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Modec and Exmar face off for Sepia FPSO prize

Contractors left in race to supply floater for pre-salt field, with Petrobras expected to open bids next week

Japanese floater specialist Modec International and Belgian contractor Exmar are about to face off in a contest to supply Petrobras with a large floating production, storage and offloading vessel for the Sepia pre-salt field off Brazil after their rivals fell away at the technical qualification stage.

Modec, which is bidding alone, and Exmar, in partnership with Brazil’s Queiroz Galvao Naval group, passed through Petrobras’ technical qualification process, industry sources said.

Two other bidders, BW Offshore of Norway and Dutch player SBM Offshore, did not make it through that stage, leaving the duo to battle it out alone.

Upstream understands that Petrobras will now open commercial proposals for the Sepia FPSO on 24 April, provided neither SBM nor BW file an appeal against the ruling of the oil company’s bidding committee.

Worries about potential liability exposure for reservoir damage and resulting spills played an important part in narrowing down the field, Upstream understands.

“Petrobras is asking the contractor to assume a level of reservoir risk that goes beyond the norm for international oil companies. This has an obvious effect on pricing and financeability,” one source said.

In the case of SBM Offshore, another factor was also in play.

The Dutch floater specialist has been trying to negotiate a settlement with Brazilian authorities covering potential liabilities relating to the alleged payment of illegal commissions over the best part of a decade.

Evidence first emerged in Europe, leading to settlements with Dutch and US authorities. 

This evidence was corroborated by Brazil’s Car Wash corruption investigation, but Brazilian prosecution authorities have struggled to come to a final decision over the terms of the settlement.

An agreement was actually announced in July 2016, but the upper chamber of Brazil’s prosecution service referred the case back on technical grounds and the case has been limbo ever since.

“SBM was asked to provide additional information in early March, and this process is continuing,” a federal prosecutor working on the case told Upstream this week. He declined to offer an estimate of how much longer the process will take.

Without such an agreement in place, SBM Offshore will be automatically disqualified from signing any contract with Petrobras.

Apparently hopeful of an agreement falling into place, SBM was one of the four companies that submitted proposals for the Sepia floater on 20 March.

This was two days after a federal judge rejected an attempt from Brazil’s shipbuilding association Sinaval to obtain an injunction halting the tender.

Sinaval argued that Petrobras’s attempt to proceed with the tender while seeking a waiver from contractually-enshrined local content commitments was against the public interest.

The re-issued tender already anticipates a successful claim for a waiver by drastically lowering local content requirements to 25% from the overall 70% level sought in an earlier version of the bid process.

The new tender terms have completely eliminated local content requirements for the FPSO hull, with percentages for topsides fabrication and integration being slashed to 20% and 25%, respectively. Local content for mooring systems was cut to 60% on average.

The watering down of the rigid local content requirements seemed to drum up more interest in the tender.

However, it has emerged that concerns about open-ended liability were being expressed right up to the point that the proposals were put forward.

In parallel to the Sepia process, a Petrobras-led consortium is also set to receive bids imminently  from companies interested in supplying a giant FPSO for the Libra field.

With bids due to be presented next week, the narrowing down of the field in Sepia has been seen by some to have implications for Libra.

However, the Libra consortium, with the participation of Anglo-Dutch supermajor Shell, Total of France, China National Petroleum Corporation and China National Offshore Oil Corporation, has a higher degree of contracting freedom than in the Sepia case.

On Sepia, Petrobras — headed by chief executive Pedro Parente — is working alone under a rights transfer arrangement and is bound by public procurement rules.

“The delay in reaching a settlement with Brazilian authorities may undermine the SBM bid, but the pressing issue on Sepia was the uncapped liability,” a source with one of the participants told Upstream. 

"There are fewer concerns of this nature on Libra, so the list of qualified bidders is likely to be longer."

SBM told Upstream that it did not comment on ongoing tender processes.