Floating Production Market Continues to Rebound

Underlying fundamentals and investment climate in the floating production market continue to improve. This is the overwhelming conclusion of IMA/WER’s most recent analysis of the market for floating production systems.

Oil prices in early April breached the $70 mark. Excess crude inventory has been worked off and global stocks are now at or below the five-year average. Global oil demand is growing at 1.4 mb/d – and sanctions and unrest threaten future crude supply. All are positive drivers for investment in new deepwater projects.

Reflecting the improving market sentiment, contract activity in the floating production sector has been strengthening. Among recent developments:

• Samsung received a contract to build a gas/condensate FPSO for offshore India
• Modec emerged as the chosen supplier of the Buzios #5 FPSO
• SBM firmed its third speculative Fast4Ward FPSO hull order
• Chevron selected Aker Solutions to supply an unmanned power and control semi for the Jansz-Lo project
• MOL agreed to partner with Karpowership on an FSRU conversion
• Etki Liman and Pardus Energy joined forces to supply an newbuild FSRU to Turkey

Significantly, the oil industry has entered a period of consolidation, with M&A activity about to reshape the competitive landscape in the deepwater sector. Anadarko’s acquisition by Chevron (or Occidental) and LLOGs purchase by Murphy Oil are just forerunners of a flurry of consolidations yet to come.

According to Jim McCaul, head of IMA/WER:

“The deepwater sector is a much different market than a year or two ago. Business is slowly but surely returning to pre-2014 levels as the sector recovers from the massive downturn over the past five years. Many indications of market uptick are evident. Assuming market fundamentals continue to slowly improve – as we expect will happen – more than 30 FPSO or FPU projects are likely to move to development within the next 18 months. Another 40 projects are in line for FID within the next 18 to 60 months – and more than 50 more could move to FID in the second half of the 2020s.”