2017 State Of The

FPSO Nation Report:

How to Win in the $50
Oil Price Continuum

TIM HAÏDAR | EDITOR | FPSO NETWORK

INTRODUCTION
The floating solutions industry is striking back against the oil price depression

• Awards are on the up after the worst year in the last three decades
• The industry is retooling after record job losses and bankruptcies
• A leaner, meaner FPSO sector is preparing for a realistic oil price future

Testing times Stabilisation of the oil price around the $50 per barrel mark
in 20173 has brought a renewed assurance to operators bereft
Since Q4 2014, the oil price has been on a rollercoaster ride, of confidence. Even at a lower price, steadiness has allowed
cratering from more than $100 to below $30. oil operators to start financial modeling for projects in earnest.

In the course of this 24-month descent, the oil and gas industry Even African and South American FPSO projects that are
has seen a dramatic change in fortunes, with as many as notorious for their high break-even points may be able to run
350,000 jobs shed worldwide1. economically at around the $60 per barrel mark. In kinder
environments, FPSOs will even be able to turn a profit for
More than one third of these job cuts have come in the operators at half or a third of that price, bringing marginal
upstream sector2, where the cost of a barrel of the black gold fields back into play.
counts the most.
Turning a corner?
Since the tanking of the oil and gas price, capex spending in the
upstream sector has seen its first double dip since 1986-7. From Project Front-End Engineering Designs (FEEDs) have slowly
a record high in 2014, spending had plummeted by 38 per cent started to pop up across the horizon – an encouraging sign for
by the end of 2016 (Figure 1). the FPSO market, as the supply chain gets ready to put to sea
once more.
Figure 1. Upstream spending 1985 - 2016
This year has seen the award of two units so far – Yinson
$500
NORTH AMERICA
winning the tender for Talisman Vietnam’s Ca Rong Do field4
INTERNATIONAL
and the conversion of an oil tanker for Ophir oil project located
$400
offshore peninsular Malaysia.
$300
A further three FPSO FEED and tender projects have been
$200 resumed or launched: Chevron’s Rosebank project on the UK
Continental Shelf5, Shell’s development on the Penguins field in
$100
the northern North Sea6 and Statoil’s Bay du Nord7 oil discovery
$0 off Newfoundland, Canada.
TOTAL YOY GROWTH %
40%
In the future, the development of deep and ultra-deep-water
20%
prospects – like ExxonMobil’s Guyana finds8 and Petrobras’s
0% Libra field9 – will also necessitate the deployment of FPSOs.
-20%

-40% According to future projections, the FPSO market will be worth

2016E
2015E
2000

2004

2006

2009
2008
2005
2003
2002

2007

$117bn in 202410 and could see between 83 – 168 orders over

2001

2010
1990

2014
1994

1996

1999
1986

1998
1989

2013
1988

1993

1995

2012
1985

1992
1987

1997

2011
1991

next five years11.

The floating production, storage and offloading sector (FPSO)
has not managed to dodge this fiscal bullet. After the protracted shock, the narrative is shifting: it is
no longer about surviving the stormy seas of the oil price
The oil price rout saw the number of awards falling to all-time depression but navigating to more profitable shores.
lows year-on-year, with 11 awards in 2014 dropping to only four
in 2015 and a resounding zero in 2016, the worst year in the Here at the FPSO Network, we have the ear of those that know
past two decades. the measure of success and the price of failure this difficult
environment. In fact, we have more than 22,000 pairs of ears.
At the beginning of 2017, 51 floating production systems were
lying idle; 25 of these were FPSO units. That is roughly one In the largest survey of its kind, we asked our FPSO community
tenth of the world fleet available for redeployment, half of to define some the key areas and pain points that need to be
which may be decommissioned and scrapped. tackled if the sector is to win in the current oil price continuum.
The following is our collation and analysis of the results.
After the sector’s worst year in a generation and the lowest
average oil price in a decade, the outlook for floating solutions
must have seemed bleak.

However, 2017 may prove to be the turning point after two

years of considerable malaise.

The fight-back begins

Tim Haïdar,
Editor
After the frenzied cutting and slashing of the oil price downturn,
FPSO Network
companies that have survived the worst of it have managed to
recalibrate and find a functional equilibrium.

2 TIM HAÏDAR | FPSO NETWORK

CONTENTS
Page 2 Introduction

Page 4 Element 1: What key factors can be observed in delivering a successful FPSO project?

Page 5 Element 2 - What are your top three reasons for cost overruns and project delays? (please
select three)

Page 6 Elements 3 & 4 - When are decisions best made on topside technologies? What do you think
is the primary driver for topside technology selection?

Page 7 Elements 5 & 6 - What is the biggest obstacle in adopting digital solutions for FPSO projects.
How much can digital solutions on projects reduce both Capex and Opex?

Page 8 Element 7 - What are the biggest causes of FPSO downtime for existing assets?

Page 9 Elements 8 & 9 - How important are asset integrity solutions and considerations to project
owners from the onset? Has the focus on asset integrity been heightened since the drop in oil
price to around the $50 mark?

Page 10 Elements 10 & 11 - Is your business prepared for the demands of a $50 per barrel oil reality?
Which areas are a primary focus of improvement?

Page 12 Conclusion
 2017 State Of The FPSO Nation
Report: How to Win in the $50 Oil
Price Continuum
Element 1 - What key factors can be observed in
delivering a successful FPSO project?
We can see that a combined 58 per cent of
respondents believed that the front end of the entire
process is where the real success lies.
A quarter of those surveyed saw the delineation of
specifications in the conceptualisation phase as the
basis of later success, while slightly less than that
number saw a strong grip of basic engineering tasks
in the FEED phase as the most crucial aspect of later
success.
While there is no doubt that that the industry has
always put a heightened emphasis on the importance
of the initial phases of an FPSO project, does the
4 TIM HAÏDAR | FPSO NETWORK
fact this message resonates with only half of FPSO
professionals show us that it is being neglected?
And could this be down to the rush for first oil/gas
taking primacy over an overly-long principle phase?
In our experience, a final investment decision on
engineering work has often been frozen to as so that
procurement for long-lead items could be delivered
in good time, especially in areas where local content
quotas are particularly stringent.
For that reason, it seems slightly out of sync that
barely one in twenty FPSO professionals saw clearly-
defined procurement processes as an imperative.
Element 2 - What are your top three reasons for cost
overruns and project delays? (please select three)
Our respondents were unanimous in their choice
that poor selection of contractors was the principal
reason behind projects going over-budget and past
allotted deadlines.
A short-term flight from preferred providers to
cheaper options in the depths of an oil price
depression may have made this a higher number
than we might usually see; will this be a trend that
is reversed when we survey our community in 2018?
The fact that many projects are were budgeted
for before the oil price crash and had to reforecast
mid-project likely accounts for the 40 per cent of
respondents that signaled poor budget planning as
a key inhibitor.
In times past, oil operators tended to take a
territorial, micro-management approach to project
management during the execution phase. This
would often mean hypervigilance over inspections
TIM HAÏDAR | FPSO NETWORK
and informal modification of pre-agreed contractual
obligations on-the-fly.
The result of this would largely be a duplication of
work and, therefore, misallocated time and money,
as almost one third of respondents have testified.
The contracting relationship has changed in the two
years since the oil price dip, with operators putting
more pressure on contractors to do more for less and
devolving more responsibility to the service provider
community.
This, in theory, should allow for contractors to
execute their mission statements with a greater level
of autonomy and efficacy. Time will tell whether
this will come to fruition, and the question remains
whether an upward bump in prices will mean a
regression of the operator/contractor relationship to
the norm.
5
 2017 State Of The FPSO Nation
Report: How to Win in the $50 Oil
Price Continuum
Elements 3 & 4 - When are decisions best made
on topside technologies? What do you think is the
primary driver for topside technology selection?
Around one in three FPSO professionals believe that
the selection of topside elements should be made
either before FEED begins, or once the FEED process
is in full swing, with less than one in ten believing
that the post-FEED or tender stages should involve
any kind of topside technology choices.
Logic dictates that the smooth progress of a
development should involve the identification of
major, capex-heavy equipment at the very beginning
of a project rather than further down the line.
Allied to the early decision-making, we can see that
half of respondents believed that a proven track
record is the most important thing to bear in mind
when selecting providers for topside tech.
6 TIM HAÏDAR | FPSO NETWORK
This percentage is just slightly higher than the 42
percent that believed cost to be the governing
reason behind technology selection.
Even in the worst oil price slump in a generation,
we can see that reliability trumps saving money,
although it may be of some concern that the margin
between the two is slim.
The statistics should also serve as a wake-up call for
contractors that have struck up service partnerships
with operators over the years: only three per cent
of those surveyed believed that extant partnerships
and being on the proverbial “preferred providers” list
were major factors in technology selection. There
are no ties that bind in harsh times..
Elements 5 & 6 - What is the biggest obstacle in
adopting digital solutions for FPSO projects. How
much can digital solutions on projects reduce both
capex and opex?
More than one in three FPSO professionals do not
know what the benefits of digital solutions will be for
their industry. A further third of all those surveyed
believe that a general lack of know-how in the digital
field is the largest stumbling block for the FPSO
sector embracing the digital revolution.
The reasons behind the fact that two thirds of the
FPSO workforce seem to be either digitally-averse of
digitally-unskilled can be seen across the oil and gas
business: conservatism and demographics.
It is still difficult to accurately quantify tangible
business advantages in the short term with digital
products. Moreover, in a downturn environment
TIM HAÏDAR | FPSO NETWORK
most organisations are taking the “wait-and-see”
approach to adoption – most organisations shy away
from becoming the first-movers in a cultural shift.
An ageing oil and gas workforce also means that
many are not digital-savvy, and hard-wired mindsets
are often the most difficult to reprogramme.
That said, 37 percent of those surveyed believe that
a capex and opex savings of more than 15 per cent
could be made from digital adoption. Is it worth the
risk of implementing untested technologies or ways
of working to make this monetary gain? Or will the
38 per cent of respondents that see less than 10 per
cent of savings prevail?
7
 2017 State Of The FPSO Nation
Report: How to Win in the $50 Oil
Price Continuum

Element 7 - What are the biggest causes of FPSO

downtime for existing assets?

More than two out of every five FPSO professionals
see the main cause of downtime for their units as
the so-called “known unknowns” – production issues
that are widely-documented but were not expected
on this particular project.
Based on experience, unforeseen challenges seem
to arise from two principal sources:
• The operations team is not consulted during the
design and execution phase, so what is theoretically
possible may not actually be practicable in the real-
world production environment.
• Fields mature over time. This maturation will entail
a change in the composition and structure of wells
and the quality and properties of the hydrocarbons
produced within them.
The solutions to these particular problems would
seem to lie in greater collaboration and more
accurate ways of predicting field-life trends based on
the analysis of similar past experiences. This points
squarely at the quarter of our respondents that
signalled a lack of predictive analysis as a primary
cause of downtime.

8 TIM HAÏDAR | FPSO NETWORK

Elements 8 & 9 - How important are asset integrity
solutions and considerations to project owners from
the onset? Has the focus on asset integrity been
heightened since the drop in oil price to around the
$50 mark?
An overwhelming number – more than four out of
every five FPSO professionals – has stated that asset
integrity should form a vital part of the planning
from the initial phases of an FPSO project.
Almost two thirds of respondents have seen a
greater emphasis on integrity in the two years since
the oil price collapse, showing that the industry is
accentuating the need to operate more efficiently
for an extended asset lifespan.
With evidence pointing to maintenance costs for
the average platform with a thirty-year operational
life amounting to as much as $2.5bn1, it makes good
TIM HAÏDAR | FPSO NETWORK
sense for an FPSO with a similar requirement for
functional longevity to have the costing for asset
integrity solutions built in to the early stages of
project development.
While this makes good sense with a long-term
business overview in mind, do stakeholders actually
see so long-sightedly?
When squeezed with a smaller budget or revised
capex requirements, will overall life-cycle cost of a
project that might go on beyond the lifetime of key
stakeholders an immediate and pressing concern?
9
 Death Of The Megaproject?:
How To Solve The Problems Involved
In The Oil & Gas Industry.

Elements 10 & 11 - Is your business prepared for the

demands of a $50 per barrel oil reality? Which areas
are a primary focus of improvement?

As we alluded to in our introduction, the shedding
of headcount as a result of the oil price nosedive
has radically changed the way that FPSO companies
have been forced to do business.
Many companies have had to restructure their
organisational units and decide on whether to focus
on their core offerings to the market or branch out
into new but related realms. In a move to the latter,
two of the major FPSO contractors have diversified
their solutions into floating power1 and offshore
wind products2.
While this can obviously be seen as an attempt
to modify and recentre objectives at a time when
new players can take advantage of market flux, it is
as much a bid by key industry figures to keep and
maintain their core engineering base of expertise in
preparation for a longer-term recovery.
It seems as if almost two thirds of FPSO professionals
believe that their organisations have done enough to
recalibrate for the $50 a barrel continuum.
That said, an alarming two out of every five

10 TIM HAÏDAR | FPSO NETWORK

respondents did not believe that their companies had
done enough to adapt to the operational realities of
the current market.
What is the underlying strategy for companies that
have been unwilling (or unable) to refocus their
outlook to accommodate a different economic
climate? This would suggest that some players in
the FPSO sector are set for even more turbulence
in the coming 18 months with further bankruptcies
and cannibalisation on the cards in a mergers and
acquisitions free-for-all.
TIM HAÏDAR | FPSO NETWORK
For those companies that are attempting to turn
the tide of fortune, there is a relatively even split
between measures that will help to control costs,
improve planning and drive for efficiency through
operational excellence.
If any improvements are to be made they cannot be
seen as a short-term fix to ride out the downturn but
as the first inroads to a long-term cultural shift.
11
Conclusions
You never let a serious crisis go to waste

Attributed to President Bill Clinton’s Chief of Staff, Rahm Emmanuel, the assertion in the heading here is as
much applicable to North American politics as it is to South China Sea oil and gas.

There is no doubt that the past two years in the hydrocarbons world can be described as a crisis and it is
incumbent on those who wish to see prosperous times ahead to learn from the experiences that have been
bought at a dear price by many within the sector.

We’ve boiled down the lessons from the past two years that should have been learned by the FPSO profession
into five key areas.

12 TIM HAÏDAR | FPSO NETWORK

Embrace technology sooner rather than later
Demographically-led manpower attrition and the
progress of technology are inevitabilities of the 21st
century workplace.
We have seen that any within the FPSO industry
have either a tepid or freezing cold attitude towards
this ineluctable future – ironically, the employment of
technology may be the only way to plug a knowledge
gap that threatens to stab at the beating heart of a
high-tech business sphere.
The quicker the industry moves to integrate a digital
approach to its core business functions, the swifter it
will be able to adapt to future challenges and defend
against the onset of oil price crises that are yet to come.
There are no sacred cows left
Our survey has shown that, in times of market
unrest, partner relationships that may have formed
over decades of coexistence in the FPSO space are
worth nothing in comparison to those that provide
equipment for the best price and with the best track record.
The comfort zone that may have been built up
around certain operator/contractor arrangements is
not as cushy as it once was, and it is unlikely that it
will be the same ever again industry-wide.
Break down the silos
A recurring theme of the survey has been the paucity
of communication between departments and across
project phases during an FPSO development.
Engineering, design and production and teams
need to be working in concert and singing from the
same hymn sheet to avoid cost overruns, delays and
disputes – both internally and externally.
Better delineated job roles and responsibilities and
a clear visualisation of the scope of work and those
tasked with carrying it out would go a long way to
making the whole development of FPSO projects
more fluent. Perhaps a greater employment of the
principles of interface management1 would not go
amiss sector-wide.
Footnotes
1. http://oilprice.com/Latest-Energy-News/World-News/Global-Oil-And-Gas-
Job-Losses-350000-And-Counting.html
2. ?
3. https://www.eia.gov/outlooks/steo/report/prices.cfm
4. http://www.offshoreenergytoday.com/talisman-vietnam-selects-yinson-
fpso-for-ca-rong-do-field/
5. https://www.rms-recruitment.co.uk/2017/06/chevron-to-launch-fresh-
rosebank-fpso-tender/
6. http://www.upstreamonline.com/hardcopy/1205844/fluor-and-technip-
slug-it-out-for-penguins-fpso
7. http://www.upstreamonline.com/hardcopy/1278867/statoil-looking-for-bay-
du-nord-solution
8. http://www.offshore-mag.com/articles/2017/04/three-fpsos-in-prospect-
for-deepwater-guyanese-discoveries-analyst-claims.html
TIM HAÏDAR | FPSO NETWORK
An FPSO project isn’t just for Christmas; it is for an
operational life
If you want to take in a great work of art at a gallery,
the first thing to do is not stand at arms length from
a painting and scan the bottom left-hand corner in
minute detail, you stand back and take in the whole
frame.
If the oil price depression should teach the FPSO
sector anything, it is that operators and service
providers alike should all be looking at the bigger
picture when it comes to project development.
Life-cycle costing, rather than cost to first oil/
gas, should be taken into account to mitigate any
shocks down the road, and to plan for the expensive
business of integrity and maintenance that gains
more prominence as a project reaches its major
milestones.
More with less for longer
The trend throughout the oil and gas space in this
depression and those that have come before has
been to cut costs, axe jobs and wait for calmer waters
with a leaner organisational structure in place.
While the current downturn has seen plenty of this
tired and tested formula, there has been an emphasis
on being able to “run on fumes” for a longer amount
of time than before.
Maturing fields and ageing assets are changing the
imperatives of operators. Any attempt at moving
towards operational excellence should include plans
for functional asset life extension.
If there is a fundamental thread that should suture
together these five key learnings, it is sustainability.
Without the realisation that the oil price depression
has been a fundamental turning point for the FPSO
industry, we run the risk of the crisis being seen as a
blip and not an opportunity.
Regressing to the status quo might be preferable
from the standpoint of plain sailing but the old adage
tells us that the strongest ships are made by storms.
9. https://www.platts.com/latest-news/oil/riodejaneiro/brazil-readies-two-
new-fpsos-for-subsalt-oil-21313431
10. https://www.gminsights.com/pressrelease/floating-production-storage-
and-offloading-fpso-market
11. http://www.offshore-mag.com/articles/2017/02/recovery-under-way-in-
floating-production-market-says-ema-report.html
12. https://www.oilandgasiq.com/strategy-management-and-information/
white-papers/reducing-the-maintenance-burden-across-oil-and-gas
13. http://www.offshorewind.biz/2013/03/05/japan-modec-develops-floating-
wind-current-hybrid-power-generation-system/
14. http://www.sbmoffshore.com/?news=sbm-offshore-selected-edf-energies-
nouvelles-provide-floating-wind-systems-solution-pilot-offshore-france
15. https://www.oilandgasiq.com/oil-gas/white-papers/analysis-project-
success-lies-in-the-three-ss-of-Interface-Management
13
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