Contractual Frameworks: Case Study Between the Oil Companies and the FPSO Operators

Abstract

The market for floating production storage and offloading units (FPSOs) has grown fast over the past decades. Although not untouched by the financial crisis, the FPSO sector recuperated relatively quickly, and the activity in the market is again high with a good outlook. The contracts regulating the operations of the FPSOs are typically either lease contracts or engineering, procurement and construction (and sometimes also installation) contracts, often abbreviated to “EPC(I)” contracts. The main subject of this article is the key risk factors under the operational lease contracts. In order to give some background to the presentation of risk management in FPSO contracts, I will present the main features of an FPSO and what the benefits of using FPSOs in offshore oilfield development are, before we move into the risk chapter. Finally, I will give a few examples of the typical challenges during the end stages of the negotiation phase. In the following, the owner and operator of the FPSO under a lease contract as well and the contractor of the FPSO under an EPC(I) contract will both be referred to as “Contractor”. The operator of the field, be it a national oil company, an independent oil company or a consortium of oil field licence holders, will be referred to as “Company”.