The floating production market: 2016 & beyond

Andrew Jackson

January 1, 2016

While depressed commodity prices lend to pessimism, floating production systems are projected to remain an integral component of offshore field development. Quest Offshore analyst Andrew Jackson explains.

The drilling rig support module is removed from its barge by the Saipem 7000 and lifted onto the Mad Dog rig on 13 March 2012. Image from BP.

Throughout 2015, one has not had to look far for dire news and projections on the outlook for the offshore industry. Falling oil prices, reduced operator expenditures, and project deferrals became overriding themes. Despite near-term challenges, however, floating production systems (FPS) will remain an integral component of the offshore development mix with several high-profile projects in the works.

2015 – A year in review

As the industry has adapted to falling crude prices, several floating production project awards were postponed outright, re-designed, or re-bid as operators and the supply chain worked to make proposed developments more cost competitive. As a result, 2015 floating production awards, as of 1 December 2015, saw a total of two floating production, storage, and offloading (FPSO) vessels, one semisubmersible, one floating storage and offloading (FSO) vessel, and one floating LNG unit awarded, which is roughly one quarter of 2010’s awards.

Malaysia’s Yinson will provide a newly converted FPSO, presently under construction at Keppel Shipyard, for deployment at Eni’s OCTP-Sankofa development. The second award encompasses the redeployment of an existing unit, Rubicon Offshore’s Front Puffin for service at Yinka Folawiyo’s Aje development. Shell’s Appomattox semisubmersible hull will be constructed by Samsung Heavy Industries in South Korea with the topsides fabricated in the Gulf Coast at Kiewit in Ingleside, Texas. Modec is also providing an FSO under an engineering, procurement and commissioning contract with Maersk that will see the unit constructed by SembCorp Marine in Singapore for the high-pressure, high-temperature Culzean project in the UK sector of the North Sea. Furthermore, Golar LNG exercised their second option with Keppel to construct the third GoFLNG, the Golar Gandria.

An illustration of BP’s Mad Dog Phase 2 semisubmerible, designed KBR/GVA, which the designers say is inspired by BP’s Atlantis platform. Image from KBR.

The final month of 2015 provides slight potential for further floating production awards by yearend. Eni’s Coral South FLNG (Mozambique), Talisman’s Ca Rong Do tension leg platform and FPSO (Vietnam) and Husky’s Madura MDA-MBH FPSO (Indonesia) are presently tendering. It is, however, very unlikely that all three of these projects award before yearend, with Quest’s present mean case forecast accounting for the probability of 1-2 further units in 2015.

2016 – FPS award candidates

For 2016, Quest’s projects a moderate improvement in FPS awards compared to 2015 as operators and the wider supply chain better adjust to commodity price conditions, cost deflation improves project economics, and development projects delayed from earlier years come to fruition.

BP’s Mad Dog phase 2 development provides an optimistic example of a project that has seen its fair share of delay during a period of elevated crude prices but appears to be a strong candidate for a 2016 final investment decision and FPS award. The project was originally focused on a spar design coined “Big Dog,” which was put on hold in April 2013, due to the technical complexity of a heavy topsides and cost concerns. BP has since simplified the FPS, now based on a KBR/GVA semisubmersible design, and has been able to significantly lower project development costs to below US$10 billion, according to Upstream Chief Executive Lamar McKay in BP’s Q3 2015 results. Earlier cost estimates for the project employing the Spar were ~$20 billion.

In addition to the three projects mentioned previously, there remains several FPS projects with award potential in 2016 (see Table 1).

While the above projects present near-term potential based on current development status and operator plans, it is unlikely that all come to award within 2016. Quest’s proprietary forecasting methodology is constructed to discount these opportunities and account for potential delays with 11 FPS units forecasted for 2016 award in the mean (middle) case.

Quest floating production mean case forecast (Dec 2015)

Looking forward–Quest’s FPS forecast

In the longer-term, Quest’s FPS forecast projects a tough year for 2016 with a steady improvement to historical averages by 2019, with as many as 18 units forecasted to award in 2019. In 2010, 20 units were awarded representing a recent peak in award activity supported by the award for replicant units in Brazil for Petrobras. While the total number of awards is approaching this figure, it is worth noting that the project composition is further leveraged toward smaller FPS systems and phased developments while recent history had a greater composition of large, standalone units. While this might seem like a negative indicator, it does show that industry is successfully recalibrating project plans to maintain development amidst more challenging industry conditions.

Andrew Jackson serves as Quest Offshore’s market research & database manager, where he works with the Quest Research Team to conduct research & analysis on offshore project development. Jackson graduated from Texas A&M University with a BBA in Information & Operations Management.