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Stretched Petrobras Squeezes Saipem in Brazil, Alphavalue Says

Brazil’s bid to develop the largest crude finds in the past decade is “ridiculously aggressive” and oil services suppliers such as Saipem SpA could be hurt, according to Alphavalue, an equity research company.

Petroleo Brasileiro SA, Brazil’s state-controlled oil company, “will be late, underfunded, stretched and failing to deliver,” Alphavalue analysts including Alexandre Andlauer said in a note today. “Suppliers will suffer. Saipem is the first warning shot.”

Saipem SpA plunged a record 39 percent in Milan trading after Europe’s largest oil-service provider cut profit forecasts. The Italian company said delays to large contract awards in Venezuela, Nigeria and Iraq contributed to the lower guidance as well as lower margins on orders in Brazil.

Petrobras, the world’s biggest deep-water oil explorer, plans to spend $236 billion from 2012 to 2016 to develop fields containing as many as 50 billion barrels of crude. The oil is trapped under a layer of salt below the Atlantic seabed.

“Costs are higher than what Petrobras had thought and they are putting pressure on suppliers,” Andlauer said. “Saipem may have taken losses on early contracts to get market share in Brazil.”

The Italian oil-services provider cited “low margin” orders in Brazil on a conference call yesterday.

“Saipem has taken some investment and commercial decision to support market entry into Brazil, where the first contracts were entered into at lower margins,” Chief Executive Officer Umberto Vergine said. “The impact of this contract decision will be primarily felt in 2013.”

Flexible Pipes

Technip SA, Europe’s second-largest oilfield-services provider, is also expanding in Brazil. In February the Paris-based company won a five-year order from Petrobras to supply $2.1 billion of flexible pipes for offshore oil projects. It plans to start up a second pipe plant in Brazil later this year. Technip shares fell 7.1 percent in Paris today.

“Going to the moon may be cheaper and less risky these days that this deep offshore saline drilling,” Alphavalue said of Petrobras’ $240 billion investment plans. “It would be great news if Saipem were to be the only one being caught short.”

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