Struggling owners of offshore support vessels (OSVs) can glean some kernels of optimism from Brazil’s 14th oil-and-gas licensing round, set for 27 September, as it promises a rise in vessel demand.
Reductions in local content rules, especially, could prove to be a boost for foreign investments in Brazil and pave the way for an eventual “OSV comeback”, says Clarksons Research this week.
However, with the oversupply of domestic OSVs and scores of foreign units in lay-up in the area, it may take quite some time to see an actual material impact for ships, says Westshore Shipbrokers.
The importance of Brazil to the global offshore maritime sector should not be underestimated, as it has accounted for about 10% of total global exploration and production (E&P) spending in some years before the downturn.
The onslaught of the sector crisis and the debilitating effect of the corruption scandal at Petrobras have both gutted spending. This has in turn cut rig and OSVs fleets by 60% and 30%, respectively, from their peaks, says Pareto Securities.
Despite these setbacks, the Brazilian sector is still set to turn out nearly 10% of global offshore oil production this year and, for September, is home to 6% of all anchor handling tug supply (AHTS) vessels and 15% of all platform supply vessels (PSVs), says Clarksons.
Various analysts, such as those at Pareto, have pointed specifically to an eventual uptick in the Brazilian offshore market as one of the key catalysts in a recovery for OSVs.
The National Agency of Petroleum, Natural Gas and Biofuels (ANP) runs the licensing rounds and implements regulations set by the National Energy Policy Council (CNPE).
“Brazil is experiencing the greatest transformation that [its] oil and gas sector has ever had. It will lead to a diverse and competitive market. Companies interested in Brazil have the largest window of opportunity in decades,” said the ANP of the 14th round.
The CNPE’s move to cut local content rules is one the core measures meant to boost foreign investment. Offshore local-content requirements have been cut by 18% for exploration, 25% for well construction and floating production units, and 40% for systems such as waste management, says the ANP.
The Clarksons analysts flag up these content changes as big plus, while pointing out that vessel blocking rules are not changing.
“The upcoming licensing round brings with it an alleviation of strict local content rules. The impact this will have on the OSV sector, however, may not necessarily be the knockout for which many are hoping,” said the Clarksons analysts.
The ANP says that by the end of May 2017, exploration and production (E & P) contracts were in place on more than 700 Brazilian areas, with about 300 of those in the exploration phase and around 400 in the production and development phases. About 95 “economic groups” were operating, which now includes 48 foreign companies.
However, the ANP says the potential for development is high, as Brazil has only about 30,000 wells in comparison with more than one million wells in the US.
The ANP has estimated that the upcoming bidding rounds could bring in potential new investments of about $80bn. It says this could include the creation of more than 300 new offshore wells, which must be drilled by more than 20 rigs simultaneously and supported by three to four times as many OSVs. It could also mean 1,100 kilometres of flowlines and 600 kilometres of pipelines, which must be installed by offshore vessels.
As of this week, the ANP is listing 32 energy companies, out of 36 applicants, as qualified to bid in Brazil’s 14th licensing round. These include ExxonMobil, Shell, BP, Total, Murphy, CNOOC, Petronas, Wintershall and Rosneft. The 13th round in 2015 had 37 registered bidders.
Westshore analyst Inger-Louise Molvaer is positive about the potential benefits but remains reserved on the actual timing from the perspective of global OSV owners.
“Any meaningful impact for the OSVs as a result of the 14th round is far, far off in the distance. Between now and then we have seismic to shoot, environmental surveys galore, and more regulation than you can shake a stick at,” Molvaer told TradeWinds this week.
“Though the fundamentals of offshore Brazil remain tantalisingly true — ie that, if fully realised, the potential of Brazil’s offshore basins could provide a massive boost to demand for rigs, vessels and a number of other offshore services — the reality is that there are still more Brazilian-flagged vessels than needed.”
While it will be some time before the Brazilian market will need non-domestic tonnage, Molvaer questions whether foreign owners will be willing to take a chance after being kicked off of long-term charters by local tonnage earlier in the downturn.
“Promises of a clearer regulatory climate are as yet still promises. Will owners take the bait when the time comes and sign up their vessels for two-year or four-year charters? Or will the bad taste linger in their mouths from the vessel blockings?" she asked.
"Offshore Brazil might be the elephant in the room but for the time being it’s kind of keeping to its own devices.”
