BW Offshore to focus on selective FPSO Projects in view of Macroeconomic Risks

[escveritas]

BW Offshore in its FPSO market assessment report said that there are 3 major risks guiding the company forward, namely the financial risks, operational risks and future climate change risks. As such, all these risks will be evaluated on the basis of going concern when undertaking future new energy infrastructure projects such as FPSO, which is its the company core expertise.

A variety of financial risks such as currency risk, interest rate risk, credit risk, liquidity risk and capital risk combined with operational risks such as those related to project execution and the operation of FPSOs, which could lead to accidents and oil spills to the environment if not managed properly, will drive the company's strategy forward. The company is also not discounting on future investors' appetite for electrification and cleaner fuels as it will lead to higher capital cost for hydrocarbon-based projects such as the FPSO sector.

Energy demand will still continue to grow and so will be the FPSO projects. BW Offshore said that such future FPSO projects typically have long production profiles, low break-even costs and focus on lower emissions.

Increased project complexity, combined with inflationary pressures and higher construction costs, necessitates financial structures with significant dayrate prepayments during the construction period for new lease and operate projects, which is the traditional way of operating.

Alternatively, oil and gas majors may also opt to finance and own their FPSOs, relying on FPSO specialists for the design, construction and installation scope, combined with operation and maintenance services.

In view of all that, the company will selectively pick on new FPSO projects that could provide the required returns with strong national or investment-grade counterparties. Inflationary pressure due to supply chain and logistics challenges have put FPSO projects execution to a heightened risks affecting cost management and projects profitability.