Brazil is rapidly developing its offshore oil and gas resources in the pre-salt region along its coast. Petrobras will invest $127.5 billion through 2015 in exploration and production activities. As demand grows, there are opportunities for international suppliers but they will need to meet escalating local content requirements by partnering with local companies or establishing manufacturing in Brazil. For companies seeking business in Brazil's oil and gas industry, forming local partnerships and alliances can help navigate local rules while gaining access to domestic markets and capabilities.

1. B
uoyed by GDP growth often
exceeding 3 percent annually
since 2004, Brazil is currently
frantically building new infrastructure
to develop its vast reserves of natu-
ral resources in the so-called pre-salt
cluster along the Brazilian coast.
The cluster’s oil has been found be-
low water as deep as 3,000m and ad-
ditionally as much as 7,000m below
the seabed beneath a layer of salt. It
the past 20 years”, according to Wood
Mackenzie consultants.
Additionally, it is important to highlight
that Petrobras, the state-controlled oil
giant of Brazil, will itself be investing
a whopping US$127.5 billion through
2015 solely in exploration and produc-
tion activities.
A Gigantic Shopping List
As programmed, Petrobras is about
to embark on a spending spree from
a gigantic shopping list that ranges
from wellheads and hydraulic pumps
to drilling packages and other critical
components. Petrobras is also pro-
jecting future bidding procedures for
chartering all types of vessels, from
drilling rigs and FPSO to pipe-laying
vessels and tug boats.
In view of this thriving scenario, Bra-
zil is poised to become a gold mine
for suppliers and service providers
in the worldwide offshore petroleum
industry. But there is one catch. As
announced by local authorities and
will undoubtedly be required to meet
an ever-growing “local content” per-
centage.
Local content requirements will un-
doubtedly climb, thereby forcing inter-
ested international suppliers to set up
and run Brazilian subsidiaries in order
to participate in the massive oil rev-
pre-salt region.
Furthermore, registry in Petrobras
vendor’s list (validated by receiving
“CRCC”) will certainly be indispens-
able for companies wanting to par-
ticipate in the pre-salt bonanza. This
means that players desiring a piece
of the pre-salt pie will have to pull to-
adapt to Petrobras quality require-
ments.
The Brazilian oil and gas industry is skyrocketing, fuelled by huge offshore discoveries in recent
years. Understandably, escalating local content has become a major priority for Petrobras
procurement. For those who are thinking of doing business in Brazil, it’swisetoask: What are the
possibilities for local partnerships or local manufacturing capabilities?
BY HELLER REDO BARROSO AND MARCOS MACEDO
The nuts and bolts of doing
business in the Brazilian oil &
gas and offshore industries

2. Two Main Options
foreign newcomers have two main
options: (i) establish a manufacturing
facility in Brazil; or (ii) forge alliances
with local partners. As we have no-
ticed, some major international major
offshore contractors and suppliers are
already jump starting their competitive
position by establishing operational
and manufacturing facilities in Brazil.
Nonetheless, due to major interna-
tional players’ lack of local installed
capacity in the offshore petroleum in-
dustry, bidding and direct negotiation
invitations are currently going mostly
to Brazilian contractors. In turn, the
local companies will seek technology
and project managers from abroad.
That is why some international players
are now seeking to secure alliances
with important local players, most no-
tably in the EPC sector.
Summarizing the upsides of local part-
nerships with recognized Brazilian
companies in the oil and gas market,
we can say that: a foreign newcomer:
(i) would be most likely invited to par-
ticipate in bids by coat-tailing onto a lo-
cal partner’s consolidated reputation;
(ii) immediatly, have fewer problems in
achieving local content requirements
in their contracts;
(iii) would not face the common red-
tape problems that newcomers usually
experience in pre-operational or pre-
bid phases; and
(iv) share the local partner’s experi-
ence and use its manufacturing capa-
bilities and plants.
A Huge Opportunity
Most of these Brazilian contractors are
offshore petroleum industry and some-
what “illiterate” in the high-tech end
of it. So they are quite dependent on
associations with international com-
panies to successfully participate in
pre-salt E&P activities. This is a huge
opportunity for international suppliers
and contractors to begin opening the
door into Brazil: start with well-regard-
ed local associations.
By becoming established in Brazil,
foreign companies may eventually be
directly invited to participate in auc-
tions where high national content is
required, allowing them to compete
with “native” Brazilian contractors.
But the early birds are already chas-
ing the worms. Right now, new ports
and shipyards are under construction.
Every major global shipyard is already
involved in Brazil, negotiating the con-
struction of their own yards here, all of
them in association with the biggest
Brazilian conglomerates.
Be Amongt he Hottest
Despite these challenges, the Brazil-
ian pre-salt region represents one of
the hottest business opportunities for
E&P services and goods providers
throughout the world. Newcomers to
Brazil’s oil and gas marketplace are
usually dismayed by what seems to be
an overly-complex, heavily-regulated,
and bureaucracy-prone business and
legal system. Companies worry about
corruption and about securing their
assets against unlawful seizure or na-
tionalization. However, in today’s Bra-
zil, these are somewhat far-fetched
concerns.
But the clock is tickling, and those
companies prepared to move quickly
to establish local manufacturing ca-
pacity in Brazil and forge local strategic
associations will secure themselves a
big head start in the run for black gold.
AUTHORS
Heller Redo Barroso is
the founding partner of
Heller Redo Barroso &
Associates...
hrb@hrblaw.com.br
Marcos Macedo is an
associate at Heller Redo
Barroso & Associates...
macedo@hrblaw.com.br
Heller Redo Barroso & Associates. is a
specialized in the Oil and Gas, Power,
Shipping, and Offshore Petroleum
Industry.
www.hrblaw.com.br