More than an FPSO firm

Global FPSO orders have fallen off a cliff in 2015. But, SBM Offshore is weathering the storm and there’s more to the company than FPSOs, says its Schiedam managing director.

Saskia Kunst, Managing Director of SBM Offshore’s Dutch base in Schiedam. Photos from SBM Offshore.

“Today’s challenges for service providers such as SBM Offshore must be viewed in the context of the oil price drop,” says Saskia Kunst, managing director of SBM Offshore’s Dutch base in Schiedam.

“In order to work successfully with clients we believe we need to look for further integration of the value chain and revisit the way we define costs for the industry. Optimizing life cycle costs to us means a need to enter into a dialogue up front with our clients regarding capex and opex trade-offs for future floating production systems and hence find an optimum balance between initial costs of design and construction and operating costs down the line,” Kunst explains.

“This trade-off is also required as today FPSOs are designed to operate for up to 25 years compared to a previous average of 10-15 years for lease and operate contracts. The cost savings over the longer period can be significant,” Kunst underlines.

Dutch-born Saskia Kunst has played many roles within the company since joining in 2008. Before her role as managing director she clocked up five years as group strategy director. With the industry in flux Kunst explains that forecasts are constantly changing. “In October last year, SBM had an expectation that 13 FPSOs were going to be awarded by the industry in 2015. However, when we compiled our full-year results, the expectation was that the market would see only six awards during 2015, and that was the best case. There is even a scenario where we’re not going to see any awards during 2015,” Kunst says.

The Cidade de Ilhabela FPSO sailaway. First production from the FPSO was in November 2014.

This conservative industry stance is reflected in SBM’s 1Q 2015 directional revenue, which came in lower at US$601 million versus $782 million in the year-ago period. This was driven by a decrease in turnkey activity primarily as a result of the delivery of two FPSOs, Cidade de Ilhabela and N’Goma last November and a lack of order intake in 2014. Directional Turnkey segment revenue came in at $326 million, down 40%, while Lease and Operate segment revenue increased 16% year-on-year to $274 million. The growth in lease and operate revenue is attributable to the start-up of the two aforementioned FPSOs for offshore Brazil and Angola, respectively. Directional backlog as of 31 March 2015 stood at $21.4 billion ensuring revenue with lease and operate contracts up to the year 2036.

Product strategy going forward

“The past three years SBM’s strategy was focused on its core product, FPSOs, often quoted by analysts as ‘FPSO, FPSO, FPSO’. This was because the company has shown consistent, solid results in the delivery of FPSOs and it allowed top management concentrate on rebuilding a solid financial foundation for the company, which had been somewhat eroded by a number of past, non-core projects losing money. With that step achieved, the last year has seen SBM emphasizing the remainder of our product portfolio, enlarging the envelope of floating production solutions by revisiting key products and technologies,” Kunst says.

SBM Offshore’s FLNG concept.

One key product that SBM is bringing to the table is their mid-scale floating liquefied natural gas concept (1.5-2 MTPA), which is a solution for stranded gas fields, both for new build as well as conversion solutions. The technology and the unique twin-hull concept have been developed in SBM’s Schiedam center.

“With the increasing global demand for gas, we expect there will be a strong market for FLNG,” Kunst says. “This new market is a good complement to SBM’s leading position in the oil FPSO business and our extensive experience in designing, building and operating FPSOs can be leveraged for our LNG FPSO concept. We are engaging some clients – the interest is there. Many of the technologies and capabilities that SBM has in-house are applicable to the LNG FPSO concept, for example, the same turret mooring systems used for FPSOs can be used for LNG FPSOs.”.

Despite a lack of order intake in recent times, the company is working on completing some of their most ground-breaking projects, including three of the industry’s largest turrets – one of which is for a pioneering Shell project – the Prelude FLNG. Work is advanced on another Shell project – what will be the world’s deepest floating production unit. SBM is responsible for the EPCI of the Turritella FPSO, to be moored in 2900m water, and will operate the vessel for Shell’s Stones development in the Gulf of Mexico.

In parallel SBM is using the industry lull to beef up its organizational structure and to optimize the cost base – the strategy required releasing 1500 positions worldwide (approximately half of which is contractors) while ensuring that the company’s technological know-how remains intact.

“SBM continues to invest heavily in research and development and we are progressing key technologies that leverage the company’s know-how and over 260 years of operating experience in floating solutions that will add more value to clients’ projects when the industry upturn occurs,” Kunst says.