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| Constellation |
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| Summary of Proposed Investment |
| This Summary of Proposed Investment is prepared and distributed to the public in advance of the IFC Board of Directors’ consideration of the proposed transaction. Its purpose is to enhance the transparency of IFC’s activities, and this document should not be construed as presuming the outcome of the Board decision. Board dates are estimates only. |
| Project number | 28512 |
| Company name | CIPEF Constellation Coinvestment Fund LP |
| Country |
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| Sector | Private Equity/Venture Cap Fund - Sector |
| Environmental category | B |
| Department | Reg Ind, Infra & Nat Res, CAF/CLA |
| Status | Active |
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| Date SPI disclosed | December 18, 2009 |
| Projected board date | January 21, 2010 |
| Previous Events | Invested: May 3, 2010
Signed: April 13, 2010
Approved: March 25, 2010 |
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| View Environmental & Social Review Summary (ESRS), click here |
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| Overview |
Sponsor/Cost/Location |
Development Impact |
Contacts |
Attachments |
| Project description |
Brazil’s national oil company, Petrobras, has announced plans to invest a total of US$174 billion over the period 2009-2013 to help meet the growing demand for energy in the country and the region. To maximize the economic impact of such investment, Petrobras has sought to increase local private sector participation and involvement by setting local content requirements in its drilling contracts. These requirements are expected to spur industrial activity and linkage opportunities in-country through the establishment of new shipyard and rig related infrastructure and equipment services.
In response to the opportunities presented by Petrobras’ plans above, Constellation Overseas, Ltd. (“Constellation,” the “Company”), the oil services subsidiary of the Queiroz Galvão Group (QG) and an existing IFC client, intends to expand its oilfield drilling services business by acquiring additional offshore drilling assets that would allow it to participate in Petrobras’ drilling program that is an integral part of the latter’s plan to develop significant oil reserves discovered offshore Brazil. To achieve this, Constellation is raising equity to increase its capital base. The proceeds from this placement will be used for the construction and/or acquisition of drilling rigs, drillships and/or floating production, storage and offloading facilities (FPSOs). |
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| Project sponsor and major shareholders of project company |
Constellation is the drilling and oil services arm of QG. The Company has a diverse asset portfolio of onshore and offshore rigs. The Company has a successful track record in the drilling and drilling-related services sector over the last 29 years, mainly with Petrobras.
The sponsor, QG, was founded as an engineering and construction company in 1953, and has grown to become one of Brazil’s largest conglomerates, operating in Brazil and elsewhere in a variety of industries, including oil and gas, engineering and construction, steel, food production, environmental engineering and public utilities. |
| Total project cost and amount and nature of IFC's investment |
| IFC has been invited to participate in Constellation’s private equity placement. IFC intends to contribute up to US$100 million in this placement. |
| Location of project and description of site |
| The Company seeks to raise up to US$500 million in equity to support the construction and/or acquisition of drilling rigs, drillships and/or floating production, storage and offloading facilities (FPSOs) for lease to Petrobras. |
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| Anticipated development impact of the project |
The Project offers a strong development impact:
Development of Brazil’s critical energy sector: The Project will help build greater operating capacity and will strengthen the oil and gas support infrastructure in Brazil. Although the country has reached self-sufficiency in oil, significant new investment is needed to realize its oil and gas production potential in order to meet the growing energy demand of the country and the region.
Promoting domestic private sector participation: This is consistent with the Government’s objectives to widen local participation and expand the role of local companies in the oil and gas sector. Brazil is among the few developing countries that have made a concerted effort to grow multiple local players to provide offshore drilling services.
Providing local employment, training and development of local skills: Each rig employs an average of 144 highly skilled workers, with nearly all employment associated with rig operations comprised of Brazilian nationals.
Generating local linkage benefits: As a Petrobras contractor, Constellation will be bound by the local content requirements for the construction of its new rigs/vessels. Operation of the Company’s rigs will generate demand for local goods and services, estimated at about US$10 million annually for each new rig.
Promoting competition: Constellation’s expansion into new offshore rigs will help enhance the quality of its output and thereby promote increased competition in the local drilling and drilling-related services industry. It can help expand deepwater technology and capabilities to the sector, attract additional players to the industry, and create potentially a positive demonstration effect for similar companies and national oil companies in other developing countries. |
| Governance risks assessment |
| This project will provide drilling services to oil companies, operating in Brazil. Its payments to government consist mainly of corporate income taxes from income derived from drilling activities. There are no payments made to Government related to oil production. |
| IFC's expected development contribution |
IFC’s additionality in this Project covers the following areas:
(i) IFC’s long-term engagement strategy with the QG group since 2003, that supports its phased growth and active response to the liberalization of Brazil’s hydrocarbon sector; IFC has a strategic partnership with QG’s oil, gas and services subsidiaries and has helped this client grow both in the upstream and services segments of the industry;
(ii) IFC’s specific support in helping the Company consolidate its environmental management systems, which includes Constellation’s corporate social responsibility strategy; and
(iii) IFC’s assistance to Constellation in planning its financing strategies, exploring potential financial structures for new projects. |
| Environmental and social issues - Category B |
| Key risks for this provisional category B project include: environmental and social impacts from onshore and offshore drilling and testing operations, mainly labor and working conditions, hazardous and solid waste management (cuttings, drilling muds); management of runoff and produced water; safety of maritime, air and land transportation of employees; emergency response and community health and safety; and management of community expectations during ongoing consultation and disclosure. IFC has engaged with QG on two projects (QGOG Rigs, #25781 and Queiroz Galvao, #11268) and has conducted an on-going monitoring of the Company’s activities, which are currently in material compliance with IFC Performance Standards. The Company demonstrated significant efforts and progress in improving its environmental and social performance, including upgrading it environmental management system and has recently achieved ISO 14000 certification. It also developed a new community engagement strategy and enhanced community engagement and consultation practices. |
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| For inquiries about the project, contact: |
Queiroz Galvão Óleo e Gás S.A.
Address: Av. Presidente Antônio Carlos No. 51, 6th Floor.
City: Estado do Rio de Janeiro, RJ
Phone.: (21) 3231-2500
Fax.: (21) 2215-1739
Att.: Mr. Guilherme Lima
E-mail: glima@qgog.com.br
www.qgog.com.br |
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| For inquiries and comments about IFC, contact: |
General IFC Inquiries
IFC Corporate Relations
2121 Pennsylvania Avenue, NW
Washington DC 20433
Telephone: 202-473-3800
Fax: 202-974-4384
E Mail: Webmaster |
| Local access of project documentation |
Queiroz Galvão Óleo e Gás S.A.
Address: Av. Presidente Antônio Carlos No. 51, 6th Floor.
City: Estado do Rio de Janeiro, RJ
Phone.: (21) 3231-2500
Fax.: (21) 2215-1739
Att.: Mr. Guilherme Lima
E-mail: glima@qgog.com.br
www.qgog.com.br |
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