Some that have recovered more than 75% of their fields’ original resources have been producing at just $2.20/bbl this year, down from $11.10/bbl in 2019. And 40% of the 96 facilities that have produced more than 75% of their original resources will end 2020 with a negative cash flow.
Under Rystad’s base case oil price outlook, which suggests prices will recover next year and into 2022, free cash flow should return to 2019 levels. But as production from these mature stagnates, free cash flow will quickly return to a decline, ultimately threatening the profitability of many FPSO assets.
“A concern arising for operators is whether the profitability of producing fields will degrade to such an extent that prematurely shutting down ageing fields will prove to be the most rational decision,” said Aleksander Erstad, a Rystad Energy energy service analyst.
There have also been unplanned production shut-ins on FPSOs due to outbreaks of the virus, and this continues to present a risk that could seriously harm the health of crew members and the field’s profitability.
Some operators are also targeting FPSOs for supply cuts, another factor that could lead to certain late-life producing facilities being shut down for good.
Fields with leased FPSOs are worst off; Rystad estimates around 70% of late-life assets have net present values (NPVs) below zero.
FPSO day rates can be renegotiated to bring down lease opex, thereby improving the field’s NPV. In the worst case, lease contracts can be terminated early.
But these conditions mean there are few opportunities at present for FPSO suppliers to find new work for their vessels, a situation that forces them to accept a day rate reduction in order to keep their vessels working.