Page 8: of Marine Technology Magazine (January 2015)

News & Analysis Impact of $50 Oil &

Petrobras Implosion on Contracting in the Floating Production Sector

By Jim McCaul he drop in oil/gas prices and ongoing implosion in targeted companies. Common sense dictates it’s time to get

Petrobras have combined to create a perfect storm in on with normalizing business.

the deepwater sector. More than 170 projects involving The perfect storm will also not cause the market in 2015

T oil production ? oaters and 35 ? oating liquefaction projects are to come to a standstill – like what happened in 2008/09.

in the planning stage. But oil company capital budgets are be- Our analysis indicates that, while the near term market has ing trimmed to offset the downturn in revenue and investment clearly taken a hit from oil pricing and Petrobras problems, decisions are being deferred until oil pricing rebounds -- and things are not as bad as they appear. Unlike 2008/09, when the investigation involving Petrobras is impacting its ability to the ? nancial collapse caused a hiatus of 12 months in orders order new production ? oaters. for ? oating production equipment, ? oater contracts during

While this perfect storm is clearly causing anxiety through- 2015 will not dry up. More than a dozen ? oating production out the deepwater supply chain, it is a short term event – a projects in the advance planning stage have reasonable like- bump in the road, in our view lihood to move to EPC contracting for production facilities

The recent drop in oil prices clearly lowers near term cash within this year. These projects are likely to produce orders ? ow and impacts the ability to fund capital spending. But for 3 to 5 FPSOs in Brazil, 2 FPSOs in Africa, an FLNG in investment decisions in major offshore projects are based on Africa, a production semi in the GOM and several FSOs in SE a long view of oil and gas prices. No one expects oil and gas Asia – all within 2015. Details for 2015 expected orders are prices to remain at the level they have dropped to over the in the January IMA/World Energy Report. past few months. The futures market, for example, is pricing But the pressure on reducing project cost will be intense over crude eight years out at $25 more that the current spot price. the next year at all levels of the ? oater supply chain -- and,

Demand and supply fundamentals have not really changed. as workload slows, the balance in negotiating power in EPC

What we have is a short term out-of-balance in supply and contracts will tilt in favor of ? eld operators. This will force demand. This will self-correct. The question is when (not suppliers to be more ? exible in pricing, cause pro? t margins whether) prices will rebound to a higher level. to fall and require expenses to be trimmed wherever possible.

As for Petrobras, the company will sooner or later resolve its ? nancial and contracting issues. Petrobras is a powerful company with 14 billion barrels of proved oil reserves. It is

Get the Report a technology leader in the deepwater sector. The issues that caused the implosion will be resolved and the company will

For information about the WER For information about the WER reports please see reports please see get back to implementing its business plan to grow oil produc- https://www.worldenergyreports.https://www.worldenergyreports.

tion over the next ? ve years. For starters, within the next com/reports. com/reports. few weeks Petrobras will likely lift the constraints imposed on who can bid for contracts. Prohibiting virtually all of its

Or if you would like to discuss this Or if you would like to discuss this note, please contact Jim McCaul at note, please contact Jim McCaul at major local suppliers (plus SBM) from bidding on new con- [email protected]. [email protected]. tracts is hurting Petrobras as much as (maybe more than) the

January/February 2015

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