FPSOs: Orderbook Climbing as Deepwater Sector Rebounds

Following the collapse and nearly six years of stagnation in the offshore energy and floating production market, the industry rebounded with vigor in 2021. In particular, the orderbook for FPSOs climbed 20% over the past year and the deepwater sector is heading into a period of 'sustained strength' for 2022 and beyond, as Jim McCaul discussed with Offshore Engineer.

By Greg Trauthwein

Copyright Alex Stemmers/AdobeStock

Orders for production floaters have returned to "historic pace," and overall FPSOs themselves are getting larger, according to Jim McCaul, managing partner, Intelatus Global Partners, in discussing his latest report, 'Floating Production Systems: Analysis of Future Business Drivers and Forecast of Floating Production System Orders between 2022/26.'

"Many of the units that are being ordered now are up around 200-250K barrels per day units," said McCaul, "much larger and more productive than the units in the past."

McCaul has studied and reported on the Floating Production sector for more than 30 years. He notes that while the FPSO sector, in particular, is healthier than it has been in six years, the number of units operating has been declining over the two years, with about 170 in operation today.

It's been declining because the number of units going out exceeds those coming in," said McCaul. "But the ones coming in are much bigger than the ones going out, so actually the amount of production capacity on the water is still increasing substantially."

His latest report presents a forecast of floating production system orders over the next five years, examining the growth of deepwater development over the past 40+ years, a history that includes about 500 floating production systems being built since the 1970s, with an annual estimated CapEx of $15 to $25B resulting for hull fabricators, conversion yards, topside plant suppliers, topside system integrators, engineering firms and other marine/offshore suppliers.

The report also delves into the previous six years, which have been difficult for the entire deepwater supply chain, starting with the 2014-2016 price war when the market collapsed as the traditional oil powers attempted to effectively disable the nascent 'fracking' industry in the U.S., which saw the per barrel price dropping from about $115 in mid-2014 to $26 in the early 2016.

Just as the market was recovering in 2019, COVID struck and effectively squashed demand, and a fallout between Russia and OPEC that flooded the market with oil, sent the prices down even further, with WTI crude at one point in 2020 trading at negative $37 a barrel, meaning producers had to pay buyers to take the oil off their hands.

2021 was a 'rebirth'

2021 was the revival year for the industry," said McCaul, a long-awaited rebound from the oil price collapse of 2016. "In 2021, the industry began to come back, and by the end of the year, the pace of orders for floating production systems was back to historic levels, FPSOs included."

According to McCaul, orders for new FPSOs are running at a pace of about one order per month, noting that the FPSOs being ordered are jumbo units in the 200 to 250K barrel per day range, with another 450 million cubic feet of gas processing.

The size of the units is premised on the size of the production areas themselves, and, McCaul said, in this regard, Brazil and Guyana are in a class of their own.

"The wells that Petrobras has in the Buzios area are enormously productive," said McCaul, "producing about 50,000 barrels per day per well."

All told, nine FPSOs were ordered in 2021 (note: two of them were actually formalized in January 2022, but the deals were mostly done in 2021), with Equinor's Brazil-bound Bacalhau being the biggest of them all, able to produce 220,000 barrels a day of oil capacity and 530 million cu. ft. per day of gas.

According to McCaul, as the units get larger and more complex, invariably the price follows, and the cost to simply build these massive new units ranges between $1.8 and $2.5B. "Then you have everything else that goes with it. In total, a field development can easily reach $6 to $8B."

Overall, McCaul sees the deepwater sector in 2022 entering a period of sustained strength, despite the growing attention now being paid to a transition away from fossil fuels. "As we discuss in the report, the alternatives to fossil fuel are more costly and less reliable," said McCaul. "Fossil fuel will be required for the foreseeable future – and deepwater resources will remain a key part of the mix for future oil and gas supply."

Inside Bacalhau

Equinor (operator), ExxonMobil, Petrogal Brasil and Pré-sal Petróleo SA (PPSA) last year decided to develop phase one of the Bacalhau field in the Brazilian pre-salt Santos area, an investment of approximately $8B. "Bacalhau is a globally competitive project with a break-even below $35 in a key energy region. Estimated recoverable reserves for the first phase are more than one billion barrels of oil," said Equinor when details were released mid-2021. First oil is planned for 2024.

The Bacalhau field is situated across two licenses, BM-S-8 and Norte de Carcará. The resource is a high-quality carbonate reservoir, containing light oil with minimal contaminants. The development will consist of 19 subsea wells tied back to a floating production, storage and offloading unit (FPSO) located at the field. This will be one of the largest FPSOs in Brazil, with a production capacity of 220,000 barrels per day and two million barrels in storage capacity. The stabilized oil will be offloaded to shuttle tankers and the gas from Phase 1 will be re-injected in the reservoir. Partners in Bacalhau: Equinor 40% (operator), ExxonMobil 40%, Petrogal Brasil 20% and Pré-sal Petróleo SA (Government Company, PSA Manager).

2022 & Beyond

According to McCaul, as detailed in his recent report, there are around 200 known projects in the planning stage that are likely to require a floating production system for field development. All have reached a level of planning where the production solution has been narrowed to a few options -- including use of a floating production facility, of which around 55% will be FPSOs.

He said the strong FPSO market is projected to continue into 2022 and beyond, forecasting an ordering pace of 8 to 12 FPSOs annually, depending on the market scenario. A major constraint will be the capacity to build and deliver large FPSOs, particularly those acquired under a leasing arrangement. The major contractors leasing large FPSOs have limited capacity to absorb new orders, without becoming overextended.

"SBM has already said they'll only take two orders a year," said McCaul, estimating that is the business it can take and still make a profit. He said the key for these companies is the number of experienced project managers available to take on new projects. "The number of contracts that you can take is really dependent on how many experienced project managers you have," said McCaul. "You can make someone a project manager, but if they are inexperienced, you're going to have a problem."

A way around the ordering logjam could be for the field operator to simply order the FPSO and do it themselves, "which is what Petrobras is doing with a couple of projects," said McCaul. This route puts full responsibility on the field operator, from organizing finance, to start-up and operations.

Regardless of the hurdles, which still include COVID as a growing fact of life, McCaul concludes the future is bright. "Today, the forecast for FPSOs is about 40% higher than it was at this time last year."

Elgonda La Grange Copyright Christophe/AdobeStock
Guyana is the future
Jim McCaul,
managing partner,
Intelatus Global Partners.

In Guyana, the Stabroek Block, located approximately 120 miles offshore Guyana, is 6.6 million acres in total, equivalent in size to 1,150 Gulf of Mexico blocks and containing multiple prospects and play types.

Gross discovered recoverable resources for the Stabroek Block are currently estimated at approximately 10 billion barrels of oil equivalent with multi-billion barrels of additional exploration potential on the block. The discoveries on the block to date have established the potential for at least six FPSOs by 2027 – with up to 12 over the longer term. Finds continue to be made, so estimated future FPSO requirements will likely grow.

The Liza Phase 1 development, with a production capacity of 120,000 gross barrels of oil per day, delivered first production in December 2019 utilizing the Liza Destiny FPSO.

The second phase of the Liza development, sanctioned in May 2019, will utilize the Liza Unity FPSO with gross production capacity of approximately 220,000 barrels of oil per day, with start-up expected in first quarter of 2022. A third phase of development, at the Payara field was sanctioned in September 2020. First oil is expected in 2024. Payara will utilize the Prosperity FPSO, which will have the capacity to produce up to 220,000 gross barrels of oil per day. A fourth development, Yellowtail, has been identified on the Stabroek Block with anticipated start-up in 2025.

SBM Offshore, a Dutch company responsible for the delivery of all four FPSOs ordered by Exxon for the Stabroek block so far, said in November 2021 that the Yellowtail would be its largest-ever FPSO.

The FPSO will be designed to produce 250,000 barrels of oil per day, will have an associated gas treatment capacity of 450 million cubic feet per day, and a water injection capacity of 300,000 barrels per day. It FPSO will be spread moored in a water depth of about 1,800 meters and will be able to store around 2 million barrels of crude oil.

Worth noting, apart from the Liza Destiny FPSO, which was a conversion from the VLCC, the other three FPSOs are being built using SBM Offshore’s Fast4Ward program.

The Fast4Ward program includes a new build, multi-purpose floater hull combined with several standardized topsides modules. SBM Offshore orders these hulls in China without contracts secured, so that, when it does secure a contract, the FPSO delivery time is shorter.