Brazil may well be the offshore industry’s number one target in terms of deepwater business opportunities and growth, but it is not without its risks.
Subsea 7 has confirmed it will take a major financial hit from a high-profile ultra-deepwater project offshore Brazil for Petrobras, with the contractor estimating full-life project costs will increase painfully by between US $250 million and $300 million. This is also not the first loss provision the company has made on this project.
The loss on the high-profile Guará-Lula NE development, which entered the offshore phase in the second quarter of this year, has been caused by issues such as delays as a result of ongoing problems with the supply chain, the delayed start of pipeline fabrication due largely to customs clearance issues, and adverse weather conditions in the winter season, according to Subsea 7.
It added it would not bid on any further EPIC projects with similar risk profiles in Brazil.
“Based on the experience to date, the estimated full-life project costs are expected to increase by between $250 million and $300 million as compared to our previous expectations, with the net operating income for Brazil expected to reflect the impact of these costs in the second quarter 2013,” it stated.
Jean Cahuzac, CEO, said: “I’m disappointed that we are obliged to take another loss provision on the Guará-Lula project. Our current financial results in Brazil are unacceptable and we have put in place a plan to improve margins in this territory. This plan includes the decision not to bid any further EPIC projects with similar risk profiles.
“Guará-Lula represented 5% of our backlog at March 31, 2013. The remaining 95% of our contract portfolio is performing in line with expectations. Insofar as the global market is concerned, tendering activity remains high and we remain positive about the medium and long-term market prospects.”
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