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Offshore Market: Floating Production Systems is still a continuing threat. Mideast oil ? elds are in a volatile Brazil is deteriorating and no one seems to be able to bring region. closure to the corruption investigation. Resolution could ex-

Meanwhile the brakes have been ? rmly applied to deepwa- tent into 2017 – maybe later. Meanwhile Petrobras will be ter project starts. The last major FPSO contract was awarded a weakened player and its ability to invest in new production in January 2015 – an FPSO to be used offshore Ghana. There ? oaters will be severely constrained. also was a tentative contract in July 2015 for a production semi to be used in the GOM. These two contracts – plus or- 4. FLNG Contracts Impacted by the LNG Glut ders for a handful of ? oating regas vessels – have been the The FLNG market is looking a bit weak as a result of the total order intake over the past 15 months. This is far below LNG supply glut that has developed over the past year. Two the historical order intake pattern. Contracts for an average of FLNGs under construction have hit obstacles. One unit, the 12 FPSOs and 3 other oil/gas production ? oaters have been almost completed Exmar Caribbean LNG barge, is without a placed annually over the past ten years. ? eld as a result of the ? eld operator’s decision to terminate the

LNG project in Colombia. The other unit, PFLNG Dua under 3. Petrobras’ Problems are a Major Hit to the Market construction in Korea, has been “re-phased” by Petronas to

Running in parallel with the overall market downturn has curtail capital expenditures – and construction will likely be been an unprecedented implosion in Petrobras. The Brazilian suspended once the hull is ? nished. oil company has been embroiled in a corruption investigation Several planned FLNG projects have also run into barriers. that has led to a ? nancial and contracting meltdown. Petro- In March 2016 Woodside decided to shelve its plan to use an bras’ situation needs to stabilize and begin improving before FLNG to produce the Browse gas complex offshore Austra- the company can again be a major driver of production ? oater lia – saying market conditions did not warrant the investment contracts. decision. In the same month the Indonesian government re-

Unfortunately, Petrobras’ problems have not been easing. jected Inpex’ plan to use an FLNG on the Abadi ? eld – saying

The company’s credit rating was reduced to junk status in a land based LNG plant is required. 2015 – and was further downgraded by rating agencies in Q1 Earlier, in mid-Feb 2016 Hoegh announced it was terminat- 2016. S&P in mid-February cut Petrobras’ bond rating from ing its FLNG projects -- and took a $37 million impairment

BB+ to BB and Brazil’s sovereign rating from B+ to BB with charge against its FLNG assets. Hoegh joins Excelerate in negative outlook. Moody’s in February downgraded all rat- exiting the FLNG sector. Excelerate in Sept 2015 decided ings for Petrobras as well as ratings based on Petrobras’ guar- to cancel its planned project to create an FLNG terminal in antee to B3 from Ba3. Texas, saying the project is not viable under current market

The impact of the ? nancial pressures on Petrobras opera- conditions. tions and capital spending are obviously being felt. In March

Petrobras announced plans to lay off 12,000 staff – a 15% 5. FSRU Contracts Have Been the Bright Light personnel reduction. Reports are circulating that the (already FSRU contracts have been the bright light in the ? oating downsized) plan to invest $93 billion in capital projects over production sector. Five contracts or term sheets for ? oating re- the next ? ve years looks about to be cut to $80 billion. The gas units have been signed over the past year. However, some

Brazilian government is dealing with many problems and is pending contracts for FSRUs are proving hard to tie down. increasing unable to provide ? nancial backup to Petrobras. The price of LNG has fallen signi? cantly – which should pro-

The Brazilian economy is deteriorating at an alarming rate vide incentive to switch to natural gas and generate require- – with GDP falling 3.8% in 2015, expectations of a similar ments for regasi? cation terminals. But the price of fuel oil decline this year and unemployment nearing 10%. has fallen as well – reducing budget pressure on power plant

One piece of good news is the deal Petrobras has negoti- managers to switch to cheaper fuels. ated with China to access ? nancing. In late February Petrobras Then there is the dif? culty of ? nancing FSRU projects. An signed a term sheet with China Development Bank to access FSRU moored offshore can require $500+ million investment loans up to $10 billion in exchange for supplying oil to Chi- in infrastructure. This can be hard to ? nance. Unlike FPSO nese companies. But this news is overwhelmed by bad news and other oil/gas export projects, an FSRU feeds gas to a local that seems to ? ow daily about the company – and the Brazilian off-taker. The ability to ? nance such deals is limited by the economy. creditability of the off-taker and the willingness/capability of

The impact of this implosion on the ? oating production sec- the government to provide a sovereign guarantee. tor has been huge. Petrobras is the biggest player in the sector. Overall, we see the FSRU market continuing to be strong –

It has more than 50 ? oating production units (mostly FPSOs) but given the ? nancial barriers to these projects, closing deals at various stages of planning. No other operator comes close will require patience and ? nancial creativity. to this projected procurement level.

At the moment it appears that the Petrobras situation is not 6. Forecast of Production Floater Orders going to be resolved anytime soon. The political situation in Looking forward, 242 ? oating production projects are in

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