Australian firm in talks with Altera & Ocyan to buy Brazilian FPSO

Australia’s oil and gas company Karoon Energy has engaged in negotiations to take possession of a floating production, storage, and offloading (FPSO) vessel working on its project off the coast of Brazil with the FPSO’s current owner and operator, Altera & Ocyan (A&O). This unit will be offline for a month during the replacement of a faulty gas lift valve next quarter, as part of the Australian operator’s scheduled production shutdowns for planned maintenance.

The production at the Karoon-operated Baúna project in BM-S-40 was 1.92 million barrels of crude oil in Q4 2024, which is 4% lower than the level in Q3 2024 because the production was shut-in on December 11, 2024, following the failure of two of the FPSO Cidade de Itajaí‘s 16 mooring anchor chains. The production was restored on December 22, 2024, after the completion of repairs.

Karoon claims to be reviewing root causes for the failures with Altera & Ocyan to help mitigate risks of recurrence, with the FPSO efficiency for the quarter at 84.6%, which is higher than the 82.9% achieved in the prior quarter that was impacted by works on the gas compressors and main production header in July and August 2024.

The FPSO efficiency for the full year, excluding scheduled shutdowns, was 84.5%, and the production in the fourth quarter averaged approximately 20,900 barrels of oil per day (bopd), or around 23,600 bopd, excluding the impact of the anchor chain shut-in.

Dr Julian Fowles, Karoon’s CEO and MD, highlighted: “Despite a number of operational challenges in the last quarter of 2024, including a 12 day shut-in to repair two FPSO anchor chains at Baúna and an active hurricane season in the US Gulf of Mexico, CY24 full year production of 10.4 MMboe (NRI basis) was a record for the company.

“Full year sales revenue of US$776.5 million was also the highest ever achieved by Karoon. While the Baúna project production is starting to benefit from the work completed to clear the most production-critical maintenance issues, FPSO efficiency in CY24 was 84.5%, well below our long term expectations of 90-95%.” 

Since a medical treatment case and a lost time injury were reported at Baúna in Q4 2024, the company and its contractors are taking additional steps to strengthen the focus on safety. Five cargoes were lifted during the period, totaling 2.46 million bbl, and sold to refineries in North America and Europe.

Karoon explains that sales volumes during the quarter were higher than in Q3 2024 due to the sale of 0.5 million barrels of oil cargo offloaded and in transit last quarter; thus, it was held as inventory. The average realized price for the cargoes, net of selling expenses, was $74.97/bbl, 1% lower than the prior quarter because of lower global oil prices.

This is not the first time that the production from the Baúna project, consisting of 12 subsea wells connected through seabed flowlines to the FPSO Cidade de Itajaí, was impacted by operational issues. A similar situation happened in November 2023 due to equipment in the FPSO’s gas lift dehydration unit, which led to the formation of hydrates in two wells, impacting production rates.

The Baúna project’s operator has disclosed that a flotel, which is a floating hotel moored adjacent to the FPSO, has been contracted to accommodate extra manpower for a planned maintenance program, which is expected to start shortly following the receipt of remaining regulatory approvals.

The company claims that the program aims to materially reduce the maintenance backlog and improve equipment redundancy on the FPSO. This maintenance campaign is scheduled to take approximately 60 days, during which the FPSO will be offline for up to 30 days.

Fowles emphasized: “A key focus in 2025 will be to increase FPSO efficiency towards that goal. The first step, a flotel-supported campaign to substantially reduce the maintenance backlog and improve equipment redundancy, is expected to commence shortly, once remaining regulatory approvals are received.

“This, together with the reinstatement of production from SPS-88, which we expect back online at rates of 2,000 – 2,500 bopd before mid-year, is expected to help mitigate natural decline in 2025. We will also be focusing on improving our safety performance relative to 2024 levels.”

Moreover, the firm has also confirmed that a lightweight well intervention vessel has been contracted to replace the faulty gas lift valve in the SPS-88 completion string. In addition, support vessels have been secured and regulatory approvals to undertake the activity received; thus, operations are expected in the late first or early second quarter of 2025, with SPS-88 back online at forecast rates of 2,000–2,500 bopd before the end of 2Q25.

Therefore, a flotel-supported maintenance campaign on the FPSO to improve Baúna production systems reliability is expected to commence shortly. Karoon has also entered into what it describes as constructive negotiations with Altera & Ocyan regarding the potential acquisition of the Baúna FPSO.

Constructed at Singapore’s Jurong shipyard in 1995 and converted in 2012, the FPSO Cidade de Itajaí, which is capable of operating in water depths of up to 1,000 meters, started operating in Brazil in February 2013. This FPSO can produce 80,000 barrels of oil per day and compress 2 million cubic meters of gas per day.

Fowles underlined: “Longer term, given the significance of the FPSO to our operations, we see measurable operational and economic advantages in having direct control over the vessel. The company is in negotiations to acquire the FPSO from the current owner and operator, A&O, subject to finalising terms.

“Further details will be provided if and when a binding agreement is reached. Karoon’s Strategy Seminar, planned for 7 February, will be deferred until after the status of this highly strategic proposed transaction is known.”

The company is also participating in LLOG’s development studies for two hydrocarbon-bearing wells in the U.S. Gulf of Mexico, which is being renamed the Gulf of America.