Miguel Gradin, President, GranEnergia, Brazil
The president of GranEnergia, discusses Brazil‘s oil production targets, government regulation and Gran Energia’s aspirations for international expansion.
GranEnergia has been making international headlines with its venture into the oil & gas industry, which includes the 500 million USD investment in three offshore vessels announced at the beginning of October. Could you outline the scope of these investments?
The scope is the construction of three accommodation and offshore maintenance and safety units (UMSs) focused on supporting oil companies enhance oil production, reducing cost, and increasing the operational efficiency. In Brazil, operational efficiency decreased in the past years, and Petrobras put together a plan, PROEF, to get it back to an average of 90 percent.
Much of the world’s attention is focused on the pre-salt as the new frontier. We are looking into that as well, but decided to first and foremost focus on, and support, our client in production on mature fields. The marginal cost of enhancing production is of course lower on existing fields than on pre-salt and the new discoveries.
Based on the 83 percent of national production that today still comes from the Campos Basin, in our view there will be a strong demand, not only driven by old units that require maintenance, but also by the new units that come on-stream, including pre-salt.
The idea is to provide the units and the services that can help our clients enhance production, not just on the surface but also on the Subsea.
What were the reasons for creating GranEnergia, and the scope of projects it targets?
GranInvestimentos is the holding company and holds 100 percent of GranEnergia, and 85 percent of GranBio.
GranEnergia has three main areas: oil & gas services, intermodal logistics, and also project management to make sure that our projects are delivered on time, on budget. GranBio is the biotechnology company focused mainly on cellulosic ethanol and bio-chemicals.
GranEnergia was created to provide innovative and integrated solutions to our clients. Our view is to support the client in reaching maximum efficiency in its operations.
We decided to create a company to support them and become one of the leading companies in the world on integrity management on production platforms.
To do so we decided to build a new fleet designed by STX and MAC according to an innovative concept that combines the stability of a semi-submersible platform with the versatility of a catamaran. We have the most efficient design, especially to serve FPSOs and semisubmersibles.
The investment came as a surprise to many, as it is the first significant move offshore from the GranInvestimentos group. Does it signal a strategic change in the company’s orientation?
I would not say it is a change in strategy. The strategy is to always look at innovation, technology and integrated products that work for oil and gas, logistics, and biotech. GranEnergia is a new company that is very committed to deliver the projects.
Why take such a financial risk at the time when there are increasing doubts about the country’s capacity to reach its 2020 targets of 4.2 M bpd?
We actually believe that Petrobras has a great team with excellence and very technical skills. Of course they face a major challenge reaching a production of 4.2 million bpd by 2020.
In my view, Petrobras has two main strategies to enhance production. One is to grow the new pre-salt frontiers. Pre-salt is a reality and is responsible for 15 percent of national output, and they are bringing many new units on-stream with capacity of 100.000 to 150.000 bpd. It is only a question of time.
Petrobras has two main strategies. One is to grow the new pre-salt frontiers. The other strategy is to recover the efficiency of existing fields, including Campos. Currently production efficiency stands at 76 percent, and the aim is to reach 90 percent in three years’ time, mainly through Petrobras’ PROEF program.
Petrobras has a challenge working in both areas, and they require companies that can support them in bringing technology and new assets.
We aim to be a company that can provide solutions. Not only to Petrobras in this specific case but also for other international companies in other international settings.
Could you describe the value proposition of GranEnergia’s UMS units in an already densely populated competitive landscape?
Because of height and stability our units can operate very well in deep water and serve FPSOs and semis.
Apart from that it has a very good speed, more than 10 knots, with a range of 500 people plus an area that can support the integrity of the vessel with two cranes.
They are full of first class equipment of Rolls Royce, Kongsberg, ABB, etc. This is one of the reasons that we chose these units. All the technology of the equipment has already been approved. Our units went through the sea trials in October 2013 and passed without any issues.
We did our homework before building our units. We could choose any kind of unit in the world but we believe that this design can support the main clients. We are not looking at the North Sea, as another type of unit is required for this harsh environment. Rather we decided to focus on the Golden Triangle. We believe the unit can provide more stability and the possibility to move around different assets if required.
Could you outline how you are looking to secure financing for the investments?
The idea is to finance the projects both on the debt market and on the capital market. We study both the project finance and project bond, but decided to follow the project finance structure for the first units. In December we will announce the closing.
Overall it was a very positive experience. We had a very good acceptance from both Brazilian and international banks. We had an over subscription and I believe we have been able to mitigate many of the risks for the financial markets. It helped that in the week that we were finalizing the negotiation, the unit was already testing. The market is strong for good projects and I believe ours proved to be one of them. The project is on time, on budget, has great quality, and a strong client: Petrobras.
The first unit has a four-year contract. The idea is to finance the other two units next year and take it project by project. Later on we can also analyze the bond market or the capital market to finance a pool of units.
You have long been a strong advocate of local content. Of course this may positively impact the country’s economy in the short run. But is there not a risk that this has a negative impact on performances especially of the service sector, by flawing competition?
The shipyards face challenges in Brazil. There is huge demand, and it is a new industry, or at least an industry that recovered recently. The yards now are contracted for drilling, production units and supply vessels. For the existing shipyards, the challenge is smaller than for the Greenfield shipyards.
Overall strong groups are leading the investments, and I believe they will succeed and tackle the learning curve to reach global standards.
It is a question of time before we reach the best standards not only on shipping but also on offshore.
Furthermore, we have seen international players investing on capacity in Brazil. With the proper planning and proper engineering, I believe it can be done against the same standards as in Asia, especially in repair. Brazil has very strong experience building the modules and integrating the platforms; for example, Keppel Fels has been here for at least ten years. They know how to do the design and build the vessel, to refurbish and build production and drilling platforms. It also involves the transfer of technology, and that is positive for Brazil.
Of course there are challenges, and local content is one of those. The second is a qualified work force. PROMINP has trained over 80,000 people now, but we need many more. It is also a question of timing. Today many foreigners are working in Brazil, but a new generation of Brazilians is ready to join the industry.
Infrastructure is undoubtedly another challenge, and we are not just talking about shipyards, but also ports and access to the ports, including railway linking the ports, which is an area in which GranEnergia invests through MTO.
Many companies are looking at the ports, but it is not just about the ports or about offshore logistics, but also about how you can bring better efficiency and productivity to access the ports through alternative modes of transport.
Technology is very important. Petrobras’ aim of producing an additional two million barrels per day by 2020 cannot be accomplished without using new technologies on mature fields, and the support of service companies.
A final challenge is sustainability. The environmental issues and the attention and demands from society are increasing. Companies are very actively pushing for higher standards. Petrobras is a great example, not just in exploration but also in the development phase and in production. GranEnergia aims to have the same focus and high HSE standards.
You mentioned that the investments into offshore units will bring GranEnergia outside of Brazilian waters as well. Could you share which markets you are looking at?
The dynamic is interesting: Mexico is more advanced on the mature fields, and now the country is reinventing itself in deepwater. Brazil was more focused on ultra deepwater fields, but is now facing the challenges of pre-salt development and Campos basin mature fields. West Africa has more or less the same profile as Brazil, and the required technology is going to be very similar.
GranEnergia as a service company planned to be global since the beginning, supporting these three markets and having different clients active in one or more of these markets. We can bring the best technologies according to their needs.
You are working against the backdrop of an extremely ambitious industry with an NOC that aims to double production to 4.2 million bpd in six years’ time. How will you measure success for GranEnergia in the coming years?
Success is to have our units operating with maximum efficiency. This translates to our clients as well: if we can have excellence in our service and our operations, we make sure that our clients are happy so we can continue to service them.
Our focus is on bringing the best excellence in our operations, so we can better serve our clients. Our success will be if the clients identify us as the best company to provide them solutions, and our capacity to attract the best people, the best executives or entrepreneurs.
It is a simple model and very straightforward and direct. You can best have success with the client. As the client puts us in front of bigger challenges, we will pursue those and grow with the client.
In 2015, GranEnergia will achieve annual revenues of US$ 400 million in oil and gas and consolidate itself among the world’s three leaders in the accommodation and maintenance sector capable of operating in deep waters.
In the longer run, our goal is to deliver one unit per year and to build a fleet, not only this type of UMS service platforms, but also other units. We are looking at the subsea industry to support clients not just at the service but also the subsea development. We are studying this market and looking to enter in 2015.