Sete Brasil Charts Growth Path On Back Of Latest Rig Order

RIO DE JANEIRO - Fresh from winning one of the world's single-largest orders for drilling rigs, investment company Sete Brasil plans to spend $27 billion over the next eight years to take advantage of Brazil's development of recently discovered offshore oil fields.

"We were born one of the largest companies in Brazil," Sete Brasil Chief Executive Joao Carlos Ferraz said Friday, a day after winning an order to build 21 rigs for state-run energy giant Petroleo Brasileiro, or Petrobras. "With this order, we will become one of the largest [drilling rig] companies in the world."

Sete Brasil is capitalizing on Petrobras's need for deep-water drilling platforms to develop the presalt oilfields, a series of discoveries made in the Santos Basin off the coasts of Rio de Janeiro and Sao Paulo states. The reserves have been estimated to hold 50 billion barrels of crude. Petrobras officials have decried the lack of drilling rigs as a key challenge holding back development of the oil fields.

The investment company, founded in 2010 by eight local pension funds, banks and Petrobras, will build 30 offshore drilling platforms, including six semisubmersibles and 22 drillships that will be leased to Petrobras, Ferraz said. In June 2011, Sete Brasil won a tender for a lot of seven drilling rigs.

Two of the company's fleet of 30 rigs will be leased out on the spot market, Ferraz said. "The spot market is fantastic for managing assets," said Ferraz. Leasing rigs on the spot market allows Sete Brasil to take advantage of higher day rates during times of heavy demand, while the 15-year contracts with Petrobras are expected to generate about $75 billion in revenue.

Sete Brasil's focus will be on managing the portfolio of drilling rigs rather than as an operational company, Ferraz said. "We are partners to those companies that have expertise," Ferraz said, noting that the company will contract with drilling companies to operate the rigs.

Sete Brasil also is in talks with six local shipyards to build the drilling rigs, Ferraz said. "In two months, all shipyard contracts will be signed," the executive pledged. The first rig will be delivered to Petrobras on June 15, 2015, Ferraz said.

Sete Brasil will look to raise the funds needed for its investment plans from new and old investors, but the Brazilian National Development Bank, or BNDES, will play a large part in the company's financing needs, according to Ferraz.

Some $13.5 billion will be financed through the BNDES, Ferraz said. The BNDES will finance about 80% of equipment and services purchased in Brazil under local content rules.

An additional $6.5 billion will be raised via equity investments from the eight partners that created Sete Brasil and new investors. Ferraz added. The new investors will include Brazil's Luce Drilling and U.S. investment firm EIG Group. Luce will invest 300 million reais ($174 million), while EIG Group will invest BRL500 million, Ferraz said.

Other investors could join Sete Brasil later in the first quarter, the executive added.

Sete Brasil also plans to raise $4 billion in financing through export credit agencies, as well as $3 billion from commercial banks, Ferraz said. "We're going to wait until the crisis passes to reduce financing costs," Ferraz said about talks with commercial banks.

Once the company gets its sea legs, Sete Brasil will also seek other areas of the capital-intensive oil industry where investments could result in hefty returns. "We want to participate in the opportunities brought about by presalt development," Ferraz said.

He also said such opportunities could include building floating production, storage and offloading vessels, or FPSOs, as well as transport and support vessels.

Dow Jones Newswires - Friday, February 10, 2012

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'Low' rates seen on $76bn Petrobras rig deal

Petrobras' monster $76 billion charter deal for 26 yet-to-be-built offshore drilling rigs may have caught the market's eye, but some have seen the dayrates agreed as surprisingly low.

Brokers have pointed to the risk of rising construction costs, inflation in Brazil, crewing dilemmas and greenfield shipyards as potential negatives in the deals with Sete Brasil and Ocean Rig, but flagged the long-term nature of the charters as a significant saving grace.

Petrobras finally announced on Thursday that it is to take 21 rigs from Sete and a further five from Ocean Rig for 15 years each with all units to be built in Brazil.

With Sete to get an average dayrate of $530,000 for each unit, this equates to almost $61 billion over the charter period. Ocean Rig is getting $548,000 per day for each unit equating to $15 billion, and an overall total of some $76 billion for all 26 rigs. There is also a clause for a possible reduction in dayrates which would reduce the total charter spend to around $72 billion.

All the units are to be built in Brazil, some at facilities which have yet to be built, with deliveries starting from four years time to over seven years. All will also be Brazil-flagged and so will need all-Brazilian crews.

One broker told Upstream on Friday: "The rates are, in my opinion, far too low because this concession is going to take four or five years, all the local content, the operational cost in Brazil for a unit like this being about $210,000 per day, the prices at the yards are definitely going to increase a lot during construction."

Asked what would have been considered a satisfactory dayrate, the Europe-based broker replied: "$600,000 and up."

Another broker, who put the average operating daily cost for a deep-water rig off Brazil today at between $125,000 and $150,000, commented: "I think most people expected the dayrates offered to be much higher because of the risk. What was really surprising was how low they came in and comparable you could argue with rates for work anywhere else in the world."

"But the difference, of course, is that Petrobras offers long-term contracts and once you are there you suspect you might be there for some time. Long-term contracts in Brazil are worth pursuing."

The fact all the rigs have to be built in Brazil is seen as adding significantly to the construction bill. One rig broker said: "That's going to be extremely costly. You can see the construction price for a rig or boat is 70% more expensive in Brazil that, for example, in Singapore. So this is going to be an expensive game. I would not be surprised to see the construction price for these units to go past $1 billion. I'm sure the costs will increase...I am 99% sure about that."

Another UK-based broker, however, commented: "There is normally an escalation clause in any long-term contract...You are not going to persist if you don't have an escalation clause."

Apart from possible hikes in construction costs, the units have relatively distant delivery dates with the fact that some yards have yet to be built being another possible complicating factor.

"Is this risky for Ocean Rig?" posed one offshore broker. "On balance, no, assuming there is sufficient comfort in late arrival, and that has always been a problem for any yard and any contractor.

"I would have thought, given that Petrobras has stipulated that there is going to be buildings only within Brazil, that there are going to be sufficiently lenient terms there."

The issue of crewing is also going to be a factor come delivery. One broker said: "All this is a political game to force people to build in Brazil to increase Brazilian activity – which is good for the country. But it demands a hell of a workforce.

"The Brazilian crew today is 30% to 40% more expensive than in the North Sea – they used to be half – because there is a lack of crew."

The rigs will primarily be used to drill wells in Brazil's massive pre-salt oilfields.

Upstream Online -  10 February 2012