Why Brazil's Ocyan is concerned about rising FPSO financing costs

With greater financial strength after the arrival of a new majority shareholder, Brazilian FPSO operator Ocyan is confident that it can expand its footprint in the oil and gas sector. 

The company also focuses on the subsea and offshore maintenance and decommissioning markets.

Jorge Mitidieri, who became CEO in April, tells BNamericas why financing is the biggest challenge, talks about contracts in the pipeline and how the company prepares for a post-oil economy.

BNamericas: Ocyan recently signed a maintenance contract with federal oil firm Petrobras related to platforms in the Búzios field. Does the company expect to sign more contracts in the coming years? Is demand expected to increase?

Mitidieri: The maintenance market has been very large for many years. What’s changed more recently is that there are many more companies, not just Petrobras, demanding maintenance. There was Shell with the Fluminense FPSO, there's Equinor, with the Peregrino field, Karoon... among many others, as well as FPSO charterers like SBM and Modec. 

The COVID-19 pandemic has generated a major maintenance backlog for all markets. Many drilling, subsea and FPSO companies didn't have the opportunity to maintain a very active integrity program for a year and a half, two years. So much so that today we see a giant market for floatels [floating maintenance units] in the country. 

Petrobras was having its maintenance contracts renewed in the Campos, Santos and Espírito Santo basins, so it launched several tenders, and we ended up winning this project. There will be four platforms in Búzios, which could rise to six. And other contracts will come with new platforms that will come into operation in a few years. 

BNamericas: FPSOs are getting bigger and more modern. How does this impact the maintenance market?

Mitidieri: To carry out maintenance on larger platforms, either permanent teams are maintained or floatel campaigns are carried out, which has happened a lot. 

We’ve connected to the innovation and technology market. We have a hub, an ecosystem of startups to bring new technologies in-house to improve performance. 

BNamericas: Could you cite examples of new solutions?

Mitidieri: Digital platform twins, which greatly facilitate the process of interpreting and evaluating maintenance situations; new weldless connection technologies; inspection of isolated pipes to monitor the corrosive process of the lines; on-site valve inspection technology; offshore repair solutions for corroded pipes; and electronic pipe flanging control, among others. 

BNamericas: What are your expectations for the FPSO market? Do you intend to take part in the next Petrobras tenders?

Mitidieri: There are five projects coming up or underway. One is the revitalization of Marlim Sul/Leste, which should come under the EPC [engineering, procurement and construction] contracting model. In this case, we're not going to take part because we're not an EPC firm. 

Albacora should come under BOT [build-operate-transfer] and our intention is to participate, not least because we did the engineering and have the knowledge. 

Editor's note: Albacora's first contracting process was canceled after Petrobras failed to reach an agreement with Ocyan on the contract price. 

If the two Sergipe platforms (I and II) come under BOT, we should also participate. If it's a charter, we'd have to assess the question of financing. 

The bids for Barracuda/Caratinga are due on August 30. We intend to submit bids, but we still need some clarification from Petrobras and approval from our board of directors. 

BNamericas: What are the main difficulties today in closing an FPSO contract? 

Mitidieri: The biggest challenge today is definitely the financial issue. The most expensive FPSO projects 10 years ago cost US$1 billion. Now, due to material costs and inflation, they cost over US$2 billion. They therefore require a significant amount of capital from companies and financing, which is not easily available on the market. 

In the past, companies were able to do project financing without recourse to the shareholder. They borrowed money from a group of banks and pledged the finished vessel as collateral, with no advance guarantees. The cost of financing was between 5% and 8%. Today, it's between 8% and 13%. It's a stratospheric rise, so all the banks are asking for guarantees. None of the FPSO charterers will have the balance sheet to back this up.

The struggle is therefore over the amount to be financed, the availability of capital, the cost and the guarantees required. All this makes projects and charters an increasingly challenging issue. 

ExxonMobil's projects with SBM in Guyana are a reflection of this. The first project was full charter. Then it changed and, in the last one, Exxon paid in full because SBM no longer had the capacity to do it. This is the big challenge facing Petrobras: how to make these projects viable. 

BNamericas: Does Ocyan plan to return to the PLSV market?

Mitidieri: We’re very active in the subsea market. Today, we have a project to decommission the subsea systems of three Petrobras FPSOs. Another is revitalizing the gas network of the Pampo and Enchova fields [for Trident Energy].

Recently, in a Petrobras bidding process for PLSVs, we submitted a proposal in partnership with a Norwegian vessel. Our price was above what Petrobras wanted, and it decided to cancel the package. Yes, it's a market that interests us. We don't have a vessel at the moment, but if an opportunity arises for a subsea construction vessel that we can charter or build, we can consider it. 

BNamericas: What about offshore decommissioning? Can you talk about ongoing contracts and the prospects for new business?

Mitidieri: We’re very focused on subsea installations. We've now taken part in two tenders and we're going to take part in the next ones. Petrobras is due to launch a new tender in the second half of this year. 

It has a total of almost 3,000km of flexible and umbilical pipelines that it has to remove from the seabed. Our contract, which is in its final stages, covers 270km. 

BNamericas: Is Ocyan targeting opportunities beyond the oil and gas sector?

Mitidieri: Oil and gas still has a long way to go. We’re evaluating the possibility of expanding our services area, such as maintenance, to the onshore sector. 

But oil and gas won't stay forever. We have a working group dedicated to studying the company's future in the offshore wind market. Several of our services, whether offshore or subsea maintenance, have potential synergies with services for the offshore wind industry. 

We are living in a new moment. In April this year, Ocyan's main shareholder changed, with Novonor leaving and EIG Partners and Lake Capital joining. I became CEO at their invitation, after 15 years as vice president. 

The new shareholder has a different financial and commercial strength, and we have to seize this moment with a vision of the company's growth.

The biggest challenge is with people. How do we grow in a market in which young people want to participate less and less? So, innovation and technology have the potential to attract people. When we approached startups, we discovered that it was a focus for attracting people.