The city of Nova Odessa, in the state of Sao Paulo, is not along the coast. It is located near Campinas, 200 kilometers from the Atlantic Ocean. It doesn't have any research center that develops technology for the oil sector either. Nevertheless, Nova Odessa has just become part of the pre-salt itinerary, ironically, thanks to past failures. On the lot of an old weaving plant, bankrupt as a result of the crisis that punished the region's textile industry in the 1990s, a unit of Lupatech, of Rio Grande do Sul, manufacturer of valves for the oil sector, was installed and immediately became the largest company in the city. Inaugurated at the end of August, with investments of 56 million Reais, the factory shall create 400 direct jobs when working at full capacity. And there is more to come. Lupatech, a typical company of Brazil's new capitalism, founded in the 1980s and now trading on the stock exchange, plans to install two more assembly lines in the same area. "I could never imagine we would end up benefiting from pre-salt being so far from the sea,' says Manoel Samartin, mayor of Nova Odessa.
The city, with its 48,000 inhabitants, and Lupatech, with its 400 employees and cutting edge technology, are examples of the wealth already being distributed even before fields, like Tupi, produce any actual oil. So far, they have only run exploration tests. While discussions about the regulatory framework for the oil sector roam Congress and are used in political speeches, business that involves the equipment and service sectors is already happening. For these companies, participants in an enormous chain that ranges from the construction of oil platforms to making worker uniforms, what really matters, politics aside, is that billions of barrels of oil buried at the bottom of the sea will need to be extracted. And for that, lots of equipment will need to be manufactured, many services will be contracted and many jobs will be created. "Over the next ten years, 80 billion dollars will be needed to finance only the purchase of machines for the oil industry," Luciano Coutinho, president of the National Bank of Economic and Social Development told EXAME magazine at the inauguration of Lupatech's new unit.
Assembling equipment at GE, in Sao Paulo: 6 billion dollars in new income by 2014
Everywhere in the world, the numbers that surround oil economics are huge. Investments in exploration and production totaled 332 billion dollars in 2007, 70% of which went to equipment and service suppliers. The result is that those companies have grown at average annual rates of 19%, with profit margins of at least 15% of invested capital. This is no different in Brazil's case. By 2013, total projected investments in the sector reach 190 billion dollars - an average of 100 million dollars per day. Most will come from Petrobras. But that should just be the beginning. In the imagination of analysts, these figures are much bigger. A study by UBS Pactual bank indicates that 600 billion dollars will be necessary to explore the equivalent of eight Tupi fields - whose reserves, estimated at 5 to 8 billion barrels of oil, represent only part of what the pre-salt region may have. That's why the oil and gas sector has become the most dynamic of the Brazilian economy's large production chains over the past decade. Today, it is responsible for 10% of gross domestic product - compared to 5.5% for the auto industry, another sector that has been breaking one record after another. Not long ago, in 1997, oil and gas generated only 2.8% of the nation's wealth. With pre-salt, it is estimated that this share will reach 20% of GDP by 2020.
This is a most optimistic scenario, no doubt. But the oil discovered thousands of meters below sea level will only be of use when it is extracted from there. In the business world, transforming the "winning lottery ticket" of pre-salt into actual wealth is one of the biggest current challenges for Brazilian business. The Queiroz Galvao Group, traditional in heavy construction, has already pledged 1.6 billion dollars and is going to invest another 600 million over the next two years to provide pre-salt related drilling services. A large part of the funds was set aside for three platforms - under construction in Singapore and Abu Dhabi - to operate in the Campos Basin. The company debuted in ultra-deepwater drilling in August. "I have no doubt Brazil will be one of the most important stages for floating drilling in the world," says Antonio Augusto de Queiroz Galvao, general director for oil and gas at the group.
Company activity around the world related to Brazilian pre-salt occurs even before any political definition for two straightforward reasons. The first: orders from oil companies, including Petrobras, are underway. Pre-salt money is already circulating in the economy. The second: those companies that enter this new business environment first tend to have an advantage. Two months ago, GE, of the United States, signed a 250 million dollar contract just to supply Petrobras with wellheads - steel parts placed at the entrance to the hole, at the bottom of the ocean, and on which the "wet Christmas tree" is assembled, a set of valves that direct oil flow to ducts connected to the platform on the surface (see chart on page 38). The order could triple over the next three years. GE also has contracts to supply OGX, the oil branch of Eike Batista's group, and sector multinationals in the country. The company recently assessed the additional business opportunities it could have by 2014 based on the stimulus package the government, through Petrobras, BNDES and other fronts, announced to combat the crisis. Total possible additional earnings for GE in Brazil reached 8.4 billion dollars. Equipment sales for oil and gas should generate up to 75% of value, nearly 6 billion, according to Joao Geraldo Ferreira, president of GE in Brazil. "They are long term orders, but they are already part of our day-to-day activity," says Ferreira.
Regardless of the size of pre-salt business, everything indicates Petrobras will lead the process and, if the government's proposal takes root, with even greater supremacy. No wonder the state-owned company is being so heavily courted by the global equipment market. Siemens of Germany considers Petrobras its most important client in the sector in the world today. "She's the prettiest girl at the party and everyone wants to dance with her," says Luiz Eduardo Rubiao, director of oil and gas solutions at Siemens in Brasil. In order to woo the partner, suppliers must have a high equipment nationalization index, which by rule already set by the government since 2003, should be around 70% of project value. Siemens has plans to bring two production lines to its industrial complex located in Jundiaí, in the interior of Sao Paulo. These gas turbine and compressor lines manufacture equipment only produced today in Germany, the United Kingdom and Sweden. "Those who already work for Petrobras want to increase their sales. Those who don't are dying to get in," says Ricardo Ourique, general director of the engineering and construction division of the Italian Techint Group. The company, which assembles platform operation modules, has its eyes on the tender Petrobras will make to equip eight ships that will serve the Tupi complex. Even before the dispute for the orders begins, Techint is renovating its factory near the Port of Paranaguá, in Paraná, to become its base for pre-salt operations.
Lupatech's new factory in the state of Sao Paulo: far from Brasília, industry is at full capacity
Pre-salt related activities have been taking place at several points along the Brazilian coast. In Pernambuco, a new shipyard will be constructed next to the Port of Suape. The Alusa consortium, with Galvao Engenharia and the Korean Sungdong, will invest 500 million dollars to install a new ship factory that will compete in future bidding rounds launched by Petrobras as well as Transpetro, the state-owned company's transportation division. Estaleiro Atlântico Sul is already in operation near there, with 3000 employees. It is building oil tankers for Transpetro. The government projects construction of 49 ships over the next few years. In Suape, on September 11, President Luiz Inácio Lula da Silva announced the beginning of the first oil tanker to be built by Atlântico Sul, with delivery scheduled for April. Along the coast of Sao Paulo, Santos was defined as a sort of future capital for pre-salt. Petrobras is going to raise three buildings in the city for 2000 employees who will control Santos Basin operations. One of the city's concerns is to avoid the infrastructure problems seen in Macaé, in the north of the state of Rio de Janeiro, which saw out-of-control growth after it became the base for Campos Basin services. One of the measures projected in the Baixada Santista is to install a surface subway to connect Petrobras' new head office to the city's downtown area, the port and the city of Sao Vicente - a project that will cost 600 million reais.
However, the oil rush is not restricted to huge works and large business groups. The volume of resources moved in this sector tends to be broadened in a vast network of contracted and sub-contracted firms to provide services, equipment and materials. It is estimated that investments made by exploration firms can propagate through up to six levels of the supply chain, from the obvious manufacturers of pipes and valves to food services. De Nadai, a food business from the city of Sao Paulo, started in the maritime hotel segment six years ago to provide services on platforms. Food, recreation, laundry and cleaning 24 hours a day are required by those people who work off-shore. The 16 service contracts on platforms, 13 belonging to Petrobras, provide De Nadai 60 million reais per year. "With pre-salt, we will soon double that revenue," says Luís Camilo Silva, director of the company, which had earnings of 230 million reais last year. The equipment and service chain that is growing in the country can have a broader horizon than the Brazilian pre-salt. Most of the new oil exploration frontiers in the world are in ultra-deepwater. If Brazil establishes a network of goods and services for this exploration profile it can export much more than oil. "Today, Norway's oil exports are falling, but the international business for suppliers that developed in the country is growing," says the consultant Pedro Cordeiro, partner at Bain & Company, which conducted an extensive study of the oil industry for BNDES. The proposal for developing this chain is in the country's interest and it is one of the discussions that are really heating up. The issue is whether the stimulus for the sector will occur through measures that will provide improved competitiveness for all productive activities at the same time, or whether, as some lobbies have already defended, there will be market reserves and benefits directed to selected groups.
Reserves would be Jurassic errors applied in a sector that by nature does not accept borders. Pre-salt's technological challenge is gigantic, even for larger and more experienced companies in the sector. Just like the discovery of reserves in the North Sea, in Norway, led to large oil companies studying those waters, pre-salt inaugurates a new era for research. The Franco-American company, Schlumberger, one of the largest suppliers of equipment for oil exploration and production, decided to install its first research center in Rio de Janeiro after six decades of working in the country only with imported solutions. The center will develop everything from geoscience software to seismic and electromagnetic measurement processes. "With that, we will have faster projects, with results in up to two years, although some base research lines may take more than ten years," says Ana Zambelli, president of the company in Brazil.
Schlumberger's arrival in the research field demonstrates there is no way for the country to isolate itself in this technological race. Today, the four main equipment and service companies - Schlumberger and the American firms, Halliburton, Baker Hughes and Weatherford - have 23% of the global market. Globalization is the banner for oil exploration and the platforms are the greatest example of this. Although there is an average nationalization index of 70% of project value, making it mandatory for components to be purchased from companies with ties in Brazil, the origin of the technologies employed is overwhelmingly international. Petrobras is the only Brazilian out of 20 companies that requested a total of 2247 patents in the oil sector in Brazil since 1990. The Anglo-Dutch company, Shell, led the list, with 196 registrations. Petrobras comes in second with 173. "No country in the world dominates the entire chain. It's like the aeronautical sector, where Embraer doesn't manufacture turbines. The intention must be to make maximum use of international suppliers," says David Zylberstajn, specialist in the sector and former president of the National Petroleum Agency. In the case of ultra-deepwater, articulation among global technology suppliers has already begun. The American firm, Intel, world leader in chip manufacturing, supplied Petrobras with its new high performance processor five months before its launch especially for pre-salt research, whose graphs demand at least twice the available computing capacity. "Petrobras' role is to act as a maestro, leading a legion of suppliers from several parts of the world to run projects at the same rhythm," says José Miranda Formigli Filho, executive manager of pre-salt at the state-owned company.
There is no ready-made equipment on the market to meet the challenges of sucking oil embedded in porous rocks at depths of more than 5000 meters and 300 kilometers off the coast. Global suppliers at every level of the chain are conducting intense research. "We are in a generalized search for answers for technologies in ultra-deepwater," says Cristiano Sombra, pre-salt manager at the Petrobras Center for Research and Development (Cenpes). The company invested 1.7 billion reais in its research area last year, the largest innovation budget in the country. Cenpes recent results include a combination of construction materials and techniques to reduce pre-salt drilling time from one year and a half to three months, cutting costs from 240 million dollars to 80 million. "Drilling technology has already evolved, and today, we have seen that pre-salt exploration will be worthwhile with oil prices at 35 dollars a barrel," says Formigli.
From an MBA to a bakery: at Fundaçao Getulio Vargas in Rio de Janeiro, project management class; at Senac in Macaé, Fabiana Pereira learns how to be a baker on a platform
Besides the technological intelligence brought by global suppliers, the oil and gas sector benefits from a gratifying exception in the Brazilian context: research at universities walks hand-in-hand with the industry. Contrary to what happens in several other areas, academia is not restricted to the theoretical aspects of oil and it has transformed science into practical projects. Petrobras maintains 38 research networks comprised of up to eight universities to complement its internal studies and it invests 400 million reais per year in this collaboration and in the qualification of engineers. Leadership in terms of partnerships with companies belongs to the Federal University of Rio de Janeiro's Coordination of Graduate Study Programs in Engineering. Coppe conducts exclusive experiments to simulate equipment performance in pre-salt areas, such as the ocean tank capable of reproducing pressure conditions found at the bottom of the sea and the welding corrosion laboratory, which studies the resistance needed by pipes.
Business ideas are also born in the universities. An example is the case of Marcelo Igor and Xavier Castello, PhD students at Coppe. Last year, they created Innova Offshore, a project company for improving processes and quality in ship and platform construction. Today, Brazilian shipyards spend up to 30% more than planned to correct measurement errors in steel plate for ship hulls. One of the big clients Igor and Castello's company has gained is Atlântico Sul. Together with its consulting work, Innova works on sandwich pipe projects, which consist of two layers of steel with a layer of ceramic or plastic in the middle to withstand the increase in pressure in deep wells. The technology has a Brazilian patent, and according to Igor, one of the opportunities is working on sandwich pipe projects for metallurgical companies that already supply the oil chain.
Coppe students who have become micro business owners are part of increasingly larger group of Brazilian professionals who are specializing in the oil chain. They are people from various educational backgrounds, from engineers to platform support personnel. Quick training of droves of professionals is one of the many challenges for the sector. At the end of this year, 80,000 people will have already been trained in 185 specialties defined by a national qualification program that began four years ago to serve Petrobras. Under the coordination of the Brazilian Association of Industrial Engineering, an entity that gathers 115 companies, the program projects the training of at least another 210,000 professionals by the end of 2013. At the management level alone, there are today 1100 students, graduated in business administration and engineering, attending the courses. Marcus Vinícius Gonçalves, from Rio de Janeiro, is a chemical engineer taking his MBA in project management at Fundaçao Getulio Vargas in Rio de Janeiro. Five years ago, he left his job at the glass manufacturer, Nadir Figueiredo, to provide inspection services in the oil industry. "A new company pops up in this area every day," says Gonçalves, who inspects works and equipment for Petrobras. Today, the oil and gas chain employs 200,000 people in the country, but that number should multiply quickly. According to Petrobras' strategic planning, 207,000 jobs will open at the company by 2013. There will be nearly 700,000 openings in the sector. Fabiana de Jesus Pereira, 29, wants to work on deep sea platforms. Graduated in gastronomy, she is now studying off shore bread making and baking at Senac in Macaé. Training focuses on producing part of the food for platform crews. They have 12-hour work shifts for periods of 14 days (and then 14 days off), in a tiny kitchen where breads, cakes and desserts are made. "We can also work on tugboats and oil tankers," says Fabiana, who is beginning to get familiar with terms from the oil world. It is a world in which, despite the harm caused by political games, there will be more and more Brazilians working, more business, and hopefully, more wealth generated from now into the future.