March 26, 2012 Go With the Flow

Volume 15 | Issue 1

A leading EPC contractor for Brazil’s oil and gas sector, SOG Oleo e Gas started just as state-controlled giant Petrobras was making histori

Everybody’s talking about the massive pre-salt oil reserves discovered off of Brazil’s coastline. Aside from becoming self-sufficient, the country is poised to become one of the world’s biggest oil exporters. However, SOG Oleo e Gas is not only talking; it’s taking action.

RAPID SUCCESS
As soon as the world learned about Brazil’s offshore treasure trove, a group of Brazilian investors decided the time was right to start up a company focused on this promising sector. The year was 2005 and the first thing that SOG Oleo e Gas did was buy some clout by acquiring the brand name SETAL, for oil and gas activities. Founded in 1961, SETAL was a Brazilian company with a long, prestigious history of operating in many markets – mining, chemical, and petrochemical, as well as oil and gas – both domestically and internationally. Over the years, SETAL racked up a reputation for its technical expertise – one that SOG was determined to build upon as an EPC (engineering, procurement and construction) supplier to Brazil’s burgeoning oil and gas industry.

“Today all of the large oil and gas contracts in Brazil are EPC projects in which the clients provide specifications and the supplier takes charge of everything from engineering and assembly to purchasing materials and equipment and preparing the facilities for operation,” explains SOG’s Chief Executive Officer Mauricio Godoy. “As a result, clients have very little intervention.”

Of course, when it comes to oil and gas, the main client in Brazil is Petrobras, a mixed economy energy corporation with government stake majority. It happens to be the largest company in Latin America, and the fourth largest in the world (in terms of market capitalization).

From the outset, Rio de Janeiro-based SOG has worked almost exclusively with Petrobras in the expansion and modernization of its petroleum refineries and gas terminals. Included among its major projects have been REPAR (Refinaria do Paraná), located in Araucária, Paraná, south region; REPLAN (Refinaria do Planalto), located in Paulínia, São Paulo; and REVAP (Refinaria Vale do Paraíba), located in São José dos Campos, São Paulo. The company was also involved in the PLANGÁS project, which includes a gas processing and transfer terminal expansion (TECAB – Cabiunas Terminal) located in Macaé, and also an expansion and modernization at REDUC Refinery in Duque de Caxias, which receives gas for treatment. Both are in Rio de Janeiro State. Currently, SOG is in negotiations to build part of a new refinery from scratch: COMPERJ, Itaborai, also in Rio de Janeiro State.

With this handful of projects, and in just a few years, SOG has enjoyed rapid success. The company has experienced above average rates of annual growth, and in 2010 it earned revenues of R$622 million (US $377 million). Meanwhile, it has already taken its place among industry leaders such as CNO (Construtora Norberto Odebrecht), Camargo Corrêa, OAS, Queiroz Galvão, and Andrade Gutierrez. Interestingly, while these companies comprise SOG’s main competitors, they sometimes end up being its partner. “We participate in projects that cost around US $1.5 billion, so we often need partners,” explains Godoy. “In order to share the resources – and the risks – these contracts are often executed in consortium. As such, we often find ourselves working together.”

COMPETITIVE CHALLENGES
Mutual interests aside, SOG takes great pains to distinguish itself from its peers. “One of the main factors that sets us apart in the market is that we have our own engineers, whereas most of our competitors have to contract them from engineering firms.

As a result, we can draw entirely upon our own resources to manage all aspects of EPC contracting,” says Godoy, noting that, in addition to its core contingent of 400 engineers and technicians, the company’s on-site workforce can often swell to 5,000.

“Another major difference is the investments we’ve been making to become more competitive,” he continues. “We recently joined the CII [Construction Industry Institute], which focuses on disseminating the best industrial business practices in the world, and we are currently participating in a development group to improve our productivity.”

Godoy sees productivity as one of Brazil’s biggest challenges. “In recent years, Brazil has successfully implemented programs that improve quality, safety, health, and environmental sustainability in the industrial workplace, but we’re still behind when it comes to matching the productivity of certain other countries.”

Inextricably linked to improving productivity levels is increasing the numbers of skilled workers in Brazil. The biggest obstacle to Brazil’s continued expansion as a global economic power is the lack of qualified domestic labor. “There was a real boom in engineering until the 1970s, and then nothing,” says Godoy. “As a result, there is an enormous gap of engineers and technicians in the market. The most experienced engineers in the marketplace today are either all over 60 years old or are young university graduates.”

With Brazil’s oil and gas segment showing no signs of slowing down in the near future – Petrobras alone is projecting invest- ments of US $224.7 billion between 2011 and 2015 – the Brazilian government has stepped up its efforts at qualifying the labor force. In 2006, it launched the National Professional Qualification Plan (PNQP), which itself is part of the National Program for the Mobilization and Development of the Oil and Gas Industry (PROMINP). Established in 2003 by the Ministry of Mines and Energy, with the important participation of Petrobas and ABEMI (Brazilian Association of Engineering and Construction Companies), the objective of these programs are to make national industry more competitive in terms of oil and gas projects implemented in Brazil and overseas.

To date, PROMINP/PNQP has qualified more than 78,000 Brazilian workers – ranging from plumbers and welders to managers – for both ongoing and upcoming projects. The goal is to have 212,000 people in 185 professions prepared by 2014. Along with Petrobras, SOG has also invested in the qualification of its workforce via trainee programs offered to recruits as well as programs aimed at upgrading skills for employees in technical and managerial positions. During its modernization of the REVAP refinery, SOG succeeded in graduating 120 students on site.

UNLIMITED OPPORTUNITIES
Meanwhile, with Brazilian oil production expected to leap from 2.3 to 6.1 million daily barrels by 2020, SOG is not just investing in workers but also in infrastructure. For this reason, the company is currently expanding its focus and building a shipyard in Brazil’s southernmost state of Rio Grande do Sul. The impetus behind the creation of Estaleiros do Brasil (EBR) – which will function as an autonomous company – is to meet the escalating demands of Petrobras, and the offshore market in general. Initially, the plan is to build modules for offshore platforms. However, the company’s ultimate goal is to move into the production of entire platforms as well as support vessels (PSVs). To this end, it intends to invest US $400 million.

While Godoy stresses that SOG’s main focus over the next decade will be oil and gas, he also wants the company to begin exploring other markets. Specifically, he’s thinking of segments where SOG’s expertise in EPC will represent a substantial differentiator, such as in mining, chemical and steel – as well as in up-and-coming ones such as energy. “We see a lot of growth potential in Brazil’s energy market,” says Godoy. “Particularly interesting to us is power plants using natural gas.”

SOG’s interest is fueled by the fact that Petrobras is currently investing US $13.2 billion in gas and energy. The majority of this capital is directed towards the consumer market via the building and expansion of thermal power plants as well as the transformation of natural gas into nitrogen fertilizers. Indeed, the fertilizer market is another area of strong interest for SOG. While Brazil is currently the world’s fifth-largest consumer of fertilizers (6.3 percent of the global total), it is also the fourth-largest importer of fertilizers (65 percent). Already, the construction of three new Petrobras fertilizer facilities is underway. By 2020, it’s possible that Brazil could not only be self-sufficient, but actually be an exporter of nitrogen fertilizers.

“The reason we’re branching out like this is so that we can provide more added value to our projects. If we can bring something new to the table, then we’ll participate,” says Godoy. “Our company’s philosophy is centered on competence. In creating SOG, we chose certain core competences that we wanted to focus on: operational excellence, teamwork, commitment to people, flexibility, and proactivity – all with the goal of being able to serve our clients. This means really understanding their needs, their resources, and their plans for the future.

It also means emphasizing a culture of corporate governance in which reliable information is constantly available and flowing smoothly, so that the SOG can be assured that it’s heading in the right direction and avoiding any potential risks. “Ultimately, we strive to be ready for any eventuality. Brazil has many great challenges ahead. For companies that have adequately prepared themselves, the opportunities are unlimited,” adds Godoy.

Subscribe to Industry Today