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Petrobras Reportedly Ready To Settle With Sete Brazil

Vladimir Zernov profile picture
Vladimir Zernov
16.08K Followers

Summary

  • Offshore Energy Today reports that Petrobras is close to settlement with Sete Brazil.
  • Petrobras is ready to take 4 rigs on a $299,000 dayrate.
  • This settlement will be a good outcome for Petrobras and for the whole offshore drilling industry.

Petrobras (NYSE:PBR) continues to march through the mess of the previous corruption scandal. This time, Offshore Energy Today reported that Petrobras had reached a possible settlement with Sete Brazil. Sete Brazil was originally set to build 29 rigs (23 drillships and 6 semi-subs) for Petrobras, which were to be used in the company’s wide exploration and development programs offshore Brazil. However, a combination of rapid decline in oil prices and wide corruption scandal in Brazil destroyed Sete Brazil's ambitions and put the whole project under a big question.

According to Offshore Energy Today, Petrobras will charter four rigs and terminate the contracts for other rigs. It’s important to note that the deal is still subject to approval by both companies. The contracts for the four rigs will have a duration of ten years with a dayrate of $299,000. Also, Petrobras will forego its 5% stake in Sete. For a deal to come through, Sete will have to find an international-class drilling rig operator with experience in deepwater drilling to operate the rigs.

Let’s look at the deal first from Petrobras’ side and then from the offshore drilling industry side.

It has been long questioned how many Sete rigs will ultimately appear in the market. As per Sete’s latest presentation dating back to 2016, the best-built rigs looked like this:

I checked all the rigs mentioned in the above-mentioned Sete presentation through InfieldRigs and here’s what I found. Currently, 4 drillships (Arpoador, Deepsea Guarapari, Cassino, Deepsea Itaoca) and 3 semi-subs (Urca, Frade, Bracuhy) are listed as “under construction”. The remaining Sete rigs are already cancelled. The Offshore Energy Today’s report did not specify which rigs will Petrobras be taking. Current delivery dates are 2018 (Arpoador), 2019 (Urka, Frade, Deepsea Itaoca), 2020 (Deepsea Guarapari, Bracuhy) and 2021 (Cassino). It is possible that Petrobras will be taking the first four rigs to come

This article was written by

Vladimir Zernov profile picture
16.08K Followers
I'm a trader who trades both short-term and long-term. I started my career as a day-trader for a trading firm, but then turned to longer time frames and went on my own to manage my portfolio. I use technical analysis as well as fundamental analysis in my research.

Analyst’s Disclosure: I am/we are long RIG. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

I may trade any of the above-mentioned stocks.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (29)

Wimal profile picture
Vladimir, now that we have the settlement figure, would it be possible to see a valuation update also using the current oil price ?
www.wsj.com/...
Henrik Alex profile picture
What kind of valuation update are you looking for? Petrobras? Vladimir isn't covering the company - the article is highlighting a potential settlement with offshore rig builder SETE.

This has nothing to do with today's corruption probes settlement.
Henrik Alex profile picture
If I understand this correctly, the worst case would have been seven rigs, right? Not a big difference to the greater picture, I guess.
Vladimir Zernov profile picture
Yes, the worst case is 7. Three more rigs in the exact segment are significant, in my view.
Henrik Alex profile picture
The increase in supply to the world's 6th/7th generation floater fleet wouldn't be significant by adding another three rigs.
Vladimir Zernov profile picture
No it wouldn't, but we are talking about 3 rigs in one place - Brazil +, knowing how things go by in EM, these rigs would have had PBR contracts, which is bad for drillers.
t
ESV- is not going to find new low of 1 year. We will not see again at $4.10..
n
Vladimir, do you think a company would want to buy the rigs instead? Maybe Sete would settle for cash upfront instead of the dayrate for 10 yrs? Whats your thoughts?
Thewaltzy profile picture
I would say that’s possible. But...it won’t make you much money. They have a g’teed rate with pbr. So wouldn’t a buyer benefit only from 1) possibly lower capital cost & 2) operational costs.
Interesting idea mind. Similar to rig’s purchase of songa.
n
Waltzy..
Yes similar to Songa deal? Vladimir mentioned in article, "Sete will have to find an international-class drilling rig operator with experience in deepwater drilling to operate the rigs." Not sure how much that would subtract from the dayrate? SDLP is sitting on a pile of cash, and they always mention in their CC they are a "growth company". If Sete wanted cash instead, maybe the rigs could be bought for a "songa" .
n
Not likely to happen, because of the construction cost is upwards in the highest range because of Brazilian local content. Drillers won't benefits from 299k dayrates (for 10 years) when the dayrates >3 years into contract would exceed 350k-400k for these rigs, when market conditions improve. Also Drillers would benefit from an "operate and manage" contract than paying upfront for these rigs at premium and running OPEX. IMO. ESV or SDLP could be compete for "operate and manage" contract. IMO Ensco might end up bagging this contract. again pure guess.
ZL1 profile picture
ZL1
03 Mar. 2018
long PBR at $8 !!!
A
can one of the offshore companies mentioned above buy Sete.
Vladimir Zernov profile picture
No, nobody is going to do this. This makes no sense - there are plenty of newbuild rigs built by reputable yards that are searching for buyers.
a
I suggest and have in the past 15 months, get ready, PBR is coming back, stronger than ever. I believe PBR is going to make a difference in all our lives.
mikado212 profile picture
should avoid petrobras in my opinion. All of these oil stocks are vulnerable to to corruption and even confiscation by the state in these emerging markets.
R
They will never go bankrupt tho
Vladimir Zernov profile picture
midado, PBR has been already punished heavily for corruption. My thinking is that you should just remember that some corruption is always possible and include it in valuation. Then, everything depends on the price.
mikado212 profile picture
Look at yukos. Remember how cheap it was just before they ruined the company.
H
Interesting Article, thank you Vlad!
Meanwhile, offshore utilization is accelerating:

http://bit.ly/2BQ1PuC

y-o-y +3.0%- basepoints
m-o-m +1.4 % basepoints
w-o-w +0.5% basepoints
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