Both vessel owners and oil and gas companies are acutely aware of the increasing need for collaboration across the offshore industry
Day two of the 2020 Offshore Support Journal Conference & Awards highlighted the growing need for co-operation across the industry. Owners had the unique opportunity to hear, first-hand, from the IOCs and to engage them in discussion. Attendees also gained insight into the innovations occurring in crew management and operational financing, with executives from the sector’s top companies offering strategic advice on weathering the ongoing turbulence.
Pressure on owners
Kicking off a series of remarks from IOC representatives ahead of an audience question and answer session, BP’s Global Maritime Category manager Patrick Gruppo succinctly outlined the position of the IOCs.
"Being an IOC, we want to have our cake and eat it. We are looking for emissions reductions and efficiency," he said.
"This inefficiency is within our supply chain. This waste is in our supply chain. The ways of working in the past simply will not be part of the future. We are looking for much more collaboration with our suppliers."
Mr Gruppo said he felt "the door was open" for oil companies and suppliers to have conversations and find shared solutions.
Mr Gruppo’s counterpart at Shell, Bo Jardine, focused on the business impacts of climate change, but reiterated many of the same points.
"Truthfully, I think the industry can cut somewhere between 30-40% if the existing fleet would try a little bit harder," he said.
"How does that come about? Perhaps through IoT, perhaps from fuel cells, perhaps other technologies. The technology is there. It is just, how do we apply it and how do we commercialise it?"
Mr Jardine said that, as a former mariner, he felt the maritime industry is slow to change, but he acknowledged that measures are now being taken.
Mr Jardine also acknowledged the cost realities of the IOCs asking for further cuts and called for partnerships.
"I know the IOCs ask for things and [the owners ask], well, how is it going to get paid for? I think that is where we are going to have the shared discussion around partnerships."
Adding another call for partnership, Mr Jardine said the industry needed to police itself, as he was not convinced that government regulations would be enough: "It has got to be self-policed within the industry, and I can tell you, from the Shell side, we are here to partner with you to make that happen."
He said the impetus for emissions cuts and efficiency improvements within the OSV fleet would only grow as emissions-tracking initiatives took hold.
"This is going to become more paramount as we start to actually track the emissions of the fleets in the world. As we start to build a picture of what the CO2 footprint looks like, then we set targets about cutting that CO2 footprint. We also have to cope with what is coming, which will be taxes and tariffs on emissions, which will affect the fundamental economics about how we select the vessels," he said.
"We want to partner with you, and we want to work with you, that is what we do. And we want to be your partner in business as much as we are your partner in safety."
Chapter XI most popular restructuring mechanism
Norton Rose Fulbright partner Matthew Thorn discussed a spate of recent restructuring cases in the offshore sector, beginning with an overview of the restructuring options available for businesses, including US Chapter XI measures, English schemes of arrangement, Singapore’s new restructuring laws and EU measures.
Mr Thorn recommended liquidation analysis when restructuring plans are drawn up.
Chapter XI remains the preferred option for large, international companies, despite the costs involved, he said. Meanwhile, the English schemes of arrangement measures, with their reduced costs and lack of all-encompassing insolvency proceedings, are attractive to companies wishing to reduce risks to their reputation.
Of both the Singaporean option and the recent EU restructuring directive, Mr Thorn said it remains to be seen how these would develop as more companies opt for them. The directive has not been implemented across the EU yet, but EU member states are required to transpose it into their national laws by July 2021.
Mr Thorn drew on several high profile restructuring cases – including Tidewater and most recently, Bourbon – and noted the trend towards debt-for-equity swaps. As traditional shipping banks move out, new players will enter the market, he said, cautioning that the new entrants will not necessarily play by the same rules as the banks.
Mr Thorn said early engagement with creditors was key to ensuring companies have as many options available as possible, as was abiding by insolvency principles, and he cautioned that operational issues should not be ignored: “Correcting the balance sheet is all well and good," he said. "But if the underlying operational issues are not fixed, the company will continue to decline in a competitive environment.”
More scrapping to balance market
Chief executives at some of the largest global offshore companies said they are going through major transformations as regards debt restructurings, cash flow provision and fleet numbers, but that more is required.
Tidewater president and chief executive Quintin Kneen said the obvious way to tackle vessel oversupply was to sell laid-up ships for environmentally sound demolition.
Of the 900 to 1,000 OSVs in lay-up globally, or unfinished in shipyards worldwide, many will remain out of action for at least another five years, according to market analysts.
“I do believe we are past the worst of the downturn,” said Mr Kneen. “But, to truly revitalise we need to continue to scrap, and we will.”
Tidewater has around 60 vessels in layup and is paying around US$13M annually to keep its idle fleet operationally ready; it intends to further cut this overhead.
After mergers and debt reconstruction, Tidewater now has a fleet of around 210 vessels, down from more than 270 after its merger with GulfMark Offshore in November 2018.
Tidewater reduced its fleet by 34 vessels in 2019; this followed 35 vessels exiting the fleet in 2018, 39 in 2017 and eight in 2016.
“There will be a rush in vessels going to breaker yards,” said Mr Kneen. “But there are not enough yards to break the laid up global fleet.”
Bourbon Offshore chief executive Gaël Bodénès agreed: “It is about controlling costs and not keeping vessels stacked,” Mr Bodénès said. To rebalance the market he said: “We need scrapping to get to a critical size of the fleet … If we keep going as we are, there could be no industry left in the next five to six years.”
Riviera will host a series of 45-minute webinars on subjects ranging from maritime propulsion to vessel optimisation, ballast water management, maritime air pollution and maritime leaders among many others commencing 5 May 2020. Find a list of the webinars and register your interest now