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The Risks of FPSO Conversions

Multiple Interests Lead to Challenging Coordination

FPSO conversions from VLCCs are particularly challenging due to the overlapping roles of multiple participants on each side of the contractual relationships.  Fisher Maritime has assisted several clients, both shipyards and their customers, in projects for the conversion of VLCCs into FPSOs.  Our work has been in each of contract formation, assistance in contract management, and resolution of contractual disputes.

On the purchaser’s side, there are three main groups, each of which wishes to have their perspectives be primary in the conversion from the owner’s perspective:

  1. The marine group addresses the hull and machinery conversion
  2. The exploration group focuses on the topside production/processing equipment additions to the vessel
  3. The operations group addresses the mooring system, turret, riser attachments, and accommodation requirements.

There may be inconsistencies between the objectives of each group. Further, the need to coordinate the provision of owner-purchased equipment, the use of multiple subcontractors, consultants and engineering specialists makes the owner’s management of the contracts more challenging than most other forms of vessel conversion.

On the shipyard’s side, there also are multiple interests:

  1. The hull and machinery work, being within the shipyard’s ordinary scope of work, is addressed in the normal manner.
  2. The topside production/processing equipment, being beyond a shipyard’s normal scope of work but appearing to be sufficiently close to it, creates challenges to the shipyard in its estimating and scheduling efforts, especially when the owner provided equipment has to be integrated into the shipyard’s efforts.
  3. The turret, riser connections, and extensive mooring arrangements add further challenges to the shipyard’s ordinary scope of work.

The shipyard also engages multiple subcontractors, consultants and engineering entities to assist them.

The success of an FPSO conversion project is dependent on the coordination of the engineering, design, material procurement, equipment supply, production work and testing output of all those interest groups, regardless of which side of the contractual relationship they are on.

Fisher Maritime has assisted participants in such conversions understand where conflicting requirements had to be resolved, where conflicting schedules had to be sorted-out, why one party or the other had to bear certain unanticipated costs, which party was reasonably or unreasonably interpreting specifications, and which party was ultimately responsible for delays.

Although FPSO conversions have many facets which are unique to such vessels, the fundamental principles guiding the resolution of potential disputes, as well as the pre-contract quality assurance and due diligence requirements, are essentially the same as for other ship conversion projects. As with all vessel conversion projects, the key to success is a well-defined specification package. Fisher Maritime provides quality assurance and risk-minimization reviews of conversion specifications before contract formation.