2011 Annual Report - SBM Offshore

1.5.3 Operational overview and objectives
Lease and Operate
The lease and operation of oil and gas production facilities makes a major contribution to the Company’s
operating results and provides long-term visibility of cash flows and earnings, but also requires tight management
of complex financial, operational and contractual risks. The Company’s strategy is to maintain its market leading
position by focusing on the lease of core products with historically sound margins. The Company aims to grow by
expanding its lease fleet, but will also consider acquisitions as opportunities arise. It intends to diversify its
geographical reach and also to pursue strategic partnerships in order to secure projects of significant scale and
size.
The Company aims to maintain the high operating standards set across its fleet: to further improve the reliability
of units, to maximise production uptime for clients and to achieve continuous improvement in HSSE performance
offshore.
The Company will also lease other types of production facilities, where the Company’s lease and operate
principles are applicable.
Lease and operate principles
The lease and operation of floating production units is a capital-intensive business;; consequently the Company
approaches this core activity prudently. It applies the following principles consistently:
• Safety performance and environmental protection established as primary objectives
• Invest only on the basis of ‘a contract in hand’
• Contract for firm lease periods - five years or more with conservative depreciation policy
• Revenues are not exposed to oil price variations or reservoir performance (except to a limited extent)
• Interest and currency exchange rates hedged upon contract award
• Project debt fully repaid by lease income from initial lease duration
• Fleet operations managed in-house, with all senior staff for the fleet being directly employed, to continue to capitalize
on the Company’s unrivalled experience in the operation and maintenance of FPSOs.
Lease partnerships
The Company aims further to diversify its capital sources through partnerships. Long-term partnerships are
becoming particularly important as the scale and capital requirements of future projects increase. Partnerships
with strategic local partners are also a very efficient way to develop the Company’s business. To date, in the
Lease and Operate segment, the Company’s partners have accepted responsibility for a pre-determined part of
any project and also taken an agreed percentage ownership of the production facility.
Reasons for establishing equity partnerships include:
• financing equity investment and increasing the potential sources of debt through access to the partner’s relationship banks
and/or Export Credit Agencies
• mitigating business risks, especially for units where the initial lease contract is relatively short
• enhancing local content share
This is a customized selection from the SBM Offshore N.V. Annual Report 2011
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