The tonnage oversupply continues to plague the market for Offshore Supply Vessels despite an increased exploration and production activity in the oil market, reports Patrick Lee
Profits continue to elude OSV operators even though oil prices have recovered to around 70$ per barrel, and this is[ds_preview] mainly due to a supply-demand balance. Rystad Energy partner and head of consulting (Asia-Pacific) Jon Frederik Muller, recently painted an optimistic picture for oil prices, stating that reduced output in OPEC members helped oil prices to recover. Muller also noted during an industry event in Singapore that increased scrapping of drilling rigs had enabled charter rates and utilization to improve.
And oil majors are facing pressure from investors and shareholders to produce as much oil as possible in order to pay dividends, Pareto Securities Asia’s managing partner Erik Stromso added: »Investors are investing billions of dollars in these companies on a monthly basis and they want that money to go to work. Now, oil companies are more pressured to focus on how much oil they can produce in the next three years to pay dividends.«
However, Swire Pacific Offshore’s general manager, Florent Kirchhoff, told delegates that the increased exploration and production activity has not translated into profits for OSV owners yet.
OSV owners stated that 2018 was another consecutive year of declining revenue for offshore marine contractors despite the stabilisation of crude oil prices and uptick in number of sanctioned upstream projects. Kirchhoff said: »Definitely, we can see there’s more activity around the market. The big question is whether this is seasonal or structural. There’s still too much tonnage in the market and how fast the market will recover, is going to be interesting.«
Consolidation has also not been a priority for the OSV sector, unlike the rig segment, which has seen the mergers of Ensco and Rowan, as well as Atlantica and Energy Drilling in recent months.
VesselsValue’s Singapore head, Charlie Hockless, said that fleet valuations would drive consolidation, using the 1.25 bill. $ merger of US OSV players Tidewater and GulfMark as a case study.
At the time of their merger in January 2019, Tidewater’s OSV fleet, comprising around 100 platform supply vessels (PSV) and 75 anchor handling tug supply (AHTS) units, was valued at just under 900mill. $, while GulfMark’s fleet, comprising around 50 PSVs and 60 AHTS units, was valued at around 285mill. The merger resulted in a combined fleet of around 150 PSVs and 135 AHTS units valued at over 1 bill. $.
Tidewater is top owner
Hockless said: »Tidewater is now the top owner in terms of size. Here, we can also see the importance of high-value tonnage in particular operating areas, with the value of Tidewater’s fleet exceeding that of Bourbon and Edison Chouest, which have around the same number of vessels. Successful operators such as Solstad Offshore has the second highest valued fleet despite having much fewer vessels. So when you’re merging, you also look at valuation metrics.«
Kirchhoff and Stromso however, emphasized that other factors are reviewed before consolidation. He said: »Mostly, I think it’s excess capacity. The players in the OSV market built a lot in the good years, there were speculative orders in Chinese yards. There’s also been a big squeeze in drilling, more intensive capex involved in drilling than in OSV deployment.
Stromso alluded to the number of OSV companies that have sought rehabilitation, such as Ezra Holdings and Swiber Holdings in Singapore: »The vast majority of OSV companies is run by banks, which don’t have the same experience or ambition to make strategic consolidations because they don’t see themselves as equity owners but lenders. Drilling companies are still run by their management, which are taking strategic measures and can see the economic rationale for doing what they are doing. The OSV market is also highly fragmented so I’m not sure if the industry will benefit from consolidation.«
Patrick Lee
