Higher drilling activity, construction and maintenance work is keeping the bulk of the Malaysian-flagged fleet in employment
Higher levels of offshore drilling activity, construction and maintenance projects are helping Malaysia underpin improving levels of OSV utilisation in southeast Asia. Malaysia state-run oil and gas company Petronas plans to spend about half of its RM35Bn (US$8.3Bn) in capital expenditures during the second half of this year on upstream projects in the Malaysia offshore sector. In announcing the company’s first half results, Petronas president and group chief executive Tan Sri Wan Zulkiflee Wan Ariffin told local reporters that drilling activity in Malaysia was picking up, with 28 rigs in production, up from just 18 last year.
With the RM15.7Bn (US$3.75Bn) it spent on upstream projects in H1 2019, Petronas will have spent RM50Bn (US$12Bn), almost double the RM27.3Bn (US$6.5Bn) it invested in 2018.
“Malaysia has yet again been the saviour for the regional vessels,” shipbroker Fearnley Offshore Supply writes in its latest The Offshore Report on Q3 activity. “High drilling activity coupled with construction projects and maintenance campaigns have employed the active chunk of the Malaysian-flagged fleet. Foreign-flag vessels have also gotten to dip their toes in Malaysian waters, but all mostly short term.”
In forecasting its vessel requirements to support its upstream development portfolio to 2021, Petronas sees an increase in demand across all major offshore vessel types.
For its 20 greenfield projects and 30 brownfield projects, Petronas estimates ‘high’ and ‘low’ requirements of 38-44 anchor-handling tug supply (AHTS) vessels (in excess of 100-tonnes bollard pull), 67-72 AHTS vessels (equal to or less than 100 tonnes bollard pull), 49-52 platform supply vessels (PSV) or subsea support vessels and 80-83 fast crew boats. Fast crew boats, with speeds in excess of 30 knots, are seen as less costly alternatives to helicopters. Additionally, subsea services will require as many as 15 DP class 2-capable vessels in various sizes, with offshore installation work generating demand for heavy-lift barges and pipelay vessels.
Such demand is music to the ears of regional OSV owners Nam Cheong Ltd, Icon Offshore Bhd, Perdana Petroleum and Bumi Armada Bhd, which posted vessel utilisation rates between 21% and 52% in 2018.
Tightening global emissions regulations could also play into vessel requirements next year. With the IMO 0.50% sulphur cap set for implementation 1 January 2020, one of the vessels that could be an attractive charter is the first dual-fuel PSV to be built in Malaysia. A memorandum of understanding was signed between owner Synergy Marine, ship designer MTCMS and shipbuilder Shin Yang Shipbuilding in November 2018 to construct the ground-breaking newbuild, the first designed to burn LNG. Designed with a length of 76.8 m, beam of 19 m and deck area of 600 m2, the newbuild PSV will be delivered in Q4 2020. The reported cost of the vessel is US$45M.
Reining in costs
Since the downturn in 2014, international and national oil contractors and vessel charterers have focused on reducing costs, particularly by gaining better visibility in the logistics supply chain through improved communications, co-ordination and digitalisation. To lower logistics supply chain costs for upstream development in Malaysia, Petronas and 15 oil contractors –
referred to as petroleum arrangement contractors (PACs) – are collaborating in the vessel-sharing arrangement known as Integrated Logistics Control Tower (ILCT). By creating a collaborative environment and improved monitoring of the logistics supply chain, the initiative aims to drive down operational costs for offshore oil and gas development.
Speaking at Riviera Maritime Media’s Asian Offshore Support Journal Conference in Singapore in September, Malaysian Oil & Gas Services Council (MOGSC) executive officer Capt Ahmad Imran Mohd Azmi described the benefits and challenges of implementing the programme.
In 2018, more than 20 work packages were awarded under ILCT, supported by about 100 OSVs – a third of the market supply – on a five-year basis.
Capt Azmi said some of the obstacles that arose in implementing a shared-vessel strategy were vessel prioritisation, marine health, safety and environment (HSE) standardisation, vessel technical specifications, joint co-ordination agreements, liabilities, cost allocations, accumulative contract value redistribution and governance matters.
These conflicts, however, were resolved through mediation by the ILCT committee, whose members were representatives from Petronas and PACs. Overall vessel allocation and ILCT performance improvements also fell to the committee. To govern its implementation and provide guidance for vessel operations, the committee developed an ILCT manual.
Capt Azmi said ILCT delivered some promising results, reducing the number of vessels required to support operations from 142 to 130, translating into an equivalent annual cost savings of RM100M (US$24M). Petronas and PACs also benefitted from optimising travel routes, which reduced fuel consumption and lowered day rates.
Healthy utilisation and day rates
Utilisation rates and day rates for OSVs with DP class 2-capability and large PSVs have improved across southeast Asia. “There is no such thing as a sure bet in the current OSV market,” writes Fearnley Offshore Support. “However, the closest we can come at this moment in time is DP2 workboats and large PSVs.” The shipbroker notes that both vessel types came through a healthy quarter in terms of utilisation, with active vessels in southeast Asia “hitting the 90 (percent) mark for the first time this year.” This led to an uptick in day rates. Fearnley cites awards under a recent Brunei Shell petroleum tender in which day rates were in the high US$20,000 to low US$30,000 for higher capacity workboats. Beleaguered anchor-handling tug owners are also getting 20% more on the spot market for medium to large vessels, but work term rates have been relatively flat; “still well below a dollar per bhp,” notes Fearnley.
AHTS vessels could get a further boost from forthcoming deepwater activity in Australia, Indonesia and Myanmar in 2020.
There is also an increase in tendering activity for inspection, maintenance and repair (IMR) vessels, with several subsea projects set to start in early to mid-2020. Subsea operators are looking at additional tonnage to support campaigns in India, southeast Asia and Australia, says Fearnley: “Operators are reluctant to enter into ‘hell or highwater’ charters and are seeking modified bareboats or ‘pay as you use’ structures to limit risk exposure between campaigns. With confidence starting to build among owners the rebate structures are gradually fading away and rate expectations of owners rising.”
While Maritime Strategies International (MSI) associate director for offshore Greg Brown agrees that OSV market conditions in southeast Asia are improving, he cautions, “we are not out of the woods yet”.
MSI says more than US$10Bn of upstream offshore contracts have been awarded so far this year in Asia, matching the investment for all of 2018 and up over 40% of the US$7Bn spent in 2017. That spending covers projects in China, Australia, India and southeast Asia.
“Going forward, we are encouraged by activity for LNG backfill work in Malaysia and Australia and the potential for greenfield projects in Myanmar and Brunei,” says Mr Brown.
Strong activity in Australia propelled revenues by 19.4% to US$239.3M for FY2019 for MMA Offshore. Vessel utilisation ‘down under’ was 81%. The key acquisition of Neptune Marine Services Limited announced in July also grew the company’s subsea services portfolio.
During a presentation at the Asian Offshore Support Journal Conference, Mr Brown noted:
“The market could reach activity levels that allow owners to do more than survive, but the upside is capped.” He explained that market rates will be limited by the oversupply of vessels, including those laid up during the industry downturn in the last five years.
“There is still too much idle capacity, and this could be reactivated,” cautioned Mr Brown.
Amongst the southeast Asia owners with cold-stacked vessels is Singapore exchange-listed Mermaid Maritime, with eight owned OSVs. The Thai-based company narrowed its loss during Q2 2019 ending 30 June 2019 as compared with the previous three-month period in 2018, posting a loss of US$5.9M as opposed to US7.7M in Q2 2018. Mermaid Maritime’s revenue was up 15.3% year-on-year (yoy) due to higher utilisation, but slightly decreased when compared on a quarterly basis. Of the US$73M orderbook as of 30 June, some 92% was accounted for by work in the Middle East.
While Mermaid Maritime’s active vessel utilisation for Q2 2019 was 94%, only three of the owner’s eight vessels were active, equating to a ‘real’ 39% utilisation rate. Subsea vessel revenue totalled US$24.8M, up yoy from US$21.5M in Q2 2018.
Its subsea unit was able to reel in contracts valued at US$7.4M for work in the Middle East and southeast Asia. Under a nine-month contract beginning Q3 2019, Mermaid Maritime will provide air dive system and a light work-class remotely operated vehicle (ROV) services to a national upstream oil and gas company, offshore in the Middle East Gulf Cooperation Council.
Under the second contract commencing Q3 2019, Mermaid Maritime will deploy offshore diving, survey, ROV, deck crew and a third-party chartered-in vessel to carry out the offshore installation of a 2,000-m subsea manuli hose for oil production support. Additionally, the 45-day contract calls for the Thai operator to render UWILD inspection services for an international engineering, procurement, construction, installation and commissioning company offshore in southeast Asia.
In October, Mermaid Maritime announced that its indirect 95%-owned subsidiary Mermaid Drilling (Malaysia) Sdn Bhd has been placed under member’s voluntary liquidation.
Nonetheless, prospects are slowly brightening for southeast Asia OSV owners. Speaking at the conference, Mr Brown said utilisation of floating drilling rigs (semi-submersibles and drillships) is expected to rise over 70% in 2020. Jack-up rig utilisation is now climbing to more than 65%, statistics showed. He foresees utilisation for anchor-handlers and PSVs will rise to 60% in 2020, from below 50% in 2017-2018.