Hanwha Ocean is vying for a contract for a floating production, storage and offloading (FPSO) facility to be installed at the Venus oil field in Namibia, Africa. With Hanwha Ocean's offshore plant institutional sector failing to win major projects over the past five years and continuing to post losses, the industry is watching to see whether a successful bid can lay the groundwork for a rebound.
According to foreign media on the 7th, concerns were raised at the recent Namibia Oil and Gas Conference that the final investment decision (FID) for the Venus oil field project could be delayed until next year. Many had expected the FID for the Venus development to come in July, but it was pushed back once because the Namibia government and the developer, France's energy company TotalEnergies, failed to finalize an agreement on financial terms.
The project calls for installing up to 40 production and injection wells on the seabed at a depth of about 3,000 meters off southern Namibia to produce crude oil, then processing and storing the oil on an FPSO before offloading it to tankers. The FPSO facility's production capacity is 150,000 barrels per day, and the industry estimates the total project size at $3 billion (about 4 trillion won). TotalEnergies is targeting 2030 for first oil from the Venus field.
Hanwha Ocean is currently participating in the bid for this project and is in a final competition with Netherlands-based offshore plant company SBM Offshore. Once the developer TotalEnergies makes the FID, the FPSO order will also be finalized. As the project has progressed more slowly than initially expected, it has become uncertain whether Hanwha Ocean will win a large offshore plant project this year.
At present, excluding one-off effects, Hanwha Ocean's energy plant institutional sector continues to show weak results. The energy plant institutional sector posted an operating profit of 6 billion won in the second quarter of this year, returning to the black, but that was due to temporary revenue reflected from delivery of the previously ongoing Petrobras FPSO P-79. It also recorded an operating profit of 39 billion won in the fourth quarter of last year, which likewise was a one-off effect from additional settlement due to changes in contract terms for an existing project.
Hanwha Ocean's large offshore plant business has seen no new orders since the P-79 project. P-79 is an FPSO project that began in 2021 when it was Daewoo Shipbuilding & Marine Engineering. In financial markets, there is analysis that the halt in large offshore plant orders will increase fixed-cost burdens and worsen profitability in Hanwha Ocean's plant institutional sector.
Hanwha Ocean is making every effort to bolster its competitiveness in offshore plant orders. This month, it received approval in principle (AIP) from classification society DNV of Norway for a low-carbon standard FPSO design framework and obtained a Product Sustainability Execution Plan (PSEP) certificate from U.S. classification society ABS. TotalEnergies is reviewing the application of carbon-reduction measures in the Venus project development.
In addition, Hanwha Ocean received approval in 2024 from classification society BV for a standard FPSO concept design tailored to West African conditions, and this year it also obtained class certification for a standard FPSO front-end engineering design (FEED) specialized for South America.
In this bidding race, there is a view that price competitiveness and order track record will influence the final selection. Rival SBM is a specialist FPSO company operating 16 FPSOs. It is already executing FPSO projects with TotalEnergies. In the industry, there is also analysis that the technological gap with Chinese companies is not large, so Hanwha Ocean's chances of winning the FPSO order are not high. SBM holds standard FPSO design technology and outsources FPSO hull construction to Chinese shipyards with which it has partnerships.
However, in terms of price competitiveness, some say Hanwha Ocean still has a chance because SBM has indicated it does not intend to cut prices to win the Namibia project. On a second-quarter earnings conference call last month, when asked whether it would accept lower margins to secure the Namibia project, SBM said, "The Venus project is strategically important," but added, "We do not lower the expected rate of return for individual projects."
Even if Hanwha Ocean wins the Namibia FPSO order, short-term profitability deterioration appears inevitable. That is because the FPSO design phase alone takes one and a half to more than two years, creating a revenue gap.
Bae Gi-yeon, an analyst at Meritz Securities, said, "If it wins FPSO projects such as the Namibia project, the energy plant division is expected to post a loss of 317 billion won through 2027 and then swing to a profit with 831 billion won in 2028." Bae added, "With FPSOs, short-term losses are inevitable even if you win orders, and if there are no orders, the outlook for a profit in 2028 could change."