Bright spot for FPSO segment in O&G sector

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Analysts say that the FPSO sector is one of the brighter spots in the oil and gas sector which is still struggling with Covid-19 derailed oil demand. — AFP photo

KUCHING: The possible opening of a bid for a floating production, storage and offloading (FPSO) vessel charter for the Patawali oil project on Block WL4-00 off Sarawak has been viewed positively by analysts as it reaffirms their view that FPSO sector is one of the brighter spots in the oil and gas (O&G) sector.

In a report, the research team at AmInvestment Bank Bhd (AmInvestment) noted that according to a report by Upstream, US-independent ConocoPhillips may be opening a bid for a FPSO vessel charter for its Patawali oil project on Block WL4-00 off Sarawak, following a feasibility study despite market uncertainty in the wake of the Coronavirus Disease 2019 (Covid-19) pandemic.

Source: AmInvestment Bank, Bloomberg

It said, Four local FPSO players – Bumi Armada, MISC, Yinson and MTC – are said to be interested in the FPSO project while Aker Solutions and TechnipFMC could be bidding for the engineering contract.

“This development reaffirms our view that the FPSO sector is one of the brighter spots in a sector still struggling with Covid-19 derailed oil demand while multiple FPSO projects are currently being evaluated in South America and West Africa.

“Brazil’s Petrobras is currently looking at up to 14 FPSO projects while there are five in the North Sea, four in Australia, three in Guyana and 3 in West Africa.

“Given that the previous oil collapse and current pandemic have culled the number of global operators with adequate operational and financial capability, the remaining players are currently in a sweet spot,” AmInvestment opined.

Furthermore, it pointed out that the Limbayong project might only attract local operators as international floater specialists such as Modec and SBM Offshore are unlikely to be involved in the bid due to local content requirements – topside fabrication will have to be carried out within Malaysia.

“While Malaysia Marine & Heavy Engineering could be the preferred local contractor for carrying out the topsides fabrication, we expect Sapura Energy to be involved in the tender,” it said.

It noted that Petronas had re-tendered the Limbayong FPSO job after cancelling the previous bid earlier this year due to the Covid-19 pandemic which delayed project rollouts while focusing on cost reduction programmes.

“Under the new tender, Petronas requires an FPSO capable of handling an initial 60,000 barrels per day of liquids, including 40,000 bpd of oil, plus about 18 mmcfd per day of associated gas. In future phased developments, the vessel is also expected to handle up to 70 mmcfd of non-associated gas and a nameplate storage capacity of 600,000 barrels of oil,” it explained.

“This new prospective project joins the pipeline of fresh FPSO prospects in Malaysia with the rebidding exercise for the Limbayong FPSO charter to be deployed off Sabah. Petronas is looking to charter the Limbayong FPSO for a firm 12 years, with options for 3 + 3 + 2 years.

“At least four leading international contractors or consortia have shown interest in the deep water-capable FPSO, which could cost up to US$700 million. This include domestic players such as MISC, Yinson, Sabah International Petroleum and Bumi Armada.

“However, Bumi Armada may be partnering with India’s Shapoorji Pallonji Oil & Gas, similar to its three projects in India and one in Indonesia due to the group’s financial constraints. Upstream indicated that Malaysia’s MTC Group may also be a part of this consortia,” AmInvestment said.

Overall, the research team maintained its ‘overweight’ call on the sector.

“With Brent crude spot prices stabilising above US$40 per barrel, we believe that the down cycle has reached a bottom with the worst experienced in April this year when Brent spot prices fell to a low of US$14 per barrel while futures inverted to an abnormal negative price due to lack of storage capacity,” it said.