Hornbeck Offshore Services’ Todd Hornbeck why discusses market conditions, notably in the US Gulf of Mexico, remain soft
Despite improving fundamentals and more drilling activity in the US Gulf of Mexico, the market for OSVs remains depressed, with some US owners reporting fleet utilisation levels in the range of the mid-20s to lower 30s.
Hornbeck Offshore Services (HOS)’ chairman, president and CEO Todd Hornbeck says the expectations were that the positive sentiment previously observed would have translated into improved utilisation and day rates in Q3 2019, but notes “some of that work was pushed to the right.”
He says: “While we are still seeing signs of improving demand fundamentals for offshore exploration, production and development activities globally and in our core markets and believe that there are positive indicators for future improvement, we simply have not seen them turn into improved financial performance yet.”
Any improvement in financial performance at HOS will be underpinned by its relatively young fleet of high-spec vessels. At the core of the fleet are 66 OSVs and 10 multi-purpose support vessels (MPSVs), including HOS Riverbend, a dynamic positioning (DP) 2 class-capable flotel, with accommodation for 194, and HOS Achiever, a DP class3-capable flotel with an active heave compensation crane with a capacity of 160 tonnes and accommodation for 267. Both flotels have active motion-compensated gangways for walk-to-work solutions.
“Our fleet of HOSMAX OSVs is the largest fleet of vessels greater than 6,000 deadweight tonnes in the world,” says Mr Hornbeck. “Whenever the recovery truly arrives, this fleet will be among the most attractive on the planet to our customers, given its size and capabilities.”
Despite another year of record-shattering oil production in the US Gulf, the recovery has been painfully slow to take hold. Mr Hornbeck says the “slope of this recovery is very gradual, but its attitude is very stubborn.”
Highlighting a pickup in deepwater drilling activity, he says: “There was an average of just over 20 deepwater drilling units actively working during Q3 2019, which is the best number we’ve seen since the middle of last year. In the greater Gulf of Mexico region, that number was just over 26 drilling units actively working during the quarter, which was also an improvement.”
Day rates are also being depressed by OSV owners that will keep their boats working at all costs.
“Part of this reality is that there are vessel operators that value market share more than we value improved long-term sustainable rates,” he says. “That is their prerogative. We frankly don’t see the long-term business rationale from such an approach. The challenge is that we are playing a game that does not have a shot clock, and so we are unable to predict with any certainty when the long-term opportunities will reach us, or when the short-term thinking will catch up with them.”
Mr Hornbeck says one of the brightest spots for HOS has been in its non-oilfield government business and that deepwater Mexico and Brazil are also each showing promise. “We still believe that the markets for our vessels will recover and that we are seeing early signs of recovery, but [we] are reticent to predict when that will translate into actual business improvement for us with sustainable utilisation and day rates,” he says.
Adds Mr Hornbeck: “Certainly, our expectations for an inflection point in 2019 have been dimmed. Nevertheless, our strategy is to remain disciplined with our fleet of HOSMAX vessels in order to negotiate day rates and contract terms more in line with the value proposition that our unique fleet provides.”