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Supply Chain Opportunities within
Petrobras Country, Industry, Market Overview and Supply Chain
Feasibility Study by Universal Consensus
By: Andreas Fried, M.Sc.,
About the Author: Andreas Fried is the Director of Business Development & Strategic Client
Services at Universal Consensus, LLC and Board Member of the Swedish American Chamber of
Commerce, San Diego.
Connect on LinkedIn: http://www.linkedin.com/in/andreasfried
August 29, 2011
www.universalconsensus.com
© Universal Consensus 2011-2012
Page 2 of 71
Universal Consensus
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services. Universal Consensus’ proprietary model, the Business Model of Intercultural Analysis
(BMIA™), was developed to drive significant business and organizational results. This model has
been used to develop a quantifiable return on investment for clients who are struggling in the
underdeveloped field of cross-cultural supply chain management, management consulting, and
business development.
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Page 3 of 71
Executive Summary This document is a feasibility study of supply chain opportunities within Petrobras. The study
provides a background of Brazil, and a synopsis of the Brazilian oil market, Petrobras, and
Petrobras supply chain opportunities.
Petróleo Brasileiro S.A., better known as Petrobras (NYSE: PBR), is an oil giant, the largest company
in Latin America, and the 34th largest company in the world. Petrobras plans to spend $224.7 billion
in their supply chain from 2011-2015. The possibilities for entry into the Brazilian market, due to
this corporate monster’s resources, are astounding. Due to Brazilian bureaucracy and trade
regulations, the challenges of entering the Brazilian market are equally staggering without access to
the right deal and transition team.
Petrobras plans to double its proved reserves through 2020 and will by then be one of the largest
companies in the world. In order to achieve this, Petrobras needs massive investments in its supply
chain. Some estimates put the total required supply chain spending at $1 trillion.
Recent legislation requires Petrobras to have local content of up to 70% in their supply chain. As a
result, it is currently experiencing a severe supply chain bottleneck. We intend to relieve this
bottleneck by helping our American clients to take part in some of this $1 trillion need and at the
same time utilize this opportunity to satisfy a need for our clients to emerge in Brazil, to take their
place in one of the fastest growing economies in the world.
We have assembled a team of some of the most renowned international attorneys, bankers, tax
advisors, investment advisors, deal brokers, and cross cultural experts in the United States. Should
this feasibility study interest you, we would like to meet with you for a complimentary session to
give you the opportunity to ask questions and to further explore this opportunity.
The objectives of this feasibility study are to:
Provide background information on Brazil, Petrobras and the Brazilian oil industry
Identify general and projected oil industry supply chain problems.
Outline Petrobras supply chain
Identify current bottlenecks in Petrobras’ supply chain
Describe opportunities for U.S. companies in Petrobras’ supply chain
Page 4 of 71
Table of Contents Executive Summary ................................................................................................................................................................ 2
Brazil ............................................................................................................................................................................................. 8
Introduction .......................................................................................................................................................................... 8
Politics ..................................................................................................................................................................................... 8
Economy ................................................................................................................................................................................. 9
Brazil’s Industry, Resources, and Technology ...................................................................................................... 10
Doing Business in Brazil ................................................................................................................................................ 11
Challenges ....................................................................................................................................................................... 11
Distribution and Sales Channels ............................................................................................................................ 12
Selling in Brazil ............................................................................................................................................................. 12
Law 12.349 .................................................................................................................................................................... 13
Establishing Operations ............................................................................................................................................ 14
Getting Paid .................................................................................................................................................................... 14
2014 World Cup and 2016 Olympics........................................................................................................................ 14
Brazil’s Fuel and Energy Sector ....................................................................................................................................... 15
History ................................................................................................................................................................................... 15
Energy Reserves ................................................................................................................................................................ 16
State Owned Enterprises (SOE) .................................................................................................................................. 17
Government Policies........................................................................................................................................................ 18
Local Content Requirement - Prominp ............................................................................................................... 18
Exploration - Pre-salt Legislation .......................................................................................................................... 20
Industry Organizations................................................................................................................................................... 21
Brazil's National Petroleum Agency ..................................................................................................................... 21
Brazil’s National Energy Council ........................................................................................................................... 21
Brazilian Petroleum Institute (IBP) ..................................................................................................................... 21
National Organization of the Oil Industry (ONIP) .......................................................................................... 21
Refining Capacity .............................................................................................................................................................. 22
Local Demand ..................................................................................................................................................................... 22
Petrobras in Brazil ................................................................................................................................................................ 24
Overview .............................................................................................................................................................................. 24
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Finances ................................................................................................................................................................................ 26
Financial Performance ............................................................................................................................................... 26
Management................................................................................................................................................................... 27
Reserves ............................................................................................................................................................................... 29
National Sentiment .......................................................................................................................................................... 30
Workforce ............................................................................................................................................................................ 30
Petrobras Internationally ................................................................................................................................................... 31
International Operations ............................................................................................................................................... 31
South America ............................................................................................................................................................... 31
Africa ................................................................................................................................................................................. 31
China.................................................................................................................................................................................. 32
India ................................................................................................................................................................................... 32
Petrobras’ Strategy 2011-2015 ....................................................................................................................................... 33
Overview .............................................................................................................................................................................. 33
Investments ......................................................................................................................................................................... 35
Petrobras’ Supply Chain – Best Prospects ................................................................................................................... 36
Background ......................................................................................................................................................................... 36
Demand ................................................................................................................................................................................. 36
Supply Chain Challenges ................................................................................................................................................ 36
Petrobras Supply Chain Challenges ...................................................................................................................... 37
Brazil Supply Chain Challenges .............................................................................................................................. 38
Infrastructure ..................................................................................................................................................................... 38
Transportation .............................................................................................................................................................. 39
Drilling & Exploration ..................................................................................................................................................... 40
New Rigs .......................................................................................................................................................................... 40
Drilling and Production Units ................................................................................................................................. 41
Critical Equipment Exploration and Prospecting ........................................................................................... 42
Critical Exploration & Prospecting Services: .................................................................................................... 43
Price and Delivery Terms ......................................................................................................................................... 44
Ships and Support Vessel .............................................................................................................................................. 45
Petrobras’ Fleet Modernization and Expansion Program – PROMEF I and II: ................................... 45
Page 6 of 71
Petrobras Maritime Market Trends ..................................................................................................................... 47
Recent Maritime Deals ............................................................................................................................................... 47
Unspecified Demand ................................................................................................................................................... 48
Supplier ................................................................................................................................................................................. 49
Finance and Investments ............................................................................................................................................... 49
Supply Chain Financing ............................................................................................................................................. 49
Risk and Diversification - Supply Chain Acquisitions ................................................................................... 50
Petrobras Finance Company – PICFCo ................................................................................................................ 50
Insurance .............................................................................................................................................................................. 51
Human Resources ............................................................................................................................................................. 51
Human Resource Demand ........................................................................................................................................ 52
Training ............................................................................................................................................................................ 53
Worker Safety & Health ............................................................................................................................................. 53
Procurement ....................................................................................................................................................................... 54
U.S.-Brazil Differences ................................................................................................................................................ 54
Procurement Process ................................................................................................................................................. 54
Procurement Portal..................................................................................................................................................... 55
Local Content ................................................................................................................................................................. 55
Pipelines, Refining & Petrochemicals ....................................................................................................................... 56
Downstream Best Prospects: .................................................................................................................................. 56
Refining ............................................................................................................................................................................ 56
Petrochemicals .............................................................................................................................................................. 57
Biofuels ............................................................................................................................................................................. 57
Pipelines .......................................................................................................................................................................... 57
Research & Development .............................................................................................................................................. 57
UFRJ Technology Park ............................................................................................................................................... 58
Supply Chain Material and Equipment Development ................................................................................... 58
Environmental Technology, Safety & Security ..................................................................................................... 59
Environmental Technology – Distribution ........................................................................................................ 59
Accident Prevention.................................................................................................................................................... 59
Distribution & Terminals ............................................................................................................................................... 59
Page 7 of 71
O&G Terminals .............................................................................................................................................................. 59
Gas Station Network ................................................................................................................................................... 60
Sources ....................................................................................................................................................................................... 66
Disclaimer ................................................................................................................................................................................. 71
Page 8 of 71
Brazil
Introduction Brazil, with more than 200 million people
and an area roughly the size of the U.S.,
underwent more than half a century of
populist and military government until
1985 when the military regime peacefully
yielded power to civilian rulers. Brazil was
plagued by high inflation in the early 1990s
but stricter financial policies and increased
wealth based on vast natural resources has
spurred Brazilian growth. Brazil also
escaped relatively unharmed from the
financial crisis. 1 A highly unequal income
distribution and a high crime rate as well as
a high taxation level (38% of GDP) and
significant bureaucracy remain pressing
problems.2 The challenges associated with
doing business in Brazil have kept many companies from entering the country. Subsequently, lack
of international competition now presents an excellent opportunity for U.S. companies to capitalize
on growth opportunities in Brazil and gain an early-mover advantage – with the right team in place
to make it happen.
Politics Brazil is a federal republic with two Chambers. The President of Brazil is both head of
state and head of the government. The president is elected to a four-year term by the people. Brazil
has a multi-party system. Parties often fail to claim majority power without forming cross-party
coalitions. The next presidential and general election is in 2014.3
Brazilian politics is divided between internationalist liberals and statist nationalists. The first group
consists of politicians which argue that the internationalization of the economy is essential for the
development of the country, while the other group rely on interventionism, and protection of state
enterprises. Fernando Henrique Cardoso’s administration is an example of the first group and Lula
1 https://www.cia.gov/library/publications/the-world-factbook/geos/br.html 2 http://www.heritage.org/index/Country/Brazil 3 DOC: Country Guide Brazil 2011. 4 http://terramagazine.terra.com.br/interna/0,,OI4683023-EI6578,00-
Page 9 of 71
da Silva’s administration as an example of the second. The shift between right and left wing has
often been cyclical.
Socialist president Dilma Rousseff of the Worker’s Party (PT, Partido dos Trabalhadores), who took
office on January 1, 2011, has indicated her intention to continue the former president Lula da
Silva’s economic policies, including sound fiscal management, inflation control, and a floating
exchange rate. PT changed its political orientation (from a far-left socialist to a centre-left social-
democratic party) after Lula was elected.4 The main challenger to the ruling PT is the Brazilian
Social Democracy Party (PSDB). PSDB has also moved to a more centrist role in the last decades.5
Due to the fragmented landscape of Brazilian political parties like PSDB often form a collation with
a center-right-wing party, such as the Democrats (PFL).6
President Rousseff has failed in polls in mid-2011 and been forced to fire two ministers on charges
of corruption. Furthermore, defense minister Nelson Jobim was fired in August 2011 after
criticizing Rousseff’s cabinet and calling two female ministers “idiots”. An August poll showed
Rousseff having a 49% approval rating; Lula da Silva left office with an 83% approval rating.7 Lula
da Silva says he has no plans to run for office in 2014 and that he chosen his successor in Dilma
Rousseff.8
Economy Brazil’s economy has historically been based on commodities exports of wood, livestock, sugar,
gold, rubber, and coffee. During 1968-1973 GDP
growth averaged more than 11% annually as
the country was rapidly being industrialized
and the economy diversified. The economy
cooled to an annual growth rate of 6% between
1974 and 1980, mainly because of increased
costs of
imported oil.
The Brazilian
economy has always been subject to high inflation. Even as
economic growth surged in the mid-1980s, triple-digit inflation
persisted. In 1990, recession hit and GDP fell by an
unprecedented 4%. In 1994 inflation peaked at 2,700%. That
year, the finance minister, Fernando Henrique Cardoso (later
4 http://terramagazine.terra.com.br/interna/0,,OI4683023-EI6578,00-PT+ainda+e+esquerda+no+Brasil+analisa+sociologo.html 5 http://www.psdb.org.br/ 6 http://www.dem.org.br/ 7 http://www.wsvn.com/news/articles/world/21005028113348/ 8 http://www.reuters.com/article/2010/02/19/brazil-lula-idUSN1910259620100219
Page 10 of 71
president – see oil and gas sector history section), introduced a new currency, the Real, and a new
economic plan called the Real Plan. The plan featured privatization of state-owned industries,
lowering of tariffs, and counter inflation-measures. Inflation dropped to 6.9% by 1997, and has
since remained in single digits.9
Brazil boosted 2010 growth of 7.5%. The 2011-2015 forecasts are 4% to 5% annual growth. The
economy is the world’s eighth-largest and is expected to rise to fifth within a few years. Surging
exports, increased consumer spending and social programs have fueled the economy. As millions
have been lifted from poverty and GDP per capita has risen, domestic consumption has become a
major growth driver. Rising wages and high commodities prices combined with a laxer fiscal policy
has pushed inflation above 6%.10
Since domestic savings are not sufficient to sustain long-term high growth rates, Brazil must
continue to attract FDI, especially as the government plans to invest billions of dollars in the energy
and infrastructure sectors over the next few years. The U.S. is the main foreign direct investor in the
Brazilian economy. FDI in the Brazilian economy grew 85% annually in 2009-2010. This made
Brazil leapfrog from 15th to 5th place in terms of the world’s FDI-recipients.11
President Rousseff will continue to make economic growth and low inflation top priorities. Interest
rates remain among the highest in the world in a bid to cool inflation. To increase exports, the
government is seeking access to foreign markets through trade negotiations and increased export
promotion as well as measures to promote exports and local content requirements.12 No major
initiatives are underway to deal with stifling trade rules and bureaucracy. As mentioned, Rousseff
has spent her first year in office having to handle three major corruption scandals in her cabinet
with two more scandals underway. Rousseff has been tougher on graft than her predecessor, Lula
da Silva.13
Brazil’s Industry, Resources, and Technology Brazil's economy is based on industries such as automobiles and parts, machinery and equipment,
textiles, shoes, cement, computers, aircraft, and consumer durables. Brazil continues to be a major
world supplier of commodities and natural resources. Brazil also has a diverse and sophisticated
services industry, including developed telecommunications, banking, energy, commerce, and
software sectors. The largest financial firms are Brazilian (and the two largest banks are
government-owned), but U.S. firms have an important share of the market.14
9 http://www.nationsencyclopedia.com/Americas/Brazil.html 10 DOC: Country Guide Brazil 2011. 11 United Nations Conference on Trade and Development: World Investment Report 2011. 12 DOC: Country Guide Brazil 2011. 13 http://news.yahoo.com/political-scandals-economy-toll-brazils-rousseff-185854963.html 14 DOC: Country Guide Brazil 2011.
Page 11 of 71
The Brazilian railroad industry was privatized and an effort is in place to deal similarly with a
deteriorating national highway system (Brazil has half the mileage of paved roads of the U.K.
despite being the size of the U.S).15 New opportunities are also expected to arise with the opening of
the Brazilian civil airports to private management and investment. 16
Doing Business in Brazil
Challenges There are a number of challenges in the Brazilian market, including uneven income distribution,
below average public education, high market power concentration, and an informal economy as
well as numerous burdensome fees, rules and regulations, especially for trade and customs. As
always, you need intimate knowledge of the local environment and culture, including the implicit
costs of doing business (referred to as the “Custo Brasil”). Implicit costs are often related to
distribution, government procedures, employee benefits, and environmental laws.18 The Universal
Consensus team has been developed, in part, to advice on these issues.
Distribution channels are fragmented; it is estimated that a container in Rio sits four time as long on
the wharf as a container in Rotterdam due to logistics
bottlenecks. 19 In addition the trade barriers are
significant and the legal system has a lengthy process
for enforcing IP-rights and commercial law. Heavy taxes
increase consumer prices up to 100%, while
bureaucratic procedures and onerous product licensing
also raise costs. The World Bank ranks Brazil 127 out of
183 economies in the world in terms of ease of doing
business. The challenges have kept many companies
from entering the country. Subsequently, lack of international competition now presents an
excellent opportunity for first-mover advantage by U.S. companies.
15 http://online.wsj.com/article/SB10001424053111904823804576504641852736916.html?KEYWORDS=brazil+paved+roads 16 DOC: Country Guide Brazil 2011. 18 DOC: Country Guide Brazil 2011. 19http://online.wsj.com/article/SB10001424053111904823804576504641852736916.html?KEYWORDS=brazil+paved+roads
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Administrative measures; the resources required or quality rating.
Distribution and Sales Channels Brazilian importers generally do not maintain inventory of capital equipment, spare parts, or raw
materials, partly because of high import and storage costs. Bonded warehouses are a way to
circumvent this. The importer or the distributor is responsible for support and after sales services
in accordance with Brazil’s consumer protection law.20
Selling in Brazil Price and payment terms are the most important sales factors. To be competitive, U.S. companies
should adapt their products to local technical requirements and local culture. Emphasizing product
quality, customer service, and warranty terms are key factors for U.S. companies. Payment terms
20 MOITI: Doing Business in Brazil.
Starting a Business Protecting Investors
Procedures (number) 15
Time (days) 120
Cost (% of income per capita) 7.3
Paid-in Min. Capital (% of income per capita) 0.0
Extent of disclosure index (0-10) 6
Extent of director liability index (0-10) 7
Ease of shareholder suits index (0-10) 3
Strength of investor protection index (0-10) 5.3
Dealing with Construction Permits Paying Taxes
Procedures (number) 18
Time (days) 411
Cost (% of income per capita) 46.6
Payments (number per year) 10
Time (hours per year) 2600
Profit tax (%) 21.4
Labor tax and contributions (%) 40.9
Other taxes (%) 6.7
Total tax rate (% profit) 69.0
Registering Property Trading Across Borders
Procedures (number) 14
Time (days) 42
Cost (% of property value) 2.7
Documents to export (number) 8
Time to export (days) 13
Cost to export (US$ per container) 1,790
Documents to import (number) 7
Time to import (days) 17
Cost to import (US$ per container) 1,730
Getting Credit Enforcing Contracts
Strength of legal rights index (0-10) 3
Depth of credit information index (0-6) 5
Public registry coverage (% of adults) 26.9
Private bureau coverage (% of adults) 53.5
Procedures (number) 45
Time (days) 616
Cost (% of claim) 16.5
Closing a Business
Recovery rate (cents on the dollar) 17.1
Time (years) 4.0
Cost (% of estate) 12
Page 13 of 71
are very important in Brazil because of the country’s high interest rates. In fact, it is not unusual for
a local company to select a U.S. supplier with higher prices but better finance terms.
Import-related costs are generally high because of import duties and taxes; an on-the-ground
presence in Brazil is preferable. In addition, Brazilian buyers prefer to purchase from companies
with a local presence as they believe that this will be a guarantee for high quality in after-sales and
support activities.21
Advance descriptions of U.S. suppliers' capabilities can prove influential in winning a contract, even
when they are provided before the exact terms of an investment plan are defined or the project's
specifications are completed. Such a proposal should include financing, engineering, and equipment
presentations.22
Brazilians are a friendly people and they may soon take on more of the persona of a friend than a
business contact. You may be entrusted with confidential information significantly soon than you
would in the United States. This is especially true when meeting with junior management or other
stakeholders that are not necessarily decision-makers.23
The selling factors listed above are merely a selection of important considerations related to doing
business in Brazil; Universal Consensus and our team can give you the full scope.
Law 12.349 Law 12.349, enacted in December 2010, provides preferential treatment for domestic suppliers
over foreign firms in public procurement, even if the Brazilian company’s prices are up to 25%
higher. The preference applies to government procurement at all levels. As a consequence, U.S.
companies may find it preferable to be associated with a local firm or have local presence.
Government procurement of foreign telecommunications and IT is exempt from Law 12.349.24
Law 12.349 was enacted as a response to several factors which have been unfavorable for
Brazilian-made products. The Brazilian Real has appreciated nearly 50% against the dollar in
recent years which has pushed domestic labor costs (and subsequent payroll tax costs) significantly
higher. As a result, the government in early August unveiled a plan to further support local products
through temporary tax cuts (for example on skilled services payroll-taxes) and increased local
public spending. The move comes after recent data for industrial production in Brazil showed
significant problems for local manufacturers.
21 http://thebrazilbusiness.com/article/5-secrets-about-business-in-brazil 22 DOC: Country Guide Brazil 2011. 23 http://thebrazilbusiness.com/article/5-secrets-about-business-in-brazil 24 DOC: Country Guide Brazil 2011.
Page 14 of 71
Establishing Operations It takes an average of 15 procedures and 120 days to start a new business. The annual
administrative burden to a medium-size business of tax payments in Brazil is an average of 2,600
hours versus 199 hours in the OECD high-income economies. Taxes on commercial and financial
transactions are particularly burdensome, and businesses complain that these taxes hinder the
international competitiveness of Brazilian products.
Joint ventures are very common in Brazil, particularly as a way for foreign firms to compete for
government contracts or in heavily regulated industry sectors, such as telecommunications and
energy. Usually joint ventures are established through "sociedades anônimas" (≈corporation) or
"limitadas" (≈LP). Licensing agreements are also common in Brazil.
We have a strong and experienced team to introduce our clients to key stakeholders and steer clear
of market entry pitfalls that will substantially ease the market entry process and reduce market
entry risk.
Getting Paid In Brazil, accounts can only be kept in local currency (Brazilian Real, R$).25 Given high interest rates
and intermediary spreads, Brazilian buyers are likely to push for open account or cash up front.26
Petrobras often has 5-day payment terms for their customers.27
2014 World Cup and 2016 Olympics You cannot do business in Brazil in the coming years without considering the opportunities
presented by the upcoming World Cup in 2014 (nationwide) and Olympic Games (in Rio de Janeiro)
in 2016. Brazil will host several international sporting events leading up to the games, including the
2011 World Military Games, the 2011-2012 Pan-American Maccabi Games, and the 2013
Confederations Cup.
The Government of Brazil expects to invest $106 billion in Game preparations. Opportunities
include construction of new hotels, the renewal of stadiums, the expansion and modernization of
subways and airports, the construction of new roads, the construction of rapid transit rail lines and
the revitalization of ports. Improvements in sanitation, power, telecommunications, hospitals and
public security will also be necessary.28
25 DOC: Country Guide Brazil 2011. 26 DOC: Country Guide Brazil 2011. 27 Petrobras Procurement Document: PROCEDIMENTO LICITATÓRIO: 270-9009/11 28 TozziniFreire Advogados: Investment Opportunities In Brazilian Infrastructure.
Page 15 of 71
Brazil’s Fuel and Energy Sector
History The Government of Brazil undertook an ambitious program to reduce dependence on imported oil.
In the mid-1980s, imports accounted for more than 70% of Brazil's oil and derivatives needs; the
net figure is now close to zero.
In the 1980s and part of the 1990s, the government set artificially low prices for Petrobras' gasoline
and other products to try to cool the sky-high four-digit inflation that then ravaged Brazil. The
policy starved Petrobras of investment capital. When oil prices rose, Petrobras was selling high-
priced imported oil at a loss.
80% of Brazil's oil is offshore; Petrobras consequently began adapting land rigs for offshore
conditions. Despite the company's technical competence, its management was provincial and
sometimes undermined by politicians. The board consisted of Petrobras' top executives, and the
company's monopoly on Brazilian territory relieved it of the need to raise efficiency. The company's
international trading arm was grossly inefficient.
In 1995 Petrobras was in a state of total disorder. Newly elected president Fernando
Henrique Cardoso wanted to shake the company up. This resulted in the powerful oil-
workers union challenging him with a national strike. But the strike backfired and
public opinion swung against the status quo at Petrobras. Mr. Cardoso called his
policy for Petrobras "flexibilization." Cardoso wasn't willing to privatize Petrobras
fully, but he used market forces, like a stock flotation and foreign competition, to
make Petrobras behave more like a private company. New top management renegotiated suppliers-
deals and started an
incentive-based bonus
system for managers
and cleaned up the
books by
acknowledging billions
of dollars in pension
and health liabilities. A
2000 NYSE listing
helped improve
governance and force
further transparency.29
29 Matt Mofett: How a Sleepy Oil Giant Became a World Player. Wall Street Journal 30 Aug 2007.
Page 16 of 71
Three key milestones in Petrobras’ history are:
1953: Petrobras monopoly introduced.
1995: End of monopoly.
1997: The “Petroleum Investment Law”, which established a regulatory framework that
liberalized the oil industry.30
Energy Reserves In 2008, Brazil announced the discovery of the Tupi and Carioca oil fields off the coast of Rio de
Janeiro. Output from the existing Campos Basin and the discovery of the new fields will make Brazil
a significant oil exporter by 2015. Hydropower currently accounts for 77,000 megawatts (69%) of
Brazil’s energy supply. Brazil is also the world’s largest biofuels exporter and sugar-based ethanol
makes up over 50% of Brazil’s vehicle fuel usage.
O&G fields along the Brazilian coast.
Brazil as a whole could have a potential of 60 billion barrels of crude oil according to a July 2011
estimate, up somewhat from previous forecasts. The new estimate would take the reserve gross
value to $5.4 trillion at $90/barrel. Furthermore, Petrobras will reach its target of 2.1 million
barrels a day of average oil production in Brazil for 2011. Petrobras plans to triple production to 6
million barrels a day by 2020.
30 http://www.petrobras.com.br/pt/
Page 17 of 71
About 92 percent of Brazil’s oil production in 2010 originated from offshore fields, mostly at
extreme depths. Petrobras’ oil and gas production accounts for nearly 95 percent of Brazil’s total
production.
In 2010, Brazil exported 230,492,050 barrels
of oil (or, approximately 631,485 bpd). During
the same period, Brazil refined about 1.9
million bpd, 338,763 bpd of which were light
oil imported to mix with Brazil’s
predominantly heavy crude.31
State Owned Enterprises (SOE) Three-quarters of the world's reserves are now in the hands of national oil companies; the top
publicly owned international oil companies have direct access to only about 5% of the world's oil
reserves, with an additional 30% theoretically open through joint ventures.
Petrobras "learned over the last 10 years to think on its feet like an international oil company but
still retained the strengths and advantages of a national company," says Richard D. Taylor,
president of BP's Brazilian operations. Petrobras officials argue that the company's dual identity —
part embodiment of Brazilian nationalism, part Wall Street growth play — is an asset. "We view
ourselves a having the best of both worlds," says financial director Almir Guilherme Barbassa.32
31 http://www.petrobras.com.br/pt/ and http://www.anp.gov.br/ 32 Jenik Radon and Julius Thaler: Resolving conflicts of interest in state-owned enterprises. UNESCO.
Page 18 of 71
Government Policies Brazilian oil industry contractors are often traditional engineering/construction/service
companies, some of which have been nurtured under years of protective national development
policies. The main goals of Brazilian federal policies have been safety and sustainability, domestic
economic growth, and low levels of inflation.33
Much of the groundwork for the Petrobras’ transformation was laid under the centrist government
of Fernando Henrique Cardoso, who left office at the beginning of 2003. His successors the leftists
Lula da Silva and Dilma Rousseff have injecting a tint of politics in the company's management.34
The Brazilian government wants to avoid inflow of foreign investment that inflate the domestic
currency’s value but bring little local technological or infrastructure development to Brazil. This is a
chief reason why local content requirements have been implemented.
Petrosal Lula da Silva’s government created a new public company, dubbed Petrosal by the media, which will
own and influence the concession bidding process. The yet not fully implemented new regulatory
framework would demand that Petrosal be given Board positions in new concession consortiums,
to act as the Brazilian government representative. Petrosal would own the concessions and sell the
concession rights in order to build wealth. The wealth would be used to operate Petrosal as a
sovereign wealth fund, much like Norway’s Petoro AS. The future of Petrosal is very much in limbo;
several international investors in Petrobras have indicated they will litigate the commencement of
Petrosal.35
Local Content Requirement - Prominp Mr. da Silva initiated the requirement that Petrobras buy more Brazilian-made equipment in order
to stimulate domestic industries. Prominp – the Mobilization Program of the National Oil and
Natural Gas is the program (coordinated by the Ministry of Mines and Energy) that governs and
promotes local content requirements.36 After a couple of largely Brazilian-made rigs came in
substantially over budget during the 2000s, analysts have questioned the local content policy. The
local content policy has been one of the reasons why Petrobras’ stock performance has been
abysmal the last few years.37
The local content requirement can vary and is subject to regulatory oversight and instructions from
the National Petroleum Agency and the National Organization of the Oil Industry. Petrobras is
expected to be fined by the government in September 2011 as the company has failed to fully
33 DOC: Country Guide Brazil 2011. 34 Matt Mofett: How a Sleepy Oil Giant Became a World Player. Wall Street Journal 30 Aug 2007. 35 http://www.economist.com/node/16964094 36 http://www.prominp.com.br/ 37 Matt Mofett: How a Sleepy Oil Giant Became a World Player. Wall Street Journal 30 Aug 2007.
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adhere to local content requirements.38 In general, the local content requirement is that up to 70%
of supply chain activities must be Brazilian (performed by company incorporated in Brazil).
The government has indicated that national content requirements in exploration and production
(E&P) will rise to around 90% for pre-salt fields. Companies will have to establish significant local
presence, in particular equipment suppliers (topsides, pipes, risers, drilling packages, power
packages for offshore units), who will likely need to build production facilities in Brazil.39
As mentioned, what constitutes local content and what the requirements are varies, and is often
specified in each individual contract. But a company is deemed to be a ‘Brazilian company’ for local
content purposes if it is incorporated in Brazil. Regulators will also verify that the company is
Brazilian in the normal sense of the word (Brazilian employees and assets). Companies also need to
get a certification of local content from ONIP, the industry organization. ONIP and ANP simplified
the certification process in 2011. Fines are proportional to the missing local content investment.
Regulatory requirements are mostly governed by Resolution ANP No. 36, issued in 2007.
Prominp plan to increase local content. The plan includes incentives for new international entrants.
The local content requirement is in effect for current tenders of 19 oil rigs that have to be
completed in Brazilian shipyards. Petrobras withdrew the tender, as it did recently with a request
for new ships. Petrobras has decided to re-tender for the construction of the new rigs in order to
drive down the price.40
38 http://www.upstreamonline.com/live/article272219.ece 39 Heller Redo Barroso and Marcos Macedo: Brazilian basics. 40 http://247wallst.com/2011/07/23/stunning-petrobras-spending-224-7-billion-on-offshore-oil-pbr-ne-do-rig-hal-bhi-slb/
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Petrobras is involved within the Prominp program, as can be seen in the governance structure
below. The Prominp governance structure:41
Exploration - Pre-salt Legislation In 2010 Brazil abandoned its previous concession model for a production sharing model for the
pre-salt fields. Tendered pre-salt reserves will belong to the Brazilian government (Petrosal) and
those future pre-salt fields and areas judged strategic for the Brazilian government will be ruled
through production sharing agreements (PSAs). Petrobras will hold at least 30 percent equity in
each oil block.
Additionally, Petrobras will be the operator in all future oil fields. In specific cases, as decided by
the Brazilian National Energy Council, Petrobras may be called upon to explore selected pre-salt oil
fields without a tender process. 29 percent of the pre-salt area has been auctioned off through the
previous concession regime. The new PSA legislation will regulate the remaining 71 percent of the
pre-salt fields. Consortiums will share the produced oil with the Brazilian government and will pay
royalties. The new government company, Petrosal, will most likely demand Board seat in any PSA
consortium.42
41 http://www.prominp.com.br/ 42 DOC: Country Guide Brazil 2011.
SteeringCommittee
Oil, Natural Gas and Renewable Fuels Secretariat
Executive
Committee
Executive Coordinator
MME – Minister
MDIC – Minister
PETROBRAS –President and Services Director
ONIP – CEO/President
BNDES –President
IBP – President
MME – Oil, Natural Gas and Renewable Fuels Secretariat
MDIC – Development, Industry and International Trade
Secretariat
BNDES - Director
PETROBRAS –Engineering Executive Manager
PROMINP – Executive Coordinator
ONIP – Director
IBP – Director
Associations – President / Director (ABCE, ABDIB,
ABEMI, ABIMAQ, ABINEE, ABITAM
SINAVAL e CNI)
Sectorial CommitteeExploration
& Production
G&P and
PipelinesDownstream
Maritime
Transportation
P&G IND
Environment Thematic Committee
Technology Thematic Committee
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Industry Organizations
Brazil's National Petroleum Agency Brazil's National Petroleum Agency (Agência Nacional do Petróleo, Gás Natural e Biocombustíveis –
ANP) is the main oil industry regulatory body. It is a federal government agency linked to
the Ministry of Mines and Energy.43 ANP monitors and audit contractual local content requirements.
ANP’s role in regulatory oversight of local content in concession bids:
Brazil’s National Energy Council The Brazilian National Council of Energy Policy (Conselho Nacional de Política Energética - CNPE) is
the governmental organ responsible for developing energy policies. CNPE is formed by state
government representatives, experts in energy, non-governmental organizations and seven
ministers.44
Brazilian Petroleum Institute (IBP) The Brazilian Petroleum, Gas and Biofuels Institute (Instituto Brasileiro de Petróleo, Gás e
Biocombustíveis – IBP) is a private non-profit funded in 1957 which currently has over 200
member companies. IBP is promoting the development of Brazil’s petroleum industry aimed at an
industry competitive, sustainable, ethical and socially responsible.45
National Organization of the Oil Industry (ONIP) ONIP supports the development of a favorable environment for new investments and operations in
the Brazilian petroleum sector to promote the increase of local content on a competitive basis.
43 http://www.anp.gov.br/ 44 http://www.planalto.gov.br/ccivil_03/Leis/L9478.htm 45 http://www.ibp.org.br/
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ONIP, a private non-profit established in 1999, serves as a forum for all the companies and
government agencies involved in the oil & gas sector in Brazil.46
Refining Capacity Brazil has become increasingly dependent on imports
of refined oil products over the past few years.
Petrobras said earlier in 2011 that they are nearing
peak refinery capacity. Increased production of crude
will magnify the problem. Petrobras’ CEO
Gabrielli said it would be “suicide” not to invest in
refining capacity.
As of 2010, Brazil's refining capacity was 1.9 million
barrels per day of crude oil. Capacity is due to rise to
3.6 million barrels per day by 2015. Current crude oil
output is above 2.18 million barrels per day.
Petrobras has $40 billion allocated for the
development of refineries through 2014.47
Local Demand As more than
95% of
Petrobras’
reserves are in
Brazil and only
a fraction is
being exported,
the company is
extremely
dependent on
local demand
conditions.48
Increase in local demand will be Petrobras’ main demand driver. Petrobras said a few weeks ago
that petroleum import will have to rise to satisfy local demand as Petrobras can’t keep pace. A
major reason for Petrobras’ slow increase in production pace is the adverse impact of rising oil
46 http://www.onip.org.br/ 47 http://www.downstreamtoday.com/news/article.aspx?a_id=25760 48 http://www.petrobras.com.br/pt/
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prices on local refining costs. Higher pump prices could help to curb demand, but the government is
worried about the impact they would have on inflation.49
Local demand in relation to supply (thousand barrels per day):50
Bottleneck Sectors This chart outlines Brazilian O&G industry bottlenecks identified by ANP:
49 http://www.guardian.co.uk/business/feedarticle/9774984 50 http://www.eia.gov/
0
500
1000
1500
2000
2500
3000
2006 2007 2008 2009 2010
Demand
Supply
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Petrobras in Brazil
Overview Petrobras is a publicly-held energy company headquartered in downtown Rio de Janeiro. Petrobras
is the third biggest energy company in the world in terms of market value and in terms of proven
oil reserves. The company has 80,500 holding company employees and more than 200,000 people
working for contracted companies. Like most oil companies, Petrobras operates an integrated
business model. The company also operates in the natural gas, energy and biofuels segments.
Petrobras’ specialty is in ultra deep water oil and gas exploration. The Brazilian government is the
majority owner of Petrobras.51
Petrobras’ ownership distribution.
A decade ago, state-controlled Petrobras was such an industry laggard that it earned the
nickname Petrosaurus. Workers were 25% less productive than the industry average, and Brazil
depended on imports for nearly half its oil. Petrobras' board consisted solely of company insiders.
But introducing an independent Board of Directors and opening up the Brazilian oil market to
private competition forced Petrobras to become more productive.
Today, Petrobras boasts more crude reserves than Chevron and lower costs of finding oil than
Exxon Mobil. A threefold increase in research and development spending 2001-2006 helped
Petrobras to develop cutting-edge technology that has helped double its production over the past
decade and increased its reserves by 50 percent. 52
51 http://www.petrobras.com.br/pt/ 52 Matt Mofett: How a Sleepy Oil Giant Became a World Player. Wall Street Journal 30 Aug 2007.
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A graphical presentation of Petrobras operations:
Petrobras in comparison with its competitors:53
53 http://www.petrobras.com.br/pt/
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Annualized revenue growth comparison 2004-2009:
Finances
Financial Performance Q1 2011 net profit was up 41% from Q1 2010, mainly due to 7% domestic demand increase. The
increase would have been far bigger if gasoline prices were not influenced by the Brazilian
government. The government is constraining domestic fuel prices to combat inflation.
Petrobras leverage level (17%) is substantially
lower than their 35% leverage target, indicating
Petrobras can loan to fund growth. Petrobras
increased investment 7% in 2010, primarily to
boost production and enhance Brazilian oil-
infrastructure and logistics operations.54
Petrobras is extremely exposed to the
development of the overall Brazil economy. The
Brazil Real is the world’s most overvalued in terms
of purchasing power parity, valued 52% above
fair value. If GDP/capita is considered, the Real is
valued 150% higher than the U.S.-dollar.55
The vast majority of Petrobras’ reserves are in
Brazil and South America. International reserves
fluctuate significantly due to their small relative
size. Many analysts have criticized the company's
heavy investment in local refining capacities, which they say doesn't generate enough return for the
company. The major growth prospects outside Brazil are in Africa.
54 Petrobras: Q1 2011 Quarterly Report. 55 http://www.economist.com/blogs/dailychart/2011/07/big-mac-index
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Management
Chairman - Brazilian Finance Minister Guido Mantega
Guido Mantega is a Brazilian economist, politician and currently Brazil's Finance Minister. He has
long been associated with the left wing Workers' Party and was a key
member in the successful presidential campaign of the party's founder and
leader, Lula da Silva. A long-time advocate of more development spending
in Brazil, Mantega has presided over the country's rapid economic rebound
from a global financial crisis.
Recently there has been a heated debate in Brazil involving Guido Mantega as Petrobras’ Board
twice rejected investment plans from the company. Brazil's government - which is Petrobras'
leading shareholder - wanted the company to rein in spending to take some of the heat out of
inflation. The plan approved in late July 2011 somewhat kept the lid on spending.56
CEO - José Sergio Gabrielli de Azevedo
Sergio Gabrielli was CFO and head of IR at Petrobras for 3 years before taking over as CEO in 2005.
Mr. Gabrielli is a professor in economics. He has written several articles and
books on productive restructuring, labor markets, macroeconomics and
regional development. He got his PhD from Boston University in 1987.
During 2000-2011 he was a visiting scholar at the London School of
Economics. Mr. Gabarielli is a frequent guest-speaker at renowned business
schools. He has often encouraged use of new technology and has put that
notion into practice as CEO. He has also stressed importance of developing
international trade links with competitors to form win-win situations.
Corporate Governance
Petrobras has adopted U.S. accounting standards and faces scrutiny from analysts as one of the
most widely traded overseas issues on the NYSE. Under the company's two-tier stock structure, the
federal government maintains a slight majority of voting shares, but almost 75% of overall equity is
now in the hands of outside shareholders.
56 http://www.fazenda.gov.br/portugues/institucional/guido_mantega.asp and http://www.ft.com/cms/s/0/9fa5bd4a-cb2e-11df-95c0-00144feab49a.html
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The corporate structure (chart below) is a mix of functional and geographical departments with
elements of matrix structure.
The Company is composed of a Board of Directors and Management Committees, of an Executive
Board of Directors, an Audit Committee, Internal Auditor, a Business Committee, and of
Management Committees.
The Board of Directors is an autonomous body. It consists of nine members, elected in an Ordinary
General Meeting for a one-year term, with reelection being allowed. The Executive Board (chart
below):
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The Executive Board of Directors undertakes the Company's business, pursuant to the mission,
goals, strategies, and guidelines established by the Board of Directors. It comprises of a chairman
and six directors elected by the Board of Directors, with three-year terms, reelection being
permitted, and may be dismissed at any time. Among the members of the Executive Board, only the
president is a member of the Board of Directors without, however, presiding over the body.
There are two more strategic committees. The Business Committee acts as a forum for the
integration of relevant and strategic issues aimed to promote the alignment between business
development, company management and the strategic plan guidelines. It acts as a support
mechanism for the senior management in its decision-making processes. The Management
Committees are forums where the topics to be presented to the Business Committee can be refined
and detailed. They coordinate in an integrated and complementary manner with the Business
Committee, with the other Management Committees, and with the Board of Directors'
Committees.57
Reserves The graphic below shows current Petrobras reserves and annual changes (split per region). 95% of
Petrobras’ reserves are in Brazil, which highlights the company’s dependence on its Brazilian
operations. Other oil companies (e.g. Shell, Statoil, Anadarko, Chevron, OGX) will be investing $26
billion in Brazil from 2009 to 2013. A 2011 Booz
and Company study predicts that total
expenditure (investment and operation) in
Brazil’s oil and gas sector will reach US$400
billion through 2020.58
57 http://www.petrobras.com.br/ 58 DOC: Country Guide Brazil 2011.
Executive Board (selection) Title Primary Company Age
José de Azevedo
Chief Executive Officer, President, Member of the Executive Board, Director,
Director of Petrobras Energía Participaciones SA and Director of Petrobras
Energia SA
Petrobras 62
Almir Barbassa
Chief Financial Officer, Chief Investor Relations Officer, Member of Executive
Board, Chief Executive Officer of PIFCos, Executive Manager of Corporate
Finance of Petrobras and Director of PIFCos
Petrobras 63
Marcos MenezesChief Accountant Officer and Director of Petrobras International Finance
CompanyPetrobras 59
Daniel de OliveiraExecutive Manager of Corporate Finance, Chairman of PIFCo and Chief Executive
Officer of PIFCoPetrobras 59
Board of Directors (selection)
Guido Mantega -- Petrobras 62
Fabio Barbosa -- Banco ABN AMRO Real S.A. 56
Antonio Palocci Filho -- Petrobras 51
Jorge Johannpeter -- Gerdau USA, Inc. 73
Francisco de Albuquerque -- Petrobras 74
Luciano Galvão Coutinho Ph.D. -- Banco Nacional de Desenvolvimento Economico e Social-BNDES 65
Sergio Quintella -- Petrobras 76
Márcio Pereira Zimmermann -- Centrais Electricas Brasileiras S.A. 55
Oil Reserves 2007 2008 2009 2010
Brazil 10,819 10,274 11,563 12,138
-5% 13% 5%
Africa 66 89 116 132
35% 30% 13%
South America 769 791 448 459
3% -43% 2%
North America 50 36 16 19
-28% -56% 19%
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National Sentiment The history of Petrobras has been marked by a strong connection with its country of origin. The
creation of Petrobras in 1953, by the then President of Brazil, Getúlio Vargas, represented a
triumph for a nationalist movement known as O Petróleo é Nosso (The Petroleum is Ours). In 2009,
for the third consecutive year, Petrobras was the company with the best reputation in Brazil
according to Global RepTrak Pulse.59
Workforce Petrobras have more than 80,000 employees on staff. Working for the oil-giant is seen as
prestigious in Brazil. Petrobras employees are renowned for their technological skills and have set
a number of world records, including, at one point, the record for the world’s deepest exploration
well. Since the early 90s, one percent of Petrobras gross receipts have been earmarked for R&D.
In early July 2011, Petrobras employees voted on a strike-initiative in order to pressure Petrobras
into increased workforce revenue-sharing. Strikes are common during annual wage and profit-
sharing negotiations but aren't likely to affect the company's output or profit. The last major strike
in 2009 lasted five days and had only a minor impact on production. 60
59 Alexandre Chequer: Pre-salt past, present and future. T&B Petroleum #27. 60 http://online.wsj.com/article/BT-CO-20110628-712359.html
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Petrobras Internationally
International Operations Petrobras holds more than 100 production licenses in 27 countries in
Latin America (Argentina and Venezuela), Gulf of Mexico, and Africa
(Angola, Nigeria, Tanzania, Libya). The Bolivia pipeline strengthened
gas business in Latin America. Argentina has become the second most
important market for Petrobras following the Perez Companc
acquisition in 2002. Overseas refining capacity has gone from zero
barrels in 2000 to 126.2 thousand barrels of oil per day in 2007.61
South America From 1985 on, Petrobras shifted its focus from overseas operations in favor of neighboring South
American countries, entering Colombia (1985), Ecuador (1987) and Argentina (1989).
It was the prospect of an end to the State monopoly over the exploitation of Brazilian reserves that
spurred Petrobras to look for new business opportunities abroad. The idea was to reduce risks by
diversifying assets and markets. This new stage of internationalization for Petrobras also coincided
with the acceleration of South American economic integration brought about by the trade union
Mercosur.
Bolivia, Ecuador and Venezuela have been troublesome markets for Petrobras. In the first two,
Petrobras is at the heart of conflicts involving ownership of assets, tax burden on underground
mineral resources and social and environmental damages entailed by oil and gas exploitation.
Bolivia finally nationalized its oil industry. In Venezuela, even without the onset of actual open
conflicts, Petrobras´ investments have been affected by nationalist measures that have been
reducing the company´s profit margins and general presence in the country.62
Africa Petrobras is also looking increasingly towards Africa. Africa has 13% of the world's oil reserves.
Deepwater fields off the coast of West Africa host some of the largest and most prolific oil and gas
fields discovered over the past two decades. Furthermore, East Africa alone has reserves worth $7.3
trillion. Libya and Nigeria are the traditional African oil exporters but Angola, Chad and Equatorial
Guinea are net oil exporters. The oil boom in Angola has made Luanda the world’s most expensive
61 Andrea Goldstein: The Emergence of Multilatinas - The Petrobras Experience. UNIVERSIA BUSINESS REVIEW (2010). 62 http://noticias.uol.com.br/economia/ultnot/efe/2006/05/02/ult1767u66304.jhtm
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city to live in and the country (which is also former Portuguese colony) is expected to be one of the
fastest growing in the world.
The salt layer, a geological formation off the coast of Africa and Brazil, makes extraction in both
these regions very similar and very challenging (i.e. also expensive). The oil and natural gas lie
below an approximately 2000 m deep layer of salt, itself below an approximately 2000 m deep
layer of rock under 2000-3000 m of the Atlantic. Petrobras’ experience from Atlantic pre-salt
drilling gives it a major competitive advantage in West Africa.63
China Petrobras in 2009 signed contracts with China. One deal is with the Chinese Development Bank,
which is a clear financial agreement in which the CDB will lend $10 billion with a payback time of
10 years. Another agreement was also signed with SINOPEC and it involves the possibility of joint
ventures and evaluation of different opportunities in exploration in blocks in the northern part of
Brazil; blocks outside of Brazil; and with possibilities in petrochemicals, refining, and logistics.64
India Petrobras has been in India since 2007 and has minority stakes in some major fields. Petrobras was
in discussions with Indian conglomerate Reliance Industries a few years ago to form a partnership
in petrochemicals, but nothing came of that. Instead Reliance signed a partnership deal with BP.
The British company will get a 75% stake in some of India’s largest oil fields.65
Petrobras’ international exploration sites.
63 Africa Research Bulletin: AFRICA – BRAZIL Preparing for Deeper Involvement. 64 http://cigienergyblueprint.wordpress.com/2009/08/13/petrobras-ceo-gabrielli-on-brazil-energy-outlook-the-deal-with-china-biofuels-and-more/ 65 www.petrobras.com.br
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Petrobras’ Strategy 2011-2015
Overview Petrobras’ 2011-
2015 business plan
was released in
July 2011.
Petrobras plans to
double its proved
reserves until
2020. Between
2010 and 2015,
Petrobras will
spend $224 billion
(or $ 44.8 billion
per year), which
represents a 28.4
percent increase over its spending in its previous five-year business plan. 95% of investment
($213.5 billion) will go to activities in Brazil and 5% ($11.2 billion) to foreign operations, involving
688 projects in all, 57% of which have already been authorized for execution and implementation.
The new business plan calls for 16 floating production and offloading platforms and/or modules
and 28 offshore drilling rigs, which are currently being re-tendered. Petrobras has the highest
growth rate target of the industry as shown in the chart above.66
Petrobras will also upgrade a number of existing
refineries and will build four new refineries, including
the Rio petrochemical complex that alone constitutes
an $8.5 billion investment. Total planned expenditures
by 2014 in the entire downstream segment, including
gas pipelines and oil, bio-fuels, and gas terminals, will
be $73.6 billion. The petrochemicals subsector will be the third in terms of total planned
investment of $ 17.8 billion. Petrobras plans to increase its production of ethanol and biodiesel by
investing $3.5 billion in that sub-sector through 2014. Petrobras’ supply chain is concentrated to
the coast on the downstream side and especially to South-East Brazil.
66 www.petrobras.com.br
Segment US$ billion Share
Exploration and Production 127.5 57%
Refining, Transportation and Marketing 70.6 31%
Gas & Power 13.2 6%
Petrochemicals 3.8 2%
Distribution 3.1 1%
Biofuels 4.1 2%
Corporate Overhead 2.4 1%
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Petrobras’ estimate is that the Brazilian economy will grow 3.8% annually, which will stimulate
domestic energy demand. July gasoline price in Brazil (at the pump) was $232 per barrel. For
Petrobras, current breakeven costs on its deepwater offshore crude region are at $45 per barrel
and should fall.67
Corporate goals were defined to minimize the potential environmental impacts of activities, ensure
safety in processes and protect the health of the labor force, achieving levels of excellence in the oil
and gas industry and contributing to the sustainability of operations.
In the human resources area, Petrobras’ main initiatives are aimed at attracting and retaining
skilled labor, training and development, career plans and knowledge management. Petrobras’ labor
force will increase from 80,500 employees now to 103,030 in 2015. New executive management
positions are being created to focus on project execution and management, aiming at higher
efficiency, improvements in processes and tracking of critical resources. The area of HRM and
Brazilian content was listed as major challenges in the previous 5-year plan.
The Company sees the development of the Brazilian supply chain and the establishment of foreign
companies in the local market in a positive light, not only due to the positive externalities created
by geographic proximity and the development of technological partnerships, but also because of the
diversification in
base of suppliers. In
order to encourage
this development,
the company will
seek to consolidate
its demands and
conduct long-term
contracting with
increasing local
content
requirements;
implement initiatives
to increase the
participation of
domestic
subcontractors; support the development of innovative Brazilian companies; add suppliers outside
of the current supply chain; support supply-chain personnel training programs; and expand use of
the Progredir program, which aims at improving suppliers’ access to credit.
67 http://www.guardian.co.uk/business/feedarticle/9774984
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Investments Petrobras made an effort to address private investors' concerns by spending more in its updated
2011-2015 business plan on exploration and production (E&P) and less on refining and marketing.
Under the plan, E&P spending will rise from $118.8 billion in the 2010-2014 plan, 53% of overall
spending, to $127.5 billion, 57% of total investment. Meanwhile, spending on refining,
transportation and marketing will fall from $73.6 billion, equivalent to 33% of spending, to $70.6
billion, or 31%.68
Petrobras’ previous business plan for 2009-2013 outlined and tracked the development of actual
capital expenditures over time in greater details:
68 www.petrobras.com.br
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Petrobras’ Supply Chain – Best Prospects
Background Petrobras has significant problems satisfying its supply chain needs. Petrobras’ huge supply chain
demand would have been difficult to satisfy under normal circumstances, but with the added
requirement of local content, it gets even tougher. The local content requirement has forced
Petrobras to actively reach out to both local and international supply chain suppliers in order to
convince them to increase supply chain capacity in Brazil. Petrobras’ supplier credit program,
Programa Progredir, is a great example of an effort to boost domestic supply capacity. Petrobras
also frequently entertains international supplier delegations so as to persuade them to enter the
Brazilian market.
Petrobras is adding to its net reserves in a time when global supermajors have problems with
shrinking net reserves. Petrobras has also positioned itself as a key player in other developing
markets such as India and Africa. With most of the world’s untapped oil reserves in deep-sea
territory, the Brazilian company has a superb advantage in its technological knowhow in deep-sea
exploration and drilling. Soaring global oil prices and increased global oil demand in conjunction
with shrinking onshore reserves will be further beneficial for Petrobras over time.
Petrobras will continue to be in a tug o’ war with the Brazilian government over the speed of the
company’s expansion. Influential factors will be the rate of inflation in Brazil, the strength of the
Real, and the global and domestic supply chain situation.
Demand Petrobras aims to double its proven reserves and will invest heavily to reach that target. On the
shopping list are: 550 generators, 550 derricks, 350 turbines, 700,000 ton of structural steel for
platform hulls, 550 Christmas trees, 500 wellheads, 80,000 pumps, 18,000 storage tanks, and 4,000
km of flexible lines. The list goes on with 55,000 more items, of which drilling packages and FPSO
packages, subsea equipment and compressors are considered to be the most critical.
Moreover, rigs will be chartered and serviced; primarily drill ships and semi-submersibles. 200
support vessels (especially pipe layers, AHTSs, PSVs, tug and tow boats, and line handlers) and 18
FPSOs will be commissioned. Petrobras will also upgrade its tanker fleet.
Supply Chain Challenges There are tremendous opportunities for already installed companies and newcomers in the
Brazilian oil & gas supply chain due to the scale provided by Petrobras’ upstream portfolio. In order
to carry out such a portfolio, Petrobras is looking to establish stable long term business
relationships with all available companies that are willing to invest in Brazil.
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The supply chain for Petrobras involves more than 1,300 items, reaching considerable volumes.
Some examples of materials required from the supply chain are: 8 million screws, 15,6 million bolts,
9,6 thousand electrical motors, 478 million kilos of wires, 34,3 million liters of paint, 54 million
kilos of steel rods and 32 million meters of electric cables.69
Petrobras Supply Chain Challenges Petrobras identifies their main supply chain challenges as:
Need for equipment
Need for skilled labor
Procurement cost inflation
Petrobras strategies to combat these supply chain challenges are to have an aggressive bidding
program for rigs, support vessels and anchor handlers. The focus has mainly been on building new
units, but vessels are often contracted on a build-lease basis. Petrobras also favors long-term
contract with service providers. This is partially a consequence of the challenges associated with
Petrobras’ deep-sea fields; long-term contracts favor long-term joint technical development. The
long-term approach also helps facilitate another of Petrobras’ supply chain strategies, supporting
the expansion of suppliers’ installed capacity in Brazil. Finally, Petrobras has implemented
extensive training programs for Petrobras employees and supply chain contractors to mitigate
current human resource shortages.
Petrobras supply chain sectors and challenges.
69 http://news.seadiscovery.com/?tag=/supply
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Petrobras supply chain sectors and challenges.
Brazil Supply Chain Challenges Petrobras also consider the following the greatest supply chain challenges related to Brazil:
Infrastructure Enhancement
Critical Items Supply (imports)
Drilling Equipment
Dynamic Positioning and Propulsion Systems
Steel Manufacturing Process and Supply
Skilled Work Force for Construction and Operation
Financeability
Infrastructure One of Brazil's greatest challenges is its poor infrastructure. The rail network is smaller than that of
France, a country one-thirteenth Brazil's size. Brazilian maritime infrastructure is similarly
neglected; a shipping container spends 10 times as long sitting idle in the Brazilian port of Santos as
it does in Hamburg or in Rotterdam. A World Economic Forum survey ranked inadequate
infrastructure as the third-biggest problem for doing business in Brazil, after tax rates and
regulations.
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Transportation In the transportation area, there is a great
effort by the government to change the
current matrix, which is composed mainly
by roads (60%) and railways (20%). The
participation of hydro and air transportation
in the matrix is almost nonexistent. Most of
the roads connecting the country have
precarious conditions and a significant
amount of cargo is transported in old trucks.
This situation is costly, presents important
limitations to the economy, and affects the
country’s international competitiveness.
According to ABDIB, the National Transportation and Logistics Plan estimates investments of $131
billion in the transportation sector from 2008
through 2023.70
More than 107,000 ships were berthed in Brazil
in 2010 and Brazil has more than 26 major ports
along its coast.71
Petrobras Transporte carried 48.9 million tons of
oil products on 52 vessels in 2010, nearly 15%
less than a year earlier.72
It is probable that every major shipyard in the
world will have significant operations in Brazil (in association with local major contractors) in
2015. Korean shipyards have been early entrants in Brazil.73
70 TozziniFreire Advogados: Investment Opportunities In Brazilian Infrastructure. 71 http://www.wilsonsons.com.br/ 72 Petrobras: Sustainability Report 2010. 73 Heller Redo Barroso and Marcos Macedo: Brazilian basics.
Page 40 of 71
Drilling & Exploration 2010 was a record year in terms of production for Petrobras. 6
platforms were connected to new wells. Several production
systems are scheduled to go on stream in 2011. For instance a
new fixed well at 170 m depth and a semi-submersible well and a
139 km long pipeline of the coast of São Paulo. 3 new platforms
will perform extended well tests in 2011. Petrobras grew it
reserves 8% in 2010. In 2010, 116 wells were drilled, 67 of which
onshore and 49 offshore.
Due to the lack of Brazilian installed capacity of international
petroleum industry companies, bidding and direct negotiation
invitations are currently going mostly to Brazilian contractors,
who in turn will procure technological partners, operators,
financial partners, and project managers globally. Most of these
Brazilian contractors are unfamiliar with the finer details of the
offshore petroleum industry and are not to well-versed in
offshore high-tech. Thus, Brazilian companies are quite
dependent on collaborations with international companies.74
New Rigs E&P units put into production the last few years:
74 Heller Redo Barroso and Marcos Macedo: Brazilian basics.
Page 41 of 71
Petrobras will have at least 63 operative rigs in 2013-2017:
Drilling and Production Units Petrobras and other Brazilian companies need for drilling and production units:
Page 42 of 71
Critical Equipment Exploration and Prospecting Petrobras considers the following critical equipment and services for exploration and drilling as
best prospects for foreign suppliers:
Production pipelines alloy coatings
Turbo compressors (6-10 Mw)
Polyester mooring cables
Mooring systems
Drilling pipelines
Electrical cables
Control systems for well control
Oil and gas metering systems
Offshore drilling rigs
Gravel packing
Drill bits
Steam generators (25-50 x 10 BTU/d)
Special sphere subsea valves
Subsea sensors for analysis of oil and grease traces in water
Gas turbines
Special steels (alloys, chrome, etc.) to support sub-salt corrosion, and H2S
Furthermore, Petrobras have identified the following in-demand equipment critical to avoid supply
chain bottlenecks:
HCC Reactors (250-300 mm wall width 200kgf/cm2internal pressure)
Boiler works with special alloys (reactors, towers and pressure vessels)
Boilers (steam generators)
High pressure heat exchangers with H2S traces
Structured packing for process towers
Moto-compressor and bare compressor
Heavy engines
Offshore and marine cranes
Special submarine sphere valves
Forged valves
Basic and thermal design
Page 43 of 71
Petrobras has quantified its need in terms of material and equipment:
Critical Exploration & Prospecting Services: Petrobras considers the following services the most vital for international providers to consider:
Drilling
Workover services
Flexible lines and umbilical laying services
Support to ROV vehicles
Support to mooring activities
Special vessels
Subsea interconnection services
Monitoring and inspection techniques for structural integrity of flexible risers75
75 Petrobras: Strategic Plan 2010-2014.
Items Units of Measurement Total Amount (2008-2015 )
Structural Steel t 1.252.000
Air Coolers un 721
Mooring Cables km 2.726
Christmas Trees un 3.930
Safety boats un 334
Pumps un 10.264
Lifeboats un 1.978
Well Heads un 3.657
Compressors un 969
Fan Coils un 2.818
Heat Furnaces un 252
Heat Reformers Furnace un 8
Eletric Generator un 439
Crane un 220
Flexible Pipes m 7.2
Diesel Engines un 717
Eletric Motors un 17.035
Reactors un 317
Storage Tanks un 2.824
Process Towers un 732
Eletric Transformers un 1.236
Heat Exchangers un 5.913
Pipe lines t 1.542.266
Turbines un 441
Production Rigs un 36
Pressure Vessels un 4.829
Page 44 of 71
Moreover, all sorts of service and repair services related to critical equipment will be in high
demand. Especially repair of large vessels (for which extended down-time is extremely costly and
distressing) is a priority to Petrobras. Previous ship repairs have often carried out in Middle
Eastern dry-docks.
Price and Delivery Terms Petrobras view of the competitive landscape for Brazilian products versus international products:
This graph highlights what was mentioned before, that Brazilian products are expensive and that
great logistics (delivery terms, support etc.) and payment terms can be a critical competitive factor
for U.S. companies.
Page 45 of 71
Ships and Support Vessel The sketch below outlines how the local content requirement can manifest itself in terms of ship-
building.
Petrobras needs to almost double its current fleet of 250+ offshore supply vessels (OSV/PSV). The
new pre-salt fields require longer transportation and new and updated supply vessels. Petrobras
have moved more into lease agreements. One-day leases of PSVs often start at $10,000.76
Petrobras’ Fleet Modernization and Expansion Program – PROMEF I and II: Under this program, Petrobras’ subsidiary Transpetro is ordering 26 large vessels to transport oil,
by-products and liquefied petroleum gas (LPG), for delivery by 2013. 18 vessels have already been
commissioned. Seven of these ships are state-of-the-art relievers to be built for the first time in
Brazil; three are to transport bunker oil; and eight are gas tankers to transport liquefied petroleum
gas (LPG). The other eight are currently in the bidding phase. The aim of the program is to increase
the Brazilian shipbuilding industry’s global competitiveness. In total phase I and II will add 4
million deadweight tons (dwt) to the current fleet’s capacity. Four Promef vessels are scheduled for
delivery in 2011.
76 http://www.bnamericas.com/news/oilandgas/Petrobras_to_lease_platform_supply_vessels
Topside
CL min = 60%
Power Generation Module
CL min = 75%
Turbo generators
CL = 0%
Compression Module
CL min = 75%
Gas Compressors
LC = 0%
Hull
Normally CL = 0% to 60%
Page 46 of 71
Phase II of the PROMEF calls for purchase of another 26 large vessels, including bunker, LPG and
other vessels, for delivery by 2014. Additionally, under the Petrobras 3rd fleet renewal plan, the
company will be contracting 146 platform supply and support vessels and boats.77
Breakdown of program per vessel type:
This Gantt-chart outlines the proposed investment time-line:78
77 Petrobras: Sustainability Report 2010. 78 Petrobras: 2010 Business Plan.
LEASED/
BEING LEASED
NEW VESSELS
TO BE CONTRACTED TOTAL
Large Vessels (VLCC/Tankers) 26 44 70
Supply Vessels 24 122 146
FPSO/SS 6 8 14
Others (jack-ups, TLWP) 3 1 4
Total 59 175 234
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
SUEZMAX (10)
PRODUTOS CLAROS (4)
GLP (3)
PANAMAX (4)
AFRAMAX (5)
BUNKER (3)
PRODUTOS CLAROS - 45k (3)
GASEIROS SR 2000 (2)
PRODUTOS CLAROS 30k - Cl (3)
GASEIROS P 4000 (3)
PRODUTOS CLAROS 30k - E (2)
SUEZMAX - DP (4)
AFRAMAX - DP (3)
Afretamento - GASEIRO (3)
Afretamento - BUNKER (6)
Afretamento - PRODUTOS CLAROS (10)
Emb. Apoio - AHTS 18000 (46)
Emb. Apoio - PSV 3000 (49)
Emb. Apoio - AHTS 21000 (8)
Emb. Apoio - OSRV (18)
Emb. Apoio - PSV 4500 (15)
Emb. Apoio - T 15000 (10)
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
SUEZMAX (10)
PRODUTOS CLAROS (4)
GLP (3)
PANAMAX (4)
AFRAMAX (5)
BUNKER (3)
PRODUTOS CLAROS - 45k (3)
GASEIROS SR 2000 (2)
PRODUTOS CLAROS 30k - Cl (3)
GASEIROS P 4000 (3)
PRODUTOS CLAROS 30k - E (2)
SUEZMAX - DP (4)
AFRAMAX - DP (3)
Afretamento - GASEIRO (3)
Afretamento - BUNKER (6)
Afretamento - PRODUTOS CLAROS (10)
Emb. Apoio - AHTS 18000 (46)
Emb. Apoio - PSV 3000 (49)
Emb. Apoio - AHTS 21000 (8)
Emb. Apoio - OSRV (18)
Emb. Apoio - PSV 4500 (15)
Emb. Apoio - T 15000 (10)
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
SUEZMAX (10)
PRODUTOS CLAROS (4)
GLP (3)
PANAMAX (4)
AFRAMAX (5)
BUNKER (3)
PRODUTOS CLAROS - 45k (3)
GASEIROS SR 2000 (2)
PRODUTOS CLAROS 30k - Cl (3)
GASEIROS P 4000 (3)
PRODUTOS CLAROS 30k - E (2)
SUEZMAX - DP (4)
AFRAMAX - DP (3)
Afretamento - GASEIRO (3)
Afretamento - BUNKER (6)
Afretamento - PRODUTOS CLAROS (10)
Emb. Apoio - AHTS 18000 (46)
Emb. Apoio - PSV 3000 (49)
Emb. Apoio - AHTS 21000 (8)
Emb. Apoio - OSRV (18)
Emb. Apoio - PSV 4500 (15)
Emb. Apoio - T 15000 (10)
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
SUEZMAX (10)
PRODUTOS CLAROS (4)
GLP (3)
PANAMAX (4)
AFRAMAX (5)
BUNKER (3)
PRODUTOS CLAROS - 45k (3)
GASEIROS SR 2000 (2)
PRODUTOS CLAROS 30k - Cl (3)
GASEIROS P 4000 (3)
PRODUTOS CLAROS 30k - E (2)
SUEZMAX - DP (4)
AFRAMAX - DP (3)
Afretamento - GASEIRO (3)
Afretamento - BUNKER (6)
Afretamento - PRODUTOS CLAROS (10)
Emb. Apoio - AHTS 18000 (46)
Emb. Apoio - PSV 3000 (49)
Emb. Apoio - AHTS 21000 (8)
Emb. Apoio - OSRV (18)
Emb. Apoio - PSV 4500 (15)
Emb. Apoio - T 15000 (10)
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
SUEZMAX (10)
PRODUTOS CLAROS (4)
GLP (3)
PANAMAX (4)
AFRAMAX (5)
BUNKER (3)
PRODUTOS CLAROS - 45k (3)
GASEIROS SR 2000 (2)
PRODUTOS CLAROS 30k - Cl (3)
GASEIROS P 4000 (3)
PRODUTOS CLAROS 30k - E (2)
SUEZMAX - DP (4)
AFRAMAX - DP (3)
Afretamento - GASEIRO (3)
Afretamento - BUNKER (6)
Afretamento - PRODUTOS CLAROS (10)
Emb. Apoio - AHTS 18000 (46)
Emb. Apoio - PSV 3000 (49)
Emb. Apoio - AHTS 21000 (8)
Emb. Apoio - OSRV (18)
Emb. Apoio - PSV 4500 (15)
Emb. Apoio - T 15000 (10)
PROMEF I26 vessels
PROMEF II23 vessels
FREIGHT19 vessels
EMB. APOIO146 supply boats
BP 2004 - 2010
BP 2007- 2011
BP 2008 - 2012
BP 2003 - 2007
BP 2009 - 2013
BP – Business Plan
Page 47 of 71
Petrobras Maritime Market Trends In July 2011, Keppel Offshore & Marine Ltd (through its Brazilian subsidiary KSM Brasil) became
the first shipbuilder to commission a vessel in Brazil under the new business model of pre-emptive
construction of a PSV in anticipation of demand. Completed PSVs will be offered for bare-boat
charter or sale upon completion.79
As tenders will all contain gradually increasing minimum local content requirements that can go as
high as 95% in 2017, more and more companies have start looking out for local partnerships, areas
to establish new facilities and operational bases. Many international suppliers have enrolled as
supplier with Petrobras.
Starting with eight floating production, storage and offloading (FPSO), Petrobras has begun to
break up orders and service contracts in smaller components, emphasizing details and
standardization. This is done in order to reduce prices of equipment, and at the same time allow for
the gradual escalation of local content requirement in Petrobras’ projects.
Recent Maritime Deals Petrobras has sourced several previous ships from Norwegian manufacturers. The Scandinavians
have experience with deep-sea drilling. Havila Shipping and Solstad Offshore have both been
awarded PSV-contracts in the past few years. After the 2010 Rio Oil & Gas Expo, 55 Norwegian firms
were offered contracts with Petrobras.
Ulstein Design & Solutions has signed two ship design contracts with the Brazilian Shipyard Alianca
S.A for the building of two ULSTEIN PX105 large platform supply vessels for the Brazilian ship-
owner CBO. Petrobras is increasingly looking to larger vessels due to the distance to pre-salt rigs.
The vessels are to be leased to Petrobras on an 8-year contract.80
In June 2011, Petrobras awarded GE Oil & Gas a four-year service agreement to deliver repairs,
maintenance and retrofits on Petrobras’ fleet of subsea equipment installed in the Campos Basin.
The contract is worth $200 million.81
Petrobras signed a $3.5 billion deal with Brazilian engineering company Engevix to build eight
production vessels, starting in early 2011. Engevix Engenharia SA will build eight floating
production, storage and offloading vessels at a site in the southern Brazilian state of Rio Grande do
Sul. The vessels will be standardized. This will permit faster construction, economies of scale and
reductions in cost.82
79 http://www.marinelink.com/news/shipbuilding-brazilian339305.aspx 80 http://www.ulsteingroup.com/kunder/ulstein/cms66.nsf/pages/newslista.htm# 81 http://www.genewscenter.com/Press-Releases/GE-Oil-Gas-Awarded-160-Million-Petrobras-Contracts-for-P-58-and-P-62-Floating-Production-Units-in-Brazil-295d.aspx 82 http://www.epcengineer.com/news/post/1127/brazils-petrobras-partners-sign-35-billion-oil-platform-deal
Page 48 of 71
Sete (Seven) Brasil is the newest Petrobras offspring. The new private company was launched in
early 2011 to administer the 28 drill ships that Petrobras will order. The tender process for the first
seven orders was won by EAS shipyard, located in Recife, Northeast Brazil. The total price for these
seven drillers adds up to $4.637 billion, pegging each driller at $662 million. The drillers are
scheduled to start operations by 2015.83
BMT Scientific Marine Services (BMT) was contracted in August 2011 on a five year deal by
Petrobras to provide support maintenance and repair for the Cascade and Chinook Free Standing
Hybrid Riser Tower (FSHR) Monitoring System.84
Rolls-Royce, the global power systems company, has won an order to design and equip two UT 735
SE offshore supply vessels to be leased by Petrobras. The order is worth £15 million to Rolls-Royce.
The contract includes vessel design and an integrated Rolls-Royce equipment system including
propulsion, deck machinery, bulk handling and vessel control systems. The vessels will be carrying
fluids and solid cargo to and from offshore oil and gas platforms. This is the second order from
Petrobras in the summer of 2011. Petrobras now has four Rolls-Royce designed offshore vessels on
order, all of which will be built by Estaleiro Ilha S.A in Brazil.85
Hamworthy Oil & Gas Systems was awarded a major contract in August 2011 by Brazilian shipyard
Estaleiro Promar SA for the design and supply of cargo handling systems for eight liquefied
petroleum gas (LPG) carriers destined for operation by Transpetro, a subsidiary of
Petrobras. Hamworthy Oil & Gas Systems has released plans for a new dedicated service centre in
Brazil.86
Unspecified Demand Although not specified as a bottleneck by Petrobras, there are strong reasons to suspect that all
sorts of support and service activates related to the maritime segment will be in-demand as well.
One reason for this is fairly obvious. Petrobras needs to have up to 70% Brazilian content in its
supply chain. Petrobras plan to massively expand its supply chain. Most O&G supply chain products
and services are highly specialized. Consequently, the current level of domestic highly specialized
O&G supply chain goods and services should be fairly equally distributed among different supply
chain activities, otherwise certain sectors or providers would have significant overcapacity for no
good reason. As a result, there is a major need of across-the-board supply chain goods and services
in Brazil.
Unspecified demand in the maritime segment which could be suitable for U.S. companies to provide
includes:
83 http://news.seadiscovery.com/post/2011/02/11/Sete-Brasil-and-the-Petrobras-Local-Drillship-Program.aspx 84 http://www.marinelink.com/news/petrobras-cascade-chinook339994.aspx 85 http://www.marinelink.com/news/rollsroyce-brazilian340146.aspx 86 http://www.marinelink.com/news/hamworthy-service-center340052.aspx
Page 49 of 71
Satellite communication
Advanced Project and Program Management
Automation and hardware/software services
Logistics optimization services
Security technology
In construction and design, Brazil’s supply chain companies in general have a need for international
services in lean designs, system reliability, and supplier co-ordination and supplier development.87
Supplier Multinationals such as FMC Energy, Cooper Cameron, Marine/Oceaneering, National Oilwell Varco
(NOV), Weatherford, GE Vetco Grey, ABB, Aker Kvaerner and B.J. Services, among several others,
have plants and service facilities in Brazil and hold a significant market share in their respective sub
sectors.88
Finance and Investments In 2009, China extended a $10 billion credit line to Petrobras to develop off-shore oil resources that
will be repaid through the export of oil, effectively making China Brazil’s first client for its pre-salt
oil. In 2009, the U.S. Ex-Im Bank issued a $2 billion preliminary commitment to Petrobras that will
facilitate exporting U.S. oil and gas equipment and services to Brazil. In 2010, the total volume of
loans Petrobras granted to its customers in Brazil and abroad was more than $37 billion.89
Supply Chain Financing In November 2010 Petrobras secured $1.8 billion in financing by major national banks to boost
Petrobras supply chain. The $1.8 billion in financing for the Petrobras supply chain, which has
never occurred before, will be undertaken by the largest banks operating in Brazil, through the
Progress Program (Programa Progredir). The program was launched in mid-June 2011. The banks
involved in the financing operation are Bradesco, Banco do Brasil, Santander, Caixa Economica,
HSBC and Itaú. The targets are the 34 thousand direct suppliers and 216 thousand indirect
suppliers for Petrobras. The program will have invested some $224 billion by 2014. The program is
operated through the Progredir Portal, in which Petrobras’ suppliers are registered. 90
87 Sofia Villagarcia and Francisco Cardoso: New Supply Chain Network In Brazil’s Construction Industry.
University of California, Berkeley, CA.
88 DOC: Country Guide Brazil 2011. 89 Petrobras: Sustainability Report 2010. 90 http://www.folhadacidade.inf.br/ler.asp?cod_materia=3029
Page 50 of 71
The goal of Programa Progredir is to preferentially benefit the small and medium size companies
that supply equipment and materials to Petrobras´ direct suppliers. These small and medium
companies have difficulty in obtaining credit in the market and they are vital as they will supply the
majority of the Brazilian oil & gas industry for the next four years.
The program uses Petrobras superior investment grade credit rating to the benefit of program
participants. Subcontractors supplying the
companies’ direct suppliers will be allowed to
present their contracts as guarantee to the
banks.
Small and medium size supply chain companies
would otherwise struggle to secure the needed
financing, in many cases resulting in delays in
production and delivery of products and also in
lost business opportunities for both suppliers
and Petrobras. The program is an important
step made by Petrobras in order to boost its
equipment supply chain, which is mostly
composed of national companies, but
increasingly includes Brazilian subsidiaries of foreign owned companies.91
Risk and Diversification - Supply Chain Acquisitions Petrobras needs to diversify its operations to reduce country risk. Furthermore, if Petrobras
expands U.S. operations it would be able to generate further dollar profit to offset exchange rate
risks and also build a stronger U.S.-credit rating.92 Petrobras currently has one refinery, a trading
desk, and exploration operations in Texas.93
Petrobras Finance Company – PICFCo Petrobras has its own finance company called PIFCo, incorporated on the Cayman Islands.
Petrobras created PICFCo in 1997 in order for the company to facilitate oil sales, purchases and
financing with third-parties. PIFCo also leases equipment from outside Brazil to Petrobras. PIFCo
handles 95% of all of Petrobras’ oil trading. Being Cayman Island based, PIFCo also brings
substantial tax benefits to Petrobras.94 This may seem counterintuitive (that a government owned
company sets up foreign operations to evade paying Brazilian tax) but it highlights the previously
mentioned duality of Petrobras.
91 http://www.lngworldnews.com/brazil-petrobras-releases-supply-chain-finance-program/ 92 Andrea Goldstein: The Emergence of Multilatinas - The Petrobras Experience. UNIVERSIA BUSINESS REVIEW (2010). 93 www.petrobras.com.br 94 PIFCo: Investor Prospect (2011).
Page 51 of 71
Insurance Brazil's Itau Unibanco, Spain's Mapfre and Germany's Allianz made the top proposal to insure
Petrobras’ operations and are current co-insurers on the 2010 policy valued at between $80 billion
and $90 billion. The bidding process involved three separate tenders: platforms and refineries;
airport cargo for BR Distribuidora; and imports, exports and all Petrobras cargo transportation.95
Reinsurance industry representatives have expressed concern over regulatory changes that took
effect in early 2011. The changes prohibit insurers from placing more than 20% of their
reinsurance business with reinsurers with which they are affiliated and require 40 percent of
reinsurance business to be placed with Brazilian reinsurers.96
Human Resources As mentioned before, Brazil’s and Petrobras’ activities are heavily concentrated in the South-East
region of Brazil. The majority of Petrobras’ employees are in the holding company. The employee
data below is year-end 2008 (the most current available):
Petrobras workforce is divided into the following work
systems:
95 http://www.advfn.com/nyse/StockNews.asp?stocknews=PBR&article=42016864&headline=brazils-itau-mapfre-alliance-top-petrobras-insurance-bid-estado 96 DOC: Country Guide Brazil 2011.
Page 52 of 71
Human Resource Demand One key to Petrobras' success is technology. Throughout its history, Petrobras has expanded its
activities through development of its own technology. Petrobras cooperates with the Brazilian
government in order to have enough educated workers to choose from. As shown by the graph
below, construction and assembly are the most labor intense operations and therefore have the
highest labor demand.
Per investment sector human resource demand over time:
PROFESSIONALS REQUIRED FOR O&G PORTFOLIO IMPLEMENTATION
175 PROFESSIONALS CATEGORIES
112.625
Qualified professionals
ENGINEERING42
5%
5.967
CONSTRUCTION &
ASSEMBLY
98
75%
84.576
GRADUATE26
43%2.580
HIGH SCHOOL13
49%
2.927HIGH SCHOOL
27
23%19.386
BASIC20
64%54.476
INSPECTORS30
5%4.228
CIVIL
CONSTRUCTION
7
13%
15.020
BASIC7
100%15.020
OPERATIONS
MAINTENAINCE
31
6%
7.062
BASIC15
45%3.200
HIGH SCHOOL10
50%3.542
GRADUATE19
4.2905%
TECHNICIAN2
3%2.196
TECHNICIAN 3
8%460
TECHNICIAN6
5%320
0
20.000
40.000
60.000
80.000
100.000
120.000
0
20.000
40.000
60.000
80.000
100.000
120.0002007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Freight 19 vessels
Refinery Premium II
28 Drilling Rigs
146 Supply Boats
New Stationary Production Units
PROMEF II
Business Plan 2008 – 2012
Refinery Premium I
Page 53 of 71
Training The company is able to draw on some of the best minds in Brazil, both in its in-house research
laboratories and in its collaborations with Brazilian universities. During the mid-2000s Petrobras
signed new partnerships with universities at a rate of one per business day.
Local content requirements may necessitate local partnerships or joint ventures, training and
development of local suppliers and sub-contractors, and the establishment of local training centers.
Work can either be transferred to regional or local offices or by local partnering. Around 4%, or just
above 3,000 employees, are participants in a Petrobras training program.
The cycle for internal
training (right):
U.S. companies have
excellent opportunities
to develop training in
any supply chain aspect
for the Brazilian market.
If a U.S. company deliver
highly specialized or
customized training, not
currently available in
the Brazilian market,
the local content
requirement can be
circumvented.
Worker Safety & Health Petrobras’ external communication put high emphasis on CSR and supply chain safety and health.
CSR-focus is on ethical and transparent management of business and activities, and its relations
with all stakeholders, promoting human rights and citizenship, respecting human and cultural
diversity, not allowing discrimination, degrading labor, child labor and slave labor, contributing to
sustainable development and reduction in social inequality. Petrobras has over 1,000 employees
working with external communication.97 There may be demand for highly specialized services in
this area, but in general Petrobras themselves is an industry leader in CSR and worker’s safety and
health.
97 Petrobras: Social Responsibility in the chain of suppliers of Petrobras.
PROFESSIONAL QUALIFICATION PLAN –TARGETS IN 3 THREE YEARS
Budget US$ 150 millions
People to be qualified 112.625 professionals
Location 17 States / 34 Cities
Amount of Courses 953
Amount of Classes 6.328
Educational institutions involved 71
Total people trained / in training (as of Sep/2009) 73.620
1st CYCLE 2nd CYCLE 3rd CYCLE 4th CYCLE
COURSES COURSES COURSES COURSES
Sep.06 to Jun.07 Jul.07 to Mar.08 Apr.08 to Nov.08 Dec.08 to Jun.09
10.880 people 24.003 people 22.208 people 39.827 people
Actual date
Following
seats will be
offered on
2nd Phase of
Professional
Qualification
Plan
Page 54 of 71
Procurement
U.S.-Brazil Differences A Petrobras study found that, in general, U.S. O&G supply-chain companies are better prepared in
procurement acquisitions and tactics procedures (supply chain, TCO, MSA, DA, negotiations) while
Brazilian buyers (i.e. Petrobras) were better prepared in terms of technical specifications matters
when compared to U.S. buyers. In addition, U.S. material is cheap and services expensive, whereas
in Brazil, material is expensive and the labor cost is low. There are also substantial legal and
cultural differences that impact procurement.98 Universal Consensus has customized solution to
handle these problems.
Procurement Process The Brazilian government has put in place a bidding vehicle to govern Petrobras’ procurement
process. The bidding process can be circumvented if Petrobras can show (to the regulatory body)
that the need is dire, or that a potential supplier offers something so unique that a bidding process
is unnecessary.
Bidding Procedure
The bidding process includes the following steps:
a) Presentation of documentation;
b) Opening of electronic trading;
c) Verification of compliance and compatibility of each proposal with the Notice requirements,
promoting the declassification of proposals nonconforming and incompatible;
d) Classification of proposals;
e) Analysis of the documentation submitted, as per item companies winners;
f) Notification by the Committee on Disposal of the outcome of the bidding winners of the auction;
g) Resolution of authority as the result of the ratification of the bidding;
The proposals will be presented in the form of electronic auction portal. No previous dealings or
other offers will be considered in the process.
Materials Requirements
These are the major requirements to consider when bidding for materials contracts:
1. References (Previous Sales, Reference Letters);
2. Facilities for Technical Assistance (Automation Systems, Rotating Machinery, etc);
3. Mandatory Product Certification (API, ASME, ...);
4. Other Specific Requirements.
98 Petrobras: Logistics/Procurement differences between the US and Brazil from a Petrobras perspective.
Page 55 of 71
Services Requirements
These are the major requirements to consider when bidding for services contracts:
1. Sales and References (List of Services Provided –continuity and Reference Letters);
2. List of Equipment relating to services provided;
3. Main personnel curricula vitae;
4. Other specific requirements.
Procurement Portal All suppliers to Petrobras have to be registered in Petrobras’ supplier-database. This database now
contains 45,000+ suppliers and handles 40,000+ users around the world. Petrobras has been using
this business platform since 2002 (revamped by SAP in 2005). The portal streamlines the
procurement processes and is used for activities ranging from requests for quotations and
submitting proposals to the management of contracts and order management.
Local Content Local content commitment enacted by ANP is one of the judgment criteria applied in evaluating
RFQ offers. In presenting their offers, bidders indicate a specific percentage of local content, which
is turned into a number of points used to rank bidders’ offers along with other parameters.99 As
outlined in the regulations chapter, for exploration concessions, a new model was developed by
ANP in 2009 in which Petrosal will maintain the “interest of the Union” (Brazil) and companies will
have to set up consortiums with Petrobras and Petrosal.100
Even though the local content requirement is primarily politically motivated and forced upon
Petrobras, the company recognizes the benefits of increased Petrobras influence (on suppliers) and
the consequent ability to improve efficiency among local suppliers (as opposed to foreign ones).
Ronaldo M.L. Martins, Relationship Manager for Materials at Petrobras’ Procurement Department
also underscore that “after sales are faster and friendlier [with local companies] when compared
with the foreign companies”.101
99 Heller Redo Barroso and Marcos Macedo: Brazilian basics. 100 ANP: The new regulatory framework for the pre-salt areas. 101 http://www.petrobras.com.br/pt/
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Pipelines, Refining & Petrochemicals The downstream best prospects identified by Petrobras:
HCC Reactors
Boiler works with special alloys (reactors, towers, pressure vessels)
Boilers
Heat exchangers working with H2S traces (ASTM A 387 degree 11)
API pumps
Basic design services
Thermal power project design
Refining Petrobras needs to expand its refining business in order to meet soaring domestic demand for
finished products and maintain its market share. Petrobras’ CEO Jose Sergio Gabrielli believes that
over the long run, Petrobras' investment in refining - and indeed the company's integrated business
model - will generate higher returns for investors.
This assumes that the upstream segment would drive growth at times of higher crude prices while
the downstream business could provide returns when crude prices fall. The question is if crude
prices will come down enough in the near future to justify the economics of heavy investment in the
refining sector. Nevertheless, Petrobras will continue to face pressure to ensure local demand is
met.102
For the downstream sector, Petrobras plans to expand and modernize its refining capacity and
become the third-largest refiner in the world. Petrobras plans to invest over $43 billion in various
projects, including: (i) Premium Refinery I in the State of Maranhão, which has a capacity of
600,000 bpd, (ii) Premium II Refinery in the State of Ceará, with a capacity of 300,000 bdp, and (iii)
Abreu e Lima Refinery in the State of Pernambuco, and (iv) the petrochemical complex of COMPERJ
in State of Rio de Janeiro. The Abreu e Lima Refinery was originally planned as a joint venture
between Petrobras and state-run Venezuelan PdVSA, but PdVSA backed out in the beginning of
August leaving Petrobras with an $15 billion additional investment.103
Refining output divided per product.
102 http://www.eia.gov/cabs/brazil/Full.html 103 http://www.foxbusiness.com/industries/2011/07/21/brazil-petrobras-to-tackle-refinery-project-without-pdvsa-report/
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Petrochemicals There has been a continuous consolidation in the Brazil petrochemicals industry in the late 2000s.
Petrobras’ acquired the Ipiranga Group (major lubricant company) in 2007 in a $4 billion deal that
was one of the major acquisitions in Brazilian history.104
Petrobras began construction on a new Rio de Janeiro Petrochemical Complex (COMPERJ) in 2008,
an approximately $8.4-billion project that marks the Brazilian company's return to the
petrochemical sector. The plant is scheduled to go online in 2013 and will have a processing
capacity of 150,000 barrels per day of heavy oil.105
Biofuels Petroleo and five partners agreed in 2010 to create a new company that will invest $3.61 billion to
build a pipeline and waterway system to transport ethanol from Brazil's sugarcane heartlands to
local markets and for export. Petrobras, Cosan SA Industria e Comercio, Copersucar SA and
Odebrecht Transport Participacoes SA each will hold 20% stakes in the new company, Logum
Logistica SA. Camargo Correa Oleo e Gas SA and Uniduto Logistica SA will hold 10% each. Logum
Logistica will set up a multimodal transport and storage and shipping terminal system that will
extend over some 1,300 kilometers, linking the main ethanol-producing regions. Upon completion,
expected by 2020, the project will have an installed transport capacity of up to 21 million cubic
meters per year of ethanol.106
Pipelines The gas pipeline network operated by the Petrobras subsidiary Transpetro continues to grow. In
2010, it reached 7,193 km, a more than 30% increase from 2009. The just mentioned Multimodal
Logistics System for Ethanol, foresees adjustments and improvements to existing Petrobras
facilities and the construction of new pipelines, terminals, barges/pushers, collecting centers and
intermediate pumping stations. Pipelines are schedules for construction in 2011-2012.107
Research & Development Petrobras R&D expenditures are similar to those of BP and Shell and well in excess of those of
Exxon, Chevron, ConocoPhillips and Total. Petrobras had been granted 172 U.S. patents up until
2008, in comparison with PetroChina’s 9 U.S. patents.
Brazil is a leader in science and technology in South America and a global leader in some fields, such
as biofuels, agricultural research, deep-sea oil production, and remote sensing. The Brazilian
government and major corporations seek to develop an environment that is more supportive of
104 http://www.prnewswire.com/news-releases/kline-analysts-ipiranga-acquisition-to-help-petrobras-dominate-latin-american-lubes-market-52175812.html 105 http://www.downstreamtoday.com/projects/Project.aspx?project_id=147 106 http://www.epcengineer.com/news/post/3831/brazil-petrobras-partners-agree-to-invest-brl6-billion-in-ethanol-duct-system 107 Petrobras: Sustainability Report 2010.
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innovation. The extent of bilateral U.S.-Brazil scientific and technological cooperation is expanding
and prospective areas in which to expand include advanced materials, telecommunications, energy
transmission, and energy efficiency.108
UFRJ Technology Park Siemens announced in June 2011 that it plans to invest around $150 million in Brazil for O&G
research, mostly within the UFRJ (Federal University of Rio de Janeiro) technology park. The UFRJ
Technology Park is already a hub for research centers related to the O&G industry and considered
the leading South American research center, harboring Petrobras, Schlumberger, Baker Hughes and
Halliburton (construction on the Halliburton site commenced a few days ago).109
Siemens sees Brazil as the new frontier for energy business. In order to adapt to Brazilian laws,
Siemens is already making a big effort to increase the national content in its manufacturing plants
in Brazil, they also hope that the increase in national content will help them in securing orders for
equipment to be used in the development of Brazil´s pre-salt fields.
Siemens’s Technology Center will occupy an area of 4 thousand square meters and employ around
800 engineers and technicians. Although the center´s main target will be in developing offshore and
subsea technology, it will also be dedicated to research in different forms of renewable energy and
software development in cooperation with various UFRJ technology laboratories.
Two other international companies have also secured locations at the UFRJ Technology Park, which
will now have its 350 thousand square meter area fully occupied. These companies are the BG
Group, specialized in segments of the O&G industry, and U.S based EMC which specializes in
information technology.110
Supply Chain Material and Equipment Development Petrobras will focus supply chain technological development on the following areas:
Submarine sensor for measuring oil and grease degree in water;
Signal optical cable for well temperature and pressure monitoring;
Submarine optical connectors;
Intelligent sensor network for natural gas flow measurement;
Internal for piping in the radiation zone of industrial furnaces;
Co-generation system using biomass as fuel;
Submarine sphere valves;
Monitored cathodic protection system for pipelines.
108 DOC: Country Guide Brazil 2011. 109 http://www.sourcingbrazil.com/halliburton-begins-work-on-research-center-at-rios-ufrj-technology-park/ 110 http://news.seadiscovery.com/post/2011/07/13/Siemens-Eyeing-Brazilian-OG.aspx
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Environmental Technology, Safety & Security Even though Petrobras puts emphasis on environmental technology and safety, the opportunities
are not as plentiful as one would think. This is largely due to the fact that Brazil and Petrobras have
a long-stemming culture of excellence and experience in these fields, and are not in any dire need of
outside assistance.111 There are opportunities for the sophisticated U.S. security industry.
Environmental Technology – Distribution Petrobras Distribuidora, Petrobras’ service network company, is developing partnerships for the
implementation of thermal energy and natural gas to supply electricity to corporate and industry
customers. Petrobras Distribuidora also has programs for clients seeking to optimize the use of
Petrobras’ products, focusing on the aspects of energy economy, environmental protection and
industrial safety.112
Accident Prevention Petrobras puts great emphasis on operational safety and has 14 large vessels dedicated solely to
responding to environmental emergencies.113
Distribution & Terminals
O&G Terminals Petrobras announced in July 2011 the construction of a Bahia LNG Terminal (TRBA), which will
have a capacity of 14 million cubic meters per day. As part of the Growth Acceleration Program
(GAP), the work is slated to begin in March 2012 and to be completed in August 2013. An
investment worth $476 million, the project will create 850 direct and 2,400 indirect jobs and have
80% local content (“nationalization index”).
Brazil currently has LNG terminals in Pecém, with a capacity of 7 million cubic meters per day, and
in the Guanabara Bay, with capacity of 14 million cubic meters per day. From September 2013,
when the TRBA is expected to go online, Brazil will have a capacity of 35 million cubic meters per
day, a volume greater than the 31 million cubic meters of natural gas imported from Bolivia per
day. 114 Petrobras also intends to build a terminal for docking LNG tankers in order to be able to
export LNG. A fourth LNG terminal is also being studied.115
Petrobras established three design proposals in July 2011 for floating liquefied natural gas
terminals that could help deliver the fuel from oil fields far offshore. The proposals were opened
111 Petrobras: Sustainability Report 2010. 112 http://www.br.com.br/wps/portal/ 113 Petrobras: Sustainability Report 2010. 114 http://www.maritimeandenergy.com/tekst/8458/Petrobras-install-the-Bahia-Regasification-Terminal.aspx 115 Heller Redo Barroso and Marcos Macedo: Brazilian basics.
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August 25, with an ultimate selection of the winning design expected October 31 2011. The three
bids were from a consortium of Technip, Modec and JGC; SBM and Chiyoda; and Saipem. Floating
LNG plants serve as an alternative to conventional submarine pipelines.116
Transpetro also invested to expand its terminals. At the Guamaré Terminal, the onshore
infrastructure was enhanced to receive oil products coming from the Potiguar Refinery. The
offshore infrastructure will also be enhanced, with investments of $262.5 million.117
Gas Station Network Petrobras’ service station network consists of over 7,000 stations, owned by Petrobras
Distribuidora, a Petrobras publicly traded subsidiary operating under the brand name BR.118 This
Petrobras controlled network, mostly concentrated to the populous Southeast Brazil, represented
38.6% of the Brazilian service station market in 2009. The company will invest the equivalent of
$4.2 billion to expand its market share to 40.0% in 2014. Petrobras Distribuidora had a 30%
market share in 2004 and had less than 500 service stations in 2001.119
116 http://www.fnno.com/story/news-corner/331-petrobras-has-floating-terminal-proposals-pbr-news-corner 117 Petrobras: Sustainability Report 2010. 118 http://www.bnamericas.com/company-profile/en/Petrobras_Distribuidora_S,A,-BR_Distribuidora 119 http://www.br.com.br/wps/portal/
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Information Technology
The Brazilian Market Brazil is also one of the largest emerging economy IT-markets. It represents 47% of Latin America’s
IT-service market and is valued at $23 billion annually.120 IT end-user spending in Brazil is expected
to grow to $134 billion in 2014. The largest share of spending will be on telecom equipment,
representing 72% of the market, followed by IT-services at 13.3%, and computer hardware at
11.9%.121 Total IT-services export from the U.S. to Latin America is twice the size of IT-services
export to Africa and the Middle East combined and roughly the size of IT-services export to the U.S.
largest trading partner, Canada. 122 Banking industry services is considered the best segment for
growth in the Brazilian IT-sector. But there is public concern that the lack of skilled IT-
professionals in Brazil will slow the entire Brazilian economy.123
There have been somewhat of a boom in recent years in the Brazilian IT-sector. Cap Gemini made a
major acquisition with a 55% stake in CPM Braxis, the leading IT-services provider with over 5,000
employees. Several international IT-companies have used acquisitions as a way of entering the local
market.124 The major opportunities in the Brazilian IT-market for U.S. companies are in business
automation and secure data backup/recovery. Due to increased regulatory requirements, data
back-up is especially in-demand. The majority of the small and medium-sized businesses have
deployed a SAN (Storage Area Network) or NAS (Network Attached Storage) solution. IBM is the
market leader in IT-services with 39% of the local market share (in 2008); some other companies
competing with IBM are HP, EMC, Hitachi, Network Appliance, Storagetek and Sun.125
Brazil’s recent lowering of a payroll tax included IT-professionals as one of the professions. This is a
welcomed move as between 15-50% of the Brazilian IT-workforce is estimated to work in the
“informal” sector. 126 The biggest bottleneck in the Brazilian IT-sector is finding qualified
professionals. The shortage is 70,000 people in 2011 and it is in-line to reach 200,000 at the end of
2013. Gartner identifies the Brazilian labor force as flexible, creative and with diversified skills,
providing attractive resources to the offshore sector.
120 Gartner: IT Services Market Metrics Worldwide Forecast, Q2 2010 121 DOC: Commercial Guide Brazil 2011. 122 http://web.ita.doc.gov/ITI/itiHome.nsf/fe50f6398501af6f85256dc500700ade/fccf98cac631be198525757400590bfa?OpenDocument 123 http://itdecs.com/2011/04/if-brasscom-says-jump-will-you-jump/ 124 http://www.capgemini.com/news-and-events/news/capgemini-acquires-a-55-stake-in-cpm-braxis-the-leading-brazilian-it-services-player/ 125 MOITI: Brazil Telecom/IT Industry (2008) 126 Roberto Dias Duarte: Big Brother Fiscal, o Brasil na Era do Conhecimento (2009)
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Professionals from countries such as the U.S., the U.K., Spain, Italy, Portugal, Chile and Argentina are
awaiting necessary entry visas. Visa-requests for IT-professionals rose from 115 in 2009 to over
400 in 2010.127 7,500 U.S. citizens were granted work visas in Brazil in 2010.128
For hardware producers, there are tax incentives for local production and high taxes on import.
Companies with production in Brazil include Aiox Brazil, Compalead, Envision, Island Service,
Itautec Philco, LG, Leadership, Motorola, Positive, Samsung, Sanmina, Semp Toshiba, Foxconn and
Tycoon. The Brazilian government is actively trying to get more component manufacturers to Brazil
and most recently efforts have been focused on getting touch-screen production to Brazil.129
For it services, the major companies in Brazil are (in relative global size):
127 http://itdecs.com/2011/02/shortage-of-qualified-brazilian-it-staff-sparks-concerns/ 128 http://www.bbc.co.uk/news/world-latin-america-12745667 129 http://crn.itweb.com.br/29418/o-brasil-pos-pc/
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Today, Brazil has the 8th largest internal market of IT-BPO in the world. The largest share of the IT-
BPO revenues are attributed to Application Development (73%), followed by Infrastructure
Services (16%), Business Process Outsourcing (7%), and IT Consulting Services (4%). The local IT-
BPO market is forecasted to grow 12% in 2012.130
The Brazilian internet-company market is quite saturated and social media use is prolific.131 There
are a number of technological parks in Brazil that harbor ITC companies as seen below.
Petrobras’ IT-operations A Steering Committee at the Executive Management level makes all decisions regarding the course
of the IT Department. The IT Department is housed under the Services Director. The Services area
also includes Purchasing, Engineering and the Research Center. Though IT is not a core competency
of Petrobras, they put a great deal of emphasis on using cutting edge technology and research to
help decrease costs and increase revenue. They have also attained a certification as being ISO 9001
compliant.
130 http://www.apexbrasil.com.br/portal/publicacao/engine.wsp?tmp.area=509&tmp.texto=7139 131 http://itdecs.com/2011/09/entrepreneurship-in-brazil-still-a-lot-to-do/
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The technical areas under the IT Department include Excellence, Management, Services and Agility.
They perform many activities such as high performance computing, research and implementation
of new technology, software development and the creation of an E&P database model. They heavily
fund efforts in IT Department including funding for a 3-D multimedia hub and virtual reality centers
(VCR). With the VRCs, Petrobras is better able to quickly analyze data that in the past would have
taken months to gather and investigate. Programs like this help to eliminate unnecessary drilling by
optimizing the location of the drilling which saves millions of dollars per year.
There are a large number of outsourced IT jobs when Petrobras was last polled (in 2003 they had a
total of 1,915 consultants on board), while the actual number of full-time IT staff was only 735.
These numbers fluctuate back and forth over the years depending on the type of work needed at
the time. Petrobras has made an effort to develop partnerships with IT companies in order to make
their work more effective and efficient though high oil revenues allow them a great deal of
flexibility when it comes to cost controls.
Among others, Petrobras enlists Tata Consultancy, one of the fastest growing IT-consultancies in
Latin America with 7,000 employees in South America. 95% of Tata Consultancy’s employees in
Latin America are made up of locals. Henry Manzano, Tata’s CEO in Latin America: “We bring people
from Indian to train the local employees, and we also have people that have gone to India to train,
and are now back working in Latin America.”132
Petrobras is one of the top 25 firms in the world that most effectively use network technology. They
use voice, data, text and video simultaneously on their corporate network providing employees
with information technology and telecommunication services, such as Electronic Data Interchange
(EDI), videoconferencing, Internet and intranet services. These services are available on offshore
platforms through the use of Riverbed’s Steelhead platforms, in operational units and company
offices at home and abroad, saving in terms of cost and time and increasing production.
For exploration, Petrobras makes new measurements each centimeter. Petrobras looks at 10 to 12
variables, such as temperature, pressure, and weight of rock and sediment. Stored in an Oracle
database, the information is queried with analytics software from SAS Institute. It takes years to go
from initial exploration to crude oil production and sales of finished gasoline, so companies have to
model markets five, 10, 15 years out.133
ERP, mostly called SIGE - Sistemas Integrados de Gestão Empresarial - in Brazil, is critical to
Petrobras’ operations. Petrobras currently use SAP as their ERP-system provider. Accenture helped
implement and develop a SAP-based ERP-solution for Petrobras in the last decade. In view of
132 http://www.cio.com/article/375365/Gas_Prices_How_Oil_Companies_Use_Business_Intelligence_To_Maximize_Profits?page=2&taxonomyId=3002 133 http://www.cio.com/article/375365/Gas_Prices_How_Oil_Companies_Use_Business_Intelligence_To_Maximize_Profits?page=2&taxonomyId=3002
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Petrobras’ strategy of keeping costs down investments in IT will facilitate in increasing efficiency
through automation, control and communication systems. ERP systems help monitor the
performance of the entire supply chain.
In terms of data security, Petrobras’ website was knocked offline by a Brazilian-based hacker attack
in late June 2011134 and a few years ago several laptops with business-critical information was
stolen from Petrobras.135
Petrobras’ – Best Opportunities Petrobras does not specify its need for specific IT-services publicly; they have an across the board
supply chain IT-need. Consequently, the opportunities listed below are based on Universal
Consensus’s best estimates. Overall, the key factor is the local content requirement; having a
presence in Brazil is imperative.
Upstream This include ERP package implementations, enterprise asset management, data and information
management, health-safety-environment solutions, plant automation and design, business
intelligence and performance management, geographic information systems, and digital oil-field
solutions are all services in the general supply chain that Petrobras is looking for.
Furthermore, security and safety services are in demand as Brazil has the most highly regulated oil
industry in the world. Key IT-capabilities would include information protection with restoration of
application data, business resumption from catastrophic failure (disaster recovery), data leakage
and intrusion detection and prevention (IT fraud-services).
The midstream segment would consist mostly of pipeline and supply chain infrastructure
monitoring and control systems.
Downstream The downstream segment includes retail/e-commerce and payment automation, supply chain and
storage systems, smart meters, information sharing, data analysis and data storage, human
resources data and payroll systems, CRM, and inventory solutions.
134 http://www.cio.com/article/684936/Brazilian_Government_Energy_Company_Latest_LulzSec_Victims 135 http://www.cio.com/article/375365/Gas_Prices_How_Oil_Companies_Use_Business_Intelligence_To_Maximize_Profits?page=2&taxonomyId=3002
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http://www.fnno.com/story/news-corner/331-petrobras-has-floating-terminal-proposals-pbr-
news-corner
http://www.bnamericas.com/company-profile/en/Petrobras_Distribuidora_S,A,-BR_Distribuidora
http://www.br.com.br/wps/portal/
Gartner: IT Services Market Metrics Worldwide Forecast, Q2 2010
http://web.ita.doc.gov/ITI/itiHome.nsf/fe50f6398501af6f85256dc500700ade/fccf98cac631be198
525757400590bfa?OpenDocument
http://itdecs.com/2011/04/if-brasscom-says-jump-will-you-jump/
http://www.capgemini.com/news-and-events/news/capgemini-acquires-a-55-stake-in-cpm-
braxis-the-leading-brazilian-it-services-player/
MOITI: Brazil Telecom/IT Industry (2008)
Roberto Dias Duarte: Big Brother Fiscal, o Brasil na Era do Conhecimento (2009)
Page 70 of 71
http://itdecs.com/2011/02/shortage-of-qualified-brazilian-it-staff-sparks-concerns/
http://www.bbc.co.uk/news/world-latin-america-12745667
http://crn.itweb.com.br/29418/o-brasil-pos-pc/
http://www.apexbrasil.com.br/portal/publicacao/engine.wsp?tmp.area=509&tmp.texto=7139
http://itdecs.com/2011/09/entrepreneurship-in-brazil-still-a-lot-to-do/
http://www.cio.com/article/375365/Gas_Prices_How_Oil_Companies_Use_Business_Intelligence_T
o_Maximize_Profits?page=2&taxonomyId=3002
http://www.cio.com/article/684936/Brazilian_Government_Energy_Company_Latest_LulzSec_Vict
ims
Page 71 of 71
Disclaimer This analysis is based on our independent assessment and is documented to the best of our ability on
the date it was issues. It is provided as a useful aid for any collaboration, but it is not intended to be
relied upon under any circumstances, without independent due diligence.