South Korea and Brazil: Brazilian’s Plan and Korean Visit

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South Korea and Brazil:
Brazilian’s Plan and Korean Visit

As it is estimated that Brazil has 50 billion barrels of oil in the deep-sea petroleum lots with a length of 800 km and a width of 200 km, the country plans to increase the daily oil production amount from 2.75 million barrels to 5.7 million barrels by 2020. Accordingly, it has announced that it will invest 104.6 billion dollars in energy development over the next five years.   

Oct. 8:

--A group of Korea’s four leading shipmakers visited Brazil, in which Brazilian state-run oil company Petrobras revealed a plan to order 28 drill ships worth US$20 billion;

--Petrobra said it wants to charter new offshore drilling rigs to be used for exploration in ultra-deep waters;

--However, Petrobras made clear that the government's "home production" policy of having the ships built in the country using Brazilian materials remains unaltered and will be applied to the new orders as well;

--They said considering the situation of foreign shipbuilders the oil company will place orders in three packages, seven rigs in the first, two in the second and 19 in the last instead of single orders, gradually increasing the rate of home production to a maximum of 70 percent

--Petrobras expects delivery of completed units to begin in 2014 and end by 2017. This is a part of the Brazilian government's plan to boost the nation's shipbuilding industry as well as acquire rig building technology by funding the industry with more than $2 billion.

Keppel: Keppel Shipyard’s projects for Petrobras and Brazil currently include the major conversion of FPSO P58, FPSO P-57, FPSO BW Pioneer and FPSO Peregrino as well as the modification and upgrading of FPSO Capixaba. At present, Keppel Shipyard is carrying out seven other major conversions and upgrading projects at its yards.
2010 Goals:

--Aim to secure S$2 billion new orders in 2010;

--It aims to secure “a fair share” of contracts from Petrobras, as the Brazilian state-run oil firm plans to order 28 oil rigs between 2013 and 2018;

--The company is looking to expand through acquisitions of troubled assets in areas such as Brazil, Mexico and the Caspian;

--It is in talks with various partners to expand its operation in Brazil should the company manage to secure contracts from Petrobras


Just over a span of three days in end-Nov saw Keppel announcing a total of S$884m of orders from four different customers such as Saipem and Noble Corporation. Order flows are gaining momentum and we think 1Q10 will see additional new orders that will benefit the entire sector with renewed capex rollouts. We are optimistic of Keppel’s chances of obtaining work from Petrobras, given 1) its impressive rig building track record, 2) the existence of a wholly-owned Keppel FELS Brasil’s yard in Rio de Janeiro and 3) Keppel’s close relationship with Brazil as seen from previous orders. Our property analyst has also identified several catalysts for Keppel Land in 2010, which leads us to be positive over the group’s outlook for the year ahead. Finally, Keppel has also mentioned that it may unlock the value of some of its infrastructure assets through a listed business trust, given suitable market conditions. Given all the above reasons, we raise our fair value estimate to S$9.70 and upgrade our call to BUY.

New order flow gaining momentum. Just over a span of three days in end-Nov saw Keppel Corporation announcing a total of S$884m of orders from four different customers such as Saipem and Noble Corporation. As mentioned in our previous report, our new order assumption for 2009 is S$2.5b; orders secured YTD total S$2.1b, including FloaTec’s P-61 tension leg wellhead platform, with Ezra’s second FPSO conversion likely to bring in about S$600m for Keppel by end of the year. And with order flows gaining momentum, we think that 1Q10 will see additional new orders that will benefit the entire sector with renewed capex rollouts.

Optimistic of Keppel’s chances with Petrobras. We are also optimistic of Keppel’s chances of obtaining more work from Petrobras, given 1) its impressive rig building track record, 2) the existence of a wholly-owned Keppel FELS Brasil’s yard in Rio de Janeiro (Petrobras requires companies to use local content to employ Brazil’s workforce) and 3) Keppel’s close relationship with Brazil as seen from previous orders (it is also good to note that Mr. Choo Chiau Beng, Keppel’s CEO, is Singapore’s Non-Resident Ambassador to Brazil).

Property rebound to benefit Keppel. We have also identified several catalysts for its property unit Keppel Land in 2010; they include the opening of the integrated resorts (IRs), completion of the Marina Bay Financial Centre, and launch of the Marina Bay Suites (MBS). For instance, we expect the pricing of the remaining un-launched units at Reflections at Keppel Bay to increase upon the completion of the IRs. Moreover, Keppel Land still holds three pieces of land at the Keppel Bay area which could appreciate in value over the long term due to close proximity to Resorts World at Sentosa.

Upgrade to BUY. Reflecting the higher pace of new orders and bright sector outlook, we anticipate new order wins of S$3.8b and S$4.0b for its core offshore marine segment in FY10 and FY11 respectively. We have raised our earnings estimates as well. Our recent upgrade of Keppel Land has also bumped up our fair value estimate to S$9.70 (based on SOTP valuation). Finally, Keppel has also mentioned that it may unlock the value of some of its infrastructure assets through a listed business trust, given suitable market conditions. With all the above reasons, we upgrade the stock to a BUY.
Recent Activities:

Oct. 9:

--Keppel Corp. announced that its offshore & marine unit Keppel FELS and its joint venture partner J.Ray McDermott have signed a letter of intent contract with Petrobras and Chevron Corp. for an oil platform in Brazil;

--Keppel FELS and J. Ray McDermott have formed a separate joint venture company called FloaTEC, LLC and are bidding for the P-61 oil platform contract which is estimated to be worth US$1.1 billion;

--A Keppel spokesperson said that signing of the letter of intent didn't mean that FloaTEC has got the contract for building the rig. Instead, it's only an expression of interest by Petrobras to work with FloaTEC once the P-61 project has been sanctioned. This is expected to be Petrobras' first Tension Leg Platform, or TLP, installed at a Brazilian offshore oil field.

--Keppel FELS delivered Gold Star, the world’s first DSSTM 38 deepwater semisubmersible drilling rig, to Brazilian operator, Queiroz Galvão Óleo e Gás (QGOG), six days early.

--“The achievement of high standards of safety and quality on Gold Star is the result of the mutual trust and teamwork between QGOG and Keppel. We look forward to build on the good rapport we have established, and also to the success of our second project, Alpha Star,” said, Mr Antonio Augusto de Queiroz Galvão, QGOG’s General Director.

--Presently under construction at Keppel FELS, QGOG’s second DSSTM 38 unit, Alpha Star, is scheduled for delivery in mid-2011.

--Noble has awarded Keppel FELS Brasil (the subsidiary of Keppel O&M) contracts totaling $304 million to upgrade and repair the drillships Noble Leo Segerius and Noble Roger Eason.

--The scope of work covers the fabrication, repair and replacement of components, including the stern section, accommodation blocks, sponsons and heliport.

--Work on the drillships, Noble Leo Segerius and Noble Roger Eason, will be done sequentially at Keppel’s BrasFELS yard in Angra dos Reis, beginning with the arrival of the first drillship by early 2011. The two deliveries are scheduled between the last quarter of 2011 and the first half of 2012 respectively.

--Meanwhile, both parties are in advanced talks on the upgrading of a third Brazil-based drillship operated and majority-owned by Noble.
Nov. 26:

--Keppel Offshore & Marine Ltd (Keppel O&M), through Keppel Shipyard Limited (Keppel Shipyard) secured a contract with Petrobras Netherlands B.V(PNBV);

--The project is for the pre-conversion of P-58, a Floating Production Storage and Offloading (FPSO) vessel for the Campos Basin.

--Keppel Shipyard’s scope of work on P-58 includes structural and piping renewal, tank coating as well as refurbishment and upgrading of the accommodation.

--P-58 will have a production capacity of 180,000 barrels of oil per day (bopd) and gas compression capacity of 6,000,000 m3 per day. It will operate in Parque das Baleias’ north field, in Campos Basin and spread moored in a water depth of 1,400 metres.
Daewoo Shipbuilding: Daewoo Shipbuilding joins Keppel Corp and Samsung Heavy Industries Co in setting up manufacturing bases in Brazil to win more orders for offshore projects. Petrobas, which made the biggest oil discovery in the Americas in three decades, plans to invest US$174.4 billion (US$1 = RM3.54) by 2013 on exploration. Competition to win more offshore orders will intensify as a lot of the builders are focusing on winning the race," said Song Sang Hoon, an analyst at Kyobo Securities Co in Seoul.
Recent Activities:

July 27:

--Daewoo Shipbuilding & Marine Engineering Co (DSME), the world's third-largest shipyard, said it is in talks to buy as much as 20 per cent in a Brazilian rival to seek orders from Petroleo Brasileiro SA.
Sept. 25:

--The major shipbuilder is said to be looking to acquire a stake in a local yard in Brazil, so it can participate in newbuilding tenders expected from Petrobras and its tanker arm, Transpetro.

--An official from Daewoo confirms its ambition to compete for tanker and offshore contracts to service the development of Brazil's offshore oil fields.
Samsung Heavy Industries
Recent Activities:

Sept. 12:

--A keel-laying ceremony for the beginning of operations at the Brazilian Atlantico shipyard was hold, with Lula attended.

-- This ship is the very first ship built with technology exported from Samsung Heavy Industries to Brazil. It also will be the largest ship built in Brazil to date, and the shipyard is the largest shipyard in South America.

-- In return for the technical support it is providing to Atlantico, Samsung Heavy Industries has received royalties, which it invested in a 10% stake in Atlantico, worth 22 million dollars

--Through this partnership, Samsung Heavy Industries and the Atlantico shipyard are expected to participate in a bid for drilling ships required by a Brazilian oil producer, Petrobras, which wants to build seven ships annually for the next three years, beginning at the end of this year. Through this mutual effort, they can speed up delivery and reduce the budget by conducting continuous shipbuilding, promote drill ship technology transfer, and maximize job opportunities in Brazil by sharing the duties on a 50-50 basis.

-- In 2006, Samsung Heavy Industries learned that Brazil intends to block independent bids by foreign companies for shipbuilding or offshore plant building orders, in order to promote the growth of its domestic industry. Responding to this situation, SHI selected Atlantico as a strategic partner to conquer the Brazilian market, and began to provide them with technical support related to shipyards and shipbuilding.

-- The Atlantico shipyard being built in the industrial complex in Suape, which is famous for being the hometown of President Lula, has a large dock with a length of 400 meters and a width of 73 meters in a lot with an area of 1.6 million ㎡, and is expected to be completed at the end of this year. In addition, two sets of 1500 ton goliath cranes will be installed to build all types of structures, including ships and offshore plants

-- With the technical support of global industry leader Samsung Heavy Industries, Atlantico has already won contracts for fifteen oil tankers and one oil-drilling facility with a total value of 1.9 billion dollars, and has established its position as the number one shipbuilder in Brazil

-- With the shares, the company has fully met the requirements for the protection of domestic industry in terms of shipbuilding and offshore projects in Brazil, as well as dividends


South Korea has been getting involved in the iron ore/steel industry in Brazil since it sources a large amount from that country.  Dongkuk invested in a blast furnace there and Posco along with some Japanese companies invested in an iron ore producer.  South Korea also loaned Vale $1bn at the end of 2008, when many commodity companies were in trouble.  There has been more action with shipbuilding.  Since Petrobras announced a large ship order in May, 2008, and these contracts required 70% domestic production, Korean companies were hustling to buy up shipyards. Samsung and Daewoo have multiple investments in different shipyards.  STX bought 39% of Aker, a major European shipbuilder with yards in Brazil.  The outcome of all this was announced today Korean time (yesterday CST) that Petrobras was ordering $20bn in ships from different RoK companies.  I haven't seen exact results of this, but each major Korean company should be involved.  There were some other major contracts as well, most notably the RoK Ex-IM bank financing $300mn of ship orders for a Brazilian company to buy from Marine Engineering and Daewoo.  I have not seen any information on involvement in ports.


Jan. 6, 2009- Ceara Steel, a JV between Dongkuk Steel and Danieli (Italian) building a blast furnace in the Brazilian state of Ceara.  Also partnered with Brazil's national development bank BNDES and the world's top iron ore miner Vale
July, 2009- Arcelor Mittel talked with Posco about possible JV, haven't seen anything come of it
Nov. 19, 2008- S. Korea offers Vale $1bn in loans.
Oct. 17, 2008- Posco and three Japanese partners bought 40% of Nacional Minerios SA, an iron ore producer in Brazil.

Posco sold $553 million in Yen bonds to do so
Jun. 10, 2009 Vale agrees to 28% price cut for iron ore to Posco (Pohang Iron and Steel) and Nippon Steel
Feb. 19, 2008- Vale to sell iron ore to S. Korea for 65% more than 2007

 Hyundai Heavy Industries, Samsung Heavy Industries, Daewoo Shipbuilding and Marine Engineering and STX Shipbuilding

Announced today (dec. 2) that $20 billion of Petrobras orders wil go to RoK shipbuilders.  They have been in talks for most of this year.  Petrobras requires 70% of its new ships to be built in Brazil, so there are also different reports of RoK companies buying shipyards in Brazil.
July 24, 2009- Daewoo to buy 20% of 'rival' in Brazil.  In Partnership with Keppel Corp. and Samsung Heavy Industries.
June 8, 2009- RoK Ex-Im Bank finances $300m of shipbuilding for Odebrecht of Brazil.  Two drill ships were ordered from Daewoo Shipbuilding & Marine Engineering Co and will be leased to Petrobras.
May, 2009- Samsung Heavy Industries was reported to be investing about $500m in Brazil shipbuilding.  I can't find anything else that backs this up or clarifies it.
March 30,2009- STX wins $172m contract with MAN (germany) for diesel power generation equipment--to be installed in Bahia, Brazil
November, 2008- Samsung Heavy Industries received two orders for drill ships from Brazil.
June 17, 2008- Samsung Heavy Industry buys 10% stake in Brazil's Atlantico Sul Shipyard for some $22 million
May 5, 2008- STX buys 39% of Aker, a norwegian shipbuilder, the no.3 builder of cruise ships.  Has shipyards worldwide, including Brazil.,4670,EUSTXAker,00.html

Sept 3- Aker becomses STX Europe
May 21, 2008- Petrobras announces need for 40 more ships, worth $30 billion.  Daewoo bids.  Aker, which was bought by STX, got some of these contracts.


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