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Brazil's floating future

The resignation of Petrobras’ boss comes just as it begins to reap the benefits of his reform programme

The abrupt departure in early June of Petrobras' chief executive Pedro Parente wasn't what Brazil's oil and gas industry needed. He stepped down in the wake of the nationwide truckers' strike over an arbitrary petrol price increase.

Not only has Petrobras just posted its best financial results in five years, with profits of $1.84bn in Q1 2018, but the level of offshore activity has also been on the rise. This is in part because of the ex-chief executive's reforms that have brought in competing operators. It was also under Parente, in April, that Petrobras signed a global strategic alliance with BP, an unlikely arrangement in the pre-reform days.

Rig brokerage specialist Bassoe Offshore observed after the auction rounds last year that Brazil offers some of the best prospects for the offshore rig market over the next decade precisely because Petrobras has opened up new acreage to international oil companies. "[Petrobras] has accepted (along with the Brazilian government) that the only way forward is to open up their resources to foreign operators," Bassoe Offshore reports.

The latest sign of the revival is the upgraded Petrojarl 1, a floating production storage and offloading vessel (FPSO), that in May began a five-year charter in the Atlanta field. Contracted to Brazil's offshore exploration group QGEP, Petrojarl 1 has a production capacity of 30,000 barrels of oil equivalent a day and compression capacity of 225,500 cubic metres of gas a day.

Almost overnight in oil and gas terms, Brazil has become the world's biggest market for FPSOs. According to consultancy Wood Mackenzie, there are 13 "floaters" under construction around the world and a further 19 under planning, all of them destined for Brazil.

Splitting risk

Putting aside the recovery in oil prices, much of the revival of activity can be attributed to Parente's reforms. A good example is the Libra Pioneer FPSO that produced its first oil in late November from the Libra field-Brazil's biggest. The facility has been chartered by a consortium involving Petrobras (40% owned), Total (20%) and China National Petroleum Corporation and Cnooc (both with 10%). Jointly owned by Odebrecht Oil and Gas and Teekay Offshore, the vessel is conducting early well tests in the ultra-deep waters in the Santos Basin, about 170km (106 miles) off the coast of Rio de Janeiro. Until the new government ripped up the old Petrobras contracts, the state-owned oil giant was reluctant to split the risks and share the profits.

The floaters at work off Brazil are much higher-tech than were the FPSOs operating before the slump in oil prices. Wood Mackenzie points out that most pre-2014 floaters were designed for an average breakeven price of $79. When prices collapsed, dozens of projects for FPSO conversions were cancelled.

But today, explains the consultancy, the latest conversions are profitable at much lower prices, in some cases at $50 a barrel or lower.

This is the result of "project optimisation"—meaning smaller and less expensive FPSOs that are being configured for a new, prosperous, era. For example, their lower economies of scale make them suitable for brownfield sites.

The big question now is whether Petrobras will revert to its old protectionist ways. On 1 June, the board installed Ivan Monteiro as interim chief executive. He has served as chief financial officer since 2015 and has been part of the reforms that have gone a long way to restoring Petrobras' tarnished reputation.

If nothing else, the company's improving finances should be enough to show that it is definitely heading in the right direction.

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