How rising rig rates in Brazil could put further pressure on delivery of Petrobras developments

Offshore ultradeepwater (UDW) rig demand has been recovering since 2022. Leading-edge rates for UDW rigs have increased to an average of US$450,000/day. We are in a long-term recovery cycle for deepwater which will see further price inflation for high spec UDW rigs similar to the Petrobras fleet. Petrobras’ average daily rig rates have been below market averages due to long-term contracting strategy. The company has 11 rigs coming up for renewal that were initially contracted in 2021-2022 when average fixtures were considerably lower. Assuming these rigs are renewed Petrobras’ annual rig costs exceed US$5 billion starting in 2026. There are 16 FPSO-based projects and more than 300 wells in Petrobras’ pipeline to start operating by 2030. Rising rig rates mean that developments such as the giant Buzios field could see remaining capital expenditure increase by 25%, reducing the remaining PV10 post-tax of the project in US$4 billion.