Floating Production Expenditure set to Double

By Hannah Lewendon, Douglas-Westwood
Tuesday, November 20, 2012
Figure 1: Global FPS Installation Capex by Region 2008-2017 (Source: Douglas-Westwood)

Douglas-Westwood forecast that between 2013 and 2017, $91bn will be spent on floating production systems (FPS) – an increase of 100% over the preceding five-year period. A total of 121 floating production units are forecast to be installed – a 37% increase. 

This growth is driven by multiple factors, such as a larger proportion of newbuilds and conversions compared to redeployments, a greater degree of local content which often results in a higher cost base and general offshore industry cost inflation.

Market Forecast

FPSOs represent by far the largest segment of the market both in terms of numbers (94 installations) and forecast Capex (80%) over the five-year period. FPSSs account for the second largest segment of Capex (10%) with TLPs third (7%).
Latin America accounts for 29% of the 121 installations forecast and 37% of the projected Capex, with the majority of these being FPSOs. The difference between the two figures is due to Latin America having higher than average capital costs compared to some other regions, due to a higher proportion of expensive deepwater projects.
Africa is the second largest region, with forecast Capex of $18.2bn (20%). Like Latin America, a large proportion of the African installations will take place in deepwater.
Although Asia, has more installations (24) forecast than Africa (18), it is due to account for only $12.5bn, a smaller proportion of global Capex (nearly 14%). This is due to the majority being located in relatively shallow water and benign environments, requiring more straightforward FPS designs, sourced from converted vessels which are usually cheaper than newbuilds.
Although a predominantly shallow water region where fixed platforms are utilised, Western Europe is expected to see a respectable number (20) of FPS installations over the next five years. Some of these projects revolve around the rejuvenation of mature producing areas.

Key Demand Drivers
Three main factors are driving the sustained growth of the FPS sector:
•    Move to deepwater
•    Development of complimentary production technologies
•    Marginal field development and early production systems

As shallow-water opportunities become increasingly scarce, the development of deepwater reserves will accelerate rapidly. For a field in deepwater, FPS is the development method of choice, since fixed platforms are often ruled out on technical and/or economic grounds.
Floating production expenditure in deepwater is expected to total $58bn over the 2013-2017 forecast period, equating to 63% of the value of the global FPS market. The deepwater market distribution for the next five years shows the continued dominance of Latin America and Africa, with Latin America expected to increase its share of forecast Capex from 30%.to 50%,
The subsea sector has developed at a remarkable pace in recent years enabling the economic development of fields in deeper waters further offshore. Furthermore, subsea processing technology is maturing and is now enabling production to FPSOs from challenging reservoirs including heavy oil.
Considerable versatility enables FPSs to be used for a variety of different applications besides conventional life-of-field production. These include Extended Well Testing (EWT), Early Production Systems (EPSs) and Rejuvenation Projects.
FPSOs are also an attractive solution for marginal field developments, particularly where an existing unit can be renovated, modified and redeployed at a significantly lower cost than a newbuild.

Supply-side Considerations
Three main factors will affect the supply of units in the FPS sector:
•    Financing
•    Local content
•    Leasing

Financing remains a challenge for leasing contractors and smaller E&P companies as a result of the debt crisis in Europe. At the same time local content requirements are pushing up prices and extending lead times, particularly in Brazil.
For the oil company field operator, FPS ownership becomes the more cost-effective option where production extends over a long period. Alternatively, the decision to lease an FPS can be seen as a trade-off between the lower up-front Capex and the increased Opex as a result of the leasing charges. However, leasing also brings advantages in terms of the cost of field abandonment (Abex).
The top three leasing contractors are BW Offshore, MODEC and SBM Offshore, which collectively account for 34% of the leased fleet. The FPSO leasing sector remains weak with 85% utilisation at present compared to 89% at the time of the 2011 edition of this report. Contractors are reporting poor returns on existing projects and write-downs on new projects due to cost over-runs.

Conclusions
The FPS sector recovery, following the 2008/2009 downturn, continues steadily. A total of 25 units were ordered in 2011 vs. 24 in 2010. We note that orders in 2012 are 13 units as of September, suggesting that this year is unlikely to show spectacular improvement without a surge of orders in Q4. Analysis of the order book shows 51 FPSs in-build at present – a slight increase compared to last year’s edition of the Douglas-Westwood report. However, over the entire forecast period, the outlook is considered positive with the value of annual installations is projected to grow from $10.2bn in 2013 to $26.2bn in 2017.
The E&P industry is mature and needs to access offshore and deepwater reserves. Energy demand is growing as a function of population and economic growth. The upstream E&P business is increasingly reliant on offshore reserves to achieve incremental production as most of the easy-to-access reserves onshore have already been exploited.
Floating production systems are a key enabler for offshore production in deepwaters and for economically-marginal fields.
The lingering European sovereign debt crisis presents two significant risks to the sector. First, that projects do not go ahead due to lack of available finance for either the FPS contractor or the operator. Second, that the crisis will bring further economic downturns and depress oil demand and prices – in turn impacting new E&P activity.
The technological complexity of field developments is increasing and this will benefit oilfield equipment suppliers. Deeper waters, challenging reservoirs (e.g. very high or low pressure, sour hydrocarbons, high water content), and ageing fields will all present problems for operators of FPSs and opportunities for OEMs and engineering firms.
Local content requirements are causing delays in project execution and cost overruns. The ambition of creating value and employment locally will need to be balanced with the need to have an efficient, competitive and competent supply chain. These ambitions may continue to prove to be mutually exclusive.
The FPS leasing sector needs a sustainable business model. Poor financial performance from leasing contractors is being blamed on taking similar downside risk to operators (e.g. reservoir performance, construction risk, political risk) but without any of the upside that operators are exposed to (e.g. high oil & gas prices and total production being greater than forecast). Lease contractors need to work with operators to find sustainable contractual arrangements for mutual long-term benefit.
Political risk has always been present in the E&P business and this is unlikely to change. Boundary disputes, threats of civil unrest and war and changes in taxation regimes are all ever-present challenges that the oil and gas industry is well-used to encountering. A ‘portfolio approach’, avoiding excessive exposure to a single risk area is likely to continue to be the approach for E&P and oilfield services companies.
The medium and long-term outlook is however very positive. Douglas-Westwood are confident that the underlying long-term growth drivers will overcome the near-term issues. We are tracking over 200 potential future FPS deployment opportunities and over the period to 2017 we forecast that 121 installations will occur, with associated Capex spend doubling compared with the previous five year period.
This is a complex, dynamic industry that is exiting a period of weakness and is now entering a new up-cycle. DW’s five-year outlook vs. the 2011 edition of our report shows an improvement in market size of some $23.6 billion – a 35% uplift. In terms of timing, the next 12 months could present a superb entry opportunity to FPS-related business sectors.

About the Author
Hannah Lewendon joined DW as a researcher after graduating from the University of Southampton with a first-class degree in Economics and Finance. She has carried out extensive research on the floating production sector and Hannah is the lead author of the ‘The World Floating Production Market Forecast 2013-2017’.
Report details: Now in its 11th edition, Douglas-Westwood’s World Floating Production Market Forecast 2013-2017 has been tracking and analysing the industry for over a decade.
http://www.douglas-westwood.com/shop/shop infopage.php?longref=1048~0#.UH0aOW_A-kM

As Published in the November 2012 edition of Maritime Reporter & Engineering News (www.marinelink.com)
 

Maritime Today


The Maritime Industry's original and most viewed E-News Service

Maritime Reporter April 2016 Digital Edition
FREE Maritime Reporter Subscription
Latest Maritime News    rss feeds

Technology

Lerwick Harbor sees Seasonal Boost

The opening of the offshore season in northern waters has seen specialist oil industry vessels return to Lerwick Harbor during April to support subsea development projects.

ExxonMobil 1Q Profits Plunge 63%

Highlights   * Earnings of $1.8 billion decreased 63 percent from the first quarter of 2015.   * Earnings per share were $0.43 assuming dilution.   * Cash

KICT Welcomes MSC MEL 1 Service First Call

MSC Lana Voy-JA618R made its inaugural call at Karachi International Container Terminal (KICT), marking the launch of a new Middle East Loop 1 (MEL 1) Service.

Shipbuilding

Indian Sub Kalvari Undergoes Sea Trials

‘Kalvari’ (Tiger Shark), the first of the Scorpene-class submarines, went to sea for the first time on Sunday marking the commencement of sea trials.    The

Symphony Sun’ Launched in Leer

On Friday the 29th of April, Nb. 420 was launched in Leer. She was christened ‘Symphony Sun’ and is the fourth vessel in a series of 6 that will be delivered to Symphony Shipping.

SCHOTTEL Debuts EcoPeller with High-torque Gears

Propulsion and steering systems manufacturer SCHOTTEL has unveiled its new EcoPeller (SRE), which it said offers improved efficiency and robustness. Playing a

Ship Repair & Conversion

Conquest Installs 850t Crane on Allseas Solitaire

Conquest Offshore was contracted by Allseas to remove a 300-ton crane and transport and install a 850-ton Huisman crane on board of one of the largest pipe-lay vessels in the world, Allseas Solitaire.

Canadian Navy Frigate Refit Program Completed

Seaspan joined Harjit S. Sajjan, Canada’s Minister of National Defense, at an official ceremony today to celebrate the completion of the Halifax-Class Modernization/Frigate

How France Sank Japan's Sub Dream

Ousting of Japan ally PM Abbott opened door to rivals; Tokyo slow to respond to new competitive process. In 2014, a blossoming friendship between Australian

Offshore

Shipping Industry Flying On The Dragon’s Back

As the many Greek players in the shipping industry know well, the legend of Icarus tells us the dangers of flying too high. Merchant vessel earnings eventually

Subsea 7 Profits Dip in Q1

Subsea 7 S.A. announced its financial results for the first quarter ending March 31, 2016, reporting revenues of $746 million, down 37 percent from the prior year period.

Sembcorp Profit Halved as Clients Defer Projects

Revenue falls 30 pct; order book at S$9.7 billion. Singapore rig-builder Sembcorp Marine's quarterly profit halved as customers deferred projects, and it faces

Ship Sales

How France Sank Japan's Sub Dream

Ousting of Japan ally PM Abbott opened door to rivals; Tokyo slow to respond to new competitive process. In 2014, a blossoming friendship between Australian

Samsung Heavy Loses $4.6-bln FLNG Order

South Korea’s shipbuilder Samsung Heavy Industries (SHI), the world’s third-largest shipbuilder,  has received a contract termination for three floating liquefied

Japan wants Australian Explaination for Failed Sub Bid

Japan wants Australia to explain why it decided not to pick a Japanese design for a new fleet of submarines choosing instead a proposal from France's DCNS. "The decision was deeply regrettable,

Finance

Oil Price Bottoming Depends on Global Growth - IEA chief

International Energy Agency (IEA) chief Fatih Birol said on Sunday that oil prices may have bottomed but that would depend on global economic growth. Asked if oil prices had reached a bottom,

ExxonMobil 1Q Profits Plunge 63%

Highlights   * Earnings of $1.8 billion decreased 63 percent from the first quarter of 2015.   * Earnings per share were $0.43 assuming dilution.   * Cash

Shipping, Key Ingredient of EU’s Africa Agenda

The African economy has become one of the most promising global growth markets. Shipping is taking care of the largest part of international trade and in Africa

Energy

Oil Price Bottoming Depends on Global Growth - IEA chief

International Energy Agency (IEA) chief Fatih Birol said on Sunday that oil prices may have bottomed but that would depend on global economic growth. Asked if oil prices had reached a bottom,

Blacklisted Tanker Returns to Libya's Zawiya Port

A tanker that Libya's rival eastern government had been using to try to export oil in defiance of the Western-backed administration in Tripoli returned to the country on Saturday,

Lerwick Harbor sees Seasonal Boost

The opening of the offshore season in northern waters has seen specialist oil industry vessels return to Lerwick Harbor during April to support subsea development projects.

Arctic Operations

ECSA Looks Forward to Improvement of Shipping Conditions in Arctic

European shipowners believe that the three priority areas of the new EU Arctic Policy Communication published by the Commission this week address all topical Arctic matters.

EU Adopts New Arctic Policy

The High Representative for Foreign Affairs and Security Policy and the European Commission have adopted a policy proposal that will guide the actions of the European Union in the Arctic region.

Ice Navigation System Selected for Magne Viking

Rutter Inc. announced that Viking Ice Consultancy selected the sigma S6 Ice Navigator system for installation on the Magne Viking, the first vessel to comply with

 
 
Maritime Careers / Shipboard Positions Maritime Contracts Maritime Security Naval Architecture Offshore Oil Pipelines Pod Propulsion Salvage Ship Repair Shipbuilding / Vessel Construction
rss | archive | history | articles | privacy | contributors | top maritime news | about us | copyright | maritime magazines
maritime security news | shipbuilding news | maritime industry | shipping news | maritime reporting | workboats news | ship design | maritime business

Time taken: 0.1631 sec (6 req/sec)