Floating Production Rebound after ‘the Mother of all Dips’

The deepwater sector is rapidly accelerating out of the great market downturn. That’s the conclusion of an in-depth market analysis just completed by IMA/WER, which has followed the floating production system market closely, daily for more than 25 years.

“The deepwater market over the last 30 years has gone through a number of dips, some major. The ‘mother of all dips’ has been over the last five years or so, and it was horrendous, basically putting many companies into big financial problems,” said Jim McCaul, head of IMA/WER, in a recent interview with Offshore Engineer TV. “But we’re in a rebound now, and I see this market rebounding very quickly. It’s accelerating, and it’s accelerating faster than I expected six months ago.”

The Outlook

Oil inventory has been brought to below seasonal average, crude is now trading in the $70s, deepwater E&D has been rebounding and the number of deepwater projects lined up for investment commitment in 2021/22 is growing.

“The price of oil has been going up. Brent crude, which fell below $10 in April last year, has clawed its way back to the low $70s. Rising oil prices have spurred renewed interest in deepwater E&D activity. Over the past few weeks I have talked with a number of offshore drilling and seismic contractors. Many see the E&D market rapidly improving and are optimistic that E&D expenditures will grow significantly over the next six to 18 months. Deepwater E&D is a strong leading indicator for floating production. If the E&D market is improving rapidly, then floating production will follow.”

According to McCaul, “more than two dozen deepwater projects requiring either an FPSO or production semi look likely to proceed to development by end next year. EPC contracts for the production units will have an aggregate value of $35 to $40 billion. This is a much higher near-term ordering pace and contract value than we anticipated six months ago.”

Explaining the more optimistic outlook, McCaul says “when we made our five-year forecast of production floater orders in November, the virus was spreading fast, a vaccine was not yet available and the global economy was sputtering. Rebound in the deepwater sector appeared to be 2 to 3 years off -- and our five-year forecast of production floater orders was skewed toward the 2023/25 time frame.”

McCaul adds “the early period of our forecast – where we projected only a dozen or so orders in 2021/22 -- is clearly looking conservative, given the strong pick-up in activity now being seen.”

Marginal FPSO Projects Come Alive

According to McCaul, an interesting new wrinkle in the market is the appearance of small, marginal FPSO projects entering the pipeline.

“This to me is very interesting, and it’s still in the developing stage,” said McCaul. “I’m not totally clear as to whether these projects are firm or not, but there’s been a number of opportunistic, marginal small projects that have come into play that look like they could advance within the next 12 to 18 months.”

He said these projects typically occur when the market is buoyant, when prices of oil are up, and the opportunity is presented to lift and sell oil quickly.

“The Timor-Leste Buffalo is a very small project that looks like it’s going to advance,” said McCaul. “There’s another one in Nigeria called Okwok. I’ve been following it for some time, but I’ve never really been optimistic about its prospects as it’s always difficult to get financing for these types of projects. But it looks to me like Okwok could actually move forward now with the price of oil going up.”

“I find this interesting. It’s not just the very big, long life projects, like the ones in Guyana or Brazil. Now we’re seeing smaller ones,” said McCaul. “It brings us back to the days in the late 1990s, where loads of small projects involving FPSOs were being put into play.”