Rogério Caffaro is in a surprisingly good mood for someone who works in Brazil’s crisis-ridden oil and gas industry.
The chief executive of Triunfo Logística, which operates port terminals, has just had lunch with Chinese executives about a possible partnership for a base in Rio de Janeiro that handles the flexible pipes that state-controlled oil group Petrobras uses for extraction.
Triunfo won an eight-year contract in September to operate the base but the project ground to a halt after banks withdrew funding, spooked by plunging oil prices and the vast corruption scandal engulfing Petrobras.
“We found ourselves at the eye of the storm so we started looking for foreign partners,” Mr Caffaro says. “The idea is the Chinese would contribute with equipment, construction of the base and enter as our partner so we would no longer need the banks.”
However, not every company in the sector is as fortunate. While Petrobras still needs pipes for its core projects, the prospects are far bleaker for other areas of the industry — namely investments related to its deepwater or “pre-salt” discoveries.
Analysts and industry executives say pre-salt exploration is poised to be the biggest casualty of the crisis gripping Petrobras, along with Brazil’s dream of becoming one of the world’s top five global oil producers by 2020.
“[Petrobras] is being strangled financially and it is its investment in future production that will suffer most,” says Paulo Furquim, an academic at São Paulo’s business school Insper.
Buried beneath a layer of salt up to 2km thick in the seabed off Brazil’s southeast coast, the pre-salt finds are estimated to contain at least as much as the near-60bn barrels of oil in the North Sea. The find sparked euphoria when the first major deposits were discovered in 2007.
However, drilling through shifting layers of salt at such depths has become the most capital-intensive part of Petrobras’ business. While pre-salt oil only represents about 30 per cent of the company’s total production, Petrobras had planned to spend 60 per cent of its $154bn exploration and production budget between 2014 and 2018 on this deepwater project.
Those numbers are simply no longer viable, analysts say.
The alleged bribery and kickback scheme at Petrobras, also involving top politicians and construction firms, has already prompted Moody’s to strip the company of its investment grade credit rating — thus raising its financing costs.
Investors in Brazil and the US are suing for damages and, if the company cannot persuade its auditors to sign off on its annual financial statements by May, Petrobras faces a technical default.
However, even if the company was not under financial pressure, falling oil prices mean that investing in the pre-salt finds currently makes little sense, says Adriano Pires, founder of the Brazilian Centre of Infrastructure and a former member of the country’s oil regulator ANP.
US crude sunk to a six-year low last week of about $43 a barrel — still above Petrobras’s average extraction costs last year of $32 a barrel but below the $45 break-even point for the pre-salt deposits.
“Petrobras’ problems are not only internal but also external,” says Mr Pires, adding that the company will have no choice but to “downsize”.
The oil price collapse could not have come at a worse time. After spending six years squabbling over how to divide up its newfound oil wealth, Brazil’s government only held its first pre-salt auction in October 2013, selling off the Libra field — considered the “crown jewel” of the deposits — to a consortium of companies including Royal Dutch Shell.
While pre-salt production from smaller fields previously granted to Petrobras has now reached more than 700,000 barrels of oil per day, the industry is still in its infancy with production at Libra not expected until at least 2020.
In spite of sliding crude prices and the corruption scandal, Petrobras has so far stood by its 2014-2018 investment programme, predicting that pre-salt oil will represent 52 per cent of the company’s total production within three years.
However, this month Portugal’s Galp cast doubt on those promises, announcing that the Petrobras corruption investigation would likely delay by at least one year the delivery of vessels for the pre-salt oilfield Lula it is developing with Petrobras. Not only are there liquidity problems, but many local contractors in charge of making the equipment have been accused of involvement in the corruption scheme and have been banned from receiving payments from Petrobras.
If Petrobras, which holds a quasi-monopoly over Brazilian oil and gas production, is forced to cut its pre-salt investments, the effects would be felt far beyond the industry, analysts warn.
Research and development funds would dry up and Brazil’s schools and hospitals could be deprived of billions of dollars promised to them from pre-salt profits and royalties.
Furthermore, although opportunistic Chinese companies may fill some of the gaps in the industry, the crisis at Petrobras is already hitting Brazil’s stagnant economy with waves of job losses in Rio and Brazil’s southern shipbuilding state, Rio Grande do Sul.
“Petrobras represents about 10 per cent of total investments in the country so the company has a multiplier effect,” says André Gordon of Brazil’s minority shareholder association Amec, adding that the corruption scandal has also driven away investors from Brazil’s stock market. “Poor governance at Petrobras has consequences for everyone.”
Fonte: Financial Times Online – 25/03/2015
Centro de Gestão e Políticas Públicas do Insper amplia ações em ensino, pesquisa e difusão de conhecimento