FPSO:
THE SEVEN
POINT FUNDING
CHECKLIST
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Oil and gas companies are still reeling from an oil price descent that has seen the value
of a barrel of crude drop to the depths of $20 per barrel in the past 24 months.
At the same time as oil and gas organisations have lost as many as a quarter of a million
employees worldwide since the end of 2014, the floating production, storage and
offloading (FPSO) sector has seen a similarly dramatic reversal of fortunes, with a record
number of units – ten per cent of the global fleet - idle and available for redeployment.
As Christmas approaches, this is hardly the season to be jolly in the floaters sector, but
the show must go on and the FPSO market will bounce back. In the meantime, projects
will continue to be mooted and securing finances is the first step on the road to
commission and deployment.
In consultation with veteran FPSO and financial professionals alike, we have put together
a checklist of how to secure the cold hard cash needed to get your FPSO project off
the ground in this adverse commercial climate.
1 MAKE SURE YOU
HAVE 30 PER CENT
In current market conditions, companies are expected to stump up a third
of the liquidity to fund an FPSO venture. Before any plans are made this has
to be a fiscal reality.
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2 BE REALISTIC
Given the sharp slump and protracted plateau of the oil price below the $50 per barrel
mark, the breakeven prices of various regions in the oil and gas world are now “no-go
zones” for operating companies.
Looking at the distribution of breakeven prices below, FPSO developments slated for
mature offshore arenas like the North Sea are in peril. If banks no longer have the buffer
of clearly visible profits for proposed projects in the mid to long-term, it is unlikely that
they will make it off the drawing board alive.
140
120
Other US Shales
Breakdown cost estimate Price (USD)
100
Bakken
80 Eagle Ford
Canada (Oil Sands)
60
US Conventional
Norway & UK
Angola & Nigeria
Russia
40
Mexico
China
Venezuela
N.Africa OPEC
Other Europe,
Brazil
LatAm and Africa
CIS
UAE
20
Kuwait
Saudi Iran/
Arabia Iraq
0
0 10 20 30 40 50 60 70 80 90
Daily production (Mbpd)
Source: Alliance Bernstein, October 2014
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3 GROUP YOUR ASSETS
Already risk-averse and reticent to lend into an industry stuck in a rut, single asset
projects are becoming increasingly difficult to fund. The inherent risk involved in the
ventures, combined with the disparity between spot and breakeven prices of crude
is making it increasingly difficult to secure reserve-based lending.
In order to lessen the risk load, pooling several assets together in a portfolio is a good
solution for a better chance with the banks.
LEVERAGE PREVIOUS
4 SUCCESS
The old adage tells us that: “You are only as good as your last success”. In financing terms,
your last success may be the key to future opportunities. Banks are keen to finance
existing commercial production as a jump-off point for further ventures.
Any company seeking to secure funding in an age of tightening purse strings would do
well to piggy-back off of extant, profitable developments.
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OWN IF YOU CAN,
5 SHARE IF YOU CAN’T
If you already have a commissioned unit on your books, you will be in a much better
position to start a project: it is much easier to be a Petrobras with vessels at your disposal,
than a company that has to lease its FPSOs on a project-by-project basis.
Designing your project to work as a joint venture with a more experienced partner
from the outset helps to limit your concentration risk.
BE MORE EQUITABLE
6 WITH YOUR CONTRACTORS
In the current climate, off-takers are putting more risk on FPSO contractors, a natural
phenomenon in a squeezed market which is skewed in favour of operators pressing
for more from their service providers.
All upstream risk should be kept with the operators that are tasked with upstream
activities; facets of the day-to-day running of a project, such as environmental and
geopolitical risks should not be unduly heaped onto contractors. Banks will react
favourably to developments in which the risks associated with project functions
are apportioned to the correct parties.
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IN-HOUSING
7 AS AN OPTION
Whilst the majority of companies are waiting for the oil price rebound to take their
fortunes into positive numbers again, some companies are preparing for a step-change
in the funding paradigm: a new era of in-housing.
Traditional project financing may be increasingly prohibitive for FPSO projects, and
in-house funding organs may be the safest option in a coming generation of oil price-
induced risk sharing.
14-16 February, 2017 ILEC Conference Centre, London DOWNLOAD AGENDA
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