Many happy returns for OSV owners in 2024 and beyond

A seller’s market

In describing the current volatile S&P landscape, Mr Meade says there is a disconnect between newbuild and secondhand OSV pricing. “Newbuild prices are going up exponentially. Older boat pricing is going up double exponentially”. As an example, he cites the rise in the value of existing anchor handlers, which have gone up 40% in just three months.

Asking prices for secondhand PSV tonnage “can change from week to week,” says M3OBUK managing director Robert Day. “A price offered one week might jump £2.0M (US$2.5M) the next. Demand is increasing but supply is not”, he says. With no new significant newbuilding capacity entering the market, “you are getting squeezed all the time. The sellers are now dictating everything rather than the buyers”. Concludes Mr Day, “The market has been flipped on its head”.

In the past, when more tonnage was available for sale, buyers might have had an opportunity to counteroffer. The current tight market offers little time and opportunity for haggling.

“There’s an educational process underway for both buyers and sellers,” says Mr Meade. Previously, a seller might have offered a vessel for sale at US$10M and a buyer might have made a counteroffer of US$9M. Now the market is so hot, if a seller offers a price of US$10M for an OSV, the buyer needs to almost accept on the spot or risk a possible price increase the next day.

“There has been a real shift; it’s a seller’s market, not a buyer’s,” says Mr Meade.

No major newbuilding near term

Both Mr Meade and Mr Day see little chance of major OSV newbuilding programmes in the near term. “We are not going to see the newbuilding programmes needed to absorb this current market demand,” says Mr Day. “Secondhand tonnage is going to be the only tonnage available, and prices are going to continue to go up.”

Financing an OSV for traditional oil and gas has become far more complex and expensive, and those favourable terms offered by Chinese shipyards in the past have dried up. And traditional banks are not interested in investing in fossil fuels. “Banks won’t lend to oil and gas, but private equity will,” says Mr Meade. And while private equity might be the way ahead to back some newbuilding, shipyard slots to construct OSVs are few and far between. On a recent visit to Chinese shipbuilders, Mr Meade observes that one could “not swing a cat in those shipyards”, noting they were all filled with high-value container ships, gas carriers, car carriers, windfarm vessels and other infrastructure.

“There are no slots in Chinese shipyards, and to get one you are going to have to be commercially competitive,” he says.

Day rates, newbuilds and secondhand values

Positive momentum in the offshore oil and gas market, driven by increased demand and tight vessel and rig supply, is translating into more commercially attractive day rates. In its Q3 2023 results, Tidewater reported average day rates have jumped about US$7,200 or nearly 70% since the offshore oil recovery began at the end of 2021. The average leading edge day rates for its large PSVs are US$28,600 in Q3 2023, up from US$23,500 per day in Q2 2023.

Despite this precipitous rise in day rates over the last 24 months, they are still not at the levels needed to justify newbuilds. An analysis by Tidewater suggested average day rates need to hit US$38,000 and utilisation be maintained at 90% to justify ordering a US$65M newbuild to achieve its cost of capital over a 20-year useful life.

“Rates have a bit to go,” observes Mr Meade. But he points out, “There will be an inflection point when the price of a secondhand vessel will come close to the price of a newbuild”. That day has not yet arrived but when it does, Mr Meade says, owners will have to address “the elephant in the room” – namely, what path are OSV owners going to choose to decarbonise their fleet operations over the next two decades? “If you are going to build a vessel with a 25- to 30-year life, what engines are you going to use? What fuel? What will fuel availability look like?” The energy transition has painted an even more complex and confusing newbuild picture for owners. Methanol, ammonia, hydrogen, LNG and biofuels or another alternative energy source will all be considered.

“No newbuilds, increasing demand and stagnant supply,” says Mr Day. “If you compound those things together, this means existing assets will continue increasing in value. Prices will keep pushing up and values will continue to rise”.

Mr Meade sees 2025 as the earliest start for any significant newbuild ordering. Given that and factoring in a delivery timeframe of 2 to 2.5 years, this means significant new tonnage capacity will not enter the market until 2027 or 2028.

One newbuild multi-purpose support vessel was ordered by the Norway-registered Hercules Supply in December, but as Mr Meade and other brokers point out, the vessel will incorporate components that were “lying in a warehouse at the shipyard” from a previous order that went into default. He says there are just a “handful” of similar opportunities for newbuilds that he is closely monitoring.

But waiting to construct a newbuild is not attractive right now, Mr Day points out. “After eight years of downturn, owners are ready to make money now. When the sun shines, you want to make hay. You want to get boats on the water now that can generate money quickly. This means you are going to look at secondhand tonnage”.

And while the OSV market has seen significant recent consolidation led by Tidewater, Mr Day sees the S&P market transforming with owners looking to acquire key fleet assets, instead of entire operations. He cites Tidewater’s acquisition of 37 PSVs from Solstad, Britoil Offshore Services purchase of 30 Vroon OSVs, and AD Ports takeover of 10 OSVs from E-NAV Offshore as prime examples.

“It’s about selecting the vessels you want and buying them” he says.

Both Mr Day and Mr Meade see the Middle East as potential big players in the secondhand tonnage market as Saudi Arabia, Qatar and Abu Dhabi look to underpin their ambitious plans for fossil fuel production growth, and possible new entrants are attracted by the resurgent oil and gas market.

One large fish that has yet to be reeled in is Bourbon. With one of the largest OSV fleets in the world, the Marseille-based OSV firm is controlled by creditors. “It’s a mammoth thing,” says Mr Day. “There was a rumour that circulated for a while concerning a possible sale to the Middle East”.

Bourbon is one of the companies to watch in 2024, say Mr Meade and Mr Day. They also point to Tidewater. “They are an industry leader and have been growing through consolidation and fleet acquisition”, says Mr Day.

Mr Meade thinks the market should keep a close eye on Britoil Offshore Services, which has skyrocketed in a short time to climb the standings of the top 10 OSV owners, with its purchase of 30 PSVs from Vroon and its addition of top talent from the former Swire Pacific Offshore.

So, what is the outlook for the OSV market in 2024? “2023 was an exciting year for owners, and 2024 is going to be as equally interesting,” concludes Mr Day.

Says Mr Meade, “These days, I see a lot of smiling faces, and I think we are in for more good times”.

Riviera Maritime Media’s OSJ Week kicks off on 6 February with two simultaneous, well-established, one-day events: the Offshore Wind Journal Conference and the Offshore Support Journal Subsea Conference.

Followed by the Offshore Support Journal Conference, Awards and Exhibition 2024 will be held in London on 7-8 February 2024. Click here to purchase tickets and attend this industry-leading event.

For more about OSJ Week, click here.