The presalt discoveries offshore Brazil have brought enormous opportunity for Petrobras, but developing these challenging fields will require significant investment. One of the first steps will be to develop a high-tech productive chain to meet the immense needs of goods and services for Brazil’s deepwater oil industry.

According to Petrobras President José Sergio Gabrielli, Brazilian companies are expected to rise to this challenge.

“Our policy aims to broaden domestic participation in this global growth trend,” Gabrielli said. “With a 400% increase in contracting in Brazil, there are offshore equipment and industry segments that need to expand their overall production capacity to meet Petrobras’ demand.”

Brazil’s government’s local content policy requires that 60% of goods and equipments be produced in Brazil. This target is expected to be attained within the scope of the company’s current and future contracting activities.

Petrobras President José Sergio Gabrielli (Images courtesy of Petrobras)

Many private sector executives believe the local content policy discourages the participation of foreign suppliers that can contribute by delivering cutting edge technology and argue that using domestic companies impacts the bottom line because prices are much lower abroad.

Many multinational companies, which can provide most of the advanced equipment and services, have created local subsidiaries or have bought or partnered with Brazilian companies to comply with local content rules.

Meanwhile, Brazilian suppliers complain that they are overburdened by high taxes and interest rates, an infrastructure that is in a sorry state, and the lack of skilled manpower. This poses serious challenges and impacts the companies’ ability to be competitive in sectors such as drilling equipment and services, seismic surveying, and measurement and control automation to name a few.

Petrobras, aware of these shortcomings and challenges, is working with the Brazilian Association of Machinery and Equipment Industries (ABIMAQ) to encourage foreign manufacturers to establish partnerships with local companies.

“Petrobras is in permanent contact with the network of suppliers nationwide,” Gabrielli explained, “systematically holding meetings with entrepreneurs from small, medium, and large companies aiming to drive the domestic industry to upgrade its production capacity. Incentive measures are being heightened, covering key areas for the businesses, such as technology, finances, and management.”

Petrobras also is qualifying professionals through the National Oil and Natural Gas Industry Mobilization Program (Prominp) and by means of partnerships between Brazilian and foreign companies.

When asked his opinion on the local content issue, Gabrielli said, “Procurement on the domestic market meets international quality, time, and cost standards. Petrobras’ confidence in the domestic supplier market and in its responsiveness allowed the domestic portion of the company’s contracts to grow steadily and above target over the past years.

Sharing the wealth

“It is also worthy of note that the local content targets are for goods and equipment manufactured in Brazil, but do not limit partnerships with foreign companies,” Gabrielli explained. “Quite the contrary – Petrobras is inviting international companies to invest here, to bring their facilities and operations to Brazil, to develop technology and equipment in partnership with local suppliers. Petrobras has a tradition of working with other companies, domestic or foreign, and it believes that cooperation opens a window of opportunities for learning and technology exchanges.” Today, Brazil has the biggest demand for offshore oil production equipment in the world, so it is a very promising market for the industry’s equipment and service suppliers. “International companies including GE, Rolls Royce, Schlumberger, Baker Hughes, FMC Technologies, among others, are installing technology centers in Brazil,” Gabrielli said.

To work with other international oil companies is part of the company’s day-to-day routine. Petrobras has built numerous partnerships in Brazil and is partnering around the world with companies such as ExxonMobil, Chevron, Repsol, Shell, BG, Hess, Statoil, Galp, Total, and Hess. Many of these companies are now eager to participate in pre-salt projects – even with Petrobras as the sole operator.

“It is not a monopoly,” Gabrielli said. “The IOCs can come and share the risk, share technologies, and share the rewards.”

With a large number of projects on the agenda, there will be many opportunities to share the wealth.

“The projects foreseen until 2014 under our investment program, which is worth $224 billion, are broken down into 3,200 components that represent families of products, systems, and system components,” Gabrielli explained. “To Petrobras, it is important that suppliers be aware of all of its demand. To achieve this, together with Prominp, we created a site where suppliers can register, list what they buy and sell, and view the company’s quarterly demand through 2014.” The project portfolio Petrobras has created will ensure large-scale demand for production units, submarine assemblies, pumps, pipes, flexible lines, and thousands of other pieces of equipment, he said.

The Petrobras business plan earmarks US $108 billion for domestic E&P activity by 2014. An annual level of contracting worth about $28.4 billion is expected in the country. “Our needs are enormous,” he said. “We need more than 500 wet christmas trees, more than 42,000 km (~26,100 miles) of flexible risers, 30,000 km (~18,600 miles) of umbilicals, 146 supply boats and 72 large oil tankers.”

Though some technology will still come from outside Brazil, much of the R&D will take place locally, Gabrielli said. “We have invited major international companies to build 14 R&D facilities here. This includes Schlumberger, Baker Hughes, GE, FMC,IBM and others. We have also financed and built R&D facilities in more than 70 Brazilian universities that are interconnected through a thematic network that has required more than 10,000 m (32,808 ft) of optical fiber. We have built ocean tanks for testing physical models, and doubled the computing capacity to 190 teraflops to support increased simulation capability.”

Petrobras as pioneer

Petrobras has moved quickly into deepwater and the presalt frontiers. According to Gabrielli, the pioneering spirit is part of the company culture.

“Little more than thirty years ago, producing oil at depths close to 300 meters (984 ft) was at the limit,” he said. “Petrobras was the first company in the world to find and produce oil and gas beneath the salt layer, at geological horizons and depths of up to 7,000 meters (~ 23,000 ft) below the surface of the sea.”

The company’s experience in this field is the outcome of technological research that has been carried out with suppliers, universities, and other partners since the 1980s. “In 1986, we created the deepwater technological program (Procap), which allowed us to set successive world water depth records,” Gabrielli said. “Under Procap Future Vision, the new version of the program, we are emphasizing the search for solutions that can significantly impact the current deepwater field development standard.”

Besides its own technology developments, Petrobras works with the Brazilian scientific community to encourage domestic technology development. At its research center (Cenpes), a group of experts assigned to the Technological Program for the Presalt (Prosal) dedicate their efforts to unraveling these geological formations and seeking solutions for operations that are unprecedented in the oil industry.

To produce oil in deep water, Petrobras will have to overcome technical and logistical issues that are more difficult than those faced by companies operating in the US Gulf of Mexico (GoM). Significant investment has been made to develop a high-tech productive chain, since pre-salt field exploration will require sophisticated technological solutions.

Petrobras currently is producing from fields in 2,172 m (7,126 ft) water depth in the Santos basin and soon will be producing at 2,500 m (~8,000 ft) in the US GoM. The main challenge is the salt layer which, under high pressure and high temperature, behaves like a plastic material. “I can state that much progress has been made in recent years, allowing not only for stable drilling through the salt layer, but also reducing well-drilling time and cost,” Gabrielli said.

For example, it took about six months and cost $240 million for Petrobras to drill the first well in the presalt. More recent wells have taken about 60 days and cost an average of $66 million. “These time and cost reductions were allowed by the learning that has been made about drilling in 2,000-meter-thick (~6,600 ft) salt layers, by improved well lining specifications, by the progress made in the drilling fluid quality, in well geometry design, and by the specification of the best drill bits,” he said. “These solutions were reached by means of a lot of analysis done at the company’s research center and by Petrobras’ well engineering group.”

P-56, the first floating production unit built entirely in Brazil, was christened at Keppel’s BrasFELS shipyard in June.

Petrobras also has been working to overcome other technical hurdles. “We can mention oil flow from deep waters, the characterization and predictability of the reservoirs, the operation of complex gas plants at the production units, the management of carbon dioxide in the associated gas, and also the use of equipment that is more resistant to the corrosion that takes place when CO2 comes into contact with water.”

Logistical challenges are another critical focus. The presalt areas lie more than 300 km (~190 miles) from the coastline in more than 2,000 m water depth where sea conditions are aggressive. Petrobras has been working to develop the means to contend with the challenge of transporting personnel, fuel, and supplies. An example is the floating facilities that serve as logistical hubs positioned midway between the coast and the presalt areas.

Supply delivery is another critical component of offshore operations. “You need transportation of chemicals, machines, electricity,” Gabrielli said. “We probably will have specialized platforms dedicated to generating electricity and others to mix chemicals for drilling fluids.

Studies also have assessed the different modes of passenger transport, the need to build new ports and airports, and the implementation of systems and technology to support logistics activities, Gabrielli explained.

Another goal is to employ advances in automation to reduce the number of people working on the platforms that lie such a great distance from shore. Automated platform technology is under development. “Petrobras’ research center and the Federal University of Rio de Janeiro maintain the Instrumentation, Automation, Control, Optimization, and Field Network Engineering, Application, and Development Laboratory (LEAD) at the University City Island to help define new technological approaches in automation and control,” Gabrielli said.

While the hurdles posed by the deepwater presalt regions are considerable, Petrobras clearly is rising to the challenge.

Sidebar 1

Petrobras exports first presalt oil

Early in 2011, Petrobras concluded negotiations with Chile’s national oil company, Empresa Nacional de Petróleo (ENAP), to export the first cargo of presalt oil from the Lula field in the Santos Basin. The sale included 1 MMbbl to be shipped in mid-May 2011 for delivery to the cities of Quintero and São Vicente, Chile.

Lula produces 28° API light crude. In the Campos Basin, which is responsible for more than 80% of the oil produced in Brazil, the average API is around 18° API.

The first evidence of Brazil’s presalt oil reserves was discovered in 2005. Production started in 2008, and commercial exploration kicked off in 2010.

Analysts estimate Brazil’s presalt reserves between 50 to 100 Bbbl.

Sidebar 2

Petrobras raises its profile

According to a 2011 ranking prepared by Forbes magazine, Petrobras now ranks as the world’s eighth largest publicly traded company, moving up ten positions from 18th place in the 2010 ranking. The company ranked fifth in the profit and market value categories and is the only Latin American company to appear among the top 10.

Also this year, Petrobras was rated the third biggest energy company in the PFC Energy 50 ranking based on market value and rose from sixth to fourth place among the leading global companies operating in the industry in the ranking prepared by Platts.

Petrobras president and CEO, José Sergio Gabrielli de Azevedo said he has great prospects for increased production, noting that the global demand for oil is likely to increase with the resumption of economic growth in the US.

"We will be a major oil producer,” Gabrielli said. “Our discoveries will be the main sources of additional global output in the next 10 years.”

This growth, Gabrielli said, will require robust investment in developing presalt discoveries and mobilizing the supply chain in Brazil, the US, and in several other countries.

Gabrielli told reporters he considered the attention US President Barack Obama has given to business relations with Brazil in the energy area to be very positive. “It’s great news,” he said. “The US government is now starting to consider the strategic value of this relationship among businesses, one which is currently only taking place on a commercial market basis. New channels and mechanisms are needed to assess and facilitate this relationship,” he said.