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Interview

with Eduardo Borja, Senior Vice President – Latin America, Global Industries Brazil

27.05.2010 / Energyboardroom

Global Industries came to Brazil before securing a contract and even before the pre-salt announcement. Initially, what was behind the decision to come to Brazil and what is the scope of you operations today?

EB: It’s obvious that Petrobras and Brazil lead the Southern Cone region. In North America, we have NAFTA which has been working out very well but we knew we needed some balance which we thought Brazil’s economy could provide. In addition to the industrial stability of the country, they happened to find oil on a large scale which has driven the entire industry to take another look at Brazil. For the past several years, this region has become the target for all service providers.

Global Industries came in late, but this is driven by the fact that we were focusing more on shallow water projects. We have seen several competitors with a more deepwater appeal enter Brazil before us and already have their solutions accepted by Petrobras whose project offerings tended to favor their technology. Of course, this is gradually shifting which is promising to new entrants to the market such as us.

For several years, we tried to enter Brazil but there were not enough guarantees for international companies. This is also drastically changing for the better; Brazil is now a country which is credit worthy, with a good image and where the ethical standards of doing business have clearly increased. Petrobras has very qualified personnel leading the company so when you combine these factors it provides international companies with enough guarantees to take the risk of entering.

These were the initial drivers, when you add to this the increasing reserves and project types that match our own capabilities then it makes for a pretty convincing market.

This is the first time Global Industries has entered into a new country independently meaning we didn’t partner with a local vendor or acquire an existing one.

The former interim CEO, John Clerico stated that shallow water was the “bread and butter” skill set of Global Industries. Today, a lot of the attention is on deepwater here in Brazil; how has this impacted your business model?

EB: To clarify, our current expertise is in shallow water, up to 3000 meters. The issue is that here in Brazil there are a lot more sophisticated projects that go well beyond this depth which demand other technologies.

EP: Actually, in the Gulf of Mexico, Global Industries was a pioneer in deepwater but for a period of time we started obtaining a lot of shallow water contracts. I think this created the wrong perception that we are a shallow water only company. The same thing happened here in Brazil; we came here trying to offset the highs and lows of Mexico but the first projects we started working on were also in shallow water.

Today, we’re working on a project up to 2000 meters so the perception is changing but that being said, we want to do it all.

How do you position yourself to get more of the deepwater attention considering this reputation as a shallow water provider?

EP: Judging by the increasing depth of our projects here, Petrobras is seeing we can provide for both sides of the spectrum. At the moment, all of the attention in Brazil is on the deepwater finds which has attracted all of our competitors that specialize in this field. As a result it’s not easy to get a contract given the competition and prices as they currently stand. Therefore, this lack of deepwater projects is due to the market fundamentals rather than a lack of capability.

What distinguishes you from you competitors?

EP: We can offer good solutions in both arenas. For instance, historically Brazil has used a lot of flexible pipelines so when we came to do the Camarupim project were very few rigid pipelines in use.

In the deepwater we are developing the technology as it goes and I feel that the pre-salt is a challenge not only for us but for Petrobras and the industry which is why we are developing the technology as we grow together with Petrobras.

Our competitive advantage is on the professional side as we commit to delivering our projects ensuring both quality and time. This makes a company Petrobras likes to work with even if there is not a distinct technological advantage.

EB: Global Industries used to have a slogan, “We’re planning your success.” This is what we continue to live up to as a company. For example, during the Camarupim project – which was a critical project for Petrobras – our vessel broke. We found another vessel in Thailand that met the requirements so we brought here to Brazil and finished the job without complaint.

In Mexico you were responsible for the Ku G project which tied in Pemex and BW Offshore to install the first FPSO in the Gulf of Mexico. Have you had any similar breakthrough projects in Brazil or any possibilities on the horizon to work with both Petrobras and another provider?

EB: Well sitting next to me is the director of that project!

EP: Ku G was a beautiful project with a lot of challenges that demanded new technology including rock dumping, which can be hard to see as new technology as it just involves throwing a lot of rocks, but I assure you it is.

EB: We had to install a 400-ton, 12-meter long Pipeline End Manifold (PLEM) within BW’s tolerance specifications of two degrees of inclination at a depth of 85 meters and we nailed it.

EP: In fact, Global finished the project before they were ready which is always good; you never want to be the bottleneck. This philosophy was applied to the challenges we face in Camarupim where it was in our contractual bounds to proceed with a cheaper solution like waiting for repairs but then we would become the bottleneck. The cheaper solution won’t get you the next contract.

When the market does pick up, will you have the capacity to continue to operate in this way?

EB: Definitely yes. If you see the number of vessels available around the globe at the moment we have a large number of them. So when the market picks up, we’ll be there to provide our services.

EP: We’re also investing not only in new technologies but new vessels as well. During the third quarter this year we should receive our newest one which is currently in Singapore followed by another in 2011. Both of these are pipelay vessels with new technology that we think will perfectly apply to the market’s needs. Currently, we already had other new vessels in our fleet operating in the Gulf of Mexico so we can have the ability to provide solutions across different water depths.

Global Industries entered Brazil based on the knowledge gained from operations in Mexico which were very successful. What can you learn in Brazil that you will later be able to apply in Mexico?

EB: Petrobras is a very sophisticated customer so whenever you enter into a meeting with them you better be prepared. For instance, on the very first project we bid in Brazil we sent one person to the clarification period as we normally do with all of the information. When our representative showed up he was sharing the room with 15 other PhDs from Petrobras. Therefore we have to understand that there is a lot of upfront planning in Brazil requiring detailed deliverables. These are aspects that need to be implemented elsewhere and which we are beginning to see across the industry.

As you know, Petrobras has an international presence and their approach is permeating into other NOCs. For instance, in Mexico working with Pemex on a new project where they are implementing new HSE measures that we are used to seeing with Petrobras.

The new public works law in Mexico is allowing Pemex to fast track certain projects permits different selection criteria for service providers which puts a premium on those who can deliver. However, there is a learning curve for this which will likely take most of 2010 but we will begin to see it come to fruition in 2011.

EP: In addition, we all know that sooner or later Pemex will have to tackle the deepwater arena which is something the entire industry is waiting for. It’s a long time coming but in any case we have a lot of Mexicans in our organization today learning from projects with Petrobras so that once the Pemex does decide to move into deepwater we have solutions to offer.

With a lot of engineers from outside Brazil at the moment, how do you cope with the government’s appeal for more local content?

EP: Even though we have a group of Mexicans and Americans, I would say 90% of our staff is Brazilian. Moreover, every time we do a project we try to select Brazilian vendors before looking at others not only for local content but also because of the complexity of bringing components from abroad. Today, Brazil is a country that can actually provide you with these options because everybody from the oil and gas industry is here.

EB: We have to strengthen our engineering capabilities in Brazil which is critical for all of the service providers here as well as Petrobras.

When we met with Antonio Ferreira of ABESPetro he noted that bringing technology in from abroad seems to be one of the biggest issues for service companies in Brazil. How do you cope with this?

EP: The biggest issue is that there are a lot of gray areas in the legislation which tends to leave you with interpretations. If you have a question you could present it to five experts and you will get five different assessments all of whose answers are based on experience. As a manager, you have to read the law, understand it as best as possible and then go with the one answer that seems the most logical.

Of course, leaving things to interpretation can create complications. For instance, there is a new interpretation of the Repetro importation regime which is very detailed and even Petrobras is having difficulties with it. As a result, partnering with a local is the best option.

As a fairly recent entrant to Brazil, how do you think the local market looks at Global Industries?

EP: We’re definitely a new player compared to our peers but I think we’re a healthy addition to the landscape because our entrance opened a lot of doors for partnership. Our suppliers see us with good eyes because we’ve changed some paradigms that were present. We’re a company that isn’t difficult to work with if you comply to the requirements of the contract.

Global Industries honors its commitments and we haven’t had any disputed claims from our vendors. They know our capacity and I think they’re looking forward to working with us in the future considering the opportunities to come from Petrobras and IOCs such as Shell, Chevron and OGX for whom we are working on proposals.

We have some local small and midsized companies which we look forward to working with and even though we work on a contract basis I feel we have developed more of a partnership. The benefit of this is better prices and improved services but you have to build these relationships.

What would the next big project you would like to challenge yourself with in Brazil?

EP: I would like to do a pre-salt project demanding new technology. We have worked on several proposals for development in this region but unfortunately the contractual terms weren’t clear enough to continue. Certainly though, we want to opportunity to do something new for the company while also working with a partner focused on technology like Petrobras.

Currently, Latin America seems to represent one-third of Global Industries worldwide revenues. Is this an increasing share and more importantly, is Brazil the one driving this growth?

EP: In terms of Brazil and Mexico I think the balance has typically been 60/40 if not 50/50 over the last three years. Even though production is declining in Mexico, the new administration of Pemex is turning things around and today we are seeing bids again. Judging by the activity in Brazil and revival of Mexico, looking forward we can expect this balance to continue.

EB: Pemex is a government run company that is very susceptible to changes in administration which has led to variations in strategy. Before 2000 we had the Zedillo Admistration which effectively shutdown all capital expenditure which eventually caught us off guard for the Fox Administration. While Fox didn’t necessarily push the industry a lot he realized the importance of opening up the expenditure.

Today, the Calderon Administration has seen the urgency of investing in the industry and new technology. While they’ve been drilling, the problem so far is that they’ve found a lot of gas but not much oil.

As a company, we realized that these cycles would affect us around the same time that activity within Petrobras began to pick up so we saw Brazil as an opportunity to balance. We were successful in securing Camarupim which lessened the impact of the slowdown in Mexico.

You’ve been in Brazil for three years, where would you like to see Global Industries in the next three years?

EP: I want to consolidate the company as the preferred shallow water solution and push into deeper, more challenging projects. We’re also always analyzing if there is any other market we can open from here, for example, last year we were looking at possibilities in Argentina and in the future there are definitely markets that will require our services, such as Columbia.
We’re excited that we have a new CEO in the company and we look forward to seeing what other ideas are on the horizon and what direction we can take Latin America in.

EB: It’s really important to highlight the strategic importance of Brazil for the regional market. We believe that mirroring what Petrobras does, Brazil can be a hub for all of Latin America. The stronger we build up our reputation here as a reliable service provider the better we will be able to market our services outside of Brazil.

In Brazil, we want to part of the growth. We have taken the right steps to become acquainted with the country learning from our initial experiences like all companies and today I would say we’re at the end of our learning curve. Currently, we’re establishing a strong management team with more local presence and developing a succession plan for our executive positions so that we really leave this company as a true Brazilian-run branch.

What do you feel that you personally bring to the company?

EP: I have Global Industries in my heart – blue blooded as we say – and I’m totally committed to the company. I enjoyed the opportunity I had to work with the founder when he was still involved in the operations and I have a sense of belonging here. Everyday do my best to bring direction to with my managers and maintain our strategy.

Do you have a final message for our readers?

EP: Global Industries is here to stay and we’re working hard to be ready for all of the future projects.

EB: Our strategic decisions are driven by what Petrobras has in mind meaning we monitor their expansion and activities in order to know what opportunities are on the horizon and design our own strategy for growth.

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