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Brazil’s vast O&G potential beckons M’sian companies

April 15, 2013

By John Gilbert

KUALA LUMPUR: Malaysian oil and gas (O&G) players should set their sights on Brazil, especially in the “pre-salt polygon”, to tap diverse upstream and downstream opportunities in the country.

SapuraKencana Petroleum Bhd and Bumi Armada Bhd are among local companies that already have operations in Brazil, while companies like Pantech Group Holdings Bhd have shown interest in the South American country.

Vast proven reserves found in the so-called “pre-salt polygon” in 2007 have opened impressive opportunities for the sector, according to an official of the Brazilian embassy here.

“More than US$300 billion [RM912.36 billion] is expected to be invested in the Brazilian O&G sector over the next 10 years as we have numerous fields under development and around three quarters of the ‘pre-salt polygon’ yet to be offered in bidding rounds,” said its first secretary and trade commissioner Márcio G Taschetto Porto.

He told The Malaysian Reserve that “those rounds, or Brazil Rounds, are one of the main tools to attract foreign companies to develop and tap the Brazilian O&G potential and there is a big potential for growth”.

He said the ongoing 11th edition was due to offer 289 blocks, which accounts for more than 155,000 sq km. Found in the deep-sea areas and under thick layers of salt, pre-salt oil is considered good quality and provides huge potential for oil companies.

It is estimated that the “presalt” could contain anywhere between 50 million and 100 million barrels of oil, making it the world’s largest known offshore oil deposit.

“On-land gas reserves that can rival the pre-salt discovery were also found in 2012, in the states of Mato Grosso and Minas Gerais, and will bring Brazil to what our government has called the ‘golden age for gas’.”

“The possibilities are therefore very encouraging. Our figures forecast that Brazil will more than double its production of oil in the next few years, reaching 5.63 billion barrels per day in 2020 and it is also expected to be self-sufficient in natural gas within the next five years,” he said.

The state-run Petroleo Brasileiro SA, or Petrobras, will continue to be the key player in the sector.

Good opportunity

Shell, Chevron Corp, Statoil ASA, BP plc and the Brazilian OGX are examples of companies that are already relevant players in Brazil and the demand for new technologies to explore the pre-salt layers has also attracted numerous foreign companies to set up research and development centres in Brazil such as General Electric Co, Siemens AG, Halliburton Co and Schlumberger Ltd.

Márcio said Malaysian companies have shown interest, with some contacts between Brazilian and Malaysian players to establish partnerships in Brazil.

“Contracts to supply Petrobras are a good opportunity for O&G providers,” he said.

A report by Malaysia External Trade Development Corp (Matrade) noted that Brazil is in demand for products and services for offshore drilling, exploration and production, refinery, drilling pipeline, turbo compressor, controlmetering system, transportation, mooring cables, steam generators, submarine valves and other related services and consultation.

In a nutshell, local O&G players can tap in the areas in the provision of drilling rigs, pipelay/crane barges, offshore support vessels (OSV) and floating production, storage and offloading (FPSO) units.

“Some fabrication yards might also be able to get projects for equipment and topside modules. Korea, for example, has won a fair bout of these orders.

“There will be a need for deep water compatible piping, risers, flowlines, transport and installation,” said an analyst from Maybank Investment Bank Bhd.

The research house said the Brazilian market is focusing on newer areas where work is done at deeper water levels, requiring larger and technologically more advanced companies as production in its traditional areas reduce as production targets increase.

Focusing on local players with a footprint in Brazil, the research house said SapuraKencana was involved in pipelay/crane barges and drilling rigs, which is likely via a joint-venture with Seadrill.

The company already has three pipelay barges under construction which have been contracted to Petrobras for a combined RM4.26b over five years and is bidding for more.

Strong position

The report said Seadrill, which is listed on the New York Stock Exchange and the Oslo Stock Exchange, is a seasoned partner of SapuraCrest Petroleum prior to its merger with Kencana Petroleum Bhd.

Seadrill has a 24% stake in SapuraCrest and co-owns several drilling rig operations in Malaysia. It offers the business knowledge of the Brazilian offshore market while SapuraCrest provides the technical expertise in the installation, pipelaying and facilities field.

Bumi Armada Bhd, owner and operator of OSVs and has established a strong position in FPSO systems, also has a footprint in Brazil, with three OSV contracts to Petrobras for eight years each.

“While the size of most Brazillian FPSOs might be a challenge for Bumi Armada initially, we do not discount the possibility of them venturing into this area should opportunities arise,” Maybank said.

KNM Group Bhd and Wah Seong Corp Bhd also have an advantage in tapping the Brazilian O&G market.

KNM’s operations in South America could give an advantage in terms of local content requirements. Wah Seong’s new jointly owned pipe coating facilities in Louisiana, US, will be starting operations this year and might tap the South American market for pipes.

In a recent interview, Pantech Group Holdings Bhd, a company dealing in pipes, fittings, flanges, valves and other components and exporting to over 56 countries, has also expressed interest in tapping the Brazilian O&G market for pipes and related components this year.

This content is provided by FMT content partner The Malaysian Reserve.


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