Saudi Arabia and Abu Dhabi continue to scale up investments in offshore oil and gas, driving up demand for OSVs and jack-ups, along with day rates and utilisation, writes VesselsValue commercial offshore analyst Charlie Long
The Middle East, in particular Saudi Arabia and Abu Dhabi, are investing heavily in their respective oil and gas industries and making no bones about their growth and expansion plans.
Saudi Arabia announced it would be rapidly scaling up oil production in the region, producing 12M barrels per day (b/d) and aiming for 13M b/d by 2027.
Within Abu Dhabi, state oil company ADNOC has projected a target of 5M b/d in production by 2025. As a result, ADNOC has also increased the number of jack-ups required in the UAE region.
The increased level of production and has had a positive knock-on effect, not only for the jack-up drilling fleet, but the offshore supply vessel (OSV) fleet as well.
OSV: general market
The rebound in the oil and gas market during 2022 has bolstered OSV activity in the Middle East Gulf, having a positive impact on day rates, utilisation and asset values.
Figure 1.0 shows the current Middle East Gulf OSV fleet utilisation using VesselsValue’s AIS tool. If a vessel has not signalled for longer than eight weeks, then VV considers it laid up/inactive. Platform supply vessel (PSV) and anchor handling tug supply vessel (AHTS) utilisation on average remains at 89% in the Middle East, which is a good level, underlining the current buoyant offshore market.
The remainder of vessels considered laid up are likely to have sustained long-term layup (more than four years), meaning they are unlikely to ever return to the market.
Hungry for tonnage
2022 has been a busy year for OSV (AHTS/AHT and PSV) S&P activity, especially during Q1 when owners found themselves rushing to acquire and reactivate tonnage, as demand was on the rise. Figure 1.1 shows the top five Middle Eastern buyers of OSV tonnage.
An outstanding effort was exhibited by Rawabi Holding’s commercial team, making up 52% of the Middle East Gulf purchases this year alone for OSVs. Figure 1.2 shows some of its most notable purchases from 2022.
Saudi Arabia’s Rawabi Holding has been vacuuming up Chinese resales at a quick rate, leaving little over for its competitors. This has proven to be a good move by Rawabi, by decreasing the average age of its OSV fleet, while simultaneously improving its market share in the KSA.
What’s next?
The mixture of market fundamentals, including the large capex spending plans projected by NOCs, an ageing OSV fleet, distinct lack of newbuilding seen in last seven years, units sold out of the sector and assets sold for demolition as part of some larger owners’ fleet renewal programmes, leave many confident there will be a continual positive trend ahead for the Middle East OSV market.
However, the recent hike in interest rates and general slow down in economic growth felt by the western economies cannot be overlooked. This could result in lower levels of demand and a potential pause in investment decisions. Going forward, this will be something to monitor closely as we approach Q4 2022.
Jack-ups: Middle East at the helm
With Saudi Aramco proposing a target of 90 jack-ups operating within the KSA region by the end of 2024, this has led to significant S&P activity by one KSA player, ADES International. In 2022 alone, the company purchased 21 rigs and spent about US$1Bn. Figure 1.3 shows how aggressive Ades has been on the S&P market compared with the other two major jack-up purchasers in the Middle East.
What’s happened to market values in 2022?
William Shakespeare’s quote ‘’better three hours too soon than a minute too late’’ is somewhat relatable to ADES International’s buying strategy and market timing in the jack-up drilling rig space, as the number of workable and quality units left in the market is decreasing daily. All of which is increasing asset values across all ages and day rates for jack-ups in general.
For example, on 28 January, the now Admarine 688 (ex Deep Driller 1, 375 ft 2006 blt PPL), which was warm stacked since November 2016 with SS/DD overdue, was sold to ADES International for US$12.25M.
VesselsValue’s automated Market Value the day before the sale was US$13.61M (considering the asset to be in a seaworthy and operating condition).
Fast forward to today and the VesselsValue automated Market Value for Admarine 688 has increased to US$40.65M. Not a bad increase in the space of seven months!
Conclusion
The Middle East shows no sign of slowing down and it is clear it is committed to the oil and gas heritage and industry. As we enter Q4 2022, and with the increasing need for energy security by European nations due to the Russian and Ukrainian war, we are confident the market sentiment will remain positive going forwards for the Middle East.
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