The first order for Petrobras' own floating production, storage and offloading (FPSO) vessels in the past seven years is about to be finalised, with Hyundai Heavy Industries Group and its acquisition partner Daewoo Shipbuilding in a final showdown. The contract worth $4.6 billion (about 30 billion yuan) is not only the largest order for offshore equipment in the South Korean shipbuilding industry in the past eight years, but will become the single largest amount of orders in the world's shipbuilding industry ever, and will also become the "wind vane" of the recovery of the global offshore market.
Petrobras to order 2 FPSOs, South Korea's two major shipping companies become the final contender
According to foreign media news, Brazil's national oil is on the Buzios oilfield two FPSO "P-78" and "P-79" construction contract, respectively, with South Korea's Hyundai Heavy Industries Group and Daewoo Shipbuilding for the final negotiations, hoping to cut the contract price. Previously, Hyundai Heavy Industries Group and Daewoo Shipbuilding made relatively low bids in February and successfully entered the final round of bidding.
It is understood that Petrobras launched an FPSO tender in July last year to build two FPSOs for the Buzios field, Brazil's second largest oil producing area and one of the largest deepwater discoveries of the century, with each FPSO capable of producing 180,000 barrels of oil and 7.2 million cubic metres of gas per day.
Three major Korean shipping companies have formed an independent alliance with their respective partners to participate in the Buzios bid. Among them, Hyundai Heavy Industries Group partnered with Keppel Shipyard and its Brazilian subsidiary Keppel Brazil Shipyard (BrasFELS), Daewoo Shipbuilding partnered with Saipem, while Samsung Heavy Industries chose Japan's Toyo and its funded Brazilian shipyard EBR.
Sources said that Hyundai Heavy Industries Group submitted a minimum offer of R$12.52 billion (US$2.33 billion) per FPSO in the tender, a price lower than the R$14.11 billion (US$2.63 billion) submitted by Daewoo Shipbuilding and the R$15.15 billion (US$2.82 billion) submitted by Samsung Heavy Industries.
The total contract price for the 2 FPSOs is expected to be 5.13 trillion KRW (approximately US$4.6 billion). Once the contracts are officially signed, this will be the largest FPSO contract undertaken by a Korean shipbuilder since Samsung Heavy Industries concluded a US$3.4 billion Egina FPSO order in 2013.
South Korean industry insiders expect that, given the size of the deal, both Hyundai Heavy Industries Group and Daewoo Shipbuilding, the finalists, are likely to receive one FPSO order each from Petrobras. These industry insiders point out that it takes several years and a lot of human resources to build an FPSO, and splitting the order for two FPSOs equally between two shipyards is a way to ensure a quick delivery of FPSOs.
On April 16, Keppel Corporation, the parent company of Hyundai Heavy Industries Group's partner Keppel Shipyard, issued an announcement in response to the latest reports that no final and binding contract has been signed with Petrobras for the FPSO contract. Keppel Enterprise will make an announcement to this effect in due course in accordance with the listing regulations.
This will be the first time in over seven years that Statoil has built its own FPSO, which has only been leased on long-term charters for the past seven years due to the "Operation Car Wash", a major anti-corruption investigation launched in Brazil in 2014, during which time the two largest FPSO operators in the world, Japan's Mitsui Offshore and Development Co. (MODEC) and SBM Offshore of the Netherlands have been the biggest beneficiaries.
MODEC and SBM Offshore also qualified for Petrobras' latest tender last year, although both companies have since opted out as they prefer to use their own engineering designs rather than the Petrobras model.
Petrobras is expected to select the final winner within the first half of this year. The Korean shipbuilding industry has high hopes for the Petrobras order as a possible sign of recovery in the offshore market. Coupled with new orders in the large container ship and LNG ship sectors this year, the recovery in FPSO demand is expected to bring a new heyday to the Korean shipbuilding industry.
Hyundai Heavy Industries is fully committed to scrambling orders, and strive to achieve the target of receiving orders this year
Hyundai Heavy Industries Group has high hopes for this FPSO of Petrobras. In the past two years, Hyundai Heavy Industries Group has not been able to achieve the annual order target, but in this year, the shipbuilding industry has recovered the situation, the company to achieve the annual order target has lit the "green light", especially with the rise in international oil prices, the previous has been sluggish offshore equipment market also began to sprout, which also further This has further stimulated Hyundai Heavy Industries Group's eagerness to reach its annual order intake target.
The construction value of the Petrobras FPSO project is US$4.6 billion, which is 30% of Hyundai Heavy Industries Group's total order intake target of US$14.9 billion by 2021.
In order to undertake this contract, Hyundai Heavy Industries Group is responsible for the shipbuilding business of the secondary holding company of Korea Shipbuilding Marine representative director, President Jia San-hyun is in the final price negotiations with the Brazilian state oil. Previously, based on the judgment of the sluggish market for offshore equipment, Korea Shipbuilding & Marine set the target amount of orders received in the field of offshore equipment this year at only US$21 million, and this FPSO order from Brazil was considered a "must-see" project.
In Hyundai Heavy Industries Group, Jia San-hyun is considered to be the highest level management expert due to his excellent foreign language skills and external negotiation ability. With the largest order in history, Jah Sam-hyun will certainly work hard until the end.
After taking on US$14 billion in orders in 2018, reaching 106% of its annual target, Korea Shipbuilding & Marine is having a tough time with only around 80% of its order intake target for the following years, 2019 and 2020. If the company can take over all or part of the FPSO construction orders from Petrobras, it will be particularly helpful in meeting its annual order intake target for this year, which will also be the second time after 2018 that Korea Shipbuilding & Marine has achieved its order intake target.
A source from Korea Shipbuilding & Marine said, "In the last 2~3 years, with the trend of low oil prices continuing, there were very few orders for offshore equipment, while the volume of marine transportation did not increase significantly, and the maritime industry was facing difficulties and not many new ship orders, so the company failed to reach its order intake target for two consecutive years."
But since entering this year, with the recovery of maritime transport volume and the rise of shipping freight rates, the global newbuilding market environment has improved, coupled with the gradual implementation of the International Maritime Organization's (IMO) new environmental regulations, orders for environmentally friendly ships have been increasing and the market continues to maintain a good upward momentum.
Jia San-hyun believes that the global newbuilding market environment will further improve from the end of the second quarter of this year, and has therefore demonstrated his will to pursue orders with all his might.
Speaking at a CEO symposium held earlier this year for stock market analysts in charge of the shipbuilding sector, Ja Sam-hyun said, "This year, the shipbuilding industry is expected to see a recovery under the influence of factors such as the mass vaccination for the new crown pneumonia vaccine, an increase in maritime transportation, the strengthening of new maritime environmental regulations, and the alternating growth in demand for environmentally friendly vessels."
In addition, Hyundai Mipo Shipbuilding, a subsidiary of Korea Shipbuilding & Marine, has recently received several enquiries from shipowners for container ships. According to a report in Trade Winds on April 14, citing well-informed sources, "Inquiries from global shipping companies for orders for medium-sized container ships in the 1,800-3,000 TEU class are pouring in to Hyundai Mipo Shipbuilding."
In addition, 26 VLCCs have been sold worldwide so far this year, and Korea Shipbuilding & Marine has taken orders for 11 of them, continuing its momentum with a 42% market share.
As of April 19, Korea Shipbuilding & Marine has received orders for 78 vessels (excluding offshore equipment) so far this year, with a total contract value of US$6.54 billion, achieving 44% of this year's order intake target of US$14.9 billion. It can be said that Korea Shipbuilding & Marine is well on its way to receiving orders for its operations.
The international oil price exceeds US$60 per barrel and the offshore market is about to "come back"?
Generally speaking, offshore resource development projects for the extraction of oil and gas can be profitable when the international oil price reaches above US$60 per barrel. With the recent recovery in international oil prices to around US$60 per barrel, orders for offshore equipment such as FPSOs needed to produce crude oil are expected to increase.
On 19 April, the price of West Texas Intermediate (WTI) crude oil had risen to US$66.09 per barrel, while Brent crude oil reached US$69.36 per barrel. With the rise in international oil prices, the South Korean shipbuilding industry is rekindling expectations for offshore equipment orders. South Korean industry sources said that as a high value-added project, if the market can start releasing orders, it will be a "timely rain" for the Korean shipbuilding industry, which has been in an order slump for the past few years.
In 2019, South Korean shipbuilders to undertake the offshore equipment orders only 2, including Samsung Heavy Industries to undertake the Indian Lilly Anse of 1 FPSO and Daewoo Shipbuilding to undertake the United States Chevron 1 semi-submersible offshore platform hull orders. Samsung Heavy Industries finally got the offshore equipment orders after more than 2 years, Daewoo Shipbuilding also undertook new orders for offshore equipment after a gap of 5 years.
Previously, in October 2018, Hyundai Heavy Industries Group received another order for offshore equipment after four years, but opened the order gate of Hyundai Heavy Industries in 2019, although the order for chemical plants, but offshore equipment orders ate "zero eggs".
In 2020, South Korea's three major shipbuilders only undertook 1 offshore equipment projects, namely, December 8 last year, South Korea Shipbuilding Marine and South Korea POSCO International (POSCO International) signed a gas booster platform (Gas Compression Platform) in the third phase of the Shwe offshore gas field project in Myanmar The total contract value is US$450 million. If the Myanmar government eventually approves the development plan for the third phase of the Shwe offshore gas field project in Myanmar, Korea Shipbuilding & Marine will be responsible for the design, procurement, fabrication, transportation, installation, commissioning and commissioning of all works under an EPCIC.
South Korean industry sources believe that the offshore equipment market sagged last year because of the impact of the New Crown pneumonia epidemic and the plummeting international oil prices. West Texas Intermediate (WTI) May futures settled at -$37.63 per barrel, closing in negative territory for the first time in history. Although international oil prices recovered in the second half of the year, they only hovered around US$30 to US$40 per barrel.
However, the mood in the international crude oil market began to change after the New Year 2020, with prices strengthening.
Analysis by Korean industry players suggests that the rise in international oil prices has benefited from the stimulus of a number of good news stories. First, with the inauguration of US President-elect Joe Biden, expectations of a massive economic revival policy are pulling international oil prices; second, Saudi Arabia, the world's largest oil producer, announced an additional 1 million barrels per day of production cuts in February to March; and third, US crude oil inventories have fallen sharply.
With the recovery of international oil prices, the confidence of the Korean shipbuilding industry community in the offshore equipment market has been rekindled. As the amount of individual contracts for offshore equipment is huge, generally exceeding US$400 million or even over US$1 billion, it can bring massive order performance for shipbuilders in a short period of time once the ordering market starts to kick in.
A source in the Korean shipbuilding industry said:- "If oil prices continue to maintain the current upward momentum, orders for offshore equipment could emerge."
A source from Korea Shipbuilding & Marine, which signed an agreement of intent to build offshore equipment projects at the end of last year, also said, "International oil prices have started to rebound recently, and offshore oil and gas field development is expected to continue in the future, so the company will actively prepare to take on new offshore equipment orders."
Lee Bong-jin, a researcher at Hanwha Investment Securities, said that the recovery of the offshore equipment market has made it possible for the three major Korean shipbuilders to take on related order contracts, and the momentum of growth in offshore equipment orders is worth looking forward to, and the share prices of the three major Korean shipbuilders should also receive attention from the capital market.
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