February 2012

The FPSO Market

Review
A PLATFORMA PROJECT

2012

CONTENTS

Contents
Abstract
List of Pictures
Chapter 1 The Offshore Industry
Chapter 2 The FPSO Industry
Chapter 2.1 The Vessel
Chapter 2.2 Statistical Data
Chapter 3 The Analysis
Chapter 3.1 FPSOs, The DEMAND approach
Chapter 3.2 FPSOs, The OPERATION approach
Chapter 3.3 FPSOs, The SUPPLY approach
Disclaimer

Page
1
3
4
7
7
12
15
15
24
29
32

ABSTRACT
The aim of this report is to identify how the key indicators that affect the FPSO
industry are expected to develop mainly in a medium term horizon (the next
decade). An, as reasonable as possible, estimation of the future evolution of
the market segment could help potential investors to benefit from an entrance
in the FPSO market. Keeping the above in mind we believe that the industry
remains promising for the given time frame and we try to demonstrate which
key players could benefit in each stage and how. For the value of holistic
approach Chapter 1 provides information about the characteristics of the
offshore industry in general, while in Chapter 2 the report specifies in the
vessel under evaluation, an FPSO and presents key issues from operation
procedures to statistical data. Chapter 3 provides the analysis through which,
in brief, the following can be derived:
Demand for FPSO is going to increase substantially not only because of
increasing demand for oil, demonstrated by high oil prices, but because of
major oil companies supply difficulties as well as geopolitical factors.
Eventually oil companies will move further to the deep sea to meet that
increasing demand and to differentiate their sources. This general belief is
quite obvious in a variation of indicators like offshore CAPEX, orderbook for a
variety of offshore related ships, general FPSO activity etc that indicate a
promising market.
Supply for the vessel is somehow depressed by the factor of already, or soon
to be, available units. This number is expected to reach relatively high figures
in the near future still it is far from certain that these units will actually achieve
new contracting for certain reasons. From the shipyard perspective backlog
and orderbook are also in high levels and the size of the impact of these
future vessels coming to the market can only be count in comparison to the
aforementioned re-contracting activity or the escape to scrapping. Overall the
balance is strong on the demand side but care should be given to supply
catching up.
Regarding vessel operation we believe that the industry will evolve to a
service provision one. That means that fewer oil companies will continue
1

owning FPSOs while the trend of FPSOs for rent from third parties will get
stronger. These service providers will offer an holistic solution for vessel
preparation, maintenance, administration and so on. The FPSO as a vessel
will in the mid-term highly diversify among converted or newbuildings with the
first dominate in less regulated regions and the second prevail in the rest. Still,
taking the long road the conversion activity will in the end fall in much lower
levels because of certain factors expected to evolve across the globe.

List of Pictures

Pictures
Picture 1 : E&P Onshore/Offshore Spending Survey
Picture 2: Origin of oil production in terms of bopd
Picture 3: Schematics of an FPSO
Picture 4: The FPSO Venture 1 by MODEC
Picture 5 : The mooring system of an FPSO in connection with the
seabed infrastructure
Picture 6 : Field production and moorings are a complex combination
Picture 7 : FPSO equipped with an external turret
Picture 8: 2011 Distribution of FPSO producing vessels according to
the country of operations
Picture 9 : Areas of FPSOs operation
Picture 9.1 : Key areas of FPSOs operation
Picture 10 : World liquid fuel demand by region
Picture 11 : BP Energy Outlook 2011
Picture 12 : Increase in energy demand 20102035, by fuel type
Picture 13 : GDP, 2012 forecast, % change on previous year
Picture 14 : Oil spot price for WTI
Picture 15 : Major oil companies production output
Picture 16 : Deepwater CAPEX per region
Picture 17 : No of rigs per year and per type
Picture 18 : Orders in offshore rigs per year and per type
Picture 19 : Development of subsea wells is moving deeper
Picture 20 : FPSOs will dominate offshore installation
Picture 21 : Trend analysis regarding New vs Converted FPSOs
Picture 22 : New oil fields reserves
Picture 23 : Trend analysis regarding Leased vs Owned FPSOs
Picture 24 : Idle and available FPSOs per region and year
Picture 25 : Newbuilding Outlook
Picture 26 : Conversion Outlook

Page
6
6
7
8
9
9
10
12
14
14
16
16
17
18
18
20
20
21
21
22
22
24
25
27
30
30
31

CHAPTER 1
The Offshore Industry
By the term Offshore Industry we include, and not limit to, all the specific
industries, people, means, technology, academia, services that have as their
final goal the development and utilization of mainly oil and gas resources that
are located in sedimentary basins beneath the ocean floors.
Though it is not in the intensions of this analysis to represent a thorough guide
of the working patterns and relations across the industry, it is considered that
for a comprehensive approach a simple description should be implemented.
The primary theory regarding the origin of oil argues that it is the deceased
fauna and flora that was buried under mud in the vast beds of the ancient
oceans and which through long processes of high pressure and temperature
were converted into hydrocarbons. These hydrocarbons depending on the
specific place that were lying, were either lost by ascending somewhere in the
surface of the earth, or were trapped inside physical basins and especially in
porous rock. It is these traps and mainly the ones under the oceans that the
Offshore Industry is trying to exploit.
The discovery of these traps can be achieved by many ways, either by
actually seeing oily fluids coming on the surface, or by more modern and
complicated methods, as the technology advances, in places where seeing is
not possible. Seismic surveys are the most famous methods, across the
offshore industry, to try to explore and verify the existence of such an
aforementioned trap. Still the process is incomplete and a final justification
has to be executed.
The next step in the offshore oil exploration activity is the development of drill
ships. It is their responsibility to take over the crucial role of actually find oil
through wildcat or appraisal well drilling. Once this is completed and
conclusions regarding aspects like the size of the underneath oil trap, its oil

specification, the depth and various other are finalized it can then be decided
if it is economically viable to exploit the resource or not.
Once the existence of oil is justified and the economic viability of the project is
proved, the most challenging, complicated and expensive part of the oil
exploitation is initiated. This is called The Project Development. Factors that
need to be answered through this phase deal with the number and the
position of the wells that will be drilled, the piping that will connect these wells
on the ocean bed and finally how these liquids or gases will be collected. The
last issue is answered mainly through two ways, either by direct piping that
will connect the field with land, or by an offshore structure.
Several offshore structures have been developed to answer specific demands
regarding depth, size, needs, weather intervention etc. Fixed Platforms, Semi
- Submersible, Spars, TLPs, FSOs and FPSOs all in the end are platforms
that bring oil to the surface and then each one according to its design
undertakes the task to store, or to process, or to distribute, or to deliver and so
on, the arrived oil or gas quantities. This specific outlook is specialized with
the study and analysis of one of the above mentioned vessels that comes with
the term FPSO.
Concluding Chapter 1 we can comment that the size of the oil industry
nowadays is estimated in several billion US$ as depicted in Picture 1. The
rapid increase in the last 5 years came primarily by a substantial increase in
the production of offshore products, especially in deep-water, which is
demonstrated in Picture 2. It is believed that that trend is going to remain
unchanged as a result of significant factors analyzed in Chapter 3.

Picture 1 : Barclays E&P Onshore/Offshore Spending Survey, December

2010

Picture 2: Origin of oil production in terms of bopd, (Douglas/Westwood)

CHAPTER 2
The FPSO Industry
2.1

The Vessel

FPSO stands as the acronym of the Floating Production Storage Offloading

vessel. As the name implies an FPSO is a structure that has the capability to
accept oil or gas from the underneath field, to process and store it and then to
offload or unload it to a tanker or an LNG.
The vessel has been in service since the 70s and it is a well proved solution
in field development. Throughout this Chapter we are going to give an
extensive analysis regarding the vessel, its specialties, its capabilities and its
facilities in order that a clear view can be generated and then proceed with
forecasting issues.

Picture 3: Schematics of an FPSO

From Pictures 2 and 3 one can arrive to a conclusion that an FPSO is mainly
a ship shaped vessel. This is quite true and the main reason of this
connection comes by the fact that most of the FPSOs now involved in oil
production come from tankers converted to that new kind of vessel. But
though an FPSO can be assumed to be a ship, this assumption would be
7

rather wrong as there are certain differentiations among an FPSO and a

simple tanker.

Picture 4: The FPSO Venture 1 by MODEC

What is very exclusive when we think of an FPSO, is that it is a unit mainly
stable in its position over an oil field for almost all of the field production time,
the oil field life, instead of a tanker which travels the globe from port to port.
For doing so, modern mooring systems have been developed in order to
achieve the least possible movement of the ship in relation to the seabed,
Picture 5. This is highly important as a potential failure of the mooring system
could result in the motion of the ship up on the surface and the dragging of the
equipment underneath, situation that would result in severe damages or even
loss of that equipment, which is not movable, or possible environmental
incident and perhaps navigational accident.
This critical need of multiyear stationary service for an FPSO develops
substantially different patterns of maintenance and inspection procedures as
periodic surveys/ dry-docking usually are not possible. This in turn develops
different operating and construction costs regarding corrosion issues, choice
of specific

equipment

and

machinery, painting

methodology etc.

schedule, inspection

Still not all FPSOs remain stable over their oil field. There are several cases in
which the vessel must leave its position and these are cases of emergency
like weather phenomena (ice berg, hurricane etc). If an incident like that does
occur then most of the vessels have the capability to leave the area as long
as it takes for the phenomenon to clear away.

Picture 5 : The mooring system of an FPSO in connection with the seabed

infrastructure

Picture 6 : Field production and moorings are a complex combination

The gathering of the resources is performed through pipes that lay on the
seabed and that lead the extracted oil to the FPSO facilities as we can see in
PICTURE 6. The piping connections, the machinery and the general size and
complexity of the sea bed infrastructure can be quite substantial and very
costly. For the FPSO there are two ways to receive these pipes. Either from
the side of the vessel or through a special system called the turret. The
conclusion to either of the choices depends heavily on the weather. Calm
water, no or mild wind conditions will allow an FPSO to receive the pipes from
its side, while high waves and harsh environmental condition will require the
use of a turret.
The turret is a cylindrical device that facilitates the receiving of the piping upon
the ship independently from its position in relation to wind, current, wave
conditions. The turret allows the ship to turn freely on the surface while the
arrangement of piping underneath remains unchanged avoiding by that a
mixing of the pipes that would conclude to their breaking. In case of very
extreme condition there is the capability of an internal rather than an external
turret or even the choice of a detachable one in case of iceberg or typhoon
approaching as already mentioned.

Picture 7 : FPSO equipped with an external turret

10

Once the oil is on the ship then the topside facilities undertake the task to
treat the received liquid in various stages. Initially it is important to separate oil
from water and gas. This procedure is executed in the oil separation which
generally is situated amidships to reduce the wave effect of the ship. The
clean oil is transferred to the tanks while the water is cleaned and ejected to
sea or back to the well. The gas is dehydrated and either used as fuel for
equipment onboard, or is ejected back to the well.
Almost in all of the cases the FPSOs are equipped with a helideck through
which sources are taken in and out (personnel, supplies) and especially in
case of an emergency, it is considered as a mean of evacuation.
When appropriate the storage oil is then offloaded in a tanker that is assigned
in a periodic procedure to receive hydrocarbons from the FPSO. The time
frame of this procedure depends on the size of the FPSO, its production rate,
the size of the supporting tanker or the number of them and in some cases
the weather. This last activity, the offloading of the oil, terminates the line of
the FPSO operation which initiated from the drilled well on the seabed. The
procedures analyzed in brief are in reality very complicated and there are
several factors and details that need to be taken under consideration in order
to achieve an efficient way to operate the vessel. Above all safety is the most
crucial issue that needs to be established as a way of living. It is obvious that
vessels like the FPSOs deal with numerous and in parallel working systems
and equipment operated by a variety of people, most of the time from different
nationalities, handling resources like oil or gas that are extremely dangerous.
Certain actions and care needs to be taken in order to ensure a safe
operation of the ship and above all the safety of the crew.
Having completed the brief introduction to the FPSO operation a comparison
between the vessel and other offshore facilities will follow. The most important
factor to initiate that comparison is the seabed depth. As the offshore industry
moves deeper in the ocean in search for oil it is not either economical or even
technically feasible anymore to use fixed facilities in order to receive the
hydrocarbons. Furthermore the technological improvements regarding FPSO
operation (like oil production, position control, mooring, gas ), have
11

significantly lowered the cost to run units like these in relation to the
capabilities they offer. It is more of a cost benefit justification rather that a cost
reduction effort that highlights FPSOs as a primary choice. Furthermore the
relatively better possibility to redeploy the unit in relation to the other offshore
facilities offers an opportunity for long and repeated vessel employment.
Finally the possibility to acquire a vessel of that kind in very low cost through
an older tanker conversion choice, adds even more to the statement that
FPSOs are an increasingly attractive choice when it is compared to other
offshore facilities. At that point the analysis of the vessel as an operational unit
as well the comparison with other offshore facilities is ended. Through the
next sub-chapter various statistical data will be demonstrated to establish a
clear view of the activities of the FPSO fleet worldwide.
2.2

Statistical Data

In Picture 8 a diagram based on the area of operation is provided to

demonstrate the most active regions in the world. One first important
conclusion is the worldwide distribution of operators as we have evidence of
activities almost in every ocean across the globe. The dominance of Brazil is
quite impressive and following, although not quite obvious, the combined
performance of countries of west Africa is the next key area. Another
promising region of operations seems to develop in Australia where recent
improvement in regulation regime and authorization has boost the
attractiveness in offshore industry development.

Picture 8: 2011 Distribution of FPSO producing vessels according to the

country of operations
12

The above diagram is further analyzed in a per year approach as well, in the
following table. The yellow tables indicate increase in active (actually
producing) FPSOs from previous year, while the orange is used for
decreasing numbers, to demonstrate how operations evolve per year and per
country. The previous comments of Brazil, west Africa and Australia value are
evident here too.
2006
16
13
13
10
10
6
6
6
6
2
2
1

2007
18
12
14
9
9
7
7
7
6
2
2
1

2008
22
15
16
13
11
10
7
7
7
3
2
1

2009
23
17
16
12
11
10
6
6
6
3
2
1

2010
24
17
17
14
13
12
6
6
6
4
2
2

2011
31
17
17
15
14
12
6
6
6
4
2
2

Brazil
China
UK
Australia
Nigeria
Angola
Indonesia
Norway
Vietnam
Thailand
Canada
Congo
Eq.
3
3
3
3
3
3
Guinea
Malaysia
2
4
5
3
3
3
Mexico
2
3
3
3
3
3
Cote
2
2
2
2
2
2
dIvoire
Gabon
1
1
1
1
2
2
New
1
0
2
2
2
2
Zealand
Tunisia
1
1
2
2
2
2
Egypt
1
1
1
1
1
1
Ghana
0
0
0
0
0
1
India
0
0
0
1
1
1
Italy
1
0
0
0
0
0
Libya
1
1
1
1
1
1
Mauritania
1
1
1
0
1
1
Philippines
0
0
0
1
1
1
South
1
1
1
1
1
1
Africa
Total
Producing
106
112
136
134
145
155
Units
Activities of actually producing FPSOs per year and per country

13

Picture 9 : Areas of FPSOs operation

Picture 9.1 : Key areas of FPSOs operation

Especially for the year 2011 certain alterations in relation to 2010 can be
summarized below:
Producing FPSOs increase from 145 units to 155, of which

1 new in Ghana, the KWAME NKRUMAH MV21 (Jubilee Field),

8 new in Brazil the FPSOs: BW Cidade de Sao Vicente (ex BW Peace),
Cidade de Angra dos Reis MV22, Cidade de Santos MV 20, Cidade de

Sao Mateus, Frade, OSX-1, P-57, Peregrino,

1 new in Australia the Pyrenees Venture.

14

CHAPTER 3
The Analysis
3.1

FPSOs, the DEMAND approach

Through this chapter we are going to analyze key factors that affect the FPSO
industry and especially the supply and demand parameters of the vessel. The
aim of this analysis is to arrive in possible predictions of how the FPSO
industry is expected to perform in the short and mid-term and how it is
expected to evolve in some qualitative characteristics.
The key reason of an FPSO in operation is the need of oil. One can argue that
the commodity is the most important resource that we take from earth as, until
now, the oil and its products provide the main source for energy production.
As a result supply and demand of oil are important figures that have
significant role in the necessity of an FPSO vessel. Regarding demand,
certain researches estimate that oil will still be a key source for energy
production in a one to two decades horizon. According to US Energy
Administration a 20% increase is expected in demand of liquid fuels with the
dominant one being oil. This is demonstrated in Picture 10 where we can see
projection according to groups of countries until 2035.
To the same direction points another research, from BP this time, where for
the same issue, which is world liquids demand for energy production, projects
to a time frame until 2030 some 20% increase. Picture 11 demonstrates this
demand per country or group of countries.

15

Picture 10 : World liquid* fuel demand by region

*Petroleum and other liquid fuels include petroleum-derived fuels
and non-petroleum-derived liquid fuels, such as ethanol and
biodiesel, coal-to-liquids, and gas-to-liquids. Petroleum coke,
which is a solid, is included. Also included are natural gas liquids,
crude oil consumed as a fuel, and liquid hydrogen.90% of the
above quantities refer to oil directly or indirectly. (US EIA)

Picture 11 : BP Energy Outlook 2011

Finally in OPEC s projection towards 2035 of how demand for energy, in
relation of type of source, is believed to develop there is another clear
16

increase in the combined oil supplies needed for energy production, picture
12.

Mboe/d

Picture 12 : Increase in energy demand 20102035, by fuel type, (OPEC,2011

World Oil Outlook)
All the previously demonstrated diagrams are key indications, from high
value sources, which project that the increasing demand for energy is going
to press for an increase in oil production, among other sources of course, to
meet this demand. Certain obstacles that stand against this conclusion, like
more strict environmental regulations, improvements in efficient production
and use of oil, alternative sources of energy that seem to increase their share
in the total world output, dont seem to have the potentials to alter the
characteristics of an oil dependent world at least for the coming two decades.
Especially in the current economic environment of financial depress. The key
conclusion is that in absolute figures oil supply is certainly going to increase,
though its percentage in the energy production is going to decrease in the mid
to long term.
Adding to this conclusion is the stagnation of oil price at the level of 100$ for
some time now. This contradicts to the world economic outlook and the total
economic activity. Today the economic environment is heavily depressed by
the European debt crisis and the struggle to prevent a bankruptcy especially
in the countries of the south. It is believed that in 2012 the EU will contract at
a mere 0,1 % according to Mr. Draghi ECB as reported by New York Times.
17

On the other side China seems to settle to a 7,5 % growth which, although
impressive as a figure, it is the slowest pace for the last 22 years

(1)

. It looks

that only US have entered a path of positive momentum although the

increased, above the long term average, jobless rate is an indicator that
should keep one skeptical. Some of the above comments are shown in the
following Picture 13 of countries and their expected performance through
2012.

Picture 13 : GDP, 2012 forecast, % change on previous year. (Economist)

Despite the above described economic outlook oil prices which are shown in
picture 14 dont seem to conform, but remain in relatively high levels.

Picture 14 : Oil spot price for WTI (NYMEX)

(1)

Economist

18

Looking from the supply side regarding oil there are some key points that
need to be highlighted which are interconnected with the price of oil
mentioned before. For the past two years the world witnessed the Arab
revolution stretching from north west Africa to the Persian Gulf. The demand
of the people for justice, equal rights, better opportunities and better life
though absolutely right and understandable demonstrated how vulnerable the
supply side of oil remains as, while those events took place, many oil
production facilities were shut down. In the same way the political condition in
Iran, the terrorist actions in Nigeria, the pirate attacks offshore Somalia that
threaten the Persian Gulf ship commerce (almost entirely oil related) and
elsewhere all give rise to an attitude that demands alteration in the supply of
oil. These geopolitical factors are a heave leverage that have pushed the oil
industry further into the ocean in order to secure alternative and safe sources
of oil and that trend will remain dominant in the medium to long term as it is
unclear if these matters are going to be resolved soon.
Another key factor is the available capacity of the oil producers to meet
increase in the oil demand. Nowadays only Saudi Arabia seems to have the
capabilities to increase its oil production and indeed it has already performed
actions like these in order to deal with spikes either in oil demand or in oil
prices. It is difficult for other countries to manage developments like these
without providing significant CAPEX. What is also alarming is that oil
producers capacity, according to Picture 5, at least for most of them, seems to
have already reach peak figures.

19

Production
(mbbl/d)
Exxon Mobil
BP
Petrochina
Royal Dutch

2002
2496
2018
2109

2003
2516
2121
2119

2004
2571
2531
2265

2005
2523
2562
2270

2006
2681
2475
2276

2007
2616
2414
2299

2008
2405
2401
2380

2009
2387
2535
2311

2010
2422
2375
n/a

Shell
Petrobras
Chevron
Total
ConocoPhillips
Statoil
Eni

2359
1533
1897
1589
701
1112
921

2379
1701
1823
1661
953
1132
981

2253
1661
1737
1695
924
1135
1034

2093
1847
1701
1621
926
1102
1111

2030
1920
1759
1506
1129
1508
1079

1899
1918
1783
1509
1032
1070
1020

1771
1978
1676
1456
981
1055
1026

1680
2103
1872
1381
1041
1067
1007

1709
2156
1923
1340
984
1112
n/a

Picture 15 : Major oil companies production output (Petroleum Review 2010)

In order to get a clearer view of the current trends and activities that affect
FPSOs demand lets examine the general offshore sector activity and some
current projections for it, so as to evaluate how demand of the vessel will
develop. In relation to overall CAPEX from countries for deep water
exploration picture 16 is quite revealing of the increase that is projected to
take place in the coming years.
16

Expenditure (bil.
US$)

14
12
10
8
6
4
2

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

Picture 16 : Deepwater CAPEX per region

(The world deepwater market report 2012-2016, Douglas - Westwood)
The magnitude of CAPEX increase in Latin America (i.e. Brazil) is astonishing.
Reviewing PETROBRAS strategic plan for 2020 we see unprecedented
figures of 41 FPSOs in 2009 to 84 units for 2020, with expenditures for
20

exploration of more than US$4 billion annually for the period 2010-2014. For
the same period, the company has already move forward 4 FPSO projects for
2012, 2 for 2013 and 4 for 2014. The target of the company is to increase its
oil production in the country from 2,1 mil bopd to 3,95 an almost 90% jump
and this can be done mainly from the offshore sector.
At the same time drilling companies are also expanding their fleet which is
expected to reach all time high values in the near future not only in operating
numbers but also in the orderbook as we can see in pictures 17 and 18

Picture 17 : No of rigs per year and per type

(DOUGLAS - WESTWOOD)

Picture 18 : Orders in offshore rigs per year and per type

(DOUGLAS - WESTWOOD)
As mentioned earlier the oil industry moves to the deep water at a steady
pace and that can be viewed in Picture 19 where a constant increase in the
percentage of wells developed in deep water depths is evident. This is a very
21

important indicator as FPSOs are at most of the cases the best solution that
can adapt in the needs of field development in deep waters.

Picture 19 : Development of subsea wells is moving deeper

(DOUGLAS - WESTWOOD)
Finally actual and current seismic surveys and drilling activities provide that in
the near term a significant amount of offshore installations is going to deploy.
From these facilities due to water depth and certain requirements the FPSO is
going to be the dominant vessel that will be used heavily. Especially about
2012 estimations target regarding contract award to figures of 10 to 15 new
contracts for FPSOs according to ODS PETRODATA.

40

Unit Installation

35
30
25
20
15
10
5

Picture 20 : FPSOs will dominate offshore installation

(DOUGLAS - WESTWOOD)
Combining all the previous information we arrive to the following List of
Conclusion that presents a fair picture of the FPSO world outlook and its
interconnection with oil as a commodity

22

CONCLUSION A : OIL DEMAND AND SUPPLY

Oil demand is going to increase worldwide for the coming two decades
as energy increasing needs cannot be met by alternative sources,
except from gas which is also a resource that FPSOs at the form of

FLNGs can harvest from the seabed.

Oil prices remain high and this situation will not change in the present
economic and political environment. FPSOs are investments that remain
attractive as oil stays above the levels of 50-60 $/ barrel and become

highly profitable above 80 $.

Increase in oil supply doesnt seem to be an easy task in relation to
existing facilities. It is more of a case of DIG ELSEWHERE OR GO
DEEP with the second choice already in rapid growth, especially in the

golden triangle (west Africa, south America, Gulf of Mexico).

Geopolitical instability requires alteration in oil sources.

A1 : The aforementioned factors that affect the main key indicator for FPSO
demand, the oil demand and supply, demonstrate an environment in which
FPSO vessels are going to be an increasingly favorable solution in oil
production, in conjunction to the comparison between FPSOs and the other
offshore facilities analyzed in Chapter 2,.

The offshore industry is very active in the whole range of the chain
production (surveys, drilling fleet, CAPEX etc.) and this trend is believed

to remain in the short to medium term.

The move to the deep is far from evident regarding actually drilled wells
and intended ones.

A2 : The above conclusions help arrive to the belief that the vessel will remain
a key solution to the overall offshore activity. An impressive increase in the
fleet is expected for the short term, although the sustainability of that increase
cannot be justified yet for the long term.

23

3.2

FPSOs, the OPERATION approach

As mentioned in chapter 2 FPSOs look like tankers because most of them

actually were tankers that were converted afterwards. This is a general way to
divide the fleet of the FPSOs to two major groups, the one that consists of
newbuildings and stand for the third of the total fleet and the one that consists
of converted tankers, which is about 62% of the total fleet

(2)

. In Picture 21 we

can examine how these two groups affect each other through time as well as
the change from previous year from the angle of the connection lines.

Picture 21 : Trend analysis regarding New vs Converted FPSOs

But which is the mechanism underlying the decision either to build a new
FPSO, or to convert an older tanker? There are several factors that are
examined during the field development phase that deal with the above
dilemma such as:
a.

Size : What is the size of the oil field, what is the expected production

rate and how many years is it estimated to deliver oil. Large quantities of oil
most of the time lead to newbuildings, while marginal fields usually ask for a
conversion. This is explained not only due to financial reasons (enough time
to depreciate the capital expenditure of a difficult to sell asset), but also to the
fact that technical reasons like fatigue, or stress in connection to unusual kind
24

(2) MUSTANG FPSO REVIEW 2011

of hull and equipment maintenance (many years over field, no dry-docking,

etc) promote the choice of a newly built ship.

Picture 22 : New oil fields reserves

(3)

It is clear from Picture 22 that new oil fields are becoming increasingly small in
terms of oil capacity and only a small part of the cumulative number of wells
explored can produce significant amount of oil. This will eventually make
unattractive an investment in permanent / not movable oil facilities, because
of the small available time frame to depreciate the investment, while it will
boost the trend to movable ones and preferably FPSOs (either converted or
newbuildings) for the opportunity to relocate.
b.
CAPEX : A second significant factor is the availability of capital and the
general CAPEX planning of the involved company. In general the difference of
the expenditure is substantial, considering the conversion choice as a cheap
and quick one, while the choice of newbuilding comes with huge demand of
capital and usually long lead time and planning regarding shipyard activity and
availability. It is believed that the current process of deleveraging of the
European economies through public deficit reduction, the expected pause of
monetary easing mainly from the US, the recent indication of marginally lower
growth in China, Basel III liabilities from the banking point of view, are
indicators that companies will eventually have to take very careful
consideration of their debt to equity ratios and their liquidity to avoid finance
stress by better managing their CAPEX. This is of great importance as the
(3) ABN AMRO BANK

25

Field Development is a very expensive and long- lasting procedure of several

million US$ value. It might be reasonable for the oil company to lower the
amount of CAPEX assigned for the vessel choice, instead of lowering the one
for sea bed infrastructure which in general is less capable to diversify or alter.
c.
Time Frame : Time availability is also a reason that is taken under
consideration regarding final vessel choice with the conversion vary usually in
month range (around 12 months for the completion of the vessel) while the
construction vary in year range (1-3 years for the completion of the vessel).
However this is more of a supplementary input rather than a decision
changing factor.
d.
Field Location (1) : An FPSO vessel is highly interrelated with the
country in the authority of which it operates. Certain Rules and Regulation
control almost every aspect regarding the whole FPSO concept. These R&R
are very strict in areas like the North Sea or the Gulf of Mexico (only recent
involvement with FPSO) and are not so strict in areas like west of Africa or
Brazil or south China. Usually a strict R&R environment results in a new
vessel as this will be constructed according to the more recent classification
rules, while the implementation of an old tanker through conversion would
require an extensive scope of modifications, steel work and finally a high cost
comparable to a newbuilding choice in order to comply with these rules. On
the other hand less strict R&R promote the development of a converted
tanker, even a singled hull one in specific circumstances and certain
countries.
e.
Field Location (2) : The prevailing environmental conditions in the
location of the field is another important aspect to consider. In practice calm
waters and weather like the one that prevail in west Africa region result in the
choice of conversion (due to less hull integrity demand as mentioned in (a)),
while harsh environmental conditions will lead to the selection of a
newbuilding as is mainly done in north sea environment or is expected to be
while the Arctic exploration initiates.
Looking from another perspective the choices of the company regarding field
development by deploying an FPSO are not limited in the direct choice of a
newbuilding or a conversion. There is also a third option, rather indirect, with
certain advantages that can alter the scope of planning significantly. Today the
26

most preferable way for an oil company to exploit a field is through the lease
of an FPSO. Certain well-orchestrated and very experienced companies can
undertake the task to provide the vessel, an FPSO, to the field operator. Even
more they have the technical capability and skills to man, to operate, to
perform maintenance to the ship and general take the responsibility to run the
oil field on behalf of the operator. This is the second important consideration
that divides FPSOs to two other major groups, FPSOs that are owned and
FPSOs that are rented / leased.

Picture 23 : Trend analysis regarding Leased vs. Owned FPSOs

Picture 23 shows a clear trend of an increasing use of lease operators and
indeed it is believed that this attitude will remain prevailing for the following
reasons.
a.

Asset Management : Operating, maintaining and administer a vessel

like an FPSO is a very complicated task that needs experienced personnel,

specialized procedures and a dedicated administration. While this can be
done from an oil company, the increasing complexity of the vessel as a
platform that carries various and complicated systems and the differentiation
among the available types of ships (FPSOs, FSOs, FLNGs, FSRUs) that are
now available is expected to decrease the capability of an oil company to run
these vessels effectively and efficiently. It is believed that the FPSO

27

management and ownership is going to evolve as a service from specialized

and dedicated providers.
b.
Vessel Life : Excluding fields that will require the presence of an FPSO
for many years (more than 20) which is a small fraction, an oil company will
eventually face the need to decommission the vessel and at best try to
refurbish and relocate it to another field. This is a demanding liability that
faces many risks and costs. The procedure of decommissioning is a difficult
task that needs to be done carefully and publicly in order to avoid
environmental issues, social unrest, or governmental complaining. The effort
to relocate an FSPO is also a hard task as most of the vessels are field
specific and will certainly require extensive yard work for equipment and steel
renew, repairs, system modernization with a significant need for capital. For all
these reasons it is much easier for the oil company to try and allocate the
above risks to a third party, while at the same time benefiting from the vessel
operation through the field time
c.
Accountant Reasoning : The choice to lease an FPSO creates a
periodic expense to service the contract that is accounted as an Operating
Expense. On the other hand the construction of the ship would require
CAPEX and depreciation provisions. Depending on certain situations it could
be more favorable for an oil company to prefer the first choice because of
accounting, or taxation reasons. It might also prefer not to undertake the
burden of financing a construction or it might need spare financing capacity or
liquidity to deal with other CAPEX issues (like the sea bed infrastructure
mentioned earlier).
Conclusion B : FPSO Operation Considerations
Eventually, but in the long run, third world countries will raise their
standards regarding R&R
Arctic Ocean exploration which is expected to grow rapidly will demand
new ships constructed according to very demanding standards
Discovery of marginal fields is nowadays the usual phenomenon
Increasing financing cost and deleveraging culture in the banking system
reduce CAPEX availability for the vessel.
B1 : Summarizing the above conclusions we believe that we are going to

28

witness a strict diversification of the fleet in the short term with converted
vessels dominate specific areas like Africa or Brazil and newbuildings for the
North Sea, Gulf of Mexico or Australia. However in the long term we expect a
general turn to the newbuilding choice, though of smaller FPSOs.
Increasingly use of technology and modern equipment will require very
specialized human resources to anticipate the difficulties of such a
complicated task.
Increased cost per vessel in conjunction with marginal field discoveries
will lead to mitigation of financial, insurance, operational risk from the oil
company to other players.
B2 : Summarizing the above conclusions we expect further establishment of
the trend towards leased rather than owned vessels and the provision of a
Service of FPSO from third parties.

3.3

FPSOs, the SUPPLY approach

In this final part we are going to analyze certain factors that are related to the
vessels supply side starting with the units that are or will come out of a
contract. Taken in account the possibility of option exercising as well as the
current contracts that will be terminated in the near future, there is a projection
of 5 to 10 units more (compared to newbuildings or newly converted tankers)
that will seek new contracts in the coming years, picture 24. At first glance this
looks alarming but there are certain points that should be reminded once
more.
FPSOs are very field specific vessels. The equipment on board as well as size
and certain characteristics, as analyzed through chapter 2, are carefully
chosen to meet specific requirements over an offshore oil field. Although
relocation and a new contract, after an expiration of an old one, is not
something uncommon for the FPSO industry, this is not always possible, while
the perspective of age and new regulation commitment of the vessel will keep
adding pressure in the above procedure in the medium term. Still one should
29

always keep in mind the preference of the industry to even an old unit of a
well proven leasing provider than a new one from a speculator or a new
entrant.

Picture 24 : Idle and available FPSOs per region and year

(ODS-PETRODATA)
The other source of supply for units, the shipyard perspective shows certain
characteristics that eventually could benefit the industry. In pictures 25 and 26
we see how demand in capacity is going to develop and what are the shipyard
capabilities to cover that demand. What is obvious is that there is available
capacity for the shipyards to accept new contracts either to build or to convert
tankers. This could be significant as the developing competition, especially if
taken under consideration further capacity that will be added, eg in Brazil for
the domestic industry, could push prices in lower levels. That could affect
positively the viability of a project as it could lower its cost of financing.

Picture 25 : Newbuilding Outlook (ODS-PETRODATA)

30

Picture 26 : Conversion Outlook (ODS-PETRODATA)

Taking the aforementioned information under consideration we arrive to the
following
Conclusion C : The SUPPLY approach
There is a concern regarding vessels coming out of contracts and their
capability to redeploy. This could sharpen the competition among leasers,
by pushing down day rates which could in turn initiate a chain reaction of
consolidation through the industry.
At the moment it seems that there is available capacity to cover demand
in FPSO units both for construction or conversion
Summarizing the above conclusions we believe that the service of FPSO
provision to a field operator will be the Apple of Discord for the key players of
the industry, the service providers and the vessel providers. This is absolutely
justified as the value of the service is estimated at several billion $ and the
general sense is that it is going to grow. In the long term we expect a
somewhat different industry outlook of less service providers (through
consolidation) and of more hull/ vessel providers (as technology and
competition expands).

31

DISCLAIMER
The FPSO Market Review is a product of publicly available information
Sources used in the report include UN statistics; national accounts;
infrastructure, public works, transport, energy and economy ministries;
officially released company results and figures; trade bodies and associations
and international and national news agencies which provide information
believed to be accurate and reliable at the time of publishing.
In view of the natural scope for human and/or mechanical error, either at
source or during production,

The Platforma Project accepts no liability

whatsoever for any loss or damage resulting from errors, inaccuracies or

omissions affecting any part of the publication. All information is provided
without warranty, and Platform.net makes no representation of warranty of any
kind as to the accuracy or completeness of any information hereto contained.

The Platforma Team

Find us at:
Http://www.theplatforma.org

32