ABESPetro – Price drop affects chain of suppliers of goods and services

March 30, 2020

Investment cut leads large companies, such as Schlumberger and TechnipFMC, to reduce expenses and postpone projects

The fall in the price of oil in recent weeks has led to a wave of investment cuts by global oil companies and, little by little, this movement begins to affect the chain of suppliers of goods and services. Around the world, large companies in the sector, such as Schlumberger, TechnipFMC and BW Offshore, announced cost reductions and project postponements. The expectation is that the most immediate impact of these measures will occur on unconventional production in the USA, but the director-president of the Brazilian Association of Oil Service Companies (ABESPetro), Adyr Tourinho, says that it is only a matter of time for suppliers in Brazil also feel the effects of the crisis.

Especially after Petrobras, the largest consumer of goods and services in the country, announced a 29% cut in investments in 2020, to US $ 8.5 billion. In addition to postponing exploration activities and new relevant hires, the oil company’s financial director, Andrea Marques, stated that the company started renegotiating contracts with suppliers. Suppliers say that margins have been depressed since the 2015/2016 crisis and that there is no room for price reduction.

“The oil and gas sector is globalized. It is inevitable that the impacts that are being seen abroad will happen in Brazil as well ”, says Tourinho. “It is a worrying scenario. Service companies need new projects to move forward. If they delay or become unviable, there is a retraction [in the industry]. The crisis has not yet arrived, but it is inevitable. The question is when will it arrive and what will its magnitude be, ”he said.

According to the executive, the companies that will most feel the effects of the crisis will be those that supply goods and services to mature fields, such as suppliers of subsea equipment, companies specialized in well intervention and logistical support. He points out that small and medium-sized oil companies that bet on the purchase of Petrobras’ mature fields, in recent years, must face difficulties to invest in the revitalization of these assets.

“These are companies that leveraged the acquisition, but had the expectation of frustrated cash generation. These companies are going to have difficulties ”, he predicted.

Tourinho believes, on the other hand, that the large pre-salt projects, such as Búzios and Mero, tend to be maintained, even though Petrobras eventually postpones the hiring in some months.

“Projects of great magnitude in the pre-salt layer will not disappear because they are the mainstay of the company’s cash generation in the coming years. But more marginal projects, not as attractive as these, such as those in the post-salt, may be at risk ”, he said.

Although the Brazilian industry still does not feel the effects of the crisis, Abespetro believes that layoffs and bankruptcies will eventually happen in the country as well. “Some government measures, in making labor contracts more flexible, are important as a stimulus for companies to seek alternatives to dismissal”, he defended.

Firjan’s oil, gas and naval manager, Karine Fragoso, believes that the sector will undergo a new phase of consolidation, amid the difficulties of the industry. The last crisis, between 2015 and 2016, yielded some moves in this direction, such as the merger between the global giants Technip and FMC. “The moment is an opportunity for companies that are better positioned,” he said.

Wood Mackenzie points out that the scenario of falling oil prices is “bleak” for service providers. The consultancy recalls that companies in the sector lived with low margins and excess supply, but will be further impacted by the expected 25% drop in investments in exploration and production in 2020.

“We expected growth in the floating platform market for 2020, up to 18 new contracts. Now, we hope that only a handful of them will go ahead, which would take this market to the 2015/16 levels ”, quotes the consultancy, in a report signed by analyst Mhairidh Evans.

According to Wood Mackenzie, it is possible to notice, in the USA, a drop in the prices requested by some suppliers. Tourinho, from Abespetro, in turn, argues that there is no room for further cuts in the margins in Brazil.

He also said that the sector could be affected going forward not only by the oil crisis itself, but also by health measures to combat the spread of the new coronavirus. For the executive, the restriction of the circulation of goods and people, in addition to the recommendations of the authorities to reduce the number of operational units, at one time or another, will lead to the interruption of platforms. “It is enough for the employee to present one of the symptoms to be quarantined. We are having significant casualties. There will be a time when there will not be enough staff to replenish, if this scenario continues, ”he said.

ABESPetro has sought the authorities to try to make some of the restrictions on the circulation of people and goods flexible for the oil industry. Tourinho said that President Jair Bolsonaro published a decree that recognizes the production of oil and gas among the essential activities that should have its operation protected during the pandemic. He complains, however, about the lack of convergence between the municipal, state and federal spheres. And he cites the example of the city hall of Macaé (RJ), which last week ordered the suspension of the work of oil and gas companies installed in the city and blocked access to the municipality, affecting equipment traffic.

Source: Valor

 

 

Investment cut leads large companies, such as Schlumberger and TechnipFMC, to reduce expenses and postpone projects

 

The fall in the price of oil in recent weeks has led to a wave of investment cuts by global oil companies and, little by little, this movement begins to affect the chain of suppliers of goods and services. Around the world, large companies in the sector, such as Schlumberger, TechnipFMC and BW Offshore, announced cost reductions and project postponements. The expectation is that the most immediate impact of these measures will occur on unconventional production in the USA, but the director-president of the Brazilian Association of Oil Service Companies (ABESPetro), Adyr Tourinho, says that it is only a matter of time for suppliers in Brazil also feel the effects of the crisis.

 

Especially after Petrobras, the largest consumer of goods and services in the country, announced a 29% cut in investments in 2020, to US $ 8.5 billion. In addition to postponing exploration activities and new relevant hires, the oil company’s financial director, Andrea Marques, stated that the company started renegotiating contracts with suppliers. Suppliers say that margins have been depressed since the 2015/2016 crisis and that there is no room for price reduction.

 

“The oil and gas sector is globalized. It is inevitable that the impacts that are being seen abroad will happen in Brazil as well ”, says Tourinho. “It is a worrying scenario. Service companies need new projects to move forward. If they delay or become unviable, there is a retraction [in the industry]. The crisis has not yet arrived, but it is inevitable. The question is when will it arrive and what will its magnitude be, ”he said.

 

According to the executive, the companies that will most feel the effects of the crisis will be those that supply goods and services to mature fields, such as suppliers of subsea equipment, companies specialized in well intervention and logistical support. He points out that small and medium-sized oil companies that bet on the purchase of Petrobras’ mature fields, in recent years, must face difficulties to invest in the revitalization of these assets.

 

“These are companies that leveraged the acquisition, but had the expectation of frustrated cash generation. These companies are going to have difficulties ”, he predicted.

 

Tourinho believes, on the other hand, that the large pre-salt projects, such as Búzios and Mero, tend to be maintained, even though Petrobras eventually postpones the hiring in some months.

 

“Projects of great magnitude in the pre-salt layer will not disappear because they are the mainstay of the company’s cash generation in the coming years. But more marginal projects, not as attractive as these, such as those in the post-salt, may be at risk ”, he said.

 

Although the Brazilian industry still does not feel the effects of the crisis, Abespetro believes that layoffs and bankruptcies will eventually happen in the country as well. “Some government measures, in making labor contracts more flexible, are important as a stimulus for companies to seek alternatives to dismissal”, he defended.

 

Firjan’s oil, gas and naval manager, Karine Fragoso, believes that the sector will undergo a new phase of consolidation, amid the difficulties of the industry. The last crisis, between 2015 and 2016, yielded some moves in this direction, such as the merger between the global giants Technip and FMC. “The moment is an opportunity for companies that are better positioned,” he said.

 

Wood Mackenzie points out that the scenario of falling oil prices is “bleak” for service providers. The consultancy recalls that companies in the sector lived with low margins and excess supply, but will be further impacted by the expected 25% drop in investments in exploration and production in 2020.

 

“We expected growth in the floating platform market for 2020, up to 18 new contracts. Now, we hope that only a handful of them will go ahead, which would take this market to the 2015/16 levels ”, quotes the consultancy, in a report signed by analyst Mhairidh Evans.

 

According to Wood Mackenzie, it is possible to notice, in the USA, a drop in the prices requested by some suppliers. Tourinho, from Abespetro, in turn, argues that there is no room for further cuts in the margins in Brazil.

 

He also said that the sector could be affected going forward not only by the oil crisis itself, but also by health measures to combat the spread of the new coronavirus. For the executive, the restriction of the circulation of goods and people, in addition to the recommendations of the authorities to reduce the number of operational units, at one time or another, will lead to the interruption of platforms. “It is enough for the employee to present one of the symptoms to be quarantined. We are having significant casualties. There will be a time when there will not be enough staff to replenish, if this scenario continues, ”he said.

 

ABESPetro has sought the authorities to try to make some of the restrictions on the circulation of people and goods flexible for the oil industry. Tourinho said that President Jair Bolsonaro published a decree that recognizes the production of oil and gas among the essential activities that should have its operation protected during the pandemic. He complains, however, about the lack of convergence between the municipal, state and federal spheres. And he cites the example of the city hall of Macaé (RJ), which last week ordered the suspension of the work of oil and gas companies installed in the city and blocked access to the municipality, affecting equipment traffic.

 

Source: Valor

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