Petrobras scandal becomes a risk to contracts
by Christiana Sciaudone and Peter Millard,
2015-02-27 06:29:33.0
SAO PAULO AND RIO DE JANEIRO — Rolls-Royce and General Electric (GE) are among oil-industry suppliers whose contracts in Brazil may be casualties of the growing Petroleo Brasileiro (Petrobras) corruption scandal.
The two companies were set to make parts for seven drillships ordered by Petrobras’s rig supplier, Sete Brasil Participacoes. Sete said this week that EAS, the shipyard it hired to build those rigs, is cancelling the contracts.
The dropped order illustrates how far-reaching the effects of the corruption scandal at state-run oil producer Petrobras have spread. Sete is struggling to keep operating after an accusation of bribery by a former executive delayed the disbursement of a loan from Brazil’s development bank this month, four people with direct knowledge of the situation said.
"It’s one big mess," Pareto Securities analyst Kristian Diesen said in Oslo. "Companies with assets or contracts in place are seeing increasing risk to their current backlog."
In addition to Rolls-Royce thrusters and GE’s contract to integrate the electric-control systems, EAS had planned to buy steel from Usinas Siderurgicas de Minas Gerais (Usiminas) and use a drilling package from National Oilwell Varco Incorporated.
EAS won the contract to build seven of the 29 drillships that Sete planned to lease to Petrobras so it could develop massive deep-water oil deposits off the coast of Brazil.
Usiminas declined to comment on its contract with EAS. National Oilwell did not respond to a request for comment.
GE said in a statement in 2013 that it would supply $600m worth of parts for 22 of the 29 vessels to EAS and three other shipyards. An outside Brazilian press agency for GE said on Thursday that contracts already signed are being "honoured and executed."
Rio de Janeiro-based Sete said it is pursuing legal measures against EAS, without disclosing the reason behind EAS’s cancellation.
Shipbuilding industry association Sinaval said in January that Sete had missed payments to several shipyards.
Should Rolls-Royce’s contract with EAS be cancelled, it could represent an estimated loss of £5m to £25m AlphaValue analyst Thomas Picherit said in Paris.
While the situation could also force Rolls-Royce to write down the value of a £22m facility it built in Rio de Janeiro state, neither the contract cancellation nor the provisions would represent a "material" loss to the company, said Espirito Santo Investment Bank analyst Edward Stacey.
If Sete’s troubles worsen, there is a risk that other shipyards with contracts could also pull out, Rio de Janeiro-based energy and infrastructure consulting firm CBIE director Adriano Pires said.
Sete was a cornerstone of the state’s campaign to push firms to use locally made parts and equipment.
Bloomberg
A file picture of Petrobras oil platforms at Campos basin in Rio de Janeiro. The state oil company is embroiled in a growing corruption scandal. Picture: REUTERS
SAO PAULO AND RIO DE JANEIRO — Rolls-Royce and General Electric (GE) are among oil-industry suppliers whose contracts in Brazil may be casualties of the growing Petroleo Brasileiro (Petrobras) corruption scandal.
The two companies were set to make parts for seven drillships ordered by Petrobras’s rig supplier, Sete Brasil Participacoes. Sete said this week that EAS, the shipyard it hired to build those rigs, is cancelling the contracts.
The dropped order illustrates how far-reaching the effects of the corruption scandal at state-run oil producer Petrobras have spread. Sete is struggling to keep operating after an accusation of bribery by a former executive delayed the disbursement of a loan from Brazil’s development bank this month, four people with direct knowledge of the situation said.
"It’s one big mess," Pareto Securities analyst Kristian Diesen said in Oslo. "Companies with assets or contracts in place are seeing increasing risk to their current backlog."
In addition to Rolls-Royce thrusters and GE’s contract to integrate the electric-control systems, EAS had planned to buy steel from Usinas Siderurgicas de Minas Gerais (Usiminas) and use a drilling package from National Oilwell Varco Incorporated.
EAS won the contract to build seven of the 29 drillships that Sete planned to lease to Petrobras so it could develop massive deep-water oil deposits off the coast of Brazil.
Usiminas declined to comment on its contract with EAS. National Oilwell did not respond to a request for comment.
GE said in a statement in 2013 that it would supply $600m worth of parts for 22 of the 29 vessels to EAS and three other shipyards. An outside Brazilian press agency for GE said on Thursday that contracts already signed are being "honoured and executed."
Rio de Janeiro-based Sete said it is pursuing legal measures against EAS, without disclosing the reason behind EAS’s cancellation.
Shipbuilding industry association Sinaval said in January that Sete had missed payments to several shipyards.
Should Rolls-Royce’s contract with EAS be cancelled, it could represent an estimated loss of £5m to £25m AlphaValue analyst Thomas Picherit said in Paris.
While the situation could also force Rolls-Royce to write down the value of a £22m facility it built in Rio de Janeiro state, neither the contract cancellation nor the provisions would represent a "material" loss to the company, said Espirito Santo Investment Bank analyst Edward Stacey.
If Sete’s troubles worsen, there is a risk that other shipyards with contracts could also pull out, Rio de Janeiro-based energy and infrastructure consulting firm CBIE director Adriano Pires said.
Sete was a cornerstone of the state’s campaign to push firms to use locally made parts and equipment.
Bloomberg
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