Brazil's huge offshore oil wealth has been called a lottery jackpot, and each of the industry's contracts is another winning ticket. But even with a lucky stub in hand, some companies risk going broke before they can claim their prize.

Lupatech , Brazil's biggest supplier of industrial valves and anchor cables, was counting on its place in a nascent oil services industry to guarantee a slice of the boom led by state-controlled oil company Petrobras
and its $225 billion five-year investment program.

Instead, Lupatech is struggling to stay solvent. Petrobras business has been slow to materialize, and a cold shoulder from credit markets chilled by a looming European debt crisis, has put it at the mercy of key shareholders to avoid default.

Its struggles and those of its peers are shining a harsh light on Brazilian industrial policy that puts fledgling local suppliers at the heart of plans to double oil output and become one of the world's top four oil producers by 2020.

While policymakers are depending on an emerging array of shipyards, engineering companies, drill operators and other goods and service providers, those suppliers' revenue depends increasingly on one client: Petrobras, which is falling behind on ambitious investment goals.

The cost and technology risks are higher than the government or Petrobras are saying, said Celio Bermann, an engineer and oil policy researcher at the University of Sao Paulo. The government has set production goals for 2020 that probably won't be met until 2023 or later.

Petrobras has also been hamstrung by rules forcing it to pay a premium to buy from new and untested local suppliers, such as shipyards that have overrun budgets and deadlines.

Brazil hopes the estimated 50 billion barrels of deep-sea oil and gas reserves, enough to supply all U.S. needs for over seven years, will create millions of jobs and help it become the world's fifth-largest economy.

However, companies are finding the road there more treacherous than promised by the government, and private investors are losing confidence. Petrobras shares
in New York have lost more than 28 percent this year.

SPENDING SPREE

In the euphoria following the discovery of new deep-sea fields in 2007, Lupatech acquired 17 rival suppliers in anticipation of a flood of Petrobras contracts. Debt soared over 1.2 billion reais ($667 million) or 20 times operating profit, according to Moody's Investors Service data.

Swept up in its ambitions and encouraged by the government, Petrobras agreed to build five refineries and a fleet of more than 300 ships. The company also sought new oil discoveries at record sea depths and invested in biofuels, even as it struggled to boost output from existing fields.

An overstretched Petrobras has now fallen behind on its goals, forcing it to cut costs and postpone investments, sapping revenue for Lupatech and service industry rivals.

Shares of Lupatech shed over 73 percent this year, and the yield on Lupatech's 9.875 percent perpetual bond spiked above 25 percent as creditors jumped ship in anticipation of a default.

Despite efforts to diversify its customer base, Petrobras by far remains Lupatech's largest customer, said Filippe Goossens, Moody's head of Latin American corporate ratings. Everything that points to elevated concentration risk is seen as a negative from a credit perspective.

With banks and investors wary of lending new money as they try to protect themselves from Europe's woes, Lupatech has struggled to refinance its debt. Analysts now expect a lifeline from state development bank BNDES , Brazil's principal long-term lender and a key Lupatech shareholder.

Some analysts also warn that BNDES's dominant role risks fostering an uncompetitive oil services industry stuck between two bottle necks as it relies on both a single state-controlled buyer and a single, state-owned source of funding.

Going forward, the role of Petrobras will only grow. When the government opens bidding on new offshore fields after a four-year hiatus, Petrobras by law must operate and own at least 30 percent of any new projects, further concentrating purchasing decisions in its hands.

BUSTLING SHIPYARDS

Despite economist warnings about the risks of Brazil's industrial plan, the government seems determined to expand its influence over the industry, increasing minimum requirements for local content as production grows.

President Dilma Rousseff has emphasized the importance of job-intensive industrial growth to balance a commodity boom and reduce Brazil's dependence on imported equipment.

The benefits are easy to see in the country's bustling shipyards, which employ nearly 60,000 workers. Brazil's shipbuilding industry, the world's second-largest in 1980, had dwindled to a work force of 2,000 a decade ago.

The downside of such a fresh start is on display at the new Atlantico Sul shipyard in northeast Brazil, where inexperienced workers and untested systems have pushed back delivery of its first ship, assembled while the yard itself was being built.

The Joao Candido Suez max-sized oil tanker should already be in service, but three years after her first steel was cut she remains under work as technical problems and labor woes have pushed delivery back to later this month.

Similar tankers are built in foreign yards in 12 months for a third of the cost of the Joao Candido, said Adriano Pires, who heads the Brazilian Infrastructure Center think tank.

Petrobras maintains that the bid for the oil ship, the first of 22 to be produced at Atlantico Sul, was competitive with international prices at the time, and the shipyard has pledged lower costs and shorter turnaround for future ships.

We do not intend to create a national industry at any price. It has to be competitive, Sergio Machado, who heads Petrobras's tanker and pipeline unit, said earlier this year.

But economists warn that guaranteeing a share of the market for local suppliers eliminates incentives to boost efficiency.