Understand the SBM leniency agreement and how it affects the FPSO market

July 26, 2018


The FPSO Cidade de Ilhabela had 12 modules and integration done at the Brasa Shipyard, in Rio de Janeiro.


The agreed leniency agreement between SBM Offshore and the Ministry of Transparency (CGU) and the Federal Attorney General’s Office (AGU) will have a direct impact on the Mero II FPSO tender, which is being contracted by the Libra consortium (Petrobras, Shell, Total , CNPC and CNOOC) and is expected to start operating in 2022. The consortium would receive proposals for the contracting of the production unit on July 29, but ended up delaying the competition by October 15.

The bidding now changes scenery. With the entry of SBM Offshore in the match, the strategies will certainly be reviewed. In addition to the large experience in supplying large production units – Mero 2 will have the capacity to produce 180,000 barrels per day of oil and compress 12 million m3 / day of natural gas – the company has a great knowledge of the Brazilian market, being a partner of the Brasa Shipyard, in Niterói, where they build modules and made integration of three FPSOs chartered by Petrobras.

Come October the companies will submit two proposals for the construction of the FPSO, one with high local content and another with reduced local content. The competition is more intense with the entry of SBM, since the company has built more than six modules for the Saquarema, Maricá and Ilhabela FPSOs. It is therefore likely that Modec, Exmar and other competitors will review their proposals.

In the end, better for the Libra consortium, which may be able to negotiate a better price. It can also be good for the Brazilian shipbuilding industry, since SBM builds modules and integrates into its own shipyard here. And the company tends to want to make its yard viable.

SBM is responsible for seven FPSOs currently operating in the country, six of which are chartered by Petrobras and one by Shell. Data from the National Petroleum Agency (ANP) indicate that the units account for the production of 666 thousand barrels per day of oil and 21 million m3 / day of natural gas.

New command

 In March, SBM Offshore changed command in Brazil. Eduardo Chamusca, who was the General Manager of OPS, a joint venture between SBM Offshore and Sonangol, based in Angola, replaced Oliver Kassam, who had been in charge of the company since August 2015 and recently took over as Airborne Oil & Gas.

The SBM itself admitted in its annual result for 2017, that the situation in Brazil remained complex and that it could not guarantee that a satisfactory solution would be reached. The company also said it could not estimate deadlines for changes in the current situation. SBM closed a leniency agreement with the MPF, but the agreement was not approved by the 5th Coordination and Review Chamber of the Federal Public Ministry in September 2016.

Since then, the company has been struggling to get the agreement and to again sign contracts with Petrobras. Petrobras itself wanted SBM as a supplier. In September of 2015, it again invited the company to participate in the bids, but conditioned the signing of the contracts to the leniency agreement.

And it’s easy to understand why Petrobras wants to have SBM Offshore compete. SBM and Modec are the two largest FPSO charter companies in the world and are targeting large production units, such as the 180,000 barrels per day platforms being used in the pre-salt.

Modec is today the main competitor of SBM and has taken the last large platforms chartered by Petrobras. The exception is the  Búzios 5, which had the lowest price offered by Exmar, which has no experience with production units with capacity for 180 thousand barrels per day.

The new management of SBM Offshore will also need to prepare the company for the tenders of foreign oil companies in the country. Statoil already signals that it intends to develop block BM-S-8, in the pre-salt of the Santos Basin, to produce from 2023/2024, which may indicate a bid for 2020. For now the company will use an FPSO in the development of production, as was Petrobras’ original plan prior to the sale of the area.

Another company that may demand production unit in the short term is Shell, which will develop with Total the Gato do Mato project in the Santos Basin. The company is already preparing for next year’s drilling campaign to delineate the discoveries with the unitized area auctioned last year.

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