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.

IFC has been invited to participate in Constellation’s private equity placement. IFC intends to contribute up to US$100 million in this placement.

103.0 million (USD)

Product Line	IFC Investment (million USD)
Risk Management
Guarantee
Loan
Equity	103.0

* These investment figures are indicative

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.

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.

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.

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.

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.