The floating production system (FPS) market is segmented into FPSOs, floating production semisubmersibles (FPSSs), spars, and tension-leg platforms (TLPs).

There are more than 150 FPSOs in operation. FPSOs dominate the global floating production sector, with Asia and Africa boasting the largest fleets. FPSSs have a long history and have become particularly popular offshore Brazil, where Petrobras has embraced FPS technology as the preferred means of developing the country’s extensive deepwater reserves. There are around 40 FPSSs in operation, including a large number offshore Brazil, Western Europe, and the US Gulf of Mexico (GoM). TLPs and spars have become the production system of choice in the US GoM. The majority of the world’s operational TLPs and spars have been associated with developments in this area.

Market drivers

Three main drivers are behind the continued growth of the FPS sector:

Continuing expansion in the use of subsea production technologies;

The industry’s move into deepwater areas; and

Growing emphasis on uses other than life-of-field production. The move to deeper water is a key driver for the FPS market. Beyond water depths of 500 m (1,600 ft) it becomes uneconomic to install a fixed platform, leaving an FPS installation as one of the few available options. FPSs also are used in shallow-water developments for processing alongside small wellhead fixed platforms, as central production hubs, or as part of rejuvenation programs. Since FPSs can be redeployed, they are ideal as early production systems or for other contracts of short duration. On a regional level, the surge in Latin American FPS activity, which accounts for half of the projected capex to 2016, is driven by local operators Petrobras and OGX, which plan to significantly increase their fleets.

The deepwater basins offshore West Africa also are key focus areas for FPS developments, with several projects planned off Angola and Nigeria.

Expenditure in the FPS sector is expected to spike in 2015. (Images courtesy of Douglas-Westwood)

Brazil

Brazilian operators Petrobras and OGX plan to massively increase their FPS fleets. Many of the units will be built in Brazilian yards using locally sourced equipment and labor. The majority of FPS installations are expected to take place in the Esp?rito Santo, Campos, and Santos basins, which contain the vast majority of Brazil’s proved reserves.

Petrobras’ projects typically are characterized by phased multiple FPS developments. Current and future projects include Franco, Guara and Guara North, Lula and Lula North East, Parque das Baleias, Papa Terra, and Roncador.

Petrobras also uses FPSOs for extended well tests prior to beginning full production. According the company’s recent business plan, 19 such tests are planned for the next five years.

OGX is part of the EBX conglomerate, owned by billionaire Eike Batista. The group also includes Brazilian leasing contractor OSX (from which OGX is expected to source the majority of its FPS units). OGX’s prospective developments are in shallow water. However, the company is exploring deepwater areas of the Esp?rito Santo basin.

Supply factors

In most cases, FPSs will be constructed to order. Significant financing needs to be secured before construction begins. At present there is considerable uncertainty surrounding the short-term outlook for the banking sector as a result of the debt crisis in Europe, and this could threaten the availability of financing for this sector.

An active market has emerged in the FPSO segment in particular. Nearly 40% of the world’s FPS fleet is now owned by leasing contractors. In recent years, contrac- tors have picked up a number of significant project awards based on the deployment of converted vessels – predominantly tankers. The redeployment of modified/upgraded vessels, especially in the leased FPSO segment, will play an increasingly important role in meeting market demand growth.

Local content is becoming increasingly important. In Brazil, Petrobras is aiming to source up to 70% of its FPS-related equipment from local providers. OGX also is planning to source most of its units from Brazilian shipyards.

Market forecast

Douglas-Westwood forecasts a total of 134 FPS installations over the 2012-2016 period, with a global capex of US $68 billion. These installations represent a 37% increase over the 2007-2011 period, with a corresponding increase of 81% in capex. The disparity between the two percentages is a reflection of factors such as a larger proportion of newbuilds and conversions compared to redeployments; a higher level of local content, which raises the cost of relevant equipment and services; and cost inflation.

FPSOs represent by far the largest segment of the floating production market in terms of numbers and account for more than 80% of the forecast capex.

As mentioned previously, Latin America accounts for half of the projected capex. When comparing this to the number of installations forecast, it is clear to see that the region has higher than average capital costs compared to others. This largely is due to strict local content requirements.

Africa is the next most important region in both numerical terms and forecast capex. A large portion of African installations are large units installed in deep water.

Western Europe, a predominantly shallow-water region where fixed platforms are used, is expected to see several FPS installations over the next five years. Some of these projects revolve around the rejuvenation of mature producing areas where FPSs are used to provide water injection capability.

A large number of orders is expected during the course of 2011 and 2012. These include a bulk order for Petrobras. The company is expected to order 12 vessels during 2011, six of which are destined for the Lula (Tupi) development. Many of these FPSOs will be newbuilds, with hulls constructed in Brazilian yards.

Not surprisingly Petrobras, with forecast capex of $21.6 billion, is expected to be the biggest spender over the coming five years, followed by fellow Brazilian operator OGX and supermajors such as Total, Shell, and BP. For the first time, Douglas-Westwood’s floating production market forecast includes analysis of capex broken down by components, including hull, topside modules, and mooring systems. For most types of FPSs, the topside modules are the most expensive component, accounting for half of project capex. Within this category, power generation, process equipment, and water injection make up the largest portion of spend, although requirements for the latter greatly depend on field requirements.

Drilling modules are a significant portion of capex for all non-FPSO types of FPSs. Combining drilling and processing capacity is a key way to reduce field costs since the hire of a costly mobile offshore drilling unit may not be required. FPSOs do not typically have onboard drilling modules, although there are few newbuild vessels that incorporate this feature.