Boston, MA 07/01/2014 (wallstreetpr) – Petroleo Brasileiro Petrobras SA (ADR) (NYSE:PBR) has reported a reduction in its rig fleet that is resulting in a drop in the suppliers margins. As a result, Petrobras is set to reissue a drilling services contract. It has plans to offer $2 billion in the so-called supply contracts. The specialty of Petrobras contract is that it is open for revision even after they are assigned to the companies.
The drilling service contract
Petrobras, the biggest crude producer will offer new drilling service contracts. It is valued at $2 billion. Some of them will be offered under revised terms. They are as per the original agreements. The company will also offer well completion and wireline contracts. The companies assumed to take part in the bidding process are Halliburton Company (NYSE:HAL), and Schlumberger Limited. (NYSE:SLB) and Baker Hughes Incorporated (NYSE:BHI).
The impact on stock price
With the news of the three companies expected to take part in the bidding process, the shares gained on an intraday basis. In fact, Baker Hughes and Schlumberger recovered from the intraday losses to close in green. They have every reason to do so. After all Petrobras contributes 90% in Brazil’s oil and gas needs. The company gets an extra edge over the service companies. Even Petrobras closed in green.
Low production and higher debt levels
At this time, deep water drilling activities are not doing well. The service companies are seeking relief. And that is why many of the suppliers are reducing their workforce in Brazil. The service suppliers are taking the steps to adjust according to the low demand of services. The overall industry is facing lower than expected demand. The prime reason is Petrobras taking the measures to contain its cost. It has also cut down its five-year business plan to $220.6 billion at the start of this year. The lower production has affected the profitability. The subsidizing of fuel imports has led to the largest cash flow deficit and huge debt levels for Petrobras.
