Petrobras hit with arbitration proceeding over subsea pipeline repair failures

Seacrest Petroleo, an independent oil & gas production company with an integrated portfolio of onshore producing oil fields and export infrastructure onshore in Brazil’s Espírito Santo, has filed an arbitration request against Brazil’s state-owned oil & gas giant Petrobras over alleged subsea pipeline repair failures.

Namely, a court in Rio de Janeiro announced on December 27, 2024, an injunction preventing Petrobras from taking action for 30 days in respect of the non-payment by Seacrest Petroleo’s subsidiaries SPE Cricaré and SPE Norte Capixaba of a total of approximately $71 million of post-closing consideration due to Petrobras on December 31, 2024, for the acquisitions of the Cricaré and Norte Capixaba Clusters.

The claimants filed overnight a request for arbitration with the International Court of Arbitration of the International Chamber of Commerce (ICC), commencing an arbitration proceeding against Petrobras.

Namely, Seacrest Petroleo and its subsidiaries seek indemnification for all damages caused to the claimants as a result of Petrobras’ continued failure to complete repairs to the Terminal Norte Capixaba (TNC) subsea pipelines in accordance with the requirements of purchase agreements.

The company said the pipelines are crucial for oil production transport at the Cricaré and Norte Capixaba Clusters, resulting in $71.2 million of cumulative damages to Seacrest Petroleo Bermuda to date, and seeks suspension of the $71 million payment obligations due January 2 to Petrobras for the oil assets.

As part of the sale and purchase agreement for the Norte Capixaba Cluster, Petrobras undertook to complete the repairs, but, during the 20-month period since the April 2023 closing, has repeatedly failed to do so.

According to Seacrest Petroleo, the repairs are necessary for the transport of heavy oil through the pipelines and the realization of Very Light Sulphur Fuel Oil (VLSFO)-spec pricing for its production: “Petrobras’ failure to perform its obligations and restore the pipelines to the temperature and pressure specifications for which they were designed has, during that 20 month period, forced the company to sell an off-spec blend of its production at significant discounts to Brent, which has severely impacted the company’s revenue, profitability and reputation.”

On April 16, 2024, SPE Norte Capixaba sent an indemnity claim letter to Petrobras in respect of the damages incurred by the company as of that date, which totaled $38.78 million. On December 13, 2024, SPE Norte Capixaba sent Petrobras an updated indemnity claim letter, describing direct cumulative damages that now total $71.2 million.