Floating Production Projects
What Now?
Impact of Financial Turmoil and $100 Oil Price Drop on Floating Production Projects Likely to be Uneven and Short Term
By Jim McCaul, President, IMA
The recent $100 oil price drop, closure of financing windows and general aversion to investment risk will have a near term impact on new floater projects. But the impact will be uneven and short term. This is the conclusion of a new study by IMA issued in mid-December. To assess the short term impact of the current turmoil, the market really needs to be viewed in four sub-segments: large projects, Brazil, marginal projects and speculative units. Each has its own unique outlook.
Large projects
But we don't see this as a realistic possibility. We believe the current price collapse is a short term phenomenon - a belief shared by the oil futures market and many analysts.
Brazil
Large floater projects planned by major operators offshore West Africa, in the Gulf of Mexico and elsewhere should be fairly well insulated from the current turmoil. Floater projects such as Clov offshore Nigeria, Block 32 off Angola, Jack/St. Malo in the GOM are likely to move forward in the current environment. These projects have a long gestation period. They are part of an investment portfolio designed to provide future output to replace depleting reserves. Investment is justified on the basis of a long term economic outlook. It is unlikely that a short term oil price collapse is going to jeopardize the project's long term commercial viability. Of course, if the price collapse begins to look like a long term situation, the investment decision could be delayed or possibly shelved.
This market segment should also be relatively insulated from current short term conditions. Brazil pre-salt finds are a major new source of oil and we see no slowdown in efforts to exploit this major resource. Some analysts are questioning the feasibility of developing the pre-salt finds off Brazil in the current pricing environment. They believe development of projects like Tupi requires $50 to $70 oil to breakeven, which of course is less than the current spot price. We believe Petrobras and other concession holders in Brazil will proceed aggressively with their presalt projects, with the longer term economics in view. Other analysts question the financing capacity of Petrobras to undertake the investment, given its free cash flow and indebtedness capacity. We believe that external financing will flow into Brazil as necessary to support the funding needs for pre-salt development. China, for example, is said to be ready to invest $10 billion to help develop Brazil's new oil fields. But there could be some slowdown in developing heavy oil finds in the current pricing environment, which might delay new
Keppel Shipyard Limited has delivered the floating production storage and offloading vessel (FPSO) Espirito Santo to SBM Offshore. The vessel has left Singapore for deployment in the Espirito Santo field in offshore Brazil. The FPSO is capable of processing 100,000 barrels of oil per day (bopd) with a maximum storage capacity of two million barrels of oil. It will be leased to the BC-10 Joint Venture, which is operated by Shell with ONGC Campos Ltda. and Petróleo Brasilieiro S.A. (Petrobras) as co-venturers, whilst the FPSO will be operated by a joint venture between SBM Offshore and MISC. (Photo courtesy of Keppel) 28 MTR January/February 2009
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