Antonio Augusto de Queiroz Galvão, Chairman, Queiroz Galvao Oil & Gas, Brazil
“Local content regulations will continue to promote and support development. It is very important not only to produce oil, but also to have personnel able to build the rigs, operate offshore and this can happen reasonably quickly.” Antonio Augusto de Queiroz Galvão, Chairman of Queiroz Galvao Oil & Gas, Brazil.
Queiroz Galvão started as an engineering company. Now, it is one of the most impressive corporate groups in Latin America, perhaps the world. How have you been so successful?
The group was founded in 1953 as a small construction company building roads and conducting minor engineering projects. However, we developed over the years into one of the largest groups in Brazil today. At the moment, we are a diversified company with around 50,000 employees involved not only in engineering and construction, although that remains our principal enterprise, but also oil and gas, real estate, renewable energy, environmental services, steel, shipbuilding and agriculture.
One fundamental value that drove Queiroz Galvão’s success is its strong work ethic. The company also places an emphasis on loyalty, and invests and trains its employees to reward such loyalty. These principles have been important across the group’s 60 year history. Our values have brought us to where we are today.
What are the growth drivers for Queiroz Galvão across your business portfolio?
Oil and gas is certainly one of our growth drivers. The group is present in a wide range of activities in this industry, including oil and gas exploration and production through Queiroz Galvão Exploração e Produção (QGEP) and drilling services through Queiroz Galvão Óleo e Gás (QGOG). The Queiroz Galvão Group also operates in this segment via its construction arm, building refineries, and its shipbuilding arm, building FPSOs, rigs and tankers, through its stakes in Quip and Atlântico Sul shipyards.
This segment has grown significantly since 1980, beginning with what was our small onshore drilling company. QGOG.Today, this company also drills offshore with focus on ultra-deepwater and its assets include 12 floating drilling units, eight currently operating and four under construction. One, the Brava Star, will be completed this year in Korea. It is a top-of-the-line well-equipped unit built by Samsung.
QGOG also continues to operate onshore, with nine onshore drilling rigs. Most of these are deployed in northern Brazil in the State of Amazonas. QGOG has recently performed services for Shell and currently has a letter of intent to drill in Paraguay in the near future for an independent exploration and production company called President Energy.
Also serving the oil and gas sector is Queiroz Galvao Exploração e Produção (QGEP), which is publicly traded on the São Paulo stock exchange since 2011. QGEP has a balanced and diversified portfolio, including assets in the production, development and exploratory phases, comprising 13 concessions spread along the Brazilian coast, of which half of them are operated by the Company.
Chief amongst QGEP’s main exploratory assets is the Carcará Discovery in Block BM-S-8, located in the premium pre-salt area of the Santos Basin, where the Company owns a 10% stake and Petrobras is the operator. The Carcará Discovery represents one of the largest columns of oil that have been encountered in the pre-salt of Brazil, and it has the potential to be a transformational discovery for the Company.
In the development side, the highlight is Block BS-4, also located in the Santos Basin and encompasses the Atlanta and Oliva deep water fields. The Company is the operator of the Block with a 30% participating interest and is currently drilling the production wells in the Atlanta Field, where first oil is expected in late 2015 or early 2016.
QGEP also has a 45% stake in the Manati Field, the largest gas producing field in Brazil. This field, operated by Petrobras, produces around 40,000 boe daily and is currently responsible for the Company’s strong cash flow generation.
QGEP portfolio includes other blocks across Brazil. Most recently, the Company significantly expanded and diversified its exploration portfolio by acquiring eight blocks across five different basins in partnership with major and independent oil companies in the ANP´s 11th bid round.
Our company is investing substantially in this sector, as it is important to our future.
How does Queiroz Galvão manage financial risk associated with CAPEX for the large E&P assets it is operating?
Queiroz Galvão is very focused on financial stability. All assets are financed at sustainable levels. QGOG, where we own and operate expensive assets, rely on long-term contracts. The company is experiencing strong growth at the moment as a result of recently deployed assets and new assets under construction, including Brava Star.
QGEP engages in exploration and has a strong balance sheet with a relevant net cash position. Additionally, it has consistent operating cash flow coming from the Manati field production. These resources have enabled QGEP to fund its capital investments to date. When it comes to developing fields, we are very cautious and will only choose to completely develop a field after careful analysis of all the data available.
Where do you get the capital to finance your activities?
Most of our capital is raised internationally as much of our capital expenditures related to the E&P business are also in international currencies. For building rigs at our current scale, international finance is required. Within Brazil, BNDES, the Brazilian Development Bank, is an important supporter for the company. With Sete Brasil, a company created to facilitate the exploration of the pre salt area of Brazil through investments in ultra- deep water rigs, QGOG is a partner and we are investing in three semi-submersibles, which are being constructed at Brasfels. On this project, BNDES participation and financing plays a prominent role.
Part of your company ethos is investing in employees. How does Queiroz Galvão acquire and retain the skills it needs to succeed?
It is important to build any company step by step. For example, Queiroz Galvão Óleo e Gás started in 1980. In 1983, I went to Houston to study petroleum engineering for a year to gain important skills. We invest in our people and train staff from the moment construction of any platform starts. That means by the time a rig, which takes two and a half years to build and transport to its site, becomes operational, it has a full crew ready to move it forward and start drilling.
Queiroz Galvão pursues training vigorously. This is fundamental to maintaining safety in drilling environments, which is a priority for us.
How will Queiroz Galvão seek to expand market share across the markets in which it operates?
We do not need to be No. 1 in our markets to be successful. If we get there through our continued hard work over time, that is absolutely fine. No other company, as I understand it, has been operating as QGOG has in Brazil for so many years – a noteworthy success in the Brazilian oil and gas segment. We do wish to expand internationally as well, and this requires a continued focus on delivering quality and safety.
In terms of internationalization, what is your overall strategy?
QGOG is looking to drill off West Africa, the Gulf of Mexico and in Brazil – across the “golden triangle.” We recently participated in a marketing roadshow to develop relationships in the U.S. and Europe, meeting leading members of the business community in these markets to demonstrate our competencies, professional outlook and advanced equipment.
What qualities does Queiroz Galvão seek in an effective partner?
Good partners need to have complimentary values. We seek ethical partners who pursue safety as a fundamental value. Another useful quality is partners who demonstrate leadership in a business niche.
What factors do you predict will affect the O&G sector in Brazil in the near future?
Brazil has a bright future. The resources in the pre-salt fields are substantial and production will increase rapidly. However, I do not think it is necessary for Brazil to become a large exporter of petroleum. I would rather see increased production over the next 10 years consumed internally, as that would signal the Brazilian economy had grown strongly, bringing better living conditions to the Brazilian people.Local content regulations will continue to promote and support development. It is very important not only to produce oil, but also to have the skilled workers who can build the rigs and operate offshore, and this can happen reasonably quickly. Of course, international companies and technology can help, and this can be complementary to local production.
Oil and gas resources will undoubtedly be central to Brazil’s future success.
If you were giving a lecture to a group of trainee engineers in a nearby university, what would be your advice?
Work hard, and prioritize education and training.