On Thursday, Samsung Heavy Industries announced that it has won the contract for a $1.3 billion floating production unit, or FPU, with capacity for 110,000 barrels per day of oil. It marks the first major offshore platform contract for a South Korean shipbuilder in a year and a half.
The platform is widely believed to be the FPU for BP's Mad Dog II project in the Gulf of Mexico. BP claims recoverable reserves exceeding four billion barrels of oil equivalent at Mad Dog, putting it among the largest finds in the Gulf. Through extensive redesign efforts, BP has brought the project’s capital costs down to $9 billion, and it says that overhead should be low enough to achieve profitability at current oil prices. If all goes as scheduled, Mad Dog II's production wells should come online towards 2021.
In addition to the BP order, SHI told Korean media that it is close to finalizing a contract with Eni for a $2.5 billion FLNG, a deal that has been in the works since at least July of 2016. The facility would be for Eni’s Mozambique Coral South project, which received board approval (but not partners’ approvals) in November. If Coral South receives a positive final investment decision, it will produce three million tonnes per year of liquefied natural gas, which will be sold to BP under a 20-year purchase agreement.
Competition among shipbuilders has been fierce over the past two years as a downturn in shipping and offshore took a toll on ordering. On Wednesday, analysts with Clarksons released data showing that the Korean yards' backlogs have fallen below 20 million CGT, putting them in third place worldwide for the first time in 17 years. South Korean regulators warn that several of the nation's biggest shipbuilders may face liquidity difficulties and partial yard shutdowns in the next few years unless they can reduce overhead and improve sales. Samsung Heavy Industries' CEO, Park Dae-Young, warned in a year-end address that "there is nothing more important than survival," calling on his team to streamline management and continue "self-rescue" efforts. Jung Sung-leep, CEO of the financially challenged builder DSME, said that "expanding new orders, improving profitability and restructuring are still tasks to be solved."