Brazil's newbuild schedule on track, Petrobras says

Brazilian state-run Petrobras is on schedule for its planned start-up of 40 drilling vessels and semisubs to operate in deep and ultra-deep waters, the company said Wednesday.

Offshore staff

Houston -- Brazilian state-run Petrobras is on schedule for its planned start-up of 40 drilling vessels and semisubs to operate in deep and ultra-deep waters, the company said Wednesday.

The statement follows reports in local media that the tenders for 28 of those newbuilds could be pushed back to 2009 because of market conditions. Petrobras did not confirm the delay but did state the tenders are not yet scheduled.

"Regarding the drilling rigs, in May 2008, Petrobras announced its intent to hire 40 drillships and semisubmersible drilling platforms to operate in deep and ultra-deep waters. The first 12 units contracted will be delivered for operation by 2012," the statement said.

Petrobras added: "The bidding of the remaining 28 units, expected to be built in Brazil, is not scheduled yet. However, this will not cause any delay to the start up of these units which is scheduled to occur only between 2013 and 2017."

Some analysts have questioned the viability of Brazil's newbuild program, which has among its goals a revival of the country's offshore construction and engineering capabilities by relying heavily on local content.

Such concerns have coincided with delays in the release of the newest Petrobras five-year business plan. Originally scheduled for release in October, the plan covers all aspects of the company's business.

The plan is now scheduled for release by the end of 2008, but details have been scarce. This year's revision is particularly important since it is expected to shed light on the company's strategy for developing its massive pre-salt finds.

"Petrobras postponed the announcement of the Business Plan to the end of the year due to the need to complete project analysis on account of the new conjuncture conditions. The current targets and investment plans of the company are established in the Business Plan announced in August 2007, which covers the period from 2008 through 2012," Petrobras said.

The Petrobras newbuild program is one of the most ambitious expansion projects presently announced for the offshore oil and gas industry.

Since 2003, after widely-published discoveries of light oil and natural gas outside Campos Basin, Petrobras shifted its strategy to focus on speeding up the production of light oil and natural gas from pre-salt formations.

However, the retreat in crude oil prices from over $140/bbl earlier this year to current levels under $60 may have begun to erode enthusiasm about the economic viability of the plan to take Brazil's ultra-deep technology further into the pre-salt.

The plan is important to Brazil not only for the commercial potential of its light oil formations, but for raising the domestic natural gas supply to meet growing demand from industry, utilities, petrochemicals and other areas.

Adding to skepticism that the strategy could suffer delays is the recent tightening of global credit conditions. Certain types of financing have become extremely difficult, analysts said.

"With the considerable amount of capital expense required for semisubmersibles and drillships, we do not believe that all assets that are currently on order or in planning will receive financing," said Pritchard Capital Partners research analyst Brian Uhlmer.

He added that of the approximately 100 floaters on order or under construction around the world, as many as 20 may not even be built.

That scenario could lead to Petrobras paying market rates to meet production targets if it cannot maintain its newbuild program on track, Ulhmer said. "Petrobras has the most exposure to newbuilds by newly-formed drilling companies," he said.

11/19/2008

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