All the evidence for the future of the floating production system (FPS) market supports the strong growth forecasts that abound. The industry’s deepwater momentum continues to grow, while the offshore sector as a whole is increasing its overall share of global oil and gas production levels.

There is a virtual conveyor belt of FPSs getting the go ahead, coming onstream, or being identified as an operator’s favored solution. Already in 2013 the industry has seen major projects progress including the Aasta Hansteen spar project offshore Norway, for which operator Statoil submitted its plan for development and operation in January; BP’s PSVM project offshore Angola, which began flowing first oil to its FPSO earlier this year; Petrobras’ Sapinho? field FPSO Cidade de S?o Paulo in Brazil’s deep waters, which began flowing in January; and Inpex’s Abadi floating LNG (FLNG) development, which moved into the FEED stage.

Statoil also unveiled its semisubmersible platform solution for its Skrugard development in the Barents Sea. Borders & Southern outlined its conceptual plans for an FPSO on the Darwin discovery offshore the Falkland Islands. Shell confirmed its conceptual plans for an FPSO on the Stones discovery in the US Gulf of Mexico (GoM) and a floating deepwater production hub on Appomattox.

Pressure growing

The pressure is growing on the relatively small number of floating production specialists to meet the challenges presented by the ever-more advanced technological demands of deepwater and ultra-deepwater projects and heightened environmental considerations.

There also are very real increased financial risks and challenging financing constraints for both leasing contractors and smaller E&P companies as a result of the global financial situation and the larger, more expensive, more complex facilities being required.

In addition, according to a recent report on the sector from analyst Infield Systems, with FPS demand predominately being driven by countries in Latin America (essentially Brazil) and West Africa, significant local content requirements exist. This means construction companies are being increasingly challenged to create employment opportunities for the local work forces. According to Infield, over the short to medium term this may affect the capital cost and timeframes for floating platform developments.

When it comes to floating platforms, it is predominantly FPSOs that are taking the lion’s share of the active market. In terms of total projects the FPSO is by far the favored solution of offshore operators, making up 60% of all current developments compared to the rival designs of semisubmersibles (19%), tension-leg platforms (TLPs, 10%), spars (7%), and others.

Based on existing demand only, the FPSO sector is primed for solid growth in the coming years with a compound annual growth rate in the 5% to 7% range, according to SBM Offshore. Over the next three years it has forecast that more than 60 FPSO project awards for both lease and sale units will be made for field developments globally. SBM itself is targeting around 20 of those, the company said in its latest strategic presentation.

Unpredictable business

The FPSO business is an unpredictable beast. Norwegian floater specialist BW Offshore has suffered sharply rising costs on its challenging conversion project on the FPSO P-63 facility destined for the deepwater Papa Terra heavy oil field offshore Brazil. It is currently forecasting US $450 million to complete the engineering, procurement, and construction project, representing a substantial hike from the previous figure of $375 million.

The problems are well known and have mainly been linked to increased engineering and steel replacement; completion of boiler systems; increased construction, procurement, and commissioning costs; and higher yard costs associated with the extended schedule. BW said the project had been delayed “as a consequence of increased work scope compared with initial plans.”

Final integration work on topsides modules on the converted FPSO is expected to be completed soon, however, before the facility is installed on the field to start operations for Petrobras by July.

Despite the company’s experiences, optimism still reigns. The outlook for the energy market in general and the FPSO business in particular remains good, BW said in its recent results presentation, with the number of FPSOs expected to grow significantly. There is a large number of prospects and flat or slightly increasing demand in terms of contracts expected in the near term. The number of active competitors is still decreasing, and yard capacity also is very good due to lower ship building activity, the company added.

Positive fundamentals

Another market player, Fred. Olsen Production, also flagged the positive FPSO market fundamentals as a result of high global energy demand, sustainable oil prices, and a more consolidated supply side in its latest results presentation.

However, new projects continue to be delayed. The company said that 2012 had the lowest number of FPSO lease contract awards since 2004, with only four new ones awarded and none awarded in 4Q 2012. Projects in West Africa remain very limited, but improved inquiry flow in the region and new mid-size discoveries by “bankable oil companies” toward year-end 2012 indicate a long-awaited recovery of this market. Brazil is still dominated by megaprojects, with high local content requirements, while Asia has a steady level of activity with medium and small projects.

The overall macro perspective remains the same, the company said:

  • The FPSO lease market is solid with growth predicted;
  • The number of contracts actually awarded continues to fall short of prognoses due to delays in awards; and
  • Excluding the “giga-projects” of Brazil and West Africa, the market is slow but steady.

According to the latest data from analyst International Maritime Associates, there are 235 FPS projects in the planning stage around the world. More than a quarter (27%) are in ultra-deep water of 1,500 m (4,921 ft) and beyond, with 15% in water depths of 1,000 m to 1,500 m (3,281 ft to 4,921 ft) and 58% in less than 1,000 m (3,281 ft). About 25% of the projects are in the bidding or final design stage, with a further 171 in the planning or study phase. The company forecast up to 192 floater orders over the next five years, averaging between 26 and 38 annually.

A total of 73 floating production units are on order, with the backlog consisting of 44 FPSOs, seven production semisubmersibles, four TLPs, four spars, four FLNG units, and 10 floating storage and regasification units. In the backlog are 43 units using purpose-built hulls and 30 units based on converted tanker hulls.

The number of planned projects also is growing. The amount in the planning stage is 12% higher than a year ago and 64% higher than five years ago. In November 2011 there were 210 floating production projects in the planning stage, while a year earlier the figure was 194.

$91 billion floater capex

The forecast expenditure figures for the FPS sector as a whole are huge. According to analyst Douglas-Westwood’s latest report, between 2013 and 2017 a total of $91 billion in capex will be spent on these systems, representing an increase of 100% over the preceding five-year period.

This growth is being driven by factors such as a larger proportion of newbuilds and conversions compared to redeployments, a greater degree of local content resulting in increased costs, and general offshore industry cost inflation.

Floating production is a versatile solution that is firmly established as a cost-effective method for developing oil and gas fields, and in water depths beyond 500 m (1,640 ft) it is one of the few options available to operators – an increasingly important factor as production moves into deeper waters. Douglas-Westwood forecast that 63% ($58 billion) of FPS market spend will be on deepwater projects.

FPSOs easily represent the largest segment of the market both in terms of numbers (94 installations) and forecast capex (80%) over the 2013 to 2017 period. Semisubmersible production facilities account for the second largest capex segment of 10%, followed by TLPs and then spars.

Driven by the industry’s need to access more offshore reserves to meet energy demand, FPSs remain a key enabler to access these resources. Despite the shorter term issues, the long-term outlook for this dynamic sector is buoyant.