finding petroleum forum floating production/fpsos...

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Finding Petroleum Forum – Floating Production/FPSOs

London, 4 June 2013

Costs, Conversion & Construction Opportunities across the Floating Production Value Chain David Phillips*

Global Co-Head, Oil & Gas Equity Research, HSBC Bank plc

+44 20 7991 2344, [email protected]

*Employed by HSBC Bank plc, a non-US affiliate of HSBC Securities (USA) Inc, and is not registered/qualified pursuant to FINRA regulations

View HSBC Global Research at: http://www.research.hsbc.com

Issuer of report: HSBC Bank plc.

Disclosures & Disclaimer - this report must be read with the disclosures and the analyst certifications in the Disclosure appendix, and with the

Disclaimer, which forms part of it.

Sources for illustrations: Bluewater, Modec

http://www.research.hsbc.com/

2

Floating Production - Costs, Conversion & Construction

AGENDA

1 – The ‘known knowns’ and

‘known unknowns’

- rigs, subsea, exploration

2 – So what went wrong?

- E&C issues, bad lease terms,

operational problems . . .

3 – Market opportunities

- deepwater growth, leasing

versus owning, FLNG

4 – Market risks

- the classic ‘known unknowns’

5 – Conclusions

Source: Bluewater, subsea capex data from Infield Systems

3

What do we know?……..………...there are more of these

Source: Subsea 7

4

What else do we know?……..………...there are more of these

Source: Seadrill

Source: Bourbon, Farstad

5

But a key ‘known known’……..……….there are more of these!

Source: Seadrill

6

0%

2%

4%

6%

8%

10%

12%

14%

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

y-o

-y g

row

th

floaters (y-o-y growth)

Deepwater rigs

- Expansion in the floating rig

fleet an important indicator of

offshore activity to come

25% fleet growth 2012-16

- more drillships than semis

. . . and +80-85% for 2008-16

- More fleet additions working

on exploration work

- Was a bottleneck in the last

cycle – still not easy to get a

rig when needed but better

Source: IHS/ODS Petrodata

Growth of the floater rig fleet, 2000-16

Costs, Conversion & Construction – ‘known knowns’

0

50

100

150

200

250

300

350

400

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

num

ber o

f rig

s in

the

glob

al fl

eet

floaters (number of rigs)

supply growth2012-2016 +25%

(cagr +6%)

2008-2016

up 80-85%

7

What else do we know?…………...subsea company backlogs

Source: Company data

0

10,000

20,000

30,000

40,000

50,000

60,000

Q1

05

Q2

05

Q3

05

Q4

05

Q1

06

Q2

06

Q3

06

Q4

06

Q1

07

Q2

07

Q3

07

Q4

07

Q1

08

Q2

08

Q3

08

Q4

08

Q1

09

Q2

09

Q3

09

Q4

09

Q1

10

Q2

10

Q3

10

Q4

10

Q1

11

Q2

11

Q3

11

Q4

11

Q1

12

Q2

12

Q3

12

Q4

12

Q1

13

installn backlog (USDm) equipment backlog (USDm) overall subsea backlog (USDm)

Up 20% y-o-y

USD55bn+

Up 80-85% vs 2010

8

Subsea activity

Capex– looks roughly to

double in the next 5 years

versus the last 5 years

- USD20bn/yr over 2013-15,

USD30bn/yr by 2016-17

- Africa largest region by 2016

(a lot geared to Africa – helps

if you speak Portuguese!)

- Western World remains

important (North Am / Europe)

BUT . . the alternatives?

- competition for capex from

unconventionals, other

offshore, Mexico, Iraq, China

shale…etc

Subsea investment trends – main regions, 2008-17

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

FY2008 FY2009 FY2010 FY2011 FY2012 FY2013 FY2014 FY2015 FY2016 FY2017

subs

ea c

apex

(U

SD

m)

Africa Asia Australasia Europe Latin America North America

Source: Infield Systems Ltd

(Capex includes all development drilling (not E&A),

engineering, fabrication and installation)

Costs, Conversion & Construction – ‘known unknowns’

9

The ‘Pull’ from

exploration euphoria

Eg: West African pre-salt

a ‘key’ global exploration play

- Cobalt, Total, Maersk, Ophir

- onshore work in 1950s/60s

- deepwater started mid-1990s

- new seismic & rigs in 2000s

Eg: East African gas

- Anadarko, Eni, BG, Ophir,

Shell, Statoil, Exxon

- early moves 2000-05

- key players move 2006-10

- the next step – 2010+

All good ‘PR’ for offshore!

Source: Ophir Energy

Costs, Conversion & Construction – ‘known unknowns’

10

Costs, Conversion & Construction – What went wrong?

The (in)famous Yme platform

11


Quite a mis-match!

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

May

-06

Aug

-06

Nov

-06

Feb

-07

May

-07

Aug

-07

Nov

-07

Feb

-08

May

-08

Aug

-08

Nov

-08

Feb

-09

May

-09

Aug

-09

Nov

-09

Feb

-10

May

-10

Aug

-10

Nov

-10

Feb

-11

May

-11

Aug

-11

Nov

-11

Feb

-12

May

-12

Aug

-12

Nov

-12

Feb

-13

average FPSO shr price (indexed)

0

10,000

20,000

30,000

40,000

50,000

60,000

Q1

05

Q2

05

Q3

05

Q4

05

Q1

06

Q2

06

Q3

06

Q4

06

Q1

07

Q2

07

Q3

07

Q4

07

Q1

08

Q2

08

Q3

08

Q4

08

Q1

09

Q2

09

Q3

09

Q4

09

Q1

10

Q2

10

Q3

10

Q4

10

Q1

11

Q2

11

Q3

11

Q4

11

Q1

12

Q2

12

Q3

12

Q4

12

Q1

13

overall subsea backlog (USDm)

12


An ‘A list’ of

EPC problems

- “THE” underperforming sub-

sector in oilfield services

Execution problems – both

construction & operational

- imprecise designs, changing

field behaviour, competitive

bidding, poor leasing returns

- eg: Yme, Deep Panuke,

Ningaloo Vision, Gryphon. . .

Also numerous project delays

- post Macondo redesigns

- politics/yards

- local content issues

Source: Thompson Reuters Datastream

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

May

-06

Aug

-06

Nov

-06

Feb

-07

May

-07

Aug

-07

Nov

-07

Feb

-08

May

-08

Aug

-08

Nov

-08

Feb

-09

May

-09

Aug

-09

Nov

-09

Feb

-10

May

-10

Aug

-10

Nov

-10

Feb

-11

May

-11

Aug

-11

Nov

-11

Feb

-12

May

-12

Aug

-12

Nov

-12

Feb

-13

average FPSO shr price (indexed)

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

Jan-

00

Nov

-00

Sep

-01

Jul-0

2

May

-03

Mar

-04

Jan-

05

Nov

-05

Sep

-06

Jul-0

7

May

-08

Mar

-09

Jan-

10

Nov

-10

Sep

-11

Jul-1

2

May

-13

price/book (x)

FPSO share prices – 47% down since 2007

FPSO valuations – price/book

13

Costs, Conversion & Construction – Opportunities

Source: Modec

14

Why still popular?

- operator experience and

comfort with the concept

- technical fit with planned

brown/greenfield projects

And structural benefits remain

– handling remote oil

- improved IRRs with leasing

- competition improving –

fewer speculative players

Costs – newbuild & 2nd hand

tanker prices competitive


Selected FPSO operators

FPSOs- end of the last cycle FPSO players - current

Aker Floating Production still operating Bluewater still operating Bumi Armada still operating (IPO 2011) BW Offshore still operating FPSOcean bankrupt EMAS/EOG still operating Fred Olsen Production still operating - but possible exit Maersk Floating Produciton still operating - but possible exit MISC still operating Modec still operating MPF bankrupt Nexus bankrupt Odebrecht Oil & Gas new addition in leasing OSX new addition (IPO 2010) Petroprod bankrupt Prosafe Production acquired by BW Offshore Rubicon still operating Saipem still operating SBM Offshore still operating Sea Production acquired by Rubicon Sevan Marine acquired by Teekay Songa Floating Production bankrupt Teekay still operating

Source: company data

A shrinking list of lease players

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

40.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

40.0%

USD60 USD70 USD80 USD90 USD100 USD110

IRR - own (base case) IRR - leased vessel

Source: HSBC

FPSO IRRs – own vs lease

15

A snapshot . . .

. . . of FPSO/FSO activity

(from Bumi Armada)

- West Africa and Asia

dominate by absolute number

of potential FPSO prospects

- Brazil still some promise for

‘large lease’ (although more

Petrobras than OGX)

- filling the ‘replicant’ gap

- Some candidates in the

North Sea, also US GoM

(and note Mexico – looking for

large shallow water units)


Global snapshot of potential FPSO/FSO activity

Source: Bumi Armada, early 2013

16

0

10

20

30

40

50

60

North America South America Europe Africa Asia total

lease FPSO EPC / sale

Key trends (1)

- an inevitable reaction to a

growing offshore cycle

- plus ‘capex catch-up’

- 60 or so projects on the

medium-term horizon

Opportunities in level of

activity, challenges in mix

- conversion vs newbuild

- lease vs own

- redeployments

- complexity & size

- also specifications - larger

topsides, mooring challenges,

water cut, heavy oil, and HSE


FPSO vessel topside weight trends, 1990s-present order book

Source: SBM Offshore

Converted FPSO topside weight trends (1990-present order book)

Source: SBM Offshore

A 3-year outlook for FPSOs (from SBM Offshore)

55% lease

25% EPC

20% lease or EPC

Brazil presalt FPSOs

dominate the top end

17

Africa18%

Asia36%

Australia7%

Europe & other11%

N America

1%

Lat Am27%

Key trends (2)

Mix of future work is changing

- conversions / redeployments

- changing outlooks for lease

- Asia competitive (local/local)

But these different themes

mean different winners

- more work for shipyards

- FPSO specialists vs EPC

- oil companies taking stakes?

Also subsea technology

- longer step-outs vs FPSOs

as basins mature (W Africa?)

And FLNG . . . . At last

- major theme, major capex

- but gradual adoption (HSE)


0%

10%

20%

30%

40%

50%

60%

70%

80%

1990 1995 2000 2005 2010 prospects

share owned by oil company share leased

FPSO ownership mix

Current list of potential FLNG projects (and Prelude - actual project)

project region operator volume (mmtpa) planned start-up

Prelude NW Australia Shell 5.3 2016 Sunrise NW Australia Woodside 4.3 2017 Bonaparte NW Australia GDF Suez 2.0 2017 Tamar Israel Noble Energy 3.0 2017 Rotan Malaysia Murphy 1.5 2017 Cash-Maple NW Australia PTTEP 2.0 2018 Abadi Indonesia Inpex 2.5 2018 Barossa NW Australia Conoco 3.5 2018 Scarborough NW Australia Exxon 6.0 2018

total 30.1

Source: company data

Source: HSBC Source: HSBC

Long-term view on FPSO/FSO activity

More

competitive?

18

Africa

Key trends (3)

Another view on complexity

Clear trend of complexity and

project scope increasing

– topsides weight >20,000t

- handling water cut, CO2 and

associated gas streams

- separation & re-injection

- potential for small scale GTL

- FLNG the next big step

But running into cost issues

- Local content needs

- drilling (40-50% of costs)

- ‘gold plated’ design or not?

- more time on FEEDs

Source: HSBC

A schematic view of FPSO ‘complexity progression’


Asia Cap

ab

ilit

y /

co

mp

lex

ity

Project size / scope

China

North Sea

FLNG

Brazil

GoM

19

Ready for catch-

up with subsea?

FPSO growth to follow

- see growth for lease and

owned FPSOs but good for

both sides or more the client?

- see more competition with

shipyards/EPC versus FPSO

specialists (hungry yards)

- see more local content EPC,

higher risks of delay, tougher

requirements (ice cream?)

Hot spots – complex lease

jobs (Brazil), specific regional

champions (eg: SE Asia), key

shipyards (Asia) and in the

long term FLNG, Mexico . . .

Source: Company data

Subsea equipment and installation – backlog development 2005-present


-15,000

-10,000

-5,000

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

-30%

-20%

-10%

0%

10%

20%

30%

40%

50%

60%

70%

Q1

05

Q2

05

Q3

05

Q4

05

Q1

06

Q2

06

Q3

06

Q4

06

Q1

07

Q2

07

Q3

07

Q4

07

Q1

08

Q2

08

Q3

08

Q4

08

Q1

09

Q2

09

Q3

09

Q4

09

Q1

10

Q2

10

Q3

10

Q4

10

Q1

11

Q2

11

Q3

11

Q4

11

Q1

12

Q2

12

Q3

12

Q4

12

Q1

13

total backlog growth y-o-y (%) installn backlog (USDm) equipment backlog (USDm)

Total subsea backlog now USD55bn

+20% year-on-year

+80-85% vs start 2010

20

Market risks

- oil prices – of course . . . . . . . . OPEC spare capacity, unconventionals, Asian demand, Middle East politics - market volatility risks

- HSE, accidents, regulation . . . . .offshore E&P clearly can’t afford another Macondo – major delay risks

- politics and taxation . . . . . . . . . West Africa, Brazil, Australian unions, US LNG politics – project delay risks

- costs and supply chains . . . . . . local content, local costs (Brazil, Australia, Africa), engineering design – new project delay risks

- asset bottlenecks – . . . . . . . . . lack of ultra-deepwater assets for drilling and installation – project delay risks

FPSOs – A reality check (the other ‘known unknowns’)

21

Floating Production – Costs, Conversion & Construction

Conclusions

1 – WHAT WE KNOW – expanding offshore value chain, especially a 25% larger deepwater rig fleet by 2016 (and current subsea

backlogs up 20%+) - supporting inevitable growth in offshore activity, plus ‘pull’ from DW exploration success

2 – WHAT WENT WRONG – FPSOs proved problematic – complexity, changing field spec, poor execution, delays, Macondo re-

designs, competitive pressures from new ‘speculative’ entrants in leasing; leasing model needs repair, operators taking stakes?

3 – OPPORTUNITIES – clear it is time for some ‘offshore capex catch-up’ , subsea backlogs +20% and 60 or so FPSO projects on

the horizon, although a different mix of work (lease vs own, convert vs build, FLNG) means different winners

4 – A REALITY CHECK – what could go wrong? Accidents at the top of the list, also macro risks, oil market volatility but more

risks from politics, HSE/regulation, supply chain bottlenecks and rising costs, as well as “capex choice” vs. unconventionals

THE END – THANK YOU!

Source: Bluewater

22

Disclosure appendix Analyst Certification

The following analyst(s), economist(s), and/or strategist(s) who is(are) primarily responsible for this report, certifies(y) that the opinion(s) on the subject

security(ies) or issuer(s) and/or any other views or forecasts expressed herein accurately reflect their personal view(s) and that no part of their compensation

was, is or will be directly or indirectly related to the specific recommendation(s) or views contained in this research report: David Phillips

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