Race For Petrobras Job

SapuraKencana and consortium partner Seadrill are said to be in best position to win US$5 billion oil and gas contracts in Brazil

SAPURAKENCANA Petroleum Bhd and consortium partner Norway's Seadrill are in a photo-finish race to win potentially over US$5 billion (RM15.2 billion) contracts in Brazil.

Upstream, an oil and gas magazine, reported recently that the Seadrill-SapuraKencana group was competing neck and neck with the Technip-NorSkan consortium to secure the next batch of contracts to supply six to seven pipe-lay flexible support vessels (PLSVs) from Brazil's national oil company Petrobras.

AmResearch Sdn Bhd, which highlighted the Upstream report in its research note yesterday, said SapuraKencana and Seadrill may get the contracts to supply at least three PLSVs.

This is given that Petrobras may need to diversify contracting risks to more players.

"For the initial six vessels, Petrobras may split three contracts each between Seadrill and SapuraKencana and will likely pick two vessels from each category in the tender. 

"While a seventh PLSV may be awarded to Subsea 7 if Petrobras opts to diversify the risk ... Seadrill-SapuraKencana and Technip-Norskan are seen in the best place to secure the bulk of the fresh charters," AmResearch said.

The Seadrill-SapuraKencana joint-venture was previously contracted by Petrobras to provide three PLSVs with charters worth US$1.4 billion (RM4.2 billion) to work in the latter's pre-salt fields in 2014-2015.

Assuming that the joint venture secures the three PLSV job, AmResearch, however, doesn't expect SapuraKencana's forward net gearing to rise significantly above one time, given its net profit of RM1.2 billion to RM1.3 billion annually.

It pointed out that the group's equity contribution for the new PLSVs may amount to only RM270 million, assuming a 20:80 debt-to-equity financing for the 50:50 joint venture. 

AmResearch early this month estimated that the group's net gearing would stand at 1.2 times upon completion of a US$2.9 billion (RM8.8 billion) acquisition of Seadrill's tender rigs next month.

The gearing could moderate to 90 per cent by end-2014 after a proposed placement of 969 million new SapuraKencana shares at RM3 each.

It noted that while the joint venture's capital expenditure pipeline of US$1.4 billion (including two derrick-lay vessels, three PLSVs for Petrobras and two more tender rigs) remains sizeable, US$500 million from the 50 per cent-owned PLSV will be funded largely off-balance sheet.

AmResearch has maintained its "buy" call on SapuraKencana with an unchanged fair value of RM3.70.

SapuraKencana shares closed 7.0 sen higher at RM2.94 yesterday with 18.11 million units changing hands.

Equipav, Odebrecht qualify for US$525mn Brazilian sanitation concession

Brazil's Goiás state utility Saneago has qualified two bidders for its 1.07bn-real (US$525mn) tender to concession waterworks services for the municipalities of Aparecida de Goiânia, Trindade, Rio Verde and Jataí, tenders commission engineer José Vicente da Silva Junior told BNamericas.

"The qualifying bidders include sanitation company Aegea Saneamento, which is part of the Equipav group, and the Centro-Oeste consortium formed by sanitation company Foz do Brasil (Odebrecht group) and construction firms Noberto Odebrecht and Central do Brasil," da Silva Junior said.

The filing of appeals will not be permitted until January 10. This appeals phase will then be followed by technical qualifications and price evaluations, according to the engineer.

The winner will be chosen based on the best technical proposal and canon payment, with the latter set at a minimum of 90mn reais.

Within six years, the concessionaire will need to provide universal sewerage services for clients that already have potable water service. The operator will also have to reduce loss rates and manage billing and payment collection for both water and sewerage throughout the contract period, which is just under 30 years.

The contemplated region is expected to have a population of some 1.36mn by the end of the contract in 2041. Currently, the area has approximately 900,000 residents.

Brazil OGX, MPX Joint Venture Declares Natural Gas Field Commercial

OGX Maranhao, a joint venture formed by two of Brazilian billionaire Eike Batista's companies, declared a natural gas field in Brazil's northeast commercially viable Wednesday, paving the way for production that will be used to fire much-needed power plants.

The Bom Jesus discovery is estimated to hold between 200 billion and 500 billion cubic feet of natural gas, according to a regulatory filing by MPX Energia S.A. (MPXEY, MPXE3.BR). MPX, the energy arm of Mr. Batista's EBX Group, holds a 33% stake in OGX Maranhao. Mr. Batista's oil company, OGX Petroleo e Gas Participacoes SA (OGXPY, OGXP3.BR), holds the remaining 67%.

Mr. Batista's companies are developing an electricity-producing complex in northeast Brazil's Parnaiba state, building natural gas-fired power plants alongside a series of natural gas fields discovered in the country's Parnaiba Basin. The power plants will boost Brazil's electric generation capacity and help offset low reservoirs in Brazil's hydroelectric system, which has caused concerns about possible energy rationing.

Hydroelectric dams provide about 85% of Brazil's power, and drought in the country's southeast has reduced reservoir levels to dangerously low levels. The government, however, has brushed off concerns about rationing last seen a decade ago and is pushing forward with measures to reduce electric energy tariffs under concession-renewal agreements.

A development plan for the field will be submitted to local regulators soon, when the find is expected to be renamed Gaviao Branco, or white hawk, OGX and MPX said in separate statements.

Gaviao Branco will join two other natural gas fields already under development in the Parnaiba Basin: Gaviao Real, or royal hawk, and Gaviao Azul, or blue hawk. Earlier this week, MPX said that the first turbine at the Parnaiba I gas-fired power plant was connected to the national electricity grid for testing. Parnaiba I is expected to start delivering 676 megawatts of electricity in April, while the Pecem II plant in Ceara state will start delivering 365 megawatts in June.

Gaviao Branco and Gaviao Azul are expected to produce about six million cubic meters of per day in 2013, doubling current land-based natural gas production in Brazil, OGX said last year. In addition to the fields, the complex includes a gas-treatment facility and pipelines that link the fields to the MPX power plants.

Brazil's Iron-Ore Production Rises 11% in 2012 to 510 Million Tons

Brazil's production of iron ore, including pellets, rose 11% last year from 2011 to an estimated 510 million metric tons, though the value of exports declined because of lower prices, the Brazilian Mining Institute, or Ibram, said late Monday.

Iron ore, the main raw material used to make steel, is Brazil's most valuable export and the biggest destination for investments by the mining industry. The South American country in 2011 accounted for nearly 17% of global production.

Brazil shipped out $30.99 billion of iron ore last year, down 26% from 2011, as international prices for the mineral declined, Ibram said, citing Trade Ministry figures.

The country's production of iron ore is expected to continue rising in coming years to 790 million tons by 2015, as the sector receives $46.03 billion in investments through 2016, Ibram said.

Banco do Brasil to Lend $734.5 Million for Wind Farms

Banco do Brasil SA, Latin America’s biggest lender by assets, may disburse more than 1.5 billion reais ($734.5 million) of loans for wind farms this year, up from 1.3 billion reais last year, as the renewable energy becomes cheaper.

The total amount will depend on how many wind developers sign contracts to sell energy in government-organized auctions for new power capacity this year, Renato Proenca, executive manager of the commercial department for Brasilia-based Banco do Brasil, said today in an e-mail.

Construction costs of wind farms have fallen in recent years, making them more competitive with other sources of energy, the bank said Jan. 18 in a statement.

“In the short to medium term, the expectation is that this type of energy will increase its participation in Brazil’s energy matrix by more than 6 percent,” Paulo Rogerio Caffarelli, its vice president of wholesale, international business and private banking, said in the statement.

The bank has lent more than more 1.5 billion reais to hydroelectric projects since 2010, according to the statement.

Wind farms produce about 2 percent of Brazil’s power now, up from 0.03 percent in 2001, Banco do Brasil said.

Brazil's Eike Batista to delist coal firm CCX

Brazil's Eike Fuhrken Batista, the world of mining's richest entrepreneur, has confirmed he will delist his coal firm CCX, in an effort to recover investors’ trust and part of his shrinking business empire.

CCX, which Batista spun off last year to manage his greenfield coal mine project in Colombia, released a statement late Tuesday confirming the magnate plans to take the company back into private hands, barely a year after taking it public.

Batista, who last year lost the title of Brazil’s richest person, said in the release the company will need to undergo some changes in its strategic plan, due to “the deterioration of coal market conditions.”

The mining billionaire offered to pay as much as $2.11 (R$4.31) per CCX share, which is two times their value at the end of last week, payable in stock of other public companies controlled by his EBX holding group.

CCX, the smallest of Batista’s publicly traded companies by market value, as been developing mining projects in Colombia, including two open-pit mines and one underground longwall mine. It has also been working on a 150-kilometer railroad and a deep-water port.

Batista, who owns five public companies, famously said in 2008 – when his fortune was put at $6.6 billion, ranking him at No. 142 on the Forbes list – that his goal was to become the richest man in the world in five years.

Fast-forward to 2012 and he climbed 135 places to become the 7th richest person on the planet, but still a long way away from Mexico's Carlos Slim who has more than twice Batista's money.

He was born into mining and is the son of a former CEO of Vale, the world's second largest miner and iron ore titan.

New Tender - Brazil ANP

The Agência Nacional do Petróleo, Gás Natural e Biocombustíveis (ANP) of Brazil has now published the initial tender protocol and draft concession contract for its 11th licensing round and plans to hold the auction of oil and natural gas rights on May 14 and 15 in Rio de Janeiro. The auction will resume oil and gas licensing for the first time since 2008.

The 11th licensing round had previously been delayed by the President’s refusal to grant new licences while the political branches of government were unable to agree on the allocation of oil revenues.  A new royalties bill was passed in late 2012, increasing the share of oil revenues allocated to non-producing states and municipalities.  However, the President vetoed parts of that bill, which would have applied retroactively and required the reallocation of oil revenues under existing concession contracts, costing the major oil producing states, and in particular Rio de Janeiro, billions of Reais in lost revenues.  The President’s veto is still subject to reversal by the Brazilian congress, which will deliberate on this issue when it returns from recess in February.  In any case, the new rules for distribution of revenues will apply to future contracts, including those available in 11th licensing round.

The Initial Tender Protocol contains details for 172 blocks, in mature onshore basins (Espírito Santo, Parnaíba, Potiguar, Recôncavo, Sergipe-Alagoas) and more frontier offshore basins in the North and North-East of Brazil (Barreirinhas, Ceará, Foz do Amazonas, Pará- Maranhão and Potiguar). The latter, in particular, are considered prospective, given the geological similarities between this region and the Gulf of Guinea, where substantial reserves have recently been discovered in Ghana and Cote D’Ivoire.  According to Marco Antonio Martins Almeida, of the Ministry of Mines and Energy, the 11th licensing round may be expanded to include another 117 blocks (a total of 289), including onshore blocks in the Tucano-Sul basin and additional acreage in the Foz de Amazonas basin.

No acreage is on offer from the ‘pre-salt’ region off Brazil’s South-East coast, where recent giant discoveries have been made.  The government plans to hold a separate bid round for this acreage, which will be awarded on the basis of production sharing contracts, currently expected in November of this year.  The government   The government has also announced a special auction of onshore shale gas and oil exploration acreage for December this year.

The tender protocol for the 11th licensing round sets out pre-qualification requirements, bid procedures and the main commercial terms of the concession contracts on offer, with pre-qualification documents to be submitted by 26 March 2013, ahead of the bidding in May.

Similar to the previous licensing round, to pre-qualify, the ultimate parent company of a proposed concession holder must demonstrate its technical and financial capability. Successful applicants may qualify as an ‘A’, ‘B’ or ‘C’ operator or a non-operator depending on their level of technical experience and their net equity position. The majority of blocks available in this licensing round may be operated by ‘C’ Operators, although those blocks with exploration phases of longer than five years will require ‘A’ or ‘B’ Operators.

Pre-qualified companies may bid individually or in consortia.  All consortia must consist entirely of pre-qualified companies, with at least one pre-qualified operator holding at least a 30% interest and each consortium member holding at least 5%.  Each bidding company and each member of a bidding consortium must pay a participation fee of R$15,000 per sector or R$125,000 for all sectors, which will give them access to data packages covering the relevant blocks.

Where a bidding company is a non-Brazilian entity, it is required to incorporate or designate a Brazilian subsidiary with its main office and administration in Brazil to hold the concession. In this case, the pre-qualified bidder must guarantee the obligations of its Brazilian subsidiary.

Bids will be assessed by the ANP according to the: (a) signature bonus (40%); (b) mandatory exploration programme (40%); and (c) minimum local content requirement (20%) offered by the bidder. Of the minimum local content requirement, 5% will be allocated for the Exploration Phase and 15% will be allocated to the Development Phase.

The draft concession contract is very similar to that used for the 10th licensing round. The term of the concession is up to 35 years, with an exploration phase of five to eight years and a development and production stage of 27 years. Other significant terms of the concession include a government royalty of 10% and annual surface rental of between R$34.39/km2 or R$644.80/km2 during the initial exploration phase. The latter will be increased by 100% during any extension to the exploration phase and during development and by 900% during production. Concession holders will be subject to Brazilian taxes, including the “Special Participation”, which is calculated according to the volume of production, location and year of production. Finally, the concession holder will be liable for payment of 1% of production to the landowner, as well as the cost or any rights of way or easements necessary to obtain access to the land.

The announcement of this licensing round was welcomed by an industry that has been starved of new exploration opportunities in Brazil over recent years, and it has generated considerable interest from existing Brazilian oil companies and potential new investors.  With this and other licensing rounds planned for this year, we expect a surge in investment in Brazilian oil and gas exploration, and hopefully the growth of a more diverse oil industry that takes in frontier exploration, enhanced recovery from mature basins and unconventional oil and gas, as well as the giant discoveries of the ‘pre-salt’.