HOW CAN THE

FPSO INDUSTRY
BALANCE CAPEX
AND OPEX?
 With more than 200 floating systems in operation to date and 33 new 2

projects projected 1, the market for FPSOs has proven to be a lucrative

space for oil and gas operators. In Latin America, Brazil has planned
maximum number of FPSOs deployment by the end of 2025 2, followed
by Guyana and the Falkland Islands.

Focus remains however on balancing CAPEX
and OPEX. Last year Petrobras unveiled its new
five-year business plan pledging to invest $75.7
billion through to 2024, which was its lowest
such investment forecast in more than a decade.
The plan is highly concentrated on upstream
INTRODUCTION
The FPSO Brazil Congress team spoke with
Eduardo Chamusca de Azevedo, Country
Director – SBM Brazil and Felipe Baldissera
Gabriel, Commercial and Contracts Manager,
MODEC to get their thoughts.

activities but when compared to previous

undertakings, the amount invested is smaller
in terms of outright capital expenditure – a
fraction of the record $236.7 billion capex that
was in the business plan from 2013 to 2017. 3

HOW CAN THE FPSO INDUSTRY BALANCE CAPEX AND OPEX?

FPSO projects are resource-intensive with
high CAPEX on top of high operating and
maintenance costs (high OPEX). This puts
pressure on the industry to continuously evolve
the business models and tap into innovations
to achieve commercial success. What can
projects do to balance the CAPEX and OPEX?

1
https://www.rystadenergy.com/newsevents/news/press- 3
https://www.upstreamonline.com/finance/petrobras-plan-
releases/33-FPSOs-to-be-committed-2019-2021/ reins-in-capex/2-1-717472
2
https://www.globaldata.com/brazil-continues-to-dominate-
globally-with-highest-number-of-fpso-deployments-by-2025/
 In your experience, what type
of contracting model is more effective
to nurture optimum TOTEX?
Each project is different, and we are pretty
agnostic to what contracting models are used;
companies need to be able to adapt and offer
models that ultimately make deepwater
competitive. By embracing solutions from
experienced contractors like SBM Offshore,
clients can de-risk their projects, optimize TOTEX
and achieve a higher level of economic certainty.
Fast4Ward® is SBM Offshore’s response to the
EDUARDO CHAMUSCA DE AZEVEDO
industry's needs for such solutions; faster and
better performance. Offered as turnkey, L&O
SBM
or BOT it provides the client with a different
approach, with early engagement leading to the
ultimate goal of driving down cost & schedule,
leveraging standardization, partnerships,
digitalization and flawless execution. Of course
it also depends on the fiscal regimes of the field,
financial profile of the client and other factors.
But as a rule of thumb, any contracting model
with the right ingredients has the recipe for
optimum TOTEX. That means allowing the
contractor to leverage its experience and optimize
its engineering expertise – through the usage
of the contractor’s own specifications - sharing
the liabilities fairly between contractor and oil
company through good practice market standard
T&Cs, and not solely focusing on the dayrate –
while taking into account gains in safety,
efficiency and faster to first oil, in addition to pure
cost. Historically, the Lease & Operate model has
proven to be quite effective in that respect,
providing a solution that we can stand behind,
from inception to decommissioning.
Are there major differences in T&Cs on different 3
regions that affect pricing, CAPEX, OPEX?
Yes, although the FPSO niche is seen as a global
industry, many oil companies and regions diverge
from known practices for T&Cs of the long-term
L&O contracts. Some variations relate to clients,
while others have to do with environmental/weather
differences, government requirements, etc. Liability
schemes vary widely, and it is not rare to see oil
companies trying to share risks that are not
intrinsically linked to FPSO operations, such as well
and subsea risks. The less pragmatic and rational
T&Cs are, the more costly insurance coverage,
boosting contingencies during estimating, ultimately
affecting pricing.
What's the best way to balance upfront CAPEX
with life-long OPEX costs? How does the contractor
feed back the OPEX experience into new projects?
HOW CAN THE FPSO INDUSTRY BALANCE CAPEX AND OPEX?
The benefit of the L&O contracts is that the Leasing
company/Contractor stay with the asset from
conception to decommissioning and all the learnings
through the lifecycle can then be captured and built into
specifications that will be updated as the learning cycle
continues. The best way to balance is to consider the
overall project as a whole, including pre-commissioning
all the way to decommission. During L&O projects, the
contractor needs to take advantage of the knowledge
from its fleet, take the lessons learnt from ongoing
projects and feed into the design of new projects.
This is something that SBM Offshore does. Our Group
Technical Standards (GTS), introduced in 2003, draw
on the expertise and lessons that we have learnt from
a delivery portfolio of more than 50 floating production
systems and over 330 years of operating experience.
 What measures are you taking to balance
CAPEX and OPEX?
In the last few years, MODEC reached maturity
balancing CAPEX and OPEX. We learned
through our experience operating our own FPSO
during its entire life cycle, incorporating lessons
learned in how we designed, built and operated
the facilities. Now we say we are “building
FPSOs to operate”, which seems obvious but
it is not and made us rethink and change things
like material selection, design and construction
selection and suppliers management. In
FELIPE BALDISSERA GABRIEL addition we now have internal metrics and tools
to simulate and estimate the best design,
MODEC configuration and operations strategy to
optimize both performance and life cycle cost.
How can the market innovate FPSO
operations while balancing investments?
In January, MV29 was recognized by the World 4
Economic Forum as a lighthouse of the Fourth
Industrial Revolution – the first in Latin America
and the first offshore installation to receive such
recognition. This is not only an honor to MODEC,
but also highlights how innovation in FPSO
operations Is being implemented in the Brazilian
offshore industry to supply the high demand
we will have in the coming years.
Any advice or examples of the best strategies
to achieve project success, increase timelines
and secure funding?
In general, I can say that early technical
engagement of FPSO suppliers, permissibility
of the project schedule and a balanced contract
structure, with reasonable terms and conditions
and liabilities structures are some examples
of issues to tackle while developing the project.

HOW CAN THE FPSO INDUSTRY BALANCE CAPEX AND OPEX?

A few years ago, we started a transformation
in the company, digitalizing our fleet in a way to
really add value to our clients. The digitalization
of operations is a continuous innovation that
allows MODEC to better integrate our fleet,
making the operation safer and more efficient.
With more than 10 thousand sensors installed in
each platform, we boosted production leveraging
Advanced Analytics for predictive maintenance, a
digital twin of its process plant and a proprietary
data platform to accelerate development of new
algorithms. Processing this data brought tangible
advancements to MODEC’s operation, such as a
65% downtime reduction in the FPSO Cidade de
Campos dos Goytacazes MV29, as well as
improvements in our entire fleet.
 5

The FPSO industry continues to innovate

to evolve the business models to achieve
commercial success. As we move into
2020 the focus will be on balancing
CAPEX and OPEX to ensure project viability.
Eduardo and Felipe will be speaking at the
FPSO Brazil Congress 2020 in Rio de Janeiro
the largest FPSO- dedicated Congress the
Brazilian community has ever seen. Join us
in May to discuss topics such as contracting
models, the increasing emergence of
EPCs, operational readiness, digital FPSOs,
maximizing local industry capacity and more.

ACCELERATING FPSO GROWTH 9-11 NOVEMBER 2020

IN THE BRAZILIAN SEAS RIO DE JANEIRO, BRAZIL
Local Industry Capacity | Project Execution &
Development | Operational Readiness & Excellence FPSOBRAZILCONGRESS.IQPC.SG