Petrobras Woes Reach Europe as Slowdown Leaves Partners Hanging

Petrobras Woes Reach Europe as Slowdown Leaves Partners Hanging

By Rodrigo Orihuela Mikael Holter

7:00 PM BRT
April 1, 2015

When Italian oil services company Saipem SpA spent $300 million at the start of the decade in Brazil, it joined a long list of foreign companies jockeying for business with Petroleo Brasileiro SA. Now it’s struggling to get paid.

Saipem is one of at least five European companies that spoke about late payments, delivery delays or other difficulties in Brazil during fourth-quarter earnings calls. While day-to-day operations are functioning, Petrobras partners are also facing decision-making obstacles that are inhibiting planning, said officials at partners Galp Energia SGPS SA, BG Group Plc and Repsol SA, who asked not to be named.

It’s a stark reversal from five years ago when a wave of European and U.S. oil-services companies eagerly flocked to Brazil to build plants and set up offices. Back then, Petrobras was ramping up investments to more than $100 million a day after making the Western Hemisphere’s biggest crude finds in decades. Today, Petrobras is slashing spending as oil prices plunge and it’s all but locked out of credit markets because of a sweeping corruption scandal.

“Brazil’s a big market,” Terje Soerensen, chief executive officer of Norwegian supply-vessel operator Siem Offshore Inc., said in a telephone interview. “When that stops, it affects the entire industry.”

Delivery Delays

Siem doesn’t know if the four to six vessels it had marked for Brazilian contracts will be needed now, Soerensen said.

Saipem executives said in a Feb. 16 earnings call that some payments from Petrobras were late. Norway’s Aker Solutions ASA CEO Luis Araujo said in a March 17 interview that the company was asked to delay equipment deliveries. Vallourec SA, a French oil-pipeline maker, and Alfa Laval AB, a Swedish oil industry engineering firm, also cited a difficult business environment in February conference calls.

U.S. oilfield-service providers Halliburton Co. and Schlumberger Ltd. echoed similar concerns. Houston-based Halliburton sees activity continuing to decline in Brazil, President Jeff Miller said in a conference call earlier this year. The spending cuts Petrobras has announced will create “challenges” this year, Schlumberger CEO Paal Kibsgaard said.

A Petrobras press officer couldn’t immediately comment. Press officers for London-based BG and Madrid-based Repsol declined to comment while a Lisbon-based Galp press officer didn’t respond to an e-mailed request.

Scandal Headwinds

Brazil’s President Dilma Rousseff said Tuesday that Petrobras’ recovery would proceed by publishing a long-delayed audited financial statement by the end of April. In an exclusive interview in the presidential palace in Brasilia, Rousseff denied that she knew about the bribery scandal that has shaken the company she chaired from 2003 to 2010. On the same day, shares and bonds rallied as the company signed a $3.5 billion lending arrangement with China Development Bank.

The fallout for European and U.S. companies shows how far the corruption scandal has spread. In addition to cutting an investment plan that was once the global oil industry’s largest, Petrobras is also selling $13.7 billion in assets.

The state-run oil producer is grappling to assess the magnitude of losses from a scandal in which some of its executives are accused of taking kickbacks from builders in exchange for awarding inflated construction contracts. That’s delaying the release of audited financial results and in turn preventing it from selling bonds overseas.

Norway’s Odfjell Drilling Ltd. last week said it may end a partnership with Galvao Oleo & Gas SA, a unit of a Brazilian holding company Grupo Galvao, and is reviewing its operations in Brazil after the company was linked to the scandal. Galvao said in an e-mailed response that it is in negotiations with the Norwegian company to undo the partnership.

Management Overhaul

“It’s a prerequisite that it can be completed in accordance with our anti-corruption guidelines and international laws and regulations,” Odfjell spokesman Gisle Johanson said by phone on March 27. “There’s great uncertainty linked to the scope and timetable for the project.”

Uncertainty for foreign suppliers will continue while they wait for Petrobras’s new management team to review contracts and investments, said Karl-Johan Bakken, chief executive officer of Farstad Shipping ASA.

Aalesund, Norway-based Farstad, which has offices in Rio de Janeiro and builds and operates support vessels for offshore fields, gets 22 percent of its revenue from Petrobras, data compiled by Bloomberg show.

“We would appreciate that this process is completed efficiently and that we get clarification soon so the market can get back to normal,” Bakken said in a phone interview.

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