Despite a bullish market, underlying economics do not justify newbuildings, but the US-based OSV owner does see acquisition opportunities
Despite buoyant OSV market fundamentals and his company’s strong financial and operational performance in 2023, Tidewater chief executive, Quintin Kneen, said now is not the right time to pull the trigger on newbuildings.
“We are still not back to a place where the underlying economics on vessels justify newbuildings,” Mr Kneen told investors during Tidewater’s Q4 2023 earnings call on 1 March.
Tidewater management estimates costs to build a new OSV would be US$65M, requiring a three-year construction timeline. Taking into account opex, dry docking, and weighted average cost of capital, an OSV would have to earn US$44,000 per day and have a utilisation rate of 90% over 20 years for an owner to breakeven.
“The cost to build a new offshore support vessel would be US$65M”
A tightening global supply of OSVs, limited newbuildings and increasing offshore oil and gas demand generated strong returns for the Houston-based company in 2023. During its earnings call, the Big board-listed OSV owner reported leading edge vessel day rates improved 40% year-on-year, ending at US$29,511. As a result, Tidewater generated US$1Bn in revenues and US$111M in free cash flow during 2023.
In a nod to shareholders, Tidewater used US$35M to conduct a share buyback programme in Q4 2023, and its board has authorised further buybacks of up to an additional US$48.6M of the company’s common stock.
Acquisitions ahead
But Tidewater is also weighing using its capital to acquire other owners. “Acquisitions remain a capital allocation priority as we do believe there are viable candidates,” said Mr Kneen.
Tidewater has been a leading consolidator in the OSV market through its merger with GulfMark, the acquisition with Swire Offshore Pacific, and an en bloc purchase of 37 platform supply vessels (PSVs) from Solstad Offshore. Tidewater’s fleet now numbers 217, including 141 PSVs, 15 battery-hybrid and two LNG-capable vessels.
Mr Kneen has a bullish outlook and sees the upcycle continuing: “We anticipate we will continue to see day rate momentum in all our vessel classes, driven by healthy demand across a variety of end markets and persistent tightness in supply.” He said realised day rates should improve each quarter of the year and expects the average day rate to improve by approximately US$4,000 per day on a year-on-year basis.
In the call with investors, Tidewater vice president, finance and investor relations, Wes Gotcher, dove further into the details regarding the OSV market newbuilding picture. “First, the orderbook remains at an all-time low, with a minor number of vessels added during 2023,” he said. “Second, shipyard capacity remains a fraction of what it once was during the recent peak of shipbuilding capacity in the mid-2000s, with many remaining shipyards out of capacity until at least 2026,” added Mr Gotcher.
“Given some of the headwinds related to newbuilds, we are confident [of] the intermediate to long-term supply outlook providing a tailwind to vessel owners,” he said.
Tidewater has provided a full year guidance of US$1.4Bn to US$1.45 in revenue.
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