Weathering the storm

Infield Systems’ Catarina Podevyn surveys the FPSO market and discusses recent projects awards.

The John Evans Atta Mills MV25 FPSO, operating at Tullow’s TEN project, offshore Ghana. Photo from MODEC.

The leased floating production, storage and offloading (FPSO) sector is integral to the floating production system (FPS) market. With cost reduction high on the agenda of upstream operators, the option of a leased facility is becoming increasingly attractive for key majors and national oil companies (NOCs), which have traditionally favored owned and operated facilities.

Currently, Wood Mackenzie forecasts for up to 14 projects involving leased platforms to see final investment decision (FID) during 2017 and 2018, driven by Brazil’s pre-salt developments, including Sepia, where MODEC is currently the frontrunner for the lease award. A number of projects in emerging and remote areas of production, such as SNE (Sangomar Deep), offshore Senegal, and the Sea Lion development, in the Falklands, are also expected to see FID during the next 18 months, with leased production facilities the favored development option.

In terms of installations, conversions are expected to meet over 80% of leased platform demand over the 2017-2021 timeframe. Tanker conversions are often selected for leased FPSO facilities, and have been historically utilized on small-to-medium sized offshore fields. Such facilities have in the main been converted very large crude carrier (VLCC) units, which have been primarily used by small and mid-cap operators developing small-to-medium size offshore fields. We are now seeing a greater use of converted facilities on larger developments, most notably Petrobras’s Libra pilot project. As Petrobras is the leading deepwater operator, Brazil’s NOC has also increasingly utilized leased FPSOs, with both SBM Offshore and MODEC historically the contractors of choice. Other key operators expected to employ leased production platforms over the 2017-2021 timeframe include Italy’s Eni, UK-based independent EnQuest and Ophir Energy.

The four main FPSOs contractors (SBM, MODEC, BW Offshore, and Bumi Armada) control more than 60% of the operational leased fleet. MODEC and SBM dominate the supply of high-end FPSO units and have provided the majority of leased FPSOs employed by Petrobras. While they both have experience with engineering, fabricating and managing top-end units, going forward they will have strong competition from other players.

ExxonMobil’s Liza project offshore Guyana has recently been awarded to SBM, with the floater specialist undoubtedly the frontrunner for the second FPSO expected to be installed on the field. The Dutch-based contractor has also looked towards a more standardized approach in response to the prevailing market challenges; developing its Fast4Ward FPSO concept since 2014, while repeatability has been at the core of strategy in the Cidade de Marica and Cidade de Saquarema FPSO conversions, which were installed on the Lula Alto and Lula Central ultra deepwater fields, offshore Brazil, during 2016. If SBM is awarded phase 2 of Liza, the same repeatable approach is also likely.

Twin FPSOs Cidade de Marica and Saquarema passing in Guanabara Bay in Rio de Janeiro. Photo from SBM Offshore.

For MODEC, the last decade has seen the Tokyo-based contractor awarded an increasing number of contracts in deeper and more complex waters, with key projects including the VLCC conversion FPSO Cidade de Mangaratiba MV24, on the giant pre-salt Iracema Sul field at a water depth of 2200m and the John Evans Atta Mills MV25 FPSO, which came onstream in August 2016, producing from Tullow’s TEN (Tweneboa, Enyenra and Ntomme) fields within the Deepwater Tano contract area, offshore Ghana. With Petrobras contracts increasing, MODEC has also established a strong relationship with Keppel’s subsidiary Keppel FELS Brasil. This year is also expected to see the delivery of the Cidade de Campos dos Goytacazes FPSO to the Brazilian NOC’s Tartaruga Verde field under a 20-year fixed time charter.

The last year has continued to bring financial challenges for BW Offshore, with the company employing financial measures including maturity extensions on corporate bonds and a US$100 million equity raise. While challenges continue, the company has also looked to diversify; acquiring stakes in the Dussafu field, Gabon, through its subsidiary BW Energy, and on Namibia’s Kudu field BW Offshore will be the operator and facilitator of what will be a significant domestic power generation project. This year will also see the completion of the Catcher FPSO, which is destined for the Premier Oil-operated North Sea Catcher field. Operator Premier continues to target first oil for later in 2017, despite construction delays.

Unlike counterparts SBM and MODEC, which are focusing strategy towards deepwater FPSOs, all of Bumi Armada’s units installed during the previous five years have been in less than 500m water depth. The last year has been a significant period for the Malaysian-based contractor, with a number of key projects starting operations. The Enquest-operated Kraken FPSO, which is Bumi Armada’s first North Sea facility, saw first oil in June, and the Karapan Armada Sterling III FPSO, owned and operated on behalf of field operators Husky-CNOOC as part of the Madura BD project, East Java, is expected to commence production imminently. Operations have also started on the Armada Olombendo FPSO at Eni’s East Hub development, as well as the Armada LNG Mediterrana FSU offshore Malta.

With operators successfully reducing project breakevens, and more standardized working practices, design and manufacturing techniques being introduced, the market’s leading leased contractors have managed to weather the worst of the downturn, albeit with varying degrees of success. The remainder of 2017, and 2018 are expected to see a more positive period for leased FPS contractors, with several project awards on the table, while the approaches taken by contractors in recent years as a way to maintain financial health, including SBM’s repeatability approach and BW Offshore’s business diversification, place these companies in a more robust position going forwards.

Catarina Podevyn is a senior analyst at Infield Systems, part of Wood Mackenzie. She has managed all published content produced by Infield Systems and is a regular contributor to leading industry publications. Since joining Infield Systems in 2008, Catarina has been involved in numerous bespoke projects and has authored several publications within Infield Systems’ Global and Regional Perspectives series, including the Floating Production Systems Market Report, the Deep and Ultra-Deepwater Market Report and latest Subsea Market Report