Floating Production Storage and Offloading (FPSO)

What Is Floating Production Storage and Offloading (FPSO)?

Floating production storage and offloading (FPSO) refers to a floating vessel located near an offshore oil field, where oil is processed and stored until it can be transferred to a tanker for transporting and additional refining. FPSOs can range in structure from a converted former supertanker to a new purpose-built vessel. Such a vessel used for natural gas is known as an FLNG, short for floating liquefied natural gas.

Understanding Floating Production Storage and Offloading (FPSO)

Demand for new-build and converted FPSO vessels has increased due to the declining rate of new onshore oil discoveries to historic low levels and also from technology that enables efficient deepwater oil exploration in unprecedented ocean depths.

FPSOs are especially useful in newly established offshore oil regions where there is no pipeline infrastructure in place, or in remote locations where building a pipeline is cost-prohibitive. The use of FPSOs means that a tanker needn't sit idle while a production facility produces enough oil to fill it. Also, the advantage of FPSOs over pipelines is that once an oil field has been exhausted, the vessel can be moved to another location. Today, there are about 225 such vessels operating worldwide.

Benefits of Floating Production Storage and Offloading (FPSO)

FPSOs have also become more popular in the oil industry because of their lower cost relative to traditional offshore oil platforms. Capital expenditure for a high-production purpose-built FPSO for a large field offshore of Africa is around $700 to $800 million.

By comparison, the average price for a traditional offshore oil-drilling rig alone is approximately $650 million. This amount does not include well completion costs, ongoing facility production maintenance costs, and platform decommissioning costs (the cost of removing the platform at the end of its useful life).

Oil companies are attracted to FPSOs because of the terms of their use. Often, FPSOs are leased by oil producers. This has two advantages. First, oil companies have greater flexibility to manage fixed production assets depending on market conditions. If needed, companies can take on or offload FPSOs to meet changing production needs. This is more difficult with fixed assets that take time to build and finance.

Second, oil companies can better manage their balance sheets with leases. Leasing allows companies to use infrastructure without increasing debt or leverage. In contrast, if a company needed to self-finance an FPSO instead of leasing it, this would be done by increasing on-balance sheet debt, which can adversely affect a company's financial metrics and ratios.

Finally, FPSOs are suitable for a wide range of water depths, environmental conditions, and can be designed with the capability of staying on location for continuous operations for 20 years or longer. This greater flexibility and versatility makes FPSOs the preferred offshore production method in the oil industry today.