Investment Opportunities

Offshore Oil and Gas Production is Alive and Booming

Floating production storage and offloading vessels (FPSOs) are vessels or platforms that float in deep water. The offshore oil and gas industry uses them to process crude and natural gas after it’s pumped up from deep beneath the ocean floor. They may also assist in the pumping process itself.

Some FPSOs are connected to land through pipelines. Others require tankers to periodically offload onboard storage tanks. Once a new oilfield is discovered and numerous production wells are drilled, an FSPO is put in place and the various platforms and underwater wellheads are connected to it.

FPSO Business is Booming

The United States is dragging its feet getting started again in offshore drilling in the Gulf of Mexico and elsewhere. However, that’s not reflective of the global offshore oil and gas industry. It’s booming just about everywhere else.

International Maritime Associates (IMA) recently released a report citing record demand for FPSOs.

Fourteen FPSOs were ordered in just the last four months. This is a record pace, and reflects the continued global thirst for oil and natural gas.

Royal Dutch Shell recently announced it would be building the world’s largest FPSO. Named the Prelude, and more accurately called a floating liquid natural gas system (FLNG), this $3-billion monster will also be the most expensive ever built.

Right now, there are approximately 256 FPSOs in use worldwide. The IMA study noted that there are 196 projects in the design, bidding, or planning stages that will require an FPSO system.

Given the huge amounts of capital involved, that’s a lot of money at stake.

How to Play the FPSO Boom

Many of the largest oil and gas firms have subsidiaries that build FPSOs. Some use large, private companies.

But SBM Offshore NV (PINK: SBFFY), a Netherlands-based company, is one of the largest builders of FPSOs in the world. With a market capitalization north of $2 billion, it’s no small operation, either.

SBM either sells or leases the FPSOs it produces to oil and gas production companies. It designs, engineers and constructs the FPSOs according to its customers’ specifications, providing turnkey solutions for companies.

It has four locations where FPSOs are constructed: the Netherlands, the United States, Malaysia and Monaco.

SBM is the contractor building Shell’s Prelude. In addition, it has eight other FPSOs in its construction pipeline. Its profits this year more than doubled, and its orders increased by 14 percent. It currently has a $12-billion order backlog.

With no end in sight to the increased global demand for oil and natural gas, and much of that coming from deep offshore wells, SBM is a great way to play the growing need for FPSOs.

Good investing,

David Fessler

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