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Latin fiesta in FPSO market

Brazil set to lead way in raft of orders by 2020 as deep-water spending increase fuels floater demand: Rystad

As many as 24 contracts for floating production, storage and offloading vessels are set to be awarded within the next year - fuelled by field projects off Brazil - amid a revival in the FPSO market after years of lacklustre demand and troubled schemes, according to Rystad Energy.

Brazil’s state-owned oil company Petrobras is once again leading the way, having recovered from the Car Wash corruption scandal, with seven FPSO projects set to be awarded in 2020 out of 12 due to be sanctioned in South America as a whole within this timeframe.

Other operators active on the same continent expected to put pen to paper on FPSO contracts include US giant ExxonMobil, Norway’s Equinor and UK independent Premier Oil.

Another four awards will come from Asia, three each in Europe and Africa, and two more in Australia, the Oslo-based research firm forecast.

Seven FPSO projects have already been confirmed this year with total production capacity of 700,000 barrels per day of oil and around 60 million cubic metres per day of gas.

Rystad’s head of oilfield services research Audun Martinsen believes the tide is turning in the FPSO market, which has previously been blighted by project delays and cost overruns, and was further hit by the oil price slump in 2014 that led to deep-water field schemes being put on hold.

“The ongoing upswing in newly sanctioned FPSO projects points to a brighter future for the FPSO market. Offshore operators are finding their footing again after the downturn of 2014, as a robust rise in free cash flow has fuelled a significant uptick in deep-water investments,” he said.

Factors such as increased drilling efficiency, standardised solutions, simplified field concepts and new technology, as well as lower contractor pricing, have also contributed to cutting break-even costs in the deep-water arena to make such barrels profitable to produce.

Liza Destiny sets sail for Stabroek block off Guyana

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South America has seen an increase in investments in deep-water exploration and field development, with ExxonMobil notably developing the Liza field in the prolific Stabroek block off Guyana where some 13 discoveries made to date are expected ultimately to support as many as five FPSOs.

The first of these vessels, Liza Destiny, recently set sail for Guyana after delivery from Singapore’s Keppel Shipyard with the second, Liza Unity, now under construction at Shanghai Waigaoqiao Shipbuilding and Offshore in China.

The latter yard has also started work on a third FPSO hull based on Dutch contractor SBM Offshore’s proprietary Fast4Ward concept that may also be destined for the massive Guyana field project.

Petrobras earlier this year inked a letter of intent for an FPSO based on the same design for its Mero-2 field project off Brazil.

Rystad believes Asian contractors Yinson and Modec are also “well-positioned” to capture some of the spoils from the next wave of FPSO awards.

Martinsen explained the fresh floater boom off Brazil is predicated on a recent relaxation of local content regulations that has attracted an influx of international exploration and production companies.

“Brazil’s greater competitiveness on a global scale is a driver behind such huge FPSO awards, along with the region’s recovery from the Car Wash corruption scandal, Petrobras’ debt reduction, substantial pre-salt discoveries and healthier oil prices,” he noted.

“These positive factors also add greater certainty to project timelines and we no longer believe Petrobras’ developments will be subject to lengthy delays.”

Furthermore, FPSOs are gaining wider application beyond deep water and are increasingly favoured for field projects in shallow waters as they are seen as more practical than fixed platforms due to higher installation costs and decommissioning challenges associated with the latter facilities.

FPSOs also have built-in storage capacity that is advantageous in more remote locations where pipeline infrastructure is not economically feasible. For example, Equinor is developing its Johan Castberg field in the Barents Sea off Norway with an FPSO.

Increased standardisation of FPSOs - exemplified by SBM’s Fast4Ward design - has bolstered the economic viability of such a development concept for both deep and shallow-water fields, according to the analyst.

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