Executive Viewpoint

Vol. 233 No. 11

Bridging the FPSO supply gap

A wave of change is coming to the offshore oil and gas production industry. Offshore drilling activity has reached historic levels, pushing to deeper water depths, with wells of increasing complexity. This trend is driving an unprecedented increase in demand for floating production units at a time when the production market is in a state of flux.

Floating Production, Storage and Offloading (FPSO) operators currently face economic difficulties that challenge the existing business model. The difficulties in defining the scope and project budgets for an FPSO have resulted in cost overruns and longer delivery times, leading to a higher risk in the Lease and Operate contracts. Consequently, there is unexpected residual value on assets and a decrease in financial performance. All of these factors have combined to make it difficult for the operator segment to “lift” new projects and support the increasing demand. As such, there is an FPSO supply gap in the market today.

The current approach for FPSO projects is not capable of meeting the increased demand and technical complexity that the market requires. The industry is ready for another alternative.

New FPSO projects built around a concept of standardized, configurable, proven components will deliver the results that the industry needs. This approach to equipment packaging has been successful on the drilling side. It’s time that those lessons learned are studied and modified to best suit the production business, and implemented in execution.

A “standard FPSO” will deliver reduced project risk by making project schedules and budgets more predictable. With more predictable capital expenditure estimates for projects, operators will have better visibility of the project’s internal rate of return (IRR) and will be able to negotiate more balanced terms for Lease and Operate contracts, while minimizing or eliminating the risk of unplanned residual value on assets.

In addition to the upfront benefits of predictable project schedules and costs, standardized equipment and system solutions will continue to deliver operational benefits after the asset is placed in service. With the standard FPSO, operators and their end clients will see significant improvements in quality and reliability, as all participants in the supply chain, from engineering contractors to equipment suppliers and shipyards, benefit from the repeatability inherent in the standardized concept, and become more proficient in their specific areas of expertise.

Another benefit of standardization realized in the drilling model that should readily transfer to the standard FPSO is improved maintainability. With standardized, configurable equipment and systems, training requirements for operations personnel are streamlined. As more standardized units enter a company’s fleet, management is given more flexibility, as personnel from one unit can be moved to another FPSO with minimal familiarization time. Supportability, in the form of spares and service, is also greatly improved.

Admittedly, the thought of a standardized FPSO is not a new concept for our industry. The project and operational benefits of standardization are acknowledged throughout our community. So why have we failed to act? I would submit that, as an industry, we have lacked the will and proper incentive to make standardization a reality. Talk of standardization is quickly met with the response… yes, that’s fine for drilling, but production is a different animal. Our requirements are field-specific, special,… unique!

FPSOs are a different animal, but should they be? Better yet, as an industry, can any of us afford for them to be for much longer? We face a supply gap and a buildup of demand that must be answered. We also see an increased demand for marginal to medium-sized developments that has largely gone neglected, due to re-deployment concerns for “field-specific” FPSOs. The standard FPSO will address those re-deployment concerns with its standardized, configurable modules. When a unit is identified for re-deployment, a module could simply be removed and replaced, much like a Lego piece, to configure the FPSO for its new field. With prior planning, re-deployment (or reconfiguration) is measured in months instead of the 1-3 years we currently associate with re-deployment (re-conversion) of existing FPSOs.

This Lego approach to topside design carries additional benefits. As local content requirements become a reality in more and more places across the globe, the “Standard FPSO” provides the additional flexibility to engineer and construct portions of the overall package locally and then integrate those modules in the main shipyard during initial construction or during re-deployment.

Lastly, let me respond to the questions: Why a standard FPSO? Why now? For the first time, key equipment and service suppliers in our industry have assembled significant packages and solutions that add real value to the shipyards, operators, and oil companies through reduced interfaces, more streamlined management and more effective project execution. As suppliers enhance their offerings, we also see available capacity at most of the major shipyards. These elements combine to form the main ingredients for a successful recipe, the standard FPSO.

The standard FPSO and its standardized, configurable equipment packages provide the technical complexity required while offering the end client “flexibility” in the final design. The shipyards and project teams benefit from the repeatability and constructability inherent in this approach and can offer superior solutions at competitive costs and schedules. Operators and oil companies benefit from reduced life cycle costs and faster “first oil.”