Revision: Petrobras chief executive Jose Sergio Gabrielli
Papa Terra bids in the cooler
Petrobras has postponed opening price proposals on the Papa Terra heavy oil development for two months, feeding nervousness among contractors who are worried that the global credit crisis may affect the Brazilian giant’s upstream expansion programme.
The Papa Terra development, where US supermajor Chevron is a 37.5% partner, will feature a tension-leg wellhead platform (TLWP) and floating production, storage and offloading unit, handling up to 180,000 barrels per day of 14 to 15 degree API crude.
Technical proposals were submitted for both units in October and prices were due to be opened this month, but Petrobras has informed participants in the parallel tendering process that they will not be opened until an unspecified date in January.
“There was some explanation about wanting to take stock of falling prices for steel and other inputs but there is some concern about what is behind this,” said a source with one of the international specialists bidding to build the TLWP.
Petrobras was originally expected to announce the annual updating of its rolling five-year investment plan in October, with expectations for a huge increase in the overall investment figure of $112 billion in the last version.
Hopes for an increase were based on the expected inclusion of a first wave of investments in the exciting pre-salt province, including 10 FPSOs on the Tupi field and two more pilot FPSO projects.
The announcement was delayed and the revised version of the overall budget is not now expected to emerge until close to the end of the year.
Equity analysts are casting an increasingly critical eye on Petrobras’ cost estimates, looking primarily at the high cost and technically challenging pre-salt developments.
“The pre-salt value that we were estimating... would disappear below $50 per barrel, as it is cost of capital break-even at that level. The market will not pay for it until oil moves up,” Emerson Leite, market analyst with Credit Suisse, argued in a report.
However, the current Petrobras investment plan covers capital-intensive offshore oil developments featuring much heavier oil than the pre-salt giants, such as Chevron-operated Frade, which accounts for investments of $3 billion but will produce just 85,000 bpd at peak levels.
Papa Terra will cost much more than Frade, with a TLWP conservatively priced at $1.5 billion and the FPSO expecting to cost at least $1 billion.
Given the uncertainty surrounding project economics, some of the companies bidding on Papa Terra even admitted to some nervousness about a possible cancellation should oil prices plummet.
However, most industry insiders remained relatively bullish that Petrobras is merely adjusting to the new scenario and letting the dust settle.
“There is still a real chance that prices on Papa Terra could be opened before the end of the year, and Petrobras is very committed to this project,” said one well placed source.
This adjustment process also relates to local capacity because Petrobras’ ambitions for high Brazilian content depend on local fabricators obtaining increasingly scarce financing.
The Brazilian offshore industry is watching closely to see if Petrobras will go ahead with a commitment to tender for 28 Brazilian-built rigs before the end of this year. One Petrobras insider told Upstream that this process will “probably” spill over into 2009, although he would not confirm if the number of units will be reduced.
In the case of Papa Terra, Floatec, Modec and SBM Offshore are competing to supply Brazil’s first TLP-based solution, dubbed P-61, and all three companies have been pouring resources into the project.
Floatec has proposed building at the Brasfels yard, run by its own 50% shareholder Keppel Offshore & Marine, while Modec and SBM seem likely to opt for building at Petrobras’ drydock facility, currently under construction in southern Brazil.
Floatec has quoted jointventure partner McDermott for the installation element while both Modec and SBM included Hereema in their proposals.
The main candidates to supply the P-63 FPSO are Modec, BW Offshore and a link-up between Brazil’s Quip consortim and Bluewater.
Petrobras and Chevron are aiming to put the field in production by late 2011.
żż GLOBAL Industries has confirmed the award of a $57 million pipelaying project for Petrobras in the Mexilhao field in the Santos basin.
The company will use its DLB Iroquois pipelay barge for the installation work.