New analysis from Westwood Global Energy Group (Westwood), the specialist energy market research and consultancy firm, reveals the number of FPSO leases set to expire in 2022 is significantly higher than the yearly average of roughly three since 2015, with the potential of 30 units becoming available by end of 2022.
Westwood’s Global Floating Production Systems (FPS) report, released on May 19, notes under a scenario where no contract extensions are taken on current leased FPSOs, 14 additional units would become available in 2022. Alternatively, if all available extension options were taken, nine units would come off-contract adding to the 16 units currently awaiting upgrade or redeployment. Of those coming off contract in 2022, 36% are over 40 years old and are potential candidates for scraping.
“This outlook uncovers a risk for FPS lease contractors such as BW Offshore and Modec who have recently enjoyed resurgent EPC activity but are now facing potentially significant backlog and revenue issues in the operations and maintenance part of their businesses,” Mark Adeosun, senior analyst at Westwood, said.
However, the analysis also highlights upside potential for E&Ps sitting on marginal reserves. These operators could take advantage of the current rebound in oil prices and FPSO availability to accelerate project sanctioning and in turn enjoy more cost-effective field development.
“There has been significant growth in FPS orders since 2016 and that improved market sentiment has translated into operators revisiting projects previously stalled by the 2020 oil price crash,” Adeosun added. “We expect to see up to 17 FPS awards, valued at (more than) $18 billion over 2021, up 72% on our Q4 2020 outlook. This underlines the importance of near real-time data and analysis when market dynamics are moving rapidly to ensure you stay ahead of the competition.”
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