SBM Offshore on FPSO landscape: Oil & gas demand unlocking financing with CCS poised for ‘biggest impact’ in emission cuts

With a backlog of $33 billion and sustainability at the heart of its strategy to future-proof its floating production units, the Netherlands-headquartered SBM Offshore is expecting to see a new batch of 40 floating production, storage, and offloading (FPSO) opportunities in the next three years, out of which around 16 are anticipated to be within its target domain, as rising global energy demand, especially within the oil and gas arena, continues to loosen the purse strings, paving the way for smooth FPSO project financing.

Key takeaways:

• Financing difficulties in FPSO world
• Surge in FPSO demand on the horizon
• Variety of commercial models lift revenue up
• CCS in all-electric setting unlocking emission curbs

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As a brave new climate action-oriented world keeps shaping up against a highly volatile geopolitical landscape, many companies across the global oil and gas industry are working to adapt to these rapidly changing circumstances, which are affecting their ability to secure financing for their projects. Simultaneously, a backlash against the imposed net zero targets and greenhouse gas (GHG) emission reduction goals is spreading like wildfire across certain regions, with the anti-environmental, social, and governance (ESG) sentiment gaining significant inroads in the United States lately.

Those who oppose the net zero race see most decarbonization policies and measures as an unfair burden, which is being placed like an albatross around consumers’ necks. For these people, the net zero cross they need to bear is an illegitimate interference in the political system, thus, multiple lawsuits were filed against the U.S. government and investment companies over the past two years over decisions to move away from fossil fuel investments to come to grips with climate change. Many point out the possibility of risks being turned into opportunities.

While investments in FPSO ventures carry certain risks, such as delays, technical challenges, and oil and gas price volatility, they also bring a set of rewards with significant potential for high returns, especially given the growing energy demand and predictions related to the long-term necessity of offshore hydrocarbon production. Some analysts recently questioned the financial viability of FPSO projects because of new regulations tightening the noose around fossil fuel developments and their emissions’ footprint on climate change grounds.

Taking into account the challenges spanning regulation, trade, manufacturing shifts, and funding, Ton van den Bosch, Clyde & Co’s partner specializing in the Asia Pacific region, recently pinpointed the financing woes some companies in the oil and gas ecosystem had run into due to the ESG concerns, primarily amongst the UK and European banks. This is driven by the increased pressure on upstream suppliers, contractors, and FPSO companies in this region, forcing them to adapt to the changes in the financing sector by turning to U.S. and Japanese banks to seek funding or pursue alternative credit, prepayment financing, and other structures.

In van den Bosch’s view, Southeast Asia has a bright future with “the best opportunities,” thanks to its rising population, economies, and “generally stable” governments, as oil demand is forecast to hit “record highs, challenging emissions targets” in the Middle East and other Asian countries. He is adamant that this trend will set back global carbon reduction targets, despite the increase in renewable energy uptake and continuing geopolitical and economic headwinds.

“Amidst this growing appetite for renewable and clean energy sources, there remain some considerable challenges across the continent. For example, supply chain disruptions, rising financing costs and low tariffs offered for energy production, are creating a difficult landscape for the development of offshore wind in many countries. And despite ambitious plans for the production of clean hydrogen, not much progress has been made in Asia towards building the necessary infrastructure,” noted van den Bosch.

Previously, van den Bosch underlined that high oil prices would keep investment in oil and gas production going, as evidenced by the surge in FPSO investment, with such projects planned in multiple countries, spanning geographies with an emphasis on Guyana, Suriname, Mexico, Angola, Namibia, Vietnam, and Malaysia. With energy security in the front-row seat, renewables are expected to continue their upward momentum, and diversification of investment portfolios is generally advised to mitigate risk by curtailing exposure to a particular project’s failure while capitalizing on different market trends to ensure maximum returns.

The oil and gas industry is caught in a wave of evolution as market dynamics shift amid regulatory changes, geopolitical pressures, and technological advancements. Some analysts identify subsea processing systems advancements and the emergence of accessible renewable energy alternatives as factors that could have a significant impact on the way future demand for FPSO units will be shaped. Regions like Guyana, where SBM Offshore dominates on the FPSO scene, are often portrayed as examples of FPSO investments that have borne fruit, bringing significant returns.

These aspects, alongside others, underscore the need for adequate financial modeling in the oil and gas landscape to navigate the complexities facing the FPSO market and empower companies to allocate resources for sustainable growth. Such an FPSO financial model is seen as a compass in the dynamic offshore oil and gas landscape.

The top three players in the FPSO market–SBM Offshore, Malaysia’s Yinson Production, and Japan’s MODEC–agree that strengthening and maintaining the security of energy supply remains among key global trends alongside energy transition moves.

As a result, oil and gas companies keep moving forward to develop deepwater oil and gas fields. This drives the demand for floating offshore oil and gas production, especially for large-scale ultra-deepwater projects, in which the Dutch player and its Japanese peer run the FPSO show.  

In a bid to see how the current energy security and sustainability dilemma is playing out within the floating production units’ market, Offshore Energy has reached out to SBM Offshore to get its take on the FPSO market’s future and financial situation.

While discussing the key factors that contribute to its success in delivering projects on time, the Dutch FPSO giant, with over 60 years of experience in delivering offshore floating solutions tucked under its belt, emphasized the launch of its Fast4Ward FPSO design, said to be tailored for ultra-deepwater environments like those in Brazil and Guyana.

“This initiative embraced a standardization philosophy which covers not only our product but how we engage with our supply chain and clients. We are now witnessing positive outcomes and aim to achieve even greater benefits in the future,” added SBM Offshore’s spokesperson.

When asked to elaborate on the benefit of standardization, the Dutch player outlined that it served to add value through construction process risk decrease, encompassing the design and engineering alongside the way to sort out supply chain partners.

“We are able to build hulls in anticipation and enhance operational capabilities, as our teams become proficient while working with the same designs and similar projects. This familiarity allows them to apply lessons learned to subsequent projects, fostering a continuous improvement process. Consequently, risks diminish, and project timelines accelerate. Our rapid construction pace has set a new benchmark in the industry,” highlighted SBM Offshore’s spokesperson.

Considering the rise in industry speculation regarding the increased focus on clean energy being identified as the culprit interfering with the anticipated FPSO market boom by creating difficulties in securing financing, the company acknowledged “a strong emphasis on clean energy” during recent years and confirmed its participation and contribution in developing “cutting-edge technologies” to meet the demand.

The spokesperson for the Netherlands-based firm underlined: “These solutions are ready and available for the market. However, we must consider the growing global population and the associated  energy needs where the pace of the development of new alternative energy solutions is not sufficient to cover demand. Therefore, we believe that oil will continue to be a part of the energy mix in the coming decades, especially deepwater project developments which are both economical and among the lowest  in terms of emissions per barrel produced. 

“The recent $1.5 billion construction financing for the Jaguar FPSO is another testimony of our ability to raise financing. There is a consistent demand for oil, which ensures we can always find funding. While some banks may withdraw, other banks show interest plus other sources like infrastructure funds and the capital markets remain available.”

Given SBM Offshore’s ability to navigate the financial headwinds and tailwinds, Offshore Energy was keen to glean insight into the firm’s preferred model for securing project financing. Even though the Dutch player does not have one, it did reveal its expectations for the sale and operate model to become more than half of its future business, which is expected to be funded through milestone payments from the client or short-term construction financing provided by banks during the construction period.

The Netherlands-based firm elaborated: “There is still demand for Lease and Operate projects and we remain confident that we are able to access a broad range of sources of financing to support the Lease and Operate model.

“We target the same level of returns regardless of the commercial model (Sale and Operate, Build Operate Transfer or Lease and Operate). If we do see 50% pure Sale and Operate, a positive aspect is that we see an accelerated cashflow from our order book and also over time our balance sheet will deleverage.”

While diving into the components of financial models that have contributed to its robust growth and ability to navigate the fast-evolving energy market effectively, SBM Offshore points out that its order book or backlog exceeded $33 billion at the mid-point of 2024, spurring its expectation to generate a net cashflow close to $9.6 billion.

The Dutch firm’s spokesperson continued: “This gives us a solid financial foundation, providing visibility on cashflow up to 2050. We have the flexibility to offer our clients different commercial models like Lease and Operate, based on a long-term lease contract, or shorter-term models like Build Operate Transfer or Sale and Operate, where the FPSO is sold after a short term of operations or directly after construction.

“The different commercial models generate a robust and diversified revenue stream with both short- and long-term cash flows. The company’s solid performance is supported by SBM Offshore’s strong operational execution based on a lifecycle model with derisked on time project delivery; rapid start up; exceptionally high level of availability and reliability in operations and then safe and sustainable decommissioning.”

While shedding more light on whether its financing models would withstand the test of time given the global shift toward more sustainable energy sources, as this trend is forcing banks and investors to change their mode of operations and stop bankrolling fossil fuel projects and infrastructure, the Netherlands-headquartered firm was adamant that FPSO financing pools were open.

“Although some banks and ECA (Export Credit Agencies) providers withdrew after COP26, there is still sufficient appetite from the banking market to finance new FPSOs, especially under the shorter-term commercial models. For the long-term commercial models and without the ECA providers, we see other sources of funding for example infrastructure funds, the debt capital markets or leasing providers,” emphasized SBM Offshore’s spokesperson.

In contrast to the Dutch player’s $33 billion backlog, Yinson Production’s FPSO and FSO order book over the firm and option period reached $21.9 billion up till 2048 as of October 31, 2024, while MODEC’s third-quarter 2024 profit was $56.5 million, three times larger than in 2023 with total orders on a consolidated basis for the first nine months of 2024 being $594 million, a drop from $8.05 billion one year prior, because of the variation orders of FPSO construction projects.

As the decarbonization toolbox continues to expand, SBM Offshore has identified one type of technology as the key to slashing the GHG footprint from FPSO operations. This is carbon capture and storage, which is also being pursued by its rivals, Yinson Production and MODEC, alongside other players across the oil and gas industry.

The Dutch company pinpointed: “Carbon capture and storage is the technology that will have the biggest impact if set in an all-electric environment. SBM Offshore, in collaboration with Mitsubishi Heavy Industries (MHI), has designed a CO2 capture system aligned with its Fast4Ward approach, which is based on a standardized ‘multipurpose floater’ hull design and modular topsides.

“Unlike onshore post-combustion CO2 capture, the offshore SBM-MHI system employs waste heat recovery units and heating medium instead of steam, eliminating the need for an additional heat management system. This adaptation integrates post-combustion carbon capture technology with the existing systems on board.”

The company intends to continue spreading its geographical wings over other regions, exploring new FPSO frontiers to meet the demand for floating production units. This is illustrated with the award for TotalEnergies’ GranMorgu development in Suriname for which a final investment decision (FID) was made at the start of October 2024, putting the Dutch firm in charge of constructing and installing an FPSO for the project in partnership with Technip Energies.

SBM Offshore has also confirmed for Offshore Energy that it is keeping an eye on things in Namibia, where oil discoveries were made by TotalEnergies, Shell, and Galp.

The FPSO player’s spokesperson said: “As our clients continue to explore and make large discoveries in new basins we see demand for FPSOs in new regions. We recently secured new contracts with TotalEnergies in Suriname, and are following developments in Namibia.

“Concurrently, we are progressing with the Trion contract in Mexico and have signed a Memorandum of Understanding with the Norwegian company OceanPower, the owner of the Blue Power Hub. This innovative hub generates electricity offshore using gas turbines combined with carbon capture and storage, significantly reducing CO2 emissions.“

As an all-electric FPSO powered by integrated energy technologies, including offshore wind and/or floating solar, with other carbon-reducing tools included in the mix, is being advertised as an enabler of net zero by 2050, SBM Offshore underlines that the all-electric aspect is a necessity reach emission reduction goals.

The Netherlands-based player stated: “SBM Offshore is preparing to roll out an FPSO design that integrates a carbon capture system for the flue gas from gas turbine generators — ‘one brick’ in a full suite of offshore decarbonization technologies. The concept grew out of SBM Offshore’s EmissionZero program, launched in 2020, that aims to have an FPSO with ‘near-zero’ emissions design ready for the market next year. It is important to note that the all electric FPSO is a must to reduce significantly emissions associated with the operation,

“Recently we signed a Memorandum of Understanding with the Norwegian company OceanPower, the owner of the Blue Power Hub. This innovative hub generates electricity offshore using gas turbines combined with carbon capture and storage, significantly reducing CO2 emissions – currently this is aimed at decarbonizing existing production in the North Sea but it this could be applied to future FPSOs if they are designed for this purpose.”

With its current performance positioning it to take advantage of further opportunities, the Dutch giant remains optimistic about the FPSO market’s growth by the end of the decade. The firm plans to continue coming up with new solutions for alternative energy while curbing GHG emissions across its FPSO fleet, ensuring not only sustainability inroads but also a financial boost.

SBM Offshore’s spokesperson noted: “The market outlook for deepwater FPSOs is promising, and our tendering pipeline remains strong. Over the next three years, we anticipate around 40 potential FPSO awards, with around 40% falling within our target market of large and complex FPSOs. We are proud to demonstrate our commitment to sustainability, which is a key priority for us.

“There is a fundamental demand for energy, driven by and this demand is unlikely to change in the near future. The need for energy far exceeds the rate at which alternative energy sources are being introduced to the market. We have a crucial role in providing new solutions for alternative energies while simultaneously reducing the  footprint of FPSO production by lowering emissions from existing and future FPSOs.”