A Story About FPSO Project...

A Story About FPSO Project Performance

Prepared by Neeraj Nandurdikar and Jonathan Walker

CONFIDENTIAL – UIBC 2012 2 INDEPENDENT PROJECT ANALYSIS

FPSO Performance…a Decade Later

• IPA explored the performance of floating production systems (FPS), and specifically of floating production storage and offloading (FPSO) vessels vs. other concepts

• Sample of 44 completed FPS projects, FPSOs represented half the sample

• FPSOs had the worst outcomes compared to any concepts evaluated, driven by poor practices and very aggressive schedules

In 2002:

• Increased sample to 134 completed FPS projects, FPSOs represents 60 percent of the sample

• Over the past decade, all evidence suggests no change in FPSO performance, and possibly, worsening of the outcomes

• Goal is to establish the current performance of FPSOs, as compared to other FPSs, and understand the root causes

In 2012:


Outline

• Database• FPSO vs. FPS Performance and Drivers

• Performance Difference by FPSO Execution Strategies

– Conversion vs. New Build

– Owned vs. Leased

• Drivers of FPSO Definition

• Conclusions and Path Forward


Database Description

Average Floating System Cost (2012 USD) $1.5 BillionRange of Costs (2012 USD) Less than $300 million to

more than $3 Billion

Average Authorization Year 2002

Number of Total FPSs 134Number of FPSO Projects 78

Number of Owners Represented 39Number of Contractors Represented 38

FPSO TypesLeased 45%Conversion 67%Leased Conversion 58%


Outline

• Database

• FPSO vs. FPS Performance and Drivers• Performance Difference by FPSO Execution Strategies






FPSO Projects Are Not Significantly Different Than Other FPSs

Database CharacteristicsDatabase CharacteristicsFPSOFPSO Other FPSsOther FPSs

Number of ProjectsNumber of Projects 7878 5656

Average Project Cost Average Project Cost (2012 MM USD)(2012 MM USD) $1.7 Billion$1.7 Billion $1.2 Billion$1.2 Billion

Average Number of WellsAverage Number of Wells 2828 1717

Average Reserve Size Average Reserve Size (mmboe)(mmboe) 380380 340340

Number of Owners RepresentedNumber of Owners Represented 2828 1616

Types of Operators RepresentedTypes of Operators Represented29% Major29% Major

32% Independent32% Independent39% NOC39% NOC

42% Major42% Major30% Independent30% Independent

28% NOC28% NOC

Average Throughput Average Throughput (kbpd)(kbpd) 176176 110110


90%80%

50%

10%1.00

70%30%

20%

60%20%

60%

0.90

100%

Operability Operability ProblemsProblems

Production Production AttainmentAttainment

Schedule IndexSchedule Index Schedule SlipSchedule Slip

Other FPSsFPSOs

Cost GrowthCost Growth

80%

40%

70%

10%

40%

0%

0%

-10%

30%

1.10

0.80

1.20

FPSOs Perform Significantly Worse Than Other FPSs


Why Are So Many FPSOs Poorly Defined?

• Owners define high level functional requirements and expect the contractor(s) to do the rest

• A common approach is through FEED competition resulting in a winning bidder and their FEED package being chosen

– Expectation is to have a complete FEED package given that it is paid for and competitive

• In some cases, the owner organizations consciously decided not to get “too much involved” during basic engineering

• This approach may make sense for leased FPSOs; however, we see this approach even on owned FPSOs?!

Functional Specification!


Outline

• Database

• FPSO vs. FPS Performance and Drivers


– Conversion vs. New Build– Owned vs. Leased




1.00

60%

10%

30%

10%

20%

80%

60%


50%

70%20%

70%

0.90

90%



New Build FPSOsConversion FPSOs

Cost GrowthCost Growth

90%

50%

80%

40%

0%

0%

-10%

30%

1.10

0.80

1.20

Conversion FPSOs Perform Worse Than New Build FPSOs

Industry Average for Projects with Operability Problems:

43%


Reasons for Pursuing a Conversion Option

• Several of the conversion FPSOs are associated with shorter field life; often associated with license term expiration

– This drives the need to reduce the risk, speed up making conversion strategy an attractive option

• Marginally economic projects requiring reduction of capital expenditure

– Contractors promising “access to a hull that’s available” and appealing to one thing owners love – speed!!

• Conversion FPSO projects plan for a 20 percent faster schedule than new builds (Pr<0.001)


Well Defined Conversion FPSO Is a Rare Commodity

0%

10%

20%

30%

40%

50%

60%

1 2 3 4 5

Facilities FEL Definition at Sanction

Perc

enta

ge o

f Pro

ject

s New Build FPSOs Conversion FPSOs

Fair Not DoneBest Good Poor


Outline

• Database








1.00

60%

60%

80%

10%

20%

80%

60%


50%

70%70%

70%

0.90

90%



OwnedLeased

Late Late ChangesChanges

90%

50%

80%

90%

50%

0%

-10%

30%

1.10

0.80

1.20

Leased FPSOs Achilles Heel of The Industry!


Owned Leased Owned Leased

Engineering and PEP Are Different

Project Execution PlanningProject Execution PlanningEngineering DefinitionEngineering Definition

Ass

umed

Prel

imin

ary

Def

initi

ve

Lim

ited

Stud

yA

dvan

ced

Stud

yFu

ll D

esig

n Sp

ec.

Pr < 0.005Pr < 0.02


Outline

• Database





• Drivers of FPSO Definition• Conclusions and Path Forward


0.60

0.70

0.80

0.90

1.00

1.10

Other FPSs Owned FPSO Leased FPSO

FPSO Projects Are More Schedule Aggressive Than Other FPSs

Sche

dule

Agg

ress

iven

ess

Mor

eLe

ss


Use of Incentives to Overcome Lack of Definition

• Knowing that our FEL is not well defined we are probably anticipating production or operability problems

• The correct solution, of course, is to improve the definition and get operations input

• Instead, we use operability incentives, which penalize the contractor, in the event that production/operability targets are not met

• This actually worsens the situation for the contractor and it does not pay off in the end

• There is no relation between production attainment or operability problems and use of operability incentives 0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Operability Incentives

FPSO

Other FPSs

Leased FPSO

Owned FPSO


Outline

• Database








FPSO Performance is Poor Across All Execution Strategies

• Conversion leased combination is the worst of all strategies• Owned conversions are slightly better, while owned new

builds seem to be best within FPSOs, but not as good as FPSs

• Of course, the immediate reaction is to blame the strategy and/or the contractor

• But is this an appropriate response?

ConversionConversionNew BuildNew Build

LeasedLeased

OwnedOwned


Don’t Blame the Strategy Blame the Tactics

• One could argue that in marginally economic projects, pursuing capital reduction by way of conversion or lease, is a rational behavior

• Pursuing very aggressive schedules, however, is not rational

• Doing so on the back of very poor front-end definition is even more irrational

– Functional specification and not fully defined execution planning is essentially a hands off approach

Thank You!

A Story About FPSO Project...

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