Oil and gas

The history of the Oil & Gas industry in Brazil starts in 1939 when oil was first found in the country. In 1953, the Brazilian Government established the monopoly in oil exploration, production, refine and transport as well as created a national company – Petrobras – to carry out these activities. In the 80´s and 90´s Petrobras became worldwide known for its capability of exploration and production in deep waters.

This excellence was only achieved through heavy investment in R&D made through Petrobras´ research center. The monopoly lasted until 1997 when oil exploration, production, refine and transport eventually opened to foreign companies. Since them oil production has doubled and several international players have established operations in Brazil.

“The Oil & Gas industry in Brazil will top US$ 320 billion in investments by 2020”

The recent findings in the pre-salt layer have spurred new investments in the Brazilian O&G industry. The combination of vast and unexplored potential resources of oil and natural gas, and a favorable regulatory structure currently makes Brazil one of the world´s most attractive oil regions. In addition, the local content policy established by the government, in order to stimulate P&D, the creation of jobs and the development of a local supply chain, has incentivized the industry main equipment and services suppliers to open local facilities in the country.
The Oil & Gas production should more than double in 10 years. This increase in production will demand heavy investments in the construction of maritime support ships, drilling and production units, as well as in the development of the subsea equipment and services subsector. In order to support the arrival of new players attracted by these opportunities, the Brazilian government has fostered an investor friendly environment which includes special customs regime, specific credit lines, training and supply chain expansion programs.

Our Industry Numbers• 11% of Brazil´s GDP
• 38 companies in the E&P sector (main worldwide players)
• Supplier´s Revenue reached US$ 4 billion in 2008
• 75.000 industry employees
• 200 subsea product and services companies
Source: ONIP – National Organization of Petroleum Industry

Main Investments Forecast

Near Term (2009-2013)• Exploration and Production:   US$ 131 billion dollars;

Long Term (2010-2020)• Production of Drilling Rig Units:   US$ 60 billion;
• Production Units:    US$ 51 billion;
• Subsea Production and Services:  US$ 85 billion;
• Construction of new ships:   309 support and oil tankers.
Source: ONIP – National Organization of Petroleum Industry

Advantages for Companies in Brazil• Stable macroeconomic environment
• Fast growing O&G production 
• Proximity to oil fields
• Local content policy 
• Labor force training policy

 Localization

 Out of the proven national oil and gas reserves, 92.6% are located in offshore basins and 7.4% in onshore basins. In addition, 88% of proven reserves are located in the Southeast of Brazil, in the Campos, Santos and Espirito Santo Basins.

 • Perspectives of Pre-Salt Layer

 The so-called pre-salt layer is a band that stretches over 800 km between the states of Espirito Santo and Santa Catarina, below the seabed, and includes three sedimentary basins (Espírito Santo, Campos and Santos). The existence of oil in the pre-salt layer was announced by Petrobras in 2006 and confirmed by the company in 2007. In 2008 it started the planning work for crude oil extraction and in October 2010 commercial production began in Tupi field.

In the Santos and Espirito Santo Basins are the main pre-salt reserves:
• Tupi: 5 to 8 billion barrels; 
• Iara: 3 to 4 billion barrels; 
• P. Baleias: 1.5 to 2 billion barrels;

In the pre-salt region between the Espirito Santo and Santos Basins, Petrobras has drilled 31 wells with a success rate of 87%. In the Santos Basin, 13 wells were drilled with a success rate of 100%.

 • Subsectors

Drilling Rig Units – The construction and operation of drilling rigs units are among the areas with great growth potential in the O&G industry. Studies show that the total expenditure in this field will be around US$ 60 billion until 2020. This amount of investment will represent new opportunities for foreign companies willing to come to Brazil. Currently most of the players in this subsector are located abroad.

Production Units – The investment for the construction of production units is also significant, up to US$ 51 billion until 2020. These resources are likely to buster local EPCs and the demand for new equipments. There is an estimate for the construction of 68 production units including FPSOs, fixed and semi-submersible platforms.

Subsea Production and Services – The production of subsea equipment and services is also expected to grow expressively, topping 85 billion dollars in investment until 2020. This area is already well supplied by multinationals companies established in Brazil with a significant percentage of local content. There are already 13 foreign subsea product and services supplies installed in the country such as FMC, Technip, Cameron and Aker.

Shipbuilding – The construction of oil tankers and support ships will also be significant in the next 10 years. The demand is supposed to reach more than 300 ships until 2020. As a matter of fact, the shipyards in Brazil have already started building ships and production units. There are national and multinationals companies operating in this subsector along the Brazilian coast.

Local Content PolicyThe concession contracts for exploration and production of oil and natural gas, signed between the Petroleum National Agency (ANP) and the winning E&P companies in the bidding rounds, include the provision of local content.

The percentage is determined in the notices preceding the bidding rounds and is detailed in the concession contracts. The concession agreements require that utilities should hire Brazilian suppliers whenever their offerings present price conditions, time and quality equivalent to external suppliers.

The goal is to increase, on a competitive and sustainable basis, the participation of the national industry of goods and services in projects of exploration and development of oil and gas. The expected result is to boost the technological development, human resources training, generation of employment and income in this sector.

Since the creation of the local content program, the national industry participation in investments of the sector increased from 57% in 2003 to 75% in the first half of 2009, representing a significant additional amount of 14.2 billion dollars in goods and contracted services in the domestic market.

Source: PROMIMP (O&G National Industry Mobilization Program)

 Programs and Incentives

 Funding

The Brazilian Development Bank (BNDES) is a federal public company, linked to the Ministry of Development, Industry and Foreign Trade (MDIC). Its goal is to provide long-term financing aimed at enhancing Brazil’s development, and, therefore, improving the competitiveness of the Brazilian economy and the standard of living of the Brazilian population. The BNDES has special lines for funding the Brazilian O&G production chain, including E&P, refining, transport and distribution. The objective is to strengthen the local supply chain (services and goods) on a competitive and sustainable basis, targeting global insertion.

Promef

The Expansion and Modernization of the Fleet Program (Promef in portuguese) was created to finance the construction and modernization of the O&G fleet. To qualify for this credit line the shipyard has to construct the vessel in Brazil with a minimum percentage of local content ranging from 60 to 70%.

Finep

Known as the Brazilian Innovation Agency, FINEP (Research and Projects Finnancing), is a publicly owned company subordinated to the Ministry of Science and Technology - MCT. It provides grants to non-profitable institutions, such as universities and research centers, and it lends money to companies.

In 1999, FINEP created the S&T Sectorial Funds, to finance projects of domestic research, development and innovation. One of these funds is CT-PETRO, specific for the O&G sector. It aims to stimulate innovation in the production chain of oil and natural gas, training and qualification of human resources and development of partnership projects between businesses and universities, institutions of higher education or research centers in Brazil, aiming to increase production and productivity, reduction of costs and prices and improve the product quality in the industry.

Promimp

The PNPQ program – Professional Qualification National Program – aims to train professionals for the O&G industry. The courses are free and range from basic to graduation level in more than 175 knowledge areas related to O&G. There are more than 80 qualified education institutions in 17 states involved in this program, training thousands of professionals.

Repetro

Brazilian customs authorities created a special regime for the import and export of goods designed for activities of research and exploration of oil and gas reserves. The regime allows the importer to obtain suspension of federal and state taxes.

Repenec

This special tax regime grants tax breaks for infrastructure projects for the petrochemical industry developed in the North, Northeast, and Mid-west regions of Brazil. It also considers oil refining and production of ammonia and urea from natural gas part of the petrochemical industry.

Some of Brazilian and foreign O&G companies operating in the country:

Case Study

Wellstream is a leading designer and manufacturer of bespoke flexible pipeline products, systems and solutions for fluid transportation in the oil and gas industry. The business, founded in 1983, sets out to provide “Innovative pipe solutions for tomorrow’s energy”. The company is headquartered in Newcastle, UK with manufacturing facilities in the UK and Brazil. Wellstream has over 850 employees.

In 2003, the company commenced construction of a new state-of-the-art manufacturing facility in Niteroi, Brazil to take advantage of growing market demand in the region. The production at its new manufacturing facility in Niteroi started in May 2007.

Niteroi, Brazil – Offshore Systems ManufacturingThis facility provides:
• Annual manufacturing capacity 270 normalised km*
• Product range - 2-inch ID to 12-inch ID
In addition the site will also provide:
• Deepwater access of 10.0m
• Docking facilities and 3 loadout stations
• 300Te craneage

* Theoretical production capacity based on a normalized 8-inch ID pipe.

Lastest news and developments

• Expansion program in Niteroi completed 2009
• In August 2010, Wellstream announced the award of a major offshore installation contract from OGX Petroleo e Gas (OGX). This followed on from an earlier award for the supply of flexible risers and flowlines, mid-water arches, umbilicals and other associated equipment and services in June
• Petrobras framework has generated in excess of £200m of awards
• TUPI EWT delivered setting Wellstream water depth record at 2,140m
• Awards for further phases of TUPI and TUPI qualification
• Additional land secured in Brazil 
• Wellstream sees potential for significant growth in Brazil

Source: www.wellstream.com

 Human Resources

 Brazil has about 330 graduation courses related to the oil and gas industry. In 2008, more than 22,000 students were enrolled in one of these courses, and in the same year, approximately, 7,200 finished their studies: