As lower cost solutions for field development are sought, the conversions of existing tankers is becoming one of the preferred means of generating production capacity and it will continue to play a significant part in procurement and production strategies. The challenge for the contractors is how to manage and share the risks of delivering suitable capacity in a manner that will not only enable them to generate an acceptable rate of return but also keep their potential exposure to acceptable levels.
There are significant risks associated with the conversion of the existing tonnage, and in common with other forms of offshore construction, the FPSO conversion sector has seen numerous examples of projects which have experienced substantial cost overruns and delays. The risks of conversion itself are usually shared between the contractor and shipyard. The oil company will probably wish to approve the conversion contract with the shipyard, and the income stream from the production contract will the key to financing the conversion costs. The level of earnings and the security package the contractor is able to offer will decide whether the project is "bankable".
It is important to identify and assess carefully the risks of the project in the areas of scope of work, management, design liabilities, title, insurance, etc.