OSV investors set to reactivate decade-old newbuild contracts

Surging demand for offshore support vessels in the current offshore oil and gas market has provided investors with enough confidence to restart long-dormant newbuild contracts left from the previous upcycle.

In its Q3 2024 OSV sector report, UK-based market analyst MSI noted that of the 17 vessels delivered to date in 2024, 13 were ordered more than a decade ago, leaving just over 50 vessels still pending from the previous upcycle — some of which are anticipated to be taken up by operators as newbuild options in the coming years.

Newbuild vessel orders for the offshore oil and gas sector have picked up since November 2023, but have been relatively few since 2015 with just 77 vessels ordered between 2015 and 2023, followed by a small recovery in 2023 when 29 anchor handling tug supply vessels and nine platform supply vessels were ordered. 

MSI said this trend is partially due to the oil and gas industry’s struggle to recover from the 2015 downturn prior to the impact of Covid-19 in 2020-2022.

While orders for offshore windfarm vessels have been strong, owners positioned in the offshore oil and gas sector have hesitated to invest in newbuilds because of uncertainties around the energy transition, the high cost of capital and construction, and debt concerns.

“For those committed to conventional energy markets, these previously delayed or abandoned vessels provide an option to be utilised before investors consider ordering newbuilds with similar specifications,” said MSI.

There has been no scrapping of older OSVs since the last quarter, reported MSI, signifying an ongoing reluctance to retire older tonnage despite the evolving market landscape.

“This pattern underscores the long tail of the previous upcycle, where a sudden increase in demand was met with a flurry of newbuild contracts, many of which experienced prolonged delays due to market volatility,” said MSI senior analyst, offshore energy markets Todd Jensen. “This trend is indicative of a strategic pivot by operators and investors toward markets with robust exploration and production activity, where the demand for OSVs is more immediate and where economic conditions have supported offshore developments,” he said.