Unusually tight conditions in the FPSO market are forcing oil companies to choose unfavourable contracting arrangements that could increase development costs by as much as $1 billion, according to a top executive at a floater company.

Oil companies have two options when it comes to contracting floating production, storage and offloading vessels — they either lease FPSOs that are owned and operated by the contractor, or they buy the FPSOs outright under a turnkey (engineering, procurement, construction and installation) arrangement.