103 ANNUAL REPORT 2022 STRATEGY & OUTLOOK BUSINESS REVIEW - OFFSHORE PRODUCTION STRATEGIC RESPONSE TO OUR RISKS & OPPORTUNITIES Increasing our portfolio of profitable assets Yinson Production’s strategic goal is to raise a portfolio of profitable assets with a long-term EBITDA of USD500 million. Right now, in the shorter term, we are focusing on building a sustainable pipeline of conversion and redeployment projects. This is something that we have made good strides in over recent years with our new project awards and healthy project pipeline, especially in the regions that we are already active in. In the 6 to 10-year horizon, as our operational fleet becomes larger, we believe our cash flows can correspondingly become stronger and more stable. We aim to use this stronger cash position to continually optimise our capital structure, further expanding our liquidity pool to capture new market opportunities across the Group as a whole. Over the past decades, FPSO design has become increasingly complex as oil companies venture into deeper waters, leading to a demand for larger FPSOs which are able to operate longer in the fields. In tandem with that, construction costs, duration and execution risks have also increased. Oil companies tend to outsource the development and operations of FPSO assets to avoid taking on these risks and costs – something that not many FPSO companies are willing, or even able, to undertake. Plus, the global pressure that oil companies are facing to lower their emissions has also birthed a need for contractors who can innovate climate-responsible solutions and lower emissions per barrel. Collectively, this has made it harder for FPSO contractors to secure funding, contributing to a shrinking pool of FPSO contractors and high barrier to entry for new players. Yinson’s niche lies in our project execution expertise and strong track record, particularly in the area of FPSO redeployment – a method that can provide a highly competitive solution for our clients. Our capabilities have been repeatedly demonstrated through our track record going back from 1995, as summarised in the earlier sections of this review. This has been crucial in boosting our credibility as a reliable FPSO contractor who can decrease lifting costs for our client, both during asset development and throughout its operational tenure. This in turn has strengthened stakeholder confidence, allowing us to attract funding and support to grow the business and achieve our strategic goals. Leading the way with responsible solutions We embrace the energy transition and acknowledge that the growing demand for cleaner energy sources will continue to rise. Indeed, we hope that the transition will come sooner than later, as we share global concerns for the sustainability of our planet. However, at the same time, we also believe that oil & gas will continue to play an essential role in the global energy mix for decades to come, due to its well-established supply chain, reliability and affordability. The demand for oil & gas will support the global energy transition and beyond, and our role is to produce it in the most sustainable way possible. We believe that establishing ourselves as an industry leader in this space can hedge our path forward. We are looking to maximise the energy efficiency of our current and future FPSOs as much as possible in the near term with a vision towards a zero emission FPSO in the future. FPSO design is typically restricted by contractual parameters. While we as contractors can recommend emission-friendly features, it is ultimately the client who has the final word. We are excited to have established great alignment with our clients in terms of low-emission design ambitions for two of our most recent projects – FPSO Maria Quitèria with Petrobras, and FPSO Atlanta with Enauta. Kicking off as an early mover in the FPSO space with these projects, we aim to rapidly build our track record in low emission design, execution and operation, thus establish our standing as an experienced and reliable contractor who can deliver and manage risks in these areas. With market conditions currently favourable to FPSO contractors, we aim to be more selective about the projects that we pursue, focusing on projects that prioritise low emission designs. Ultimately, we hope that our leadership position in this space will allow us to influence an industry-wide transition to a low carbon future. Excellent project execution to support reputation There are two distinct phases to an FPSO project: execution, or the building phase; and operations, which takes place after the asset is built until the end of its tenure. In the execution phase, FPSO contractors are contractually obligated to deliver the asset on time and according to the agreed FPSO design. The inability to deliver on either of these obligations may have severe repercussions including a delay in operations start up, contract defaults, and even termination of the project – which can in turn have long-term effects on the company’s liquidity and reputation. At Yinson, we recognise these risks and work hard to derisk the execution phase, which is key to maintaining the confidence that our stakeholders have in us. One of Yinson’s greatest strengths which sets us apart from our competitors is our project execution model. We invest into platforms that puts needful information at our fingertips and facilitates effective cross-team collaboration. This set up allows us to be reactive and flexible, enabling us to make quick and wellinformed decisions. Industry-leading operations & safety performance Once an FPSO asset moves into the operations phase, the risk picture shifts to mainly revolve around our ability to deliver safe operations and meet the expected production uptimes. Yinson Production has a zero-incident policy for all types of HSE incidents. We monitor LTIF and TRIF as our KPIs.
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