The industry is recovering.As of early December 2010, 23 floating production systems (FPSs) have been ordered, with a combined value of US $9 billion. Oil prices are high by historic standards, and E&P companies are spending again.

This is in sharp contrast to 2009, when turbulence in energy and financial markets that developed in the second half of 2008 dramatically impacted the capital expenditure (capex) plans of all E&P companies. After a sustained period of growth, the spending patterns of major oil companies contracted as they responded to lower commodity prices, constrained cash flows, and challenges faced in the global credit market. Several offshore projects were delayed. Others were cancelled. Because the oilfield equipment and services sector is inherently a capital and asset-intensive industry, its reliance on debt markets to fuel expansion meant that a number of large companies felt the effects of global financial constraints.

FPSOs represent by far the largest segment of the market, accounting for 79% of the forecast capex. TLPs and semisubmersible FPSs form the next largest segments at 11% and 9%, respectively, with spars making up the remaining 1%. When looking at the value of orders (the “order year” parameter shown as a yellow line), it is apparent that the peak in installations in 2013 will be preceded by an increase in orders between 2010 and 2011. (Source: “The World Floating Production Report 2010-2014” – Douglas-Westwood)

The lending behavior of large banks that historically had provided capital to the FPS sector changed considerably in 2009. Heavily constrained by the lack of capital in the global system, major lenders reevaluated risk levels and their own potential exposure. Greater attention now is focused on the nature of the contract between the operator and the floating production, storage, and offloading (FPSO) vessel contractor – and vigorous checks are being applied to minimize reservoir risk.

Deepwater dynamics
Deepwater FPS projects have proven to be more resilient than those operating in shallow-water environments. Of the

20 shallow-water FPSOs expected to have been ordered in 2009, only 11 were awarded. In contrast, seven of nine deepwater projects were awarded.

The long-term prospects for the offshore and FPS sectors are good. Oil demand has recovered by 4 MMbbl/d since the recession, reaching 86 MMbbl/d, and is forecast by the Energy Information Administration to reach record levels of more than 87 MMbbl/d by the end of 2011.A global peak in oil supply remains a very real threat. Inadequate investment in the industry, coupled with a reduction in the number of the smaller supporting players providing equipment and services, will only exacerbate the problem.

A look back
The floating production sector came into being in 1975 with the installation of the Transworld 58, a converted semisubmersible mobile offshore drilling unit, on Hamilton Brothers’ Argyll field in the UK sector of the North Sea. Since then, a number of FPSs have evolved, and four main types can be identified: FPSOs, floating production semisubmersibles (FPSSs), tension-leg platforms (TLPs), and spars.

FPSOs dominate the global floating production scene.As of year-end 2009, there had been 221 FPSO deployments worldwide – almost double the number of all other FPSs combined.

The reasons for the popularity of FPSO vessels as host facilities for production plants are not difficult to fathom. They offer large deck areas for processing facilities and plenty of vertical load-bearing capability along with more flexible oil distribution and storage capacity for produced oil than other FPS designs, all at economical cost and with relatively short lead times. Since tankers are produced in large numbers from shipyards worldwide, there are many candidates for conversion. Yards are familiar with tanker hull design and construction, which simplifies the process of converting them to FPSOs.

FPSSs have a long history, proving particularly popular offshore Brazil, where national operator Petrobras has embraced FPSS technology as a means of developing the country’s extensive deepwater reserves. There have been 84 FPSS installations worldwide, many of which were short-term deployments for early production or well-testing purposes. Currently, there are 37 production semisubmersible in operation, including 15 offshore Brazil and 12 in Western Europe.

Azurite, the world's first FDPSO, reached first production offshore Republic of Congo in August 2009. (Image courtesy of Murphy Oil Corp.)

TLPs, and more recently spars, have become the production system of choice in the US Gulf of Mexico (GoM). Sixteen of the 24 TLP installations to date and all but one of the 16 spars have been associated with deepwater developments in the GoM. Recent years have seen the introduction of smaller, less expensive designs to enable the exploitation of marginal fields. However, the progression into ultra-deep waters in this region now is working in favor of FPSO solutions (with operators such as Petrobras bringing extensive FPSO experience to the region) and against TLP designs, which are less feasible in ultra-deep water.

Market drivers
On the demand side, there are four main growth drivers in the FPS sector:

-Expansion in the use of subsea production technologies;

-The move into deepwater areas;

-Marginal field exploitation; and

-Growing emphasis on “fast-track” and/or phased developments.

On the supply side, the influence of globalization already is apparent, but is likely to be somewhat offset by national insistence on local content in the delivery of FPSs and other components of offshore developments generally.

A number of innovative FPS concepts have been proposed – most of which target marginal and/or deepwater developments – and some of these will see their first applications during the period under study.

An active leasing market has emerged in the FPSO segment in particular – 46% of the world’s operational FPSO fleet and more than half of the North Sea fleet is owned by leasing contractors. In recent years, contractors have picked up a number of significant project awards based on the deployment of converted vessels, predominantly tankers and semisubmersibles. The redeployment of modified/upgraded vessels, especially in the leased FPSO segment, is likely to play an increasingly important role in meeting the growth in market demand.

Market forecast
It is important to note that in presenting this market forecasts, Douglas-Westwood has followed the convention whereby the date associated with each floater project relates to the platform’s year of installation. In practice, of course, the contractual payments relating to the FPS units identified often will be made in installments and in most cases will be spread over a number of years. For the sake of clarity and transparency, the forecast does not attempt to reflect this situation; instead, it focuses on indicating the value of the FPS installations that have occurred or will occur in any particular year.

Total FPS capex forecast for the 2010-2010 period is expected to total around $45 billion, which represents a 54% growth on the previous five-year period.

Regional markets
Together, Africa, Asia, and Latin America account for 63% of the 110 units forecast for installation over the 2010-2014 period.Asia is forecast for 23 installations, but it only accounts for 12% of the expenditure since a number of the planned installations are redeployments that require only minimal capex for upgrades. The relatively benign environments and shallow waters in which most of the FPS prospects in Asia are located also enable cheaper FPS solutions to be adopted.

In value terms, Latin America’s forecast market share is equivalent to almost one-third of global FPS capex over the period. The importance of the Latin America region for the FPS sector is almost entirely due to the wave of deepwater projects in the Santos and Campos basins offshore Brazil moving forward for development over the forecast period.

Future prospects
Where next for FPSs? There are relatively few unexplored regions remaining in the world. However, as exploration moves into harsh Arctic waters which, according to the US Geological Survey, could contain up to 90 Bbbl of oil, the demand for ice-class floating production units is likely to increase. The two most prominent floater concepts for Arctic region appear to be the turret-moored FPSO or a spar.And there is an interesting development for the Goliat field in the Barents Sea, which involves a cylindrical hull FPSO solution. Of course, the Arctic is not a homogenous environment, and not all applications will be exposed to the same sea ice problems.

Douglas-Westwood also recognizes that the industry, following the events of 2010, will see unprecedented levels of scrutiny and focus on delivering hydrocarbons safely and without harm to the environment.

Offshore