BW Offshore: The Most Advanced FPSOs in Brazil

Wednesday, April 20, 2011

“Brazil looks like it will become the largest FPSO market in the world and we want to participate..” -- Jon Harald Kilde M.S.c., GM, BW Offshore The abundance of deepwater O&G prospects, combined with the lack of oil transportation infrastructure in Brazil, has increasingly favored FPSOs as a production solution. Petrobras presently has more than 25 FPSOs in operation and this number is expected to double during the next decade. BW Offshore is a leader in FPSOs and FPSO operations. Although it has been quoting for jobs in Brazil for some years, the company finally established a local office in 2008. BW Offshore currently has three FPSOs operating in the Brazilian offshore and has another one slated to be delivered by the end of the year. The Rio de Janeiro office is headed by General Manager Jon Harald Kilde M.S.c., who shared with Maritime Reporter´s correspondent in Brazil, Claudio Paschoa, the company’s strategy and outlook.

Brazil Operations History



Jon Harald Kilde first came to Brazil in 1988 to work for Petrobras through Brasnord. Thereafter he returned a few time to Brazil on business trips but only moved again to Brazil in 1999. Over the years he has built a good and lasting business relationship with Petrobras executives, also learning how to do business in Brazil, having experienced various phases of growth in the Brazilian O&G market. In 2008 he returned to live in Brazil in order to negotiate contracts for BW Offshore and set up the company´s main office in the country.



According to Kilde, “Only one month after opening the Rio de Janeiro office, we were awarded the contract operate the FPSO BW Cidade de São Vicente (BW CdSV) at the Tupi (now re-named Lula) pre-salt field by Petrobras, it was a very good start”. The FPSO will operate as a long term testing facility for the pre-salt reservoirs, starting with the TUPI cluster and changing location annually.



The fact that BW Offshore was capable of delivering the BW CdSV in a record time of 11 months permitted Petrobras to fulfill its promise to the Brazilian government of producing oil from the pre-salt reservoirs within one year. This accomplishment placed BW Offshore in a position for future contracts with Petrobras, as a preffered FPSO supplier. The importance of the first oil in Tupi on May 1, 2009 to the Brazilian government, was illustrated by the enthusiastic celebration led by then Brazilian President Luis Inacio “Lula” da Silva and highlights the importance given to the pre-salt discoveries throughout Brazil.“The customer relationship with Petrobras is excellent, which helps in the pursuit of further projects in and outside Brazil” says Kilde. He also emphasized the importance given by Petrobras to continuity, especially concerning the executives they have contact and negotiate with.

Could you tell us what changes have occurred in BW Offshore since mid 2010?

The main changes were the sale of our technology research division APL to National Oilwell Varco and our buy out of our direct competitor, Prosafe.

How did these changes influence the company?

The changes influenced a lot of things here in Brazil, for example, Prosafe was double our size in Brazil, so now we have 250 employees and three FPSOs operating in Brazil, with another one due to arrive by the end of the year (The Papa-Terra FPSO).
So which FPSOs are operating in Brazil?

There is the Cidade de São Vicente FPSO, which was the first to work the pre-salt and was at the Tupi field EWT. There is the Polvo FPSO contracted to Devon. The Cidade de São Mateus FPSO which is working the Camarupim field for Petrobras. We are expecting the Papa Terra FPSO to be delivered from the shipyard where it is being built in Singapore, by the end of the year. It will be operating the Papa Terra field in the Campos Basin.

What about the BW Pioneer FPSO that was contracted by Petrobras for the Cascade & Chinook field at the GOM?



It is very close to begin production. The plan is to begin production by the end of next week (late March). It will be the first FPSO on the American side of the GOM, we already have a large FPSO operating on the Mexican side (the largest FPSO in the world), therefore with the BW Pioneer starting operations we will have the only two FPSOs operating at the GOM.

How many FPSOs does BW Offshore have operating in West Africa?



Many! Our total in Africa is 13 or 14 FPSOs in operation.

How did the acquisition of Prosafe affect BW Offshore´s earnings?

With Prosafe we now have a truly global reach, for you to have an idea… we have a back log of $8 billion. The forecast is for us to have yearly earnings of around $400 million dollars.

What can you tell us about the APL sale?

The APL sale was really a win-win situation as now APL is owned by a business that has its same characteristics, such as mechanical and hydraulic technology, with a global infrastructure for these kinds of products and services. I think it will be good for them. They will have a bigger market.

We are a now a bigger company with Prosafe coming aboard but we still have technological agreements with APL, so I see the sale as a win-win for my company.

How do you see the business possibilities for your company in Brazil in the near future?



Brazil looks like it will become the largest FPSO market in the world and we want to participate. However, we need to evaluate the business prospects here in relation to other alternatives. Our preference would be for a more selective market in the future. One person might say that business is better here and another say that it is better elsewhere, but the final decision comes from our board of directors. My job in Brazil is to show the business possibilities here. For example, projects with Petrobras are long term solid contracts but all the demands, such as local content, makes things more complex. As a new and bigger company, after the acquisition of Prosafe, we definitely have a financial base strong enough to take on large projects. We still need to see what the future holds.

We had to decline the last Petrobras tender as we already have four ongoing international projects and we are in the midst of integrating the companies. I explained this to Petrobras and they understood. Now we are preparing ourselves for future tenders.

How do you see the prospects for the worldwide FPSO market?

The FPSO market is also growing worldwide but no other region is growing more than Brazil. It´s looking good, we have good prospects in major production areas such as Asia, Africa and the GOM, in the North Sea we also have prospects. In terms of quantity of FPSOs in demand, the forecast is very good for the next five to 10 years.

Which are the main challenges you face in Brazil? Do you still face major challenges in securing a specialized workforce or are things better now?



Unfortunately the problem with local workforce is even worse. Here in Brazil the local content demand and lack of resources, such as specialized workers and local manufacturing capacity makes for a complicated combination. You can demand local content but if these resources are not available it makes things very complicated. That´s why we are seeing a steep upward spiral in the O&G industry salaries, in Brazil. I have never seen anything like it. There are indexes for salary increases, but what is happening in the industry today is a salary rise way beyond the highest index figures.

How do you deal with this local content problem?

Concerning local content, thank God we have three FPSOs operating at the same time in Brazil, which means we have a good base of Brazilian workers. But we are seeing that to guarantee the future in term of offshore workforce, we need to train them since school, we can´t just fight for workers with other companies and try to take their workers, as they will just go and try to take workers from us later. You need to create new candidates and this will need to be done early, from when candidates begin technical school. We are forming partnerships with technical schools in various places. There is one project being negotiated with a school in Vitória, capital of the state of Espirito Santo, which looks promising and we are also looking at technical schools in Rio de Janeiro, in the city of Macaé. This is the first option, there are other alternatives but this is what we are doing now.


What new technologies are you working on?

We are working on an FLNG project, we believe this market will happen but not immediately because of various aspects concerning the gas market and also concerning technical aspects of the project, we are investing in the technologies involved and we believe in this market and that it will grow in Brazil too.

We have also done projects with extreme technologies, for example the FPSO on the Mexican side of the GOM is the largest in the world. The FPSO in the American side of the GOM is in the deepest water at 2,700 meters.

We have these technologies and now we want to be building on the technologies we already have, constantly looking for new things. In order to secure a definite profit it is better to work on continuity. We will always work with new technologies but our focus now is to give continuity to the technologies we already have.

Which are your main clients in Brazil and worldwide?

Well, I told you about of $8 billion backlog. 35% of this total is from Petrobras, which means that Petrobras is much bigger than any other client for us. Next in line comes Apache with 11%.

What about the OSX 1 FPSO?

Last year when we spoke, I commented on the possibility of working on this project and now we are doing this project for OSX. It isn´t really a conversion, it was a new built FPSO, originally built for a company called Nexus, which invested and speculated in the FPSO market by making this generic project. When we bought APL in 2007, we were in a good position, as APL owned 50% of Nexus. What happened is that OSX basically bought the FPSO from the bank but with our technology aboard we got the contracts to adequate this new FPSO for the first OGX field, called Waimea. The FPSO is being fitted out in Singapore and will be completed in a few months, then it will sail to Brazil. It is a project where we are doing the engineering and project modifications but they will operate it.

How do you work with equipment suppliers here in Brazil?

In the Papa terra project, for example, we made a joint venture with Quip that is making modules in Brazil while we are making the modules outside Brazil.

We have two teams working with suppliers, one for technical support, which works with a listing of companies specialized in offshore construction and various other services. The other team works with supplies, buying supplies from companies in Brazil, as 85% of our supplies need to be bought in Brazil.



For now, we are not building new FPSOs in Brazil. We are open to it but for now we have no plans to build in Brazil. Our relation with Quip is very good and for now we are happy with them building in Brazil while we build in the foreign market.



For new projects we will have to see the alternatives. There is still need for more development from EPC suppliers in Brazil, for processing plants for example. These need more development to compete internationally. Some areas of manufacture are competitive here in Brazil, but many areas still need more development in order to be competitive.

Who are your main competitors in Brazil?

Definitely SBM and Modec, other than these there is Teekay and Saipem. We are in third in size in Brazil, with SBM in first and Modec second, other companies only have one FPSO in operation in Brazil.

How are you rated in the world FPSO market?

It depends on how you define it. In size, we are officially second but if we count FPSOs in operation we are in first place but we still consider ourselves second, as SBM has more business related to FPSOs. Our goal is to become number one in the world.

What do you think of the Petrobras initiative to build FPSO at the Rio Grande Shipyard in south Brazil?

I think they will definitely make them with international quality. The problems will be with costs and deadlines. In reality, Brazil will have to choose between maintaining the production goals or maintaining the local content policy. It will be impossible to maintain both, it´s impossible with this 75% local content requirement.

There is no flexibility with this policy but at some point they will have to choose. I see no problem with this because Brazil has the opportunity to develop what is possible, to choose which areas it wants to develop. I think there should be more focus in education. You can build shipyards and many other things but in reality school, starting from lower school, is being developed too slowly. The salaries currently offered to teachers in Brazil are incompatible with serious growth goals.

Do you think there are Brazilian companies capable of competitively building FPSOs locally?

Yes, yes, our partner Quip is a possibility, maybe not in the short run, but there are various companies capable, Odebrecht is another example. These 8 FPSOs to be built in Brazil from new hulls by GVA and Engevix, will give us a good idea of their capabilities. There is also OSX, which has bought two hulls for conversion and their shipyard is also being built. Their idea is to do the conversion and everything else in Brazil, we will see in time. I think that the 19 FPSOs that Eike Batista says he plans to build will also be incompatible with building everything in Brazil. For this reason, I believe that it will be a good opportunity for construction in Brazil and also making the most of the advantages offered by foreign shipyards where there are shorter delivery times and lower prices. I think a combination of these would be best.

How do you see the growth in the O&G market in Brazil for the next decade?

I think that says it all! In the next decade, up to 2020, to triple local production to over 6 billion barrels/year is a bonanza! I hope that the growth will be good and that it will not be like the gold rush, where things go crazy, people try to take personal advantage of the situation and lack of resources that can cause a spiral which will not help anyone. In a spiral like this, while the market is growing too quickly, Brazil would not have a competitive industry. I think that the long term goal must be that Brazil wants to have a competitive industry. As it is today with too many privileges given through local content, will not help at all. There should be local content, but always looking to be competitive internationally and this combination is very difficult to make.

Company History

BW Offshore was incorporated in Bermuda on June 7th 2005 in order to capitalize on the growing demand for FPSOs. The company is a provider of FPSOs and FSOs through operational lease agreements as well as an EPCI (Engineering, Procurement, Commissioning, Installation), contractor of turret mooring systems and offshore terminals. The floating production division of the company has assets operating in the offshore waters of Brazil, Malaysia, Russia, WA and on both sides of the GOM.


BW Offshore has been a pioneer in many respects. It was the first company to operate an LPG FPSO with its operations in Angola. Later the company has converted and installed the first and only Arctic Oil FSO. In 2007, BW Offshore delivered the world's largest converted FPSO, with the biggest throughput capacity of any FPSO. Finally BW Offshore is now operating the first FPSO in the American side of the GOM, with the BW pioneer.