FPSO
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This document discusses several key aspects of negotiating contracts for FPSO (floating production storage and offloading) units for offshore oil and gas field development. It outlines two possible contract strategies for FPSOs, a turnkey strategy or modular strategy. It also discusses pricing and risk allocation considerations at the tender stage. Finally, it notes that a letter of intent is typically negotiated before a full contract to help secure project timelines, but still presents challenges for both parties to negotiate project deliverables and responsibilities.
FPSO
- 1. 64 } MALAYSIAN BUSINESS z JULY 16, 2011 they consider potential contractors and various technological solutions in order to determine the optimal development of the field. PRICING AT TENDER STAGE AND RISK ALLOCATION The price (normally a day rate) which the contractor is offering is implicitly based on a certain contractual risk allocation. Price is coherent with the proposed risk allocation, costs of finance which are based on revenues (commencement of day rate). Bids make the necessary qualifications so that the pricing is coherent with the final risk allocation in the contract. Negotiations for FPSO contracts are complex and require careful navigation. Two possible contract strategies are the turnkey strategy, where the Operator employs a single contractor (as Head Contractor) to manage and integrate projects with sub-contractors, or the modular strategy, where the Operator contracts separately for component parts of the project like design, procurement, construction and installation. The Operator manages marine and offshore operations of the FPSO itself. At this stage, the field operator will have two main focuses: (i) to ensure fast-track schedule/ commencement of the project; and (ii) the coordination and interface between the completion of the drilling phase, subsea hardware delivery and installation, and the hook-up of the FPSO. The field operator will not wish to commit itself to the purchase or charter an FPSO with defined delivery dates without ensuring that other necessary deliverables for field development are available at the relevant time. It is, therefore, unrealistic to rely on a fully negotiated FPSO contract before commencement of the work in order to secure a schedule, and the parties typically negotiate a Letter of Intent (LOI) or heads of agreement as a confirmation of the tender award. This phase involves substantial challenges for both parties. Some contractors prefer that front-end engineering and design (FEED) studies to be ordered before and after a pre- qualification or independently. The FEED contractor is more of a subcontractor to the field operator. However, if this delivery results in the later award of the lease contract, the issues under discussion could become a source of contention. The FEED contract should, therefore, be reviewed with this in mind. In any event, regulation in respect of design protection and general IP protection must also be addressed. Once the LOI is awarded, showing the commitment from the operator, the contractor needs to start placing orders with subcontractors in order to meet the time schedule. The LOI should also cover cancellation fees and the contractor should avoid any kind of reservoir risk. Projects where several partners are developing the field, but only the minor partner will be the formal contract party, cancellation fess can end up worthless if backed by a single purpose company. In negotiating the contract, some key contract issues need to be considered, namely, risk management (see table). FPSO ...from page 61 mb overtook both fast food centres and mobile line services as the top spender of radio advertising in the Jan-April 2011 period, pumping in almost RM12.4 million (see Table 1). CRM, which has 19 member stations, runs various educational events for the public as part of its continuous efforts to create more awareness about the radio broadcasting industry. Among them are: Planet Radio, an educational forum for students; Boot Camp, a workshop to engage advertising agencies on innovative radio advertising campaign ideas; Radio Fest, an event for fans which includes a concert, games and activities; and Radio Day, an annual CRM event to commemorate the Malaysian radio industrys milestones. CRM commissions Nielsen to conduct two surveys a year to provide the industry with an enhanced measure of radio listening. Nielsen RAM Malaysia studies the demographic profile, listening preferences and product consumption of people in Peninsular Malaysia. The study is based on individual quarter-hour diaries completed by a representative sample of 3,000 individuals in Peninsular Malaysia. The most recent survey Wave 1, 2011 was conducted from March 7 to April 3, 2011 (see Table 2). Both CRM and Nielsen aspire to have a continuous monitoring service in place to enable actual post-buy analysis for advertising campaigns, and to conduct more waves a year. CRM is also proud to claim to be the only medium in Malaysia to have its surveys audited independently. Dr Rob Hall, who has been the Audience Survey Auditor on behalf of Commercial Radio Australia since 1993 to monitor the quality of radio ratings surveys, has been regularly called to audit radio surveys for CRM on an ad hoc basis, says Borhanuddin. The dispute between Sun Media Corporation Sdn Bhd and Nielsen on The Suns readership figures, for example, would have been resolved, opines Borhanuddin, if the parties would agree to an independent audit. mb