SBM Offshore, one of the world's largest FPSO solutions providers, on Wednesday slightly reduced 2020 guidance due to uncertainty caused by the COVID-19 pandemic and the low oil price environment, but the CEO is optimistic the company will not just weather the storm, but come out stronger at the end.
The company said it expected that in the short to medium term, the number of prospects for new FPSO work will decrease, adjusting its expected directional revenue guidance from “above” to “around” US$2.3 billion expected in 2020.
The Dutch supplier of floating production solutions to oil and gas companies on Thursday reported first-quarter directional revenue of US$607 million which it said was in line with expectations.
300 positions cut
The company acknowledged that the direct and indirect impact of the low oil and COVID-19 crises could have a material impact on the company’s business and results going forward, and has taken cost-cutting measures, such as headcount reduction, to "mitigate the incremental costs of the COVID-19 pandemic and to address the immediate impacts of lower activity"
SBM said that the aggregate staff and contractor workforce was reduced by around 300 positions and a hiring freeze has been implemented.
SBM Offshore has reminded that "various cases" of COVID-19 have been identified in the fleet on multiple floating production units, but said that contractual terms with FPSO clients allow for "considerable time under charters in which to deal with disruptions from events outside the company’s control," adding that this provides the company "with considerable financial protection."
To date, the company has been able to manage the COVID-19 situation without the need to use such protection, SBM Offshore said.
"SBM Offshore’s response plans have been effective to date, in some cases supported by deep decontamination measures. The incremental costs from the implementation of these additional measures are charged to clients in the case of reimbursable contracts or otherwise borne by the relevant operating companies in which SBM Offshore has an ownership stake," the company said.
Room for optimism?
Despite the current market situation, CEO Bruno Chabas is optimistic and has said that while the FPSO market has deteriorated, there still work to be won.
Specifically, Chabas said that the company would target large capacity offshore developments with its niche Fast4Ward standardized FPSO hulls.
"These projects have very competitive break-even prices and will be prioritized in clients’ selection of investment opportunities. SBM Offshore targets this niche with Fast4Ward and will strengthen its position through this program. Fast4Ward enhances client development plans through more economical production, safer operations, and reliable delivery."
SBM Offshore’s Fast4Ward program incorporates the company’s newbuild, multi-purpose hull combined with several standardized topsides modules in an effort to reduce project costs and lead times.
The company currently has two Fast4Ward hulls ordered on speculation in China which are not allocated for new projects. One is currently under construction, and the construction of the other has yet to begin.
"Although the number of projects coming to the market will decrease in the short to medium term, SBM Offshore remains disciplined in selecting opportunities and in accepting only that level of risk appropriate to deliver value to all its stakeholders. SBM Offshore is uniquely positioned not only to weather this crisis but to come out stronger at the end of it," Chabas said.
Back in March, energy intelligence company Wood Mackenzie downgraded its expectations when it comes to new orders for floating production systems in 2020, citing the oil price crash.
The company had expected up to 18 new floating production systems to be ordered in 2020, but it then said only "a handful" would go ahead which would take the FPSmarket to 2015/16 levels.