Offshore support vessel (OSV) owners are scrambling to reactivate vessels, driven by “bumper” offshore investment, and tonnage in the Middle East could be “sold out” by the end of the year, according to an analysis by a leading energy analyst
In its analysis, Westwood Global Energy said, “Higher oil prices are driving a bumper year for offshore investment, with upstream engineering, procurement and construction (EPC) spend projected to reach US$75Bn for 2022, representing a massive 80% increase year-on-year.”
A tight oil market, elevated oil prices in excess of US$100 per barrel for Brent crude and uncertainty from the Ukraine crisis are underpinning offshore E&P investment and increasing offshore rig activity.
Particularly robust offshore drilling sectors are the Middle East, with FID on projects such as QatarEnergy’s North Field Expansion Phase 1 and Saudi Aramco’s Zuluf Incremental, followed by Latin America, for projects such as Shell’s Gato do Mato offshore Brazil.
Contracted offshore jack-ups are at a six-year high, with effective utilisation, which excludes cold-stacked rigs, reaching 82%. A tender by Saudi Aramco for an additional 30 jack-ups in the Middle East will further drive activity in Saudi Arabia.
The offshore drilling recovery has also reached into the deep waters of the US Gulf of Mexico, where global drillship effective utilisation reached 79% – its highest level since 2014. Westwood Global Energy said dayrates improved for the drillship sector and are now “routinely in excess of US$200,000/day. Bearing in mind it’s not exactly like-for-like since some of the higher US Gulf of Mexico rates have been associated with 20,000-psi deepwater drilling programmes.”
As a result of the surge of offshore activity, OSV owners have been scrambling to reactivate their fleets, especially following the surge of stacking that occurred during the pandemic.
Westwood Global said the total laid-up fleet fell by 32% at the end of Q1 2022 – its lowest since 2016 – with 321 vessels either reactivated, scrapped or written-off (ie, considered commercially inactive).
The offshore energy analyst also pointed out an emerging tightening availability for what it describes as “premium” OSVs, which are vessels of less than 15 years old.
It said, “only 33% of the current global laid-up fleet consists of premium vessels”, with “the majority (67%) of laid-up OSVs over 15 years old and essentially representing an ageing fleet.”
As a result of age restrictions imposed by oil operators on chartered tonnage, these older OSVs that have been stacked for three years or more in ‘deep layup’ are “highly unlikely to re-enter service and therefore not included in Westwood’s total utilisation calculation.”
Utilisation forecast to hit 80% by 2024
Westwood Global Energy said the tightening global OSV market is driving improvements in utilisation, led by the Middle East, which has near 90% effective utilisation, likely resulting in a “sold out” market by the end of the year. “There has been a significant uptick in rates for new tenders in the region, which in turn is encouraging mass reactivations as well as opportunistic sale and purchase activity.”
Overall, total utilisation for the global OSV fleet stands at around 63%, which is a 7% increase from 2021. Effective utilisation fell quarter-on-quarter to 74%, which is not surprising given the sizeable number of reactivations registered during this period. This will “see a sharp correction” with the increase in drilling activity over the course of the year.
Westwood Global Energy expects future utilisation will increase, forecasting in its low-case scenario, which assumes no further scrapping, to reach 75% by 2024. In its high case, utilisation could reach 88% should the entire laid-up fleet be removed from the market. A mid-case outlook on the other hand, assuming scrapping of the >15-year-old laid up fleet, would result in 84% utilisation by 2024.
OSV newbuilds and world fleet
Growing demand, improved utilisation and higher dayrates are all good indicators for vessel owners. Complying with local content, age restrictions and low-emissions requirements from operators, however, will put increasing pressure on owners with ageing fleets.
The total orderbook of registered IMO newbuilds now stands at 215, but only 67 of these are considered ’Tier 1’ vessels and likely to be delivered in the next 12-24 months, according to Westwood Global Energy.
Further analysis by the energy analyst indicates that over the next two years, 430 vessels will pass the 15-year age mark and be considered ’non-premium’. With only 67 vessels in the Tier 1 orderbook, this suggests the premium fleet will shrink significantly over the next few years without substantial newbuild orders.
“It wasn’t all that long ago there was a heavy oversupply issue in the OSV market; however, the issue facing owners today is not the sheer number of OSVs but the age and quality of available tonnage and whether owners can raise the capital to invest in newer, cleaner vessels for future offshore operations as E&Ps continue to focus on age restrictions and lowering their overall emissions,” concluded Westwood Global Energy.
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