Floating Production Unit Market Nose Dives

2015 has been a weak year for floating production and storage (FPS) unit orders, with only four awarded so far this year. 

The four were an order for a floating production semisubmersible (FPSS) for the Appomattox field in the Gulf of Mexico, a large FPSO for ENI’s Sankofa development in Ghana and one small FPSO unit each for the South Pars field in the Persian Gulf and the Brotojoyo field redevelopment off Indonesia. 

As a result, the projected 2015 order capex is just $4.5 billion, a staggering 72 percent decline from 2014 and the worst since 2003, says Ben Wilby, lead author of the Douglas-Westwood World Floating Production Market Forecast 2015-2019.

“2003 was part of a downturn and saw a similar decline in the number of orders as operators tightened their belts until the oil price improved,” says Wilby. “The FPS market was considerably smaller at the time, however, and the cost of units that were ordered was a lot less. As a result the impact we have seen in 2015 is probably a lot worse than 2003.”  

Douglas-Westwood’s forecast for FPS capex between 2015 and 2019 has been revised down from $81 billion to $68 billion. “There has been a move in the last few years towards conversions rather than newbuilds, and this will only increase as operators look for the most cost effective way of developing a field possible,” says Wilby.

The capacities of the units ordered this year differ wildly, with the South Pars FPSO having a relatively small capacity, especially compared to the most expensive order this year – the Appomattox FPSS. 

“The only trend of note is that generally they are lower cost units, reflecting the move by operators to keep capex’s as low as possible. This is something that will likely continue, and even though there will be more orders next year, they are unlikely to be of the excessive costs as those before the collapse,” says Wilby.

Despite operators focusing on cutting cost overruns and delays, they have continued to plague the industry this year, and one major project that has suffered is the Australian Ichthys project. This field will use both an FPSO and FPSS unit, costing a combined $4.7 billion. The project was originally due onstream in 2016 but has been delayed until 2017, while overall development costs for the field are also up 10 percent. This is only one of the many examples this year and cost overruns and delays remain key problems that operators need to resolve.

Regionally, it is high capex, deepwater regions that are suffering. Operators are deferring high cost units in places such as East Africa in favor of more established areas, where units can be brought onstream quicker and at a much lower cost. Despite predictions that the market in North America would suffer as a result of the shale industry and the collapsed oil price, interest has blossomed. 

So it is not all doom and gloom for the FPS industry, and 2016 should see a recovery in activity as a number of project FIDs that were due in 2015, such as the cylindrical Vette FPSO, are reached. The Vette FPSO is a Sevan type FPSO that will be owned and operated by Teekay Petrojarl and leased to Premier Oil Norway for use on the Vette field located in the Norwegian part of the North Sea. 

Re-engineering (including down-sizing) and industry price deflation are key drivers for renewed activity, says Wilby, and Douglas-Westwood has launched a new quarterly update service to map out developments in the industry.