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New agreement with Petrobras opens doors

Innovation Norway signed an unprecedented agreement with Petrobras in August to cooperate on technology in the petroleum and maritime sectors. The deal is expected to open up doors for Norwegian companies, particularly smaller niche actors, eager to tap the growing Brazilian market.

The deal with Petrobras is based on Innovation Norway’s Norwegian Industrial Research and Development Contract (IRD) scheme whereby Norwegian suppliers, usually small to medium-sized, are granted financial support to research a new technology together with a customer.

In Brazil’s case, that would most likely involve technology related to solving deepwater drilling challenges offshore Brazil, where fields are found in water depths of up to several thousand metres, as well as subsea production, integrated operations and environmental technology monitoring. Another technology need is improved oil recovery. Brazil has a recovery rate of about 30% compared to 46% in Norway.

Photo:Brazil President Lula shows a sample of the first oil lifted out of the pre-salt layer in the Baleia Franca Field on July 15, 2010.
©: Ricardo Stuckert/PR

Matching Competence

Norway has specific competence in these areas that matches Brazil’s technology needs because of Norway’s deepwater and maturing fields in the Norwegian Continental Shelf. The preparations for the agreement started in 2007 as a way to cooperate with Petrobras on technology it said it wanted and that Norwegian companies had or could develop together with Brazil, said Rune Andersen, Innovation Norway head of section and one of the key initiators behind the deal.

“Norway is full of small and medium-sized business companies,” said Andersen. “For them to go to Brazil is a big step. We wanted a kind of arrangement to facilitate the dialogue.”

The agreement marks the first one between Innovation Norway and a large oil company. However, it was necessary if smaller Norwegian companies were going to crack the growing offshore suppliers market in Brazil and penetrate the large bureaucracy of a massive-sized company such as Petrobras, the fourth biggest in the world by market capitalization and with more than 76,000 employees worldwide.

Petrobras plans to invest USD 108 billion in exploration and production offshore of Brazil from 2010-2014, according to the company’s Strategic Plan 2020. The goal is to increase oil production from 2.1 million barrels per day to 3.95 million by 2020. A big chunk of the increase, approximately 1.078 million, is expected to come from Brazil’s pre-salt fields.

“This will obviously open doors,” said Andersen. “The country is as promising as it is complex.”

Petrobras has been cooperating previously with Norwegian companies via the IRD scheme. However, the new agreement would make the cooperation more structured and effective. A Norwegian oil service company would contact one of Innovation Norway’s 15 district offices with a technology cooperation proposal for Petrobras. That office would then work with Innovation Norway’s Rio branch to facilitate a possible deal.

If approved, the Norwegian company would receive financial support to help fund its research. Next year, Innovation Norway is expected to grant a total of NOK 285 million in IRD contracts to worthwhile projects, an increasing part of which have been going to international partners.

Photo:Gunn Ovesen, Innovation Norway managing director, and Carlos Tadeu da Costa Frag, managing director in Petrobras’ research department CENPES, signed a technology cooperation agreement on August 27, 2010. In the background, Trond Giske and Ambassador Sergio Moreira Lima.
©: Berit Roald/Scanpix

Energy Cooperation 2020
Under a separate initiative, the international oil and gas partner network INTSOK is helping small and medium-sized Norwegian offshore suppliers grab a bigger share of the growing Brazilian market through a new programme called Norway-Brazil Energy Cooperation 2020.

Launched this year, the crux of the programme is an entry strategy programme similar to one INTSOK employed in Russia that helps company networks navigate the challenges of entering the Brazilian market. Here, though, they will also have the benefit of a support team of service providers, including legal, administrative, partner search and headhunting services. The programme is subject to approval and funding from Innovation Norway.

Part of the hurdle in Brazil is the demand for high levels of local content. Requirements for the use of Brazilian suppliers for a FPSO for pre-salt field developments can reach up to 60-70%. Plus lately these requirements have become structured and formalised through an auditing system and industry penalties.

“(Brazil) has a capacity gap and a technology gap and we have the experience in Norway that is relevant to Brazil,” said Rune Norseng, INTSOK regional director for Brazil. “Our experience is that companies that try and enter the Brazilian market often come home very disappointed. They need a structured and planned approach.”

The energy cooperation programme is currently in the pre-project stage. So far, INTSOK has received interest from around 10-20 companies representing all areas of the value chain, from downhole equipment to topsides.

The plan is to gather 15 companies into three networks that will prepare business strategy plans for entry. The selected companies will take part in three workshops next year, one of which will be in Rio. By the next autumn, companies will have made their management decision and potentially be on their way into Brazil.

There are currently more than 100 Norwegian companies active in Brazil, approximately 65 are registered, the majority of which are in oil and gas upstream activities, said Terje Riis-Johansen, Norway’s petroleum and energy minister, in his closing remarks at the Invest in Brazil seminar in Rio this September. The minister named Brazil among the three most important oil and gas countries for Norway.

“Brazil has a highly advanced offshore industry – and especially world-leading competence in deep sea drilling,” said Riis-Johansen. “When looking at the competitive edge of the Norwegian oil and gas industry, we find that Brazil and Norway’s competence base are highly compatible. This explains why so many partnerships have evolved between Norwegian suppliers and Petrobras in particular.”

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