Brazilian E&P Spending Fuels Major Supply Vessel Growth

Brazil’s booming supply vessel sector is the fastest-growing market in the world, driven by the sheer numbers required for E&P activities in the country’s deepwater and ultra-deepwater basins.

While the country’s shallow and benign market segment is by no means quiet, it remains a relatively stable one with around 50 vessels in action. But the Harsh & Deepwater (H&D) segment’s operating fleet is soaring in size, from 60 vessels in 2005 to nearly 160 vessels in 2010, according to IHS-Petrodata.

This impressive annual growth rate of 22% is almost entirely due to the dramatic surge in upstream E&P activity in the deep and ultra-deep waters of the presalt Cam-pos and Santos basins. Broken down a little further, the demand for platform supply vessels (PSVs) has been growing faster than for anchor handling tug supply (AHTS) vessels. In 2005 the mix was about 50/50, while in 2010 the mix was 60/40 in favour of PSVs, IHS-Petrodata said.

But as is always the case in Brazil, the issue of local content is a key factor with the government having clearly stated its desire to develop and increase its domestic offshore yard activity, so that all supply vessels operating in Brazil can be built there.

The H&D supply vessel fleet in Brazil is mostly modern, and all the Brazilian-built vessels are built after the year 2000. As of late 2011, around one-third of the fleet in operation was built in Brazil while the rest was built internationally.

As a result of the government’s desire to develop and expand domestic yard activity the Brazilian authorities launched a financial incentive scheme called “Prorefam III” to directly stimulate in-country construction of 146 offshore supply vessels (OSVs) before year-end 2014. This number is further split into 82 PSVs and 64 AHTS units.

This has seen organizations such as the Brazilian development bank BNDES, which is providing massive financial support for the development of the country’s booming oil and gas sector, plough hundreds of millions of dollars into the building of both PSVs and AHTS vessels.

In 2010, for example, it financed projects to build 58 PSVs and AHTS vessels:

19 PSVs (CBO – Grupo Fischer);

15 PSVs and 4 AHTS (Bram – Edison Chouest);

Eight PSVs and 5 AHTS (WSOffshore – Wilson Sons

and Ultratug);

Four PSVs (Starnav – Detroit); and

Three AHTSs (Dof Navega??o – DOF).

If domestic yards in Brazil are able to deliver supply vessels in line with the Prorefam III plan, nearly all AHTS units operating in the country’s offshore sector in 2014 will be Brazilian-built, while the number of internationally-built PSVs in operation that year will still be about 15 vessels more than in 2010 as demand growth is expected to be higher than construction plans, according to IHS-Petrodata.

It added that it is unlikely that the Prorefam III aims will be reached. The number of PSVs is expected to be close to the target level, but the construction of more complex-to-build AHTS units is expected to lag behind significantly. “In total we expect total demand for internationally-built AHTS and PSVs to be higher in 2014 than in 2010. We do not believe Petrobras will delay field developments due to a lack of Brazilian-built rigs and vessels. We expect a practical approach based on contracting international vessels until sufficient domestic resources are available,” the analysis firm stated in a paper at OTC Brasil 2011.

That belief is backed by three recently issued contracts by Petrobras to Den-mark’s Maersk Supply Service (MSS) totaling US $281 million.

All three contracts are four years in duration starting in December 2012 and include the AHTS vessels Maersk Leader, Maersk Lancer, and Maersk Launch. The vessels will be involved in ultra-deepwater anchor handling with both conventional and

torpedo anchors.

“Brazil is a strategically important growth market for Maersk Supply Service, and these contracts reinforce our strong relationship with one of the industry leaders in deepwater E&P,” said Carsten Plougmann Andersen, CEO. MSS has 11 vessels currently operating offshore Brazil for Petrobras, its biggest single customer, and five vessels for other international oil companies.

Petrobras alone has an estimated shipbuilding demand for 192 OSVs offshore Brazil until 2015, with the Brazilian government’s Prorefam III initiative aimed at supplying the market with 146 new vessels. (Table courtesy of the Brazilian development bank BNDES)

Petrobras remains the dominant client in Brazil colloquial, representing nearly 80% of demand. Meanwhile, OGX represents about 5% of demand while other operators represent 8% of demand, and a spot market also has started to emerge.

Petrobras’ investment plan for 2011-2015 shipbuilding demand is still huge, with 192 new units forecast by 2015 and 281 by 2020. This is in addition to the 50 drillships and semisubmersible rigs, and 50 FPSOs and production semisubs it also is forecasting until 2020.

A key question emerging is on the exact timing of future demand growth and yard construction capacity growth in Brazil as international contractors remain concerned about future demand for vessels built outside the country.

IHS-Petrodata expects an average annual demand growth for the next five years of 14% for H&D supply vessels in Brazil. On top of the forecast rise in E&P spending for Petrobras and other operators, the longer distances and less existing field infrastructure in the emerging Esp?rito and Santos basins will also result in a requirement for more supply vessels for both drilling rigs and field production platforms.

Assuming the same growth trends for AHTS and PSVs as in recent years, the mix in 2015 will be about 70/30 in favor of PSVs compared to 60/40 in 2010, although there is some uncertainty about this, according to IHSPetrodata.

However, the long-term trend will be that supply vessel contractors with Brazilian ambitions will have to build their fleets in Brazil. The main challenges appear to be potential delays and cost overruns for newbuildings, as well as higher operating costs than in other regions.

Editor’s Note: Excerpts for parts of this article have been taken from OTC Brasil 2011 paper 22507, presented by IHS-Petrodata.