FPSO owners are under pressure to cut costs
Floating production storage and offloading (FPSO) operators are concentrating on extending the life of their vessels and improving reliability, while reducing operating costs as orders have dried up. Projects that were sanctioned before the oil price crashed in 2014 from more than US$100/barrel to US$40/barrel continue at a lower contractor cost base. But there have been few new orders since the crash, leaving FPSO owners with dwindling orderbooks and uncertain futures.
As oil companies drive down charter rates, owners are changing maintenance strategies, cutting offshore staff and renegotiating supplier agreements to reduce the costs. They are looking for any opportunities to add new production flows to existing FPSOs to maintain output levels.
SBM Offshore, which operates 14 FPSOs and two oil storage ships, is focused on cost reduction on existing ships and ensuring current projects are delivered on schedule. “Fleet operational reliability and focused cost management remain areas of attention,” said SBM chief executive Bruno Chabas, “while new business in the offshore segment is not expected to return to pre-downturn levels.”
On the project side, SBM started production operations on Cidade de Maricá and Cidade de SaquaremaFPSOs in Brazil. It deployed Turritella FPSO on the Shell’s Stones field on the US side of the Gulf of Mexico. SBM was looking for new deployment opportunities for its Marlim Sul FPSO, which was removed from the deepwater Brazilian oil field during the first quarter of this year.
On the on-hire FPSOs, SBM concentrates on delivering predictable and sustainable revenues to its clients and stakeholders. In 2015 it achieved more than 99.4 per cent oil production uptime by limiting shutdown activity.
Health and safety is an important focus for FPSO operators. SBM said that in 2015 it achieved a step-change in fleet safety by implementing initiatives such as an annual fleet-wide safety day and new safety leadership and process safety management training. This involved monthly campaigns based on 12 life-saving rules.
There was also an initiative to motivate personnel to continuously improve safety, as well as a reward system for improved onboard behaviour. SBM has recorded incident-free years on several of its FPSOs, as well as six years of safe operations without a recordable incident on FPSO Saxi-Batuque, three incident-free years onYetagun storage and offloading ship, and two years on Mondo FPSO.
BW Offshore, which operates 17 FPSOs and the Belokamenka storage and offloading vessel, is focused on improving fleet performance, conducting life-extension programmes and finding redeployment prospects for its vessels. Chief executive Carl Arnet said there is a drive to cut costs, boost the company’s financial liquidity, and explore alternative commercial models for the fleet.
Mr Arnet listed the uncertainties in the business as the direction of oil prices, a shortage in new developments and redeployments, pressure on asset values and counterparty risk. He added that the company faces risks of charterers delaying or defaulting on their obligations, and not taking ongoing lease options. But the positives for BW Offshore were cost-efficient production, gaining contract extensions despite low oil prices, the good quality of its fleet, and the competitiveness of tanker conversions into FPSOs.
BW Offshore had a tough 2015 in terms of safety and incidents. It dealt with a major explosion on Cidade de São Mateus FPSO in Brazil, which killed nine workers and injured 26 members of a crew of 74. BW also had to repair hull cracks on Abo FPSO in Nigeria. Furthermore, it also had to improve its lost-time injury figures, which were a frequency of two per million work-hours. Mr Arnet said things have improved this year: in the first quarter, its lost-time injury figures fell to 0.6, and Cidade de São Mateus arrived at Keppel Shipyard in Singapore for lengthy repairs. BW Offshore received contract extensions for FPSO Umuroa, operating in New Zealand, and FPSO Espoir Ivoirien in Cote d’Ivoire. CNR International exercised options to extend the fixed term of the lease contract from 2017 to 2022. The terms are based on existing extension options, but with some adjustments that account for life-extension investment that should deliver cost savings for both parties.
Yet BW Offshore’s revenues were impacted by vessel repairs and off-hire periods. BW Offshore repaired mooring lines on BW Pioneer after Petrobras Americas extended its contract to 2020. The cost for the two-month replacement will be partly covered by insurance. BW Athena was demobilised from an oil field in the UK, and operations were completed on FPSO P-63, which was on the Papa Terra field offshore Brazil. FPSOAzurite and Belokamenka are in lay-up while being marketed for new projects. Mr Arnet said the company was undertaking several modification and life-extension activities on existing units. “These activities are either covered on a cost-plus basis or reimbursed through higher day rates,” he said.
To reduce operating costs, BW Offshore initiated a target of reducing offshore personnel costs by 10 to 15 per cent, implemented a best-practise process and renegotiated supplier agreements and subcontracts. It lowered staff costs by around US$30 million. “We remain focused on managing costs and improving performance, while continuing to develop technologies that enable improved returns in a lower oil price environment,” Mr Arnet said.
Reducing vessel downtime by 20 per cent
FPSO operators should be able to reduce vessel downtime by 20 per cent, says GE Marine Solutions president and chief executive Tim Schweikert. This can be achieved through implementing condition-based maintenance (CBM) to improve uptime of vessel systems and lower expenditure. GE offers CBM and data analytics through its Seastream Insight solution.
“We can reduce downtime by 20 per cent by using the predictive capability of software solutions to monitor and predict problems, before it becomes operation-disruptive. We monitor all critical systems and provide diagnostics,” Mr Schweikert explains. GE introduced new applications management functionality into Seastream Insight and has carried out pilot projects on FPSOs, among other vessels.
“On FPSOs, we target 20 per cent reductions in non-productive time. It is hard to quantify the impact because there is a huge amount of maintenance on FPSOs. We could focus on maintaining high uptime, but lower the operating costs. Others have low uptime and do not spend as much on maintenance. So we are focusing on increasing uptime,” Mr Schweikert explains.
This is not just a matter of the downtime on these vessels, “but the disruption to the value chain – oil processing, storage and offloading,” Mr Schweikert continues. Above all, FPSO operators want stability in their operations. “Another aspect they are looking at is reducing operating and capital costs. We can get comparable reliability without having to have two or three layers of system redundancy, which would be unnecessary. We can reduce the costs by removing this redundancy, which would mean more space on board, and simplifying maintenance. There would be additional cost benefits,” he says. This would come from reducing FPSO weight, which is a major issue when designing and constructing FPSOs.