government tells us he is working on the balance sheets, but he doesn’t give interviews to the press and nobody sees him. Once he closes the balance sheet, then we will see him.”

The ABEAM president said that there was still a bid active for 49 “existing vessels”, and he was “reasonably optimistic” that some of them would be signed once Petrobras’s new president had signed off the financial figures for 2014. Of those 49 proposals, 25 were PSV 4500s and 24 were AHTS 1800s.

“We do not know how many they will go for,” he stated, “but we do know that they are analysing all the proposals very closely. Our members are telling us they are being very strict and very precise with these contracts, and I think we can expect much more of this attention to detail because of Lava Jato. Overall, though, the atmosphere here in Brazil is very, very bad. It wasn’t great a year ago, but now it is a very bad one.”

Mr Lima added that the weaker real has not helped Brazilian OSV operators, as operational costs, and especially Brazilian crew costs, are still very high. He said that he and ABEAM would begin negotiations soon with Sindmar, the Brazilian officers union, with regard to a new ‘acordo coletivo’ (collective agreement), as the current two-year agreement runs out in February 2016.

OSJ flagged the internal changes, politicisation and redirecting of Petrobras several years ago, a good while before other commentators penetrated the power structures that rule the oil giant. Reading the Petrobras runes has always been a bit like Churchill’s description of reading the political changes in the Soviet Union. The great British leader wrote that understanding the Kremlin was like trying to work out “a riddle, wrapped in a mystery, inside an enigma”.

For many of us trying to ‘work out’ Petrobras, and Brazil in general, it can often feel that Churchill’s words are very apt.

Offshore support base for Santos

With Petrobras, Brazil’s state-controlled oil and gas company still committed to developing its pre-salt oil and gas reserves over the next five years, it is a given that an offshore support base (OSB) will be built in the port of Santos over the next year or so. Regular readers of OSJ will remember that Bandeirantes has tried, and is still trying, to win the tender to operate an OSB on behalf of Petrobras.

However, once again, travails at Petrobras are preventing this advanced scheme for a much-needed first OSB for Santos from getting off the ground.

A manager at Bandeirantes confirmed that the Santos-based company was still pursuing the idea, and he hoped that a new tender would be published “over the next few months”. Petrobras turned down the first bid because there was only one bidder, which, according to one source, makes the bid invalid.

Aside from the Bandeirantes/Petrobras scheme, OSJ has discovered that there is also a plan for a larger, possibly two-berth OSB in the Alemoa area of the port of Santos, with Norwegian chemical carrier and terminal specialists Odfjell as the main protagonist. Alemoa has been in the news recently with the massive fire at the nearby Ultracargo liquid bulk terminal.

Odfjell Brasil Ltda, the fully owned Brazilian subsidiary of Bergen-based Odfjell, has been a terminal operator and has had a two-berth facility in Santos since 1974 but a few years ago bought a large area of land in the Alemoa area of the port.

The Santos facility is actually called Granel Quimica and is located on Barnabé Island, across the estuary from Santos itself, on the left bank and close to the tourist city of Guarujá.

On top of this, Odfjell Brasil Ltda also owns a large area of land on the Santos side of the port (as opposed to the Guarujá side), which could host another chemical terminal and possibly, also, an offshore supply base for OSVs, which Brazil so desperately needs more of.

Knut Øvrebø, the vice president of Odfjell Brasil Ltda, said, “We have a project to build a mini-port in Santos, which would be interesting for the offshore companies. As Petrobras slowly ramps up its oil production, especially in the pre-salt oil fields, we will see more and more demand for support for offshore support vessels along the coastline. The port of Santos for sure will, at a certain time, become an important centre for offshore support bases. We have a possible partner for this project, but we cannot say who it is right now.”

Odfjell is also the owner of Flumar Navegação, the Brazilian flag chemical carrier, so an OSB and general-purpose terminal might meet some of the logistics needs of Flumar as well.

Many of the pre-salt fields are in the Santos Basin to the south of Santos and Rio, whereas most of the existing OSBs – such as those in Rio de Janeiro and Macaé – are geared towards the Campos Basin. The two in Rio, operated by Wilson, Sons subsidiary Brasco, and one in Macaé, run by Petrobras itself, are inadequate to meet the needs of the industry and are severely congested at peak times.

In order to build and operate an OSB, Odfjell would have to get permission from Codesp, the local Santos port authority, and Edson Araújo, the head of the Special Ports Ministry (SEP). They would have to apply to become a ‘terminal de uso portuário’ (or TUP).

Angelino Caputo e Oliveira, the president of Codesp, said that Codesp and SEP were not averse to the idea of an OSB in the Alemoa area, and the idea that part of this port area could be used for general cargo and supplying the oil industry does form part of the master plan for Santos that has recently been drawn up.

“We are hoping for two new port terminals in the Alemoa area of the port (near the Anchieta Highway, the main road to São Paulo), and one of these could well be for an OSB. This would be of interest to Codesp and SEP,” he told OSJ. OSJ