This year is not promising for new FPSO contracts as the corruption scandal engulfing Petrobras and weak oil prices are likely to discourage oil companies from going ahead with final investment decisions, said IHS Petrodata in a recent report.
IHS Petrodata analysts Ang Ding-Li and Kelvin Sam believe that only five FPSOs would be awarded this year.
Sam told IHS Maritime, “Of these, two, the Ghana FPSO and the South Pars FPSO projects, have been awarded. So there’re just three left for this year.”
IHS Petrodata said, “The year 2015 is shaping out to be a dreadful year for FPSO awards. Petrobras, the world’s biggest FPSO buyer, is embroiled in a corruption probe that may affect its ability to contract for FPSOs in 2015. Volatile oil prices will also limit FPSO demand, as operators may postpone investment decisions until oil prices improve or until further cost savings are achieved.”
SBM Offshore, a major FPSO leaser, is already preparing for lower demand after announcing 1,200 job cuts in December 2014.
Eni, an Italian oil and gas company, awarded the USD2.54 billion Ghana FPSO contract to Malaysian offshore oilfield service provider, while Petroiran Development Company (PEDCO) has ordered an FPSO for the South Pars field in offshore Iran.
Recent oil price volatility is likely to reduce FPSO orders in 2015. Maersk Oil, Premier Oil, and Chevron have already postponed final investment decisions for their proposed FPSO projects, citing low oil prices.
In the case of Premier Oil, it has postponed FID for the Vette and Sea Lion FPSO projects, while Maersk Oil and Chevron have put their Chissonga and Gehem and Gendalo FPSO projects on hold.
Energy Maritime Associates, which also analyses the floating production sector, concurs that little FPSO investment activity is anticipated in the next two quarters as oil companies continue to reduce development spending. The consultancy thinks that should oil prices drop below USD60 per barrel, then only one more FPSO could be awarded this year.
Energy Maritime Associates MD David Boggs said, “Without new orders in 2015 a few companies, particularly yards in China, will see an idle period with no floating production work. The downturn that already swept through the exploration sector is now just starting to hit the production market.”
IHS Petrodata is, however, optimistic that Brazil’s desire to quickly exploit its oil resources would override weak oil prices.
IHS Petrodata said, “South American FPSO demand should improve from 2016 onwards. A closer look at 2009 FPSO awards suggests that Petrobras will still be a major buyer in a period of oil price weakness, as the national oil company is focused on rapid development of Brazil’s oil production. In 2009, Petrobras was the only operator to order 2 large FPSOs (P-63 and Cidade de Anchietta) despite a plunge in oil prices. Petrobras also said in January 2015 that its pre-salt projects were profitable at an oil price of USD45 per barrel. Furthermore, Petrobras’s preference for FPSO leasing minimises upfront capital spending and provides flexibility in meeting the operator’s ambitious production targets.”