John Riggs, Managing Director, InterMoor, Brazil
John Riggs, Managing Director of Intermoor, discusses the future of key port infrastructure in Latin America’s largest country, the actions of IOCs and the future of the wider oil and gas market in Brazil‘s waters.
InterMoor do Brasil recently completed the installation of the drilling and production conductors for the Papa Terra project. Could you outline the significance of this project for InterMoor?
The significance to InterMoor was the scope of work that we accomplished. It was a very tight technical spec with strict tolerances for the welded pipe, the conductor position and inclination, etc., which were really beyond what is normal in the industry.
The second achievement is that we worked within all the Brazilian legislation, importation laws, local content, etc. to execute this job as a turnkey project and on budget, on time, and on spec. For us, it is the turnkey aspect of the job that is most significant.
Will we see InterMoor do any more jobs for Petrobras in the future as a player with unique capabilities in this market?
The Brazilian market is different from the other markets in the world. It is dominated by Petrobras, and we all know that Petrobras is the 800-pound gorilla and most service companies dance to their tune.
According to Brazilian law, Petrobras is obliged to use a local company that has done the service previously. If there is only one company that has done that service in Brazil, Petrobras can enter into direct negotiations with that company.
If there are two companies that have done the service, then Petrobras will have a competitive bid, but legally they can go to a single source if only one company has done it before, which was our case. InterMoor do Brasil is the only company that has preinstalled conductors in Brazil. Papa Terra was a direct negotiation as a result of that legislation.
As to more Petrobras contracts, it depends on the specifics, as we are not focused on Petrobras. InterMoor do Brasil is positioning itself to offer our services outside the Petrobras direct contract, and with the IOCs. There are a lot of independent oil companies here like Shell, Statoil, Chevron, etc. that need to find service companies to attend their needs.
Most of the major service companies such as Technip, Subsea 7, are focused on executing the very large and demanding Petrobras contracts; they do not have the resources and capacity to execute the “smaller” projects with the independent oil companies. The laws for importation, taxation and such matters have been written by the government and Petrobras is part of the government, so there is a link between legislation and the state oil company.
Shell and the other international oil companies have to work within the same laws, and this has driven the cost through the roof for the service companies.
In Norway, my colleague David Smith runs the chain for the operators with InterMoor Norge and it is a good business. This market does not exist here. Not because there is no need for the chain, but because it is prohibitive to bring chain, poly, wire, anchors and leave it on the dock. This is a tax issue. InterMoor in Brazil attends this specific market, which is how the Papa Terra conductor project evolved. It has not been repeated internationally. This was the third conductor installation we have done, having also done two for Shell in 2008 and in 2012.
InterMoor do Brasil has been awarded a construction license to build facilities at the new Industrial Complex of Açu Superport. Could you outline the scope of the investments?
We have invested around R$ 20 million in this project. The reasoning is in line with my comments on Papa Terra. This market is dominated by Petrobras, and it is very difficult for companies to execute services outside of Petrobras. For most projects, the service companies involved will not be able to use Petrobras logistic facilities, such as those in Macae. If Petrobras ends up with all the dock space in Rio, where are the major contractors, Subsea 7 or McDermott or Technip, going to mobilize their projects? There is a huge imbalance in supply and demand in the certain sectors in the market. One of these sectors is logistics. Our intention in Açu is not to become a port operator and compete with port operators in Rio de Janeiro. Our intention is to provide services to the oil companies and contractors. We are adding a piece to the turnkey aspect of what we intend to do and what we did with Papa Terra.
We want to provide a fully integrated set of services that operators and service companies can get locally: engineering, equipment supply, logistics, survey, subsea installations and offshore supervision.
You mention that Petrobras is not a focus for InterMoor. What has the trouble of OGX & HRT meant for the market you work in?
This is unfortunate. The investment climate is damaged by these occurrences, and we need investments to grow. It is not just Intermoor do Brasil; Shell or Chevron just as well need to prove to their headquarters that this is a good place to invest as opposed to somewhere else. The OGX and HRT stories are not good for anyone in Brazil.
But they are also insignificant. The long-term prospects for Brazil are excellent. Brazil will drill and Brazil will produce oil, regardless of what the rest of the world is doing. It is the same for Angola and other emerging markets in the world. In the Gulf of Mexico and North Sea, drilling offshore could slow down or stop if they can find oil cheaper somewhere else or wells are too expensive to drill.
That is not the case in Brazil: they will drill, and they will drill more when the market is bad because they will get cheaper rates from their contractors. That has been the tradition for years here. The current high prices are very difficult for Petrobras. It is squeezing them.
In the end, OGX and HRT are not going to affect the market too much. A few months ago, the 11th bid round sold many blocks in the equatorial margin, and Petrobras did not participate.
Who is going to provide the logistics and all the necessary services? There is nothing up there to support drilling programs. It is a huge opportunity.
But it is going to be difficult. It is a harsh environment, with strong currents, and bad soil conditions. Petrobras has tried to drill there for a long time, and to my knowledge, didn’t succeed. But I know of no river mouth basin in the world that doesn’t have oil: Niger, the Mississippi, the Congo, the Euphrates; there is oil at all the major river basins, and the Amazon is far and away the biggest. But it brings serious challenges to the execution and that is our bread and butter; solutions to difficult problems.
And why should the global oil & gas community invest in Brazil today?
It is a matter of confidence that makes investors invest. Brazil has to aggressively try to attract more investment. As a result of the bad set of news that has come out of Brazil lately, this is prime time as the market is not so euphoric as three years ago, so deals and opportunities exist. Where can you invest today where prices are low? Brazil. Because of Petrobras delays, government interference and “the Brasil Cost” and furthermore, because of OGX and HRT news, confidence among investors is low and the prevailing consensus is that this is a risky business climate. However, at this time, you can come in and invest at near the bottom of the market.
Now is the time to invest looking at the developments in the North East, because in three years the market most likely will turn again.
What is your final message on behalf of InterMoor do Brasil?
This is an extremely good opportunity in Brazil in general, much better than three years ago. And this is a window that will close. The companies that are here should be supported because they have a head start on anyone that is coming in. There is a huge amount of talent here and an extremely difficult bureaucratic environment, but it will happen. But you have to have faith that this will work out.
The timetable is the problem, but if you have patience it will be fine.
The message of InterMoor do Brasil is that we are a fully Brazilian company that can provide a wide range of services. We will expand from our experience at Papa Terra as a turnkey provider of a set of integrated services, and with the addition of the Acu port, we will be able to provide complete solutions for operator and contractor projects. InterMoor do Brasil is focused on the market, and that focus is outside the Petrobras domain. Our target is excellence, not growth. Our target is client satisfaction, not margins. If you get return orders from your clients, that means growth. We are here for the long term and willing to invest.