How One Lone Oil Rig Embodies the Brazil Boom That Never Was

By Sabrina Valle and Peter Millard

(Bloomberg) — Oil majors had large plans for Brazil, however you may’t inform by trying on the nation’s offshore drilling as of late.

After crude was first struck within the pre-salt formation within the seas off Rio de Janeiro, producers together with BP Plc and Total SA had been able to flock to Brazil with billions of {dollars} in investments. For the nation, it appeared to augur an unprecedented period of oil bounty. Nine years later, the promise stays unrealized: Spain’s Repsol SA and China Petrochemical Corp. are the one foreigners working an offshore drilling rig.

So what occurred? While the crude-price collapse and an ongoing graft probe are a part of the story, Brazilian officers who didn’t public sale sufficient exploration licenses and slowed approvals with miles of pink tape had been additionally main contributors to the increase that by no means got here to be, based on Joao Carlos de Luca, a member of the IBP foyer representing international and home producers in Brazil.

“Below ground Brazil has spectacular riches, but above ground it wasn’t able to create the adequate rules,” de Luca, stated by telephone from Rio. “There’s no action in the industry.”

Two years in the past, Brazil had 40 offshore drilling rigs exploring for oil and fuel. Now, there are 21, based on Baker Hughes Inc. knowledge.

Lone Rig

Ocean Rig Mylos, a drillship the Repsol Sinopec three way partnership employed from Ocean Rig UDW Inc. to probe for oil about 200 kilometers (125 miles) east of Rio’s shore, is the one one which’s not operated by state-run Petroleo Brasileiro SA, or Petrobras.

That’s partly as a result of becoming a member of Petrobras-led initiatives was the one manner into the pre-salt below guidelines designed to make sure the nation would retain management over the money bonanza it anticipated.

Now that the beleaguered firm is struggling to chop spending, about half of its offshore rigs have been idled, together with at partnerships with BG Group Plc and Galp Energia SGPS SA.

“We have a dominant client with deep problems,” Paulo Martins, head of Abespetro, a foyer group representing 50 oil- service corporations in Brazil, stated in an interview from Rio. “We can survive in the short term, but we won’t escape without scars.”

Red Tape

Flying solo, nevertheless, hasn’t proved a really profitable possibility both. After 4 years ready for an opportunity to bid to function their very own prospects, Total received 10 blocks exterior the pre-salt at auctions in 2013, BP received seven and Statoil ASA received six. But drilling hasn’t began in any of them because the producers grapple with the nation’s allowing course of. Companies have been dealing with difficulties to get fundamental licenses, even for seismic research which are step one after profitable the suitable to develop a block, Martins stated.

While a number of majors proceed to supply at present initiatives within the nation, prospects for output development are restricted as Petrobras largely controls the exploratory drilling.

Royal Dutch Shell Plc has seen output fade at its important venture in Brazil, Parque das Conchas. Chevron Corp. noticed output collapse at its Frade venture after it was compelled to restrict exercise following a 2011 oil spill. Statoil ASA is investing closely simply to maintain output secure at its important offshore area.

Rig Exodus

As offshore drilling dwindles, at stake are contracts for vessel suppliers reminiscent of Transocean Ltd. and Diamond Offshore Drilling Inc.

The nation’s floating rig rely is poised to fall additional, by as many as 10 items — 9 from Petrobras fields and the Mylos rig utilized by the Repsol enterprise, James C. West, accomplice at advisory agency Evercore ISI stated in a September notice to shoppers. Diamond, Transocean and Paragon Offshore Plc every have two rigs focused for early launch, whereas Seadrill Ltd, Ensco Plc, and Odebrecht Oleo & Gas SA have one every, he stated.

The public relations agency representing Ocean Rig in Brazil referred inquiries to an Oct. 7 assertion, the place it stated its consumer is searching for to terminate the contract. Repsol’s press workplace didn’t reply to e-mail and telephone messages requesting touch upon its plans for the Mylos rig.

Petrobras hasn’t selected a selected variety of rig reductions and continues to barter with suppliers, stated Cristina Pinho, an government supervisor on the firm’s exploration and manufacturing division. The producer lowered its output goal for 2020 by a 3rd in June, to 2.8 million barrels a day, and doesn’t rule out one other estimate minimize, Pinho stated.

‘Production Curve’

“If you’re cutting now, you’ll have an impact in the future,” Cristina instructed reporters on Oct. 14. “We’re doing everything so that the production curve isn’t affected that much, because we need the revenue from this oil.”

The drop within the variety of rigs can partly be ascribed to increased productiveness at pre-salt fields, the place Petrobras discovered an estimated 38 billion to 47 billion barres of recoverable reserves trapped below the seabed. The prospects have required fewer wells than initially anticipated.

Whether it’s increased productiveness or the oil business’s woes which are driving down the demand for offshore rigs in Brazil, the outlook isn’t good for the service suppliers.

“We are going through a lot of difficulties and can hardly recover before the end of next year,” Abespetro’s Martins stated.

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