Oil Price Slump Aids Smaller Brazil Drillers

Falling crude prices have undermined profit, employment and expansion in the oil industry, yet smaller companies exploring for new prospects in Brazil are getting an unexpected boost as equipment and service costs plunge.

The cancellation or delay of projects by bigger companies has caused drill-rig lease rates and other oil and gas services to fall by as much as half, oil industry executives and experts said. For companies in the middle of exploration campaigns, lower prices could boost future profit if and when oil prices recover from their nearly 50 percent drop since June.

"With fewer projects and pressure to cut costs, competition grows and the price of services tends to fall," said Paulo Martins, president of Abespetro, Brazil's oil-service company association. "We understand that many companies, service providers and equipment suppliers are preparing themselves for another type of reality."

For instance, the cost of semi-submersible drill rigs and drill ships for so-called "midwater" depths of 3,000 feet (914 meters) or less fell by nearly half to $167,000 a day from $313,000 a day a year earlier, according to IHS Energy, a U.S.-based consulting group.

Deepwater rigs and drill ships operating between 3000 and 7,500 feet (2,286 meters) of water fell by a third to about $341,000 a day from $509,000 a day.

Two companies that may take advantage of that in Brazil are Australia's Karoon Gas Australia Ltd and Brazil's QGEP Participacoes SA. Karoon has five exploration blocks in Brazil's Santos basin and no Brazilian production.

Prices are 10 to 15 percent less this month than a year ago, said Tim Hosking, Karoon's Brazil chief who is looking for a rig contract for 2016. He expects oil to return to levels above $70 a barrel within a year and a half.

While QGEP is Brazil's No. 4 natural-gas producer, lower prices will cut costs as it brings a new oilfield on line in 2016, said QGEP production director Danilo Olivera.

Bigger players such as state-run Petroleo Brasileiro SA , or Petrobras, will also benefit, but probably not as much, according to IHS. Petrobras signed dozens of long-term drill-rig, refinery and production-ship contracts when prices were much higher.

Petrobras also works in deeper waters than most smaller companies. Day rates for "Ultradeep" water rigs and drillships have only fallen 19 percent to $432,000 a day in the quarter from $535,000 a year earlier. Ultradeep means depths beyond 7,500 feet.

By Marta Nogueira (C) Reuters 2015.