04-paul aston - fpso conversion and utilisation contracts 000

8/13/2019 04-Paul Aston - FPSO Conversion and Utilisation Contracts 000

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FPSO Conversion and Utilisation ContractsStandard Asia

Offshore Forum

Paul Aston, Partner

7 December 2006

www.hfw.com


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Different type of Offshore

Structures


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Variety of Offshore Structures


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FPSO; Various Component Parts


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Bow Turret FPSO


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FPSO


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FPSO in Field with Platform


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FPSO; Risers and Mooring

Arrangement


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FPSO in Field with Manned and

Unmanned Platforms


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FPSO; Deep Water Usage


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STL / STP


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TLP and Spar


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SPM; Single Point Moorings


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Bow Turret Loading System


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WHY FPSO?

Speed into the field

Marginal fields can be developed commercially because of

improved drilling techniques

Abandonment concerns avoided

Lower Capex

Lower Opex and quicker revenue generation feeds further

investment and development in field.


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Approach to Defining and Coping

with Risk

Who is best able to manage the risk?

Negotiating Position

Consider; How serious the occurrence of the identified risk would be,

The likelihood of that risk occurring.

In upstream contracts important to have regard to terms ofdevelopment contract (license or PSA) entered into by Operator.Operators will expect to pass onto their contractors those risksthey have assumed under documentation relating to services tobe contracted out.

If you cannot manage a risk consider insurance. Obviouslydisaster type risks cannot be managed and are insured out.


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The Risks

Commercial Counterparties

Price/Timing

Economic Issues Risk or Disaster

Financial

Operational Scope of Work

Force Majuere

Insurance Due Diligence/Mitigation

Legal Liability

Indemnities

Financial loss

Protection of Assets/Rights

Legislation

Political


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FPSO Development 5 year plan

Discovery

Concept design

Detailed design and procurement

Execution (Construction)

Hook Up Inshore

Commissioning

Start Up

Sub sea Development

Production Drilling


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Consortium / Project Concerns

Participating Interests

Obligations of Participating Interests

Establishment of an operating committee

Powers and duties of operating committee

Voting Procedures

Establishment of work programs and budgets

Itemization of expenditure

Over expenditure provisions

Revenue split

Capitalization future

Default

Withdrawal by one party

Carried interests and costs.


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Component Parts

Accommodation and Helideck

Offloading and Flare

Process Systems

Blast Walls and Escape Tunnel

Hull

Main Deck

Turret System.


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FPSO; Various Component Parts


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Contract Stages in FPSO Project

Conversion or New Build

Mobilisation and Hook Up

Utilisation

Demobilisation


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Interfaces

Gap between shipyard practices and off shorestandards

Industrial Culture

Country Culture

Company Culture


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Insurance during Conversion.

BAR or SRL? Builders All Risk: Subject to specific terms, conditions and exclusions,

the BAR insurers against all risks of physical loss of or damage to thesubject matter insured caused and discovered during the period of

insurance, including the cost of repairing, replacing, renewing anydefective part condemned solely in consequence of the discovery thereinduring the period of insurance of a latent defect.

Ship Repairers Liability Insurance: Covers shipyards legal liability to payby reason of liabilities imposed on it by law for physical loss of or damage

to watercraft (including an FPSO) in its care custody and control for thenpurpose of re[pair or alteration. The legal liability is normally the result ofnegligence of the bailee (the shipyard) to the property of bailor (theOwner).

BAR; covers all risks of physical loss / damage to the subject matter

insured (unless excluded) including consequences of faulty design. SRL;no coverage without negligence.

BAR; covers all latent defects. Covers damage to unit and any othersproperty / personal injury caused, if lines part and unit breaks away fromrepair berth. SRL no coverage for latent defect without negligence.


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Conversion Contract

1 Ensure that Yard BAR covers faulty welds

2 Ensure Yard insurance Include coverage for Faulty Design or

Defective Part

3 Contract out of the QA/QC systems

4 If use Buyers insurance then Yard should be named as a Co-assured

with rights to proceed directly against underwriters and have

administration of claim.


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Points of Concern during

Conversion

Condition of Vessel on arrival Defects or problems discovered during conversion

Details of Works

Standard of workmanship

Supervision and Testing

Change Orders

Suspension

Termination Delays


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Scope of Works

DRAWINGS;

APPROVED FOR CONSTRUCTION DRAWINGS.

Delays in obtaining AFC Drawings? Who is responsible?

Effect on Timeline?


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TPS/OFE/BDE

Technical Purchase Specification (TPS). Not just for rigs but

also relevant to other building projects where specialised

equipment has to be sourced from third party such as FPSOContracts. Whether Owner or Yard is responsible for

procurement, Yard needs to be involved with supplier.

Owners Furnished Equipment (OFE). There will still be anecessity for the Yard to approve which supplier or

manufacturer is chosen and whether that equipment will

integrate into the design of the Vessel. Whilst Buyer pays Yard

has to ensure:

That Buyer orders equipment that is compatible with the overall design,

That Buyer orders the equipment in time, according to TPS


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TPS/OFE/BDE

Buyers Designated Equipment (BSE). Buyer tells Builder

what equipment to procure and he gives Builder funds in

advance to pay. (If not Builder exposed before first

installment paid.)

Builder has to get involved in the procurement andapprove jointly with Buyer the suppliers. He must also

Check that equipment is ordered on time;

Check that it is compatible for design;

Attend Factory Acceptance Tests (FAT).


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Procurement Owners Equipment

Tendency by some Owners to treat Yard as a fabricator, rather than aspecialist; but when things go wrong stick the Yard for all delay and design

problems. These responsibilities have to be expressed clearly.

Close coordination with Class. Failure by Owner to do this can hold up projectlater on. Yard should not assume Owner is doing this on OFE.

Incorporate the procurement schedule into the Building Contract where thereare significant Buyers items/supplies.

Prioritisation, that is, arranging for most important items to be procured anddelivered first.

Yard attendance at FATs.

Storage and maintenance of Owners Supplies. Need to be adequatelyprotected. Who insures?


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Change Orders

Owners Modifications

Contractors Modifications

Regulatory or Class requirements


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Utilization Contract

Day rate on Hook Up Not flow of Oil ! Scope of responsibility

Quality of Oil

Day Rate Capital Cost Element

Hire Element

Escalation and Inflation Linking

Deductions Net Loss of Time or Period?

Total or Partial

All or any one service Define Critical Systems and make special provision.

Maintenance generally


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Utilization Contract

PURCHASE OPTION Exercisable within limited period

Owner to have continuing management duties

SUSPENSION Partial or Total?

How Long For? Suspension Rate

TERMINATION With Cause Without Cause

Mutual Consent


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Demobilization

Lump sum.

Repairs to Unit.

Demucking / Sludge removal

Cleaning up bad chemicals. Mercury

On site debris.


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Consequential Damages

Damages in English Law for breach of contract falls into two

categories:

Direct loss; which is recoverable from the party in breach; and

Indirect loss; which is only recoverable if it was reasonably

foreseeable at the time the contract was entered into.

Courts generally interpret consequential losses as falling within

second so that an exclusion of such loss will not necessarily

extend to loss of profit, loss of production, etc, as such loss may

be held to constitute a part of direct loss.

(BHP Petroleum and Others v British Steel Plc (1999) I Lloyds Rep 387)

04-paul aston - fpso conversion and utilisation contracts 000

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