June 6, 2018 / 3:41 PM / 2 months ago

Exclusive - Schlumberger, Halliburton ready bids for Petrobras output sharing deal

RIO DE JANEIRO/HOUSTON (Reuters) - Schlumberger NV (SLB.N) and Halliburton Co (HAL.N) are preparing offers for an onshore production sharing deal with Brazil’s state-controlled Petrobras (PETR4.SA), two sources said, a first for oil services firms in the Latin American country.

The logo of Brazil's state-run oil company Petrobras is pictured in the company headquarters in Sao Paulo, Brazil February 20, 2018. REUTERS/Paulo Whitaker

Another source said General Electric Co’s (GE.N) unit Baker Hughes (BHGE.N) is also studying a potential bid for the tender, launched by Petrobras in May.

A deal would represent a novel way for the debt-laden oil company to boost output from mature fields without losing control or risking capital, by partnering with one of the world’s largest oil service providers.

Such a deal would also allow oil services companies to put to use expensive equipment idled for years during the downturn in Brazil’s oil industry, hammered by low oil prices and a massive corruption scandal at Petrobras.

South America’s largest producer has attracted billions of dollars of investment from the world’s top oil firms to develop prolific deep water oilfields.

The tender, or invitation to bid, was addressed to the world’s three top oil services companies, the three people said.

The firms would compete by promising to boost production from the Potiguar basin’s waning Canto do Amaro field, where production began in 1986, and offering a bigger share of output to Petrobras, they added.

Under the 15-year contract, the winner would provide capital to drill new wells in the area located in the coastal state of Rio Grande do Norte in northern Brazil, two people said. Bids are due this month, but at least one of the companies has asked for an extension, a person said.

Talks to reach such a deal were more than a year in the making, 10 people said.

Spokespeople for Baker Hughes, Schlumberger, Halliburton and Petrobras declined to comment.

Production sharing deals are usually made by oil producers rather than oil service firms. Oilfield service companies engaging in production-sharing activities can be seen as competing with customers, and also expose themselves to more risk from swings in oil prices.

BOOSTING OUTPUT

The May tender was not Petrobras’s only bid to boost output from mature fields. Last year, Norway’s Equinor (EQNR.OL), formerly Statoil, paid up to $2.9 billion for a 25 percent stake in Petrobras’s Roncador, one of Brazil’s largest oilfields in the Campos basin. [nL8N1OI13X]

But Potiguar basin limited output would be unlikely to draw interest from such oil majors.

Schlumberger, the world’s largest oilfield service firm, has used similar deal structures elsewhere through its production management group, in some cases financing projects in exchange for full service rights and a share of profits. This has taken the firm away from its traditional oil service business model. [nL2N1LO2F9] The firm’s production management unit has had varying degrees of success buying stakes in oil fields and in production sharing models. On at least one deal in the U.S. shale patch, it had to write off millions of dollars in losses, and it has also faced payment issues for a project in Ecuador.

Schlumberger executives have said this year that the firm was slowing project approval for the group. Clinching such a deal would, however, represent a bigger milestone for Halliburton and GE’s Baker Hughes, which have not typically taken stakes in customer projects.

Still, Baker Hughes last year announced a deal with Twinza Oil Limited to provide a range of services for the development of an offshore gas field in Papua New Guinea, and provide a credit line to fund appraisal of the field.

And Halliburton signed a fee-per-barrel deal in Mexico’s Chicontepec basin five years ago.

Reporting by Alexandra Alper; Editing by Christian Plumb and Susan Thomas

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