Petrobras moves to get pre-salt drilling rigs into construction

Peter Howard Wertheim,
Contributing Editor, Brazil

RIO DE JANEIRO -- “Petrobras has approved the qualifications of all seven bidders on its multi-billion dollar tender aimed at contracting up to 28 deepwater drilling rigs to be built in Brazil, and bids are in the final process to open envelopes,” Petrobras’ CFO Almir Barbassa told Offshoremagazine.

To ensure a successful and effective outcome for the construction and provisioning of rigs for pre-salt oil production, Petrobras is implementing two alternatives in parallel.

The first alternative is a standard bidding procedure. Rig charterers and operators (both domestic and foreign) contract the construction of these rigs with Brazilian shipyards and lease the rigs to Petrobras on a 10-year charter basis as soon as they are completed.

The second alternative involves setting up a new company to own all the rigs, so that Petrobras can use a typical lease contract. This new company, still being organized, will be majority-funded by Brazilian investors, such as pension, equity, and investment funds.

According to Barbassa, the company is evaluating setting up a holding to administrate the drilling rigs that that will be ordered in the next few years to work in the giant pre-salt areas.

To speed creation of the company, Petrobras plans to use its subsidiary Petrobras Netherlands B.V.

To meet the demand from investors, Petrobras will hold a minority stake of no more than 10% in the new company. It will be in a position to offer the benefits of its experience, but without having a controlling interest. Rights and obligations would be on a par with financial stakes in the new company, added Barbassa.

It will be an operations company with its own employees and leadership and would not count on employees seconded from Petrobras. Partnerships with specialized, experienced rig operators will be necessary to run the rigs, based on charter and service contracts with Petrobras.

If this second alternative proves the most viable, the new company’s responsibilities will include contracting rig construction, inspecting the construction work, raising finance, taking out insurance and selecting its future partner-operator. As regards third-party funding, the option to raise money on the capital market has not been discarded, but the company’s board will make the final decision.

As is known, the current bidding aimed at Brazilian shipyards is being done by a wholly owned subsidiary of Petrobras, and the possibility of transferring responsibility for the bidding to another company nominated by Petrobras is provided for in the call for bids announcement.

The alternative of making the project viable through financial structuring has some benefits for Petrobras, including the following:

1. No consolidation of investments and debts on the Petrobras balance sheet

2. Petrobras will not have to deal with legal wrangling (no right of recourse)

3. All the benefits of the conventional model (Petrobras will neither own nor operate the rigs)

4. More attractive below market charter rates for Petrobras

5. Minimum cash outlay for Petrobras

6. More economically efficient rig construction in Brazil.

12/08/2010