Experts at the OSJ Asia virtual conference discussed the sector’s sustainability challenges and potential consolidation going forward
Westwood Global Energy director of offshore energy services Thom Payne said offshore EPC is at its lowest level since 1999 but expects a significant comeback worth US$48Bn in 2021, driven primarily by national oil companies.
Westwood expects to see an outlay of US$194Bn between 2021-2024 with most activity concentrated in Latin America, thanks to exploration of Brazil’s pre-salt assets and Guyana’s Stabroek super basin. Asian markets are expected to account for 23% of this investment as major LNG projects such as Santos’ Barossa and Woodside’s Scarborough project get underway.
The rig market has lost US$2Bn in global backlog since March 2020, Mr Payne said. Contracted counts of jack-ups and floating rigs have fallen by 10% and 22% respectively, with the corresponding figures in southeast Asia at 27% and 50%, but the segment is expected to rally in 2021.
Mr Payne said global OSV utilisation (including layups) has fallen from 53% in Q4 2019 to 47% in Q3 2020. Effective utilisation (excluding layups) which averaged 75% in previous years is down to 65% in Q3 2020. Structural issues in the supply side are driving this. The laid up fleet began to grow this year with the fall in usage and underwhelming scrapping volumes. Quarterly disposals were pegged at 32 between 2017 and 2019 – the figures for 2020 are 11 per quarter.
Four of the 10 largest OSV owners have over 100 vessels and account for 18% of the fleet. The remaining six account for 10%, and 72% of the fleet is thinly spread among other owners. Investment bank Pareto Securities partner Andy Yeo believes the resulting inefficiency and low vessel utilisation is a sign that the industry is in need of consolidation.
“Supply remains too high and utilisation too low” he said, adding that if the vessels currently out of service were to be scrapped, utilisation could improve to 65% up from 50%. Owners will need to be more disciplined even though smaller fleets are easier to manage, Mr Yeo said.
“With the highly levered capital structure of the industry today, more cuts and debt-to-equity conversions are required,” he said.
Parties were advised to take “a pragmatic approach” to ensure a longer availability of liquid cash through difficult periods which could only be achieved by changes to the capital structure.
Speaking with an eye on Malaysia, Bumi Armada Berhad vice president and director for offshore marine services, Megat Zariman Abdul Rahim shared Mr Yeo’s assessment. In Malaysia, 30 major owners account for 240 vessels but only half of these are currently active as a result of decline in demand resulting from the pandemic.
OSV owners face charter rates that are insufficient to meet debt repayments, which in turn leads to a liquidity crunch making vessel maintenance and replacement difficult. Mr Rahim believes consolidation will help preserve value and break the cycle.
Malaysia expects to see in excess of 80 newbuild vessels in the next three years with new projects on the horizon. Mr Rahim said merged entities can offer customers greater value with more diverse vessels and services. Fewer players will mean newbuilds face higher chances of success. However, merged entities inherit debts and liabilities. Mr Rahim stressed that merged entities will still need to be wary of the state of the oil and gas industry and non-consolidated competitors who will continue to command influence.
POSH Semco general manager for global operations Captain Priyadarshan Pandey said OSVs need to improve their operational optimisation and become more sustainable. Alternative fuels and new technologies are expected to improve vessel reliability but owners must be wary of the feasibility of carrying out retrofits or other modifications, especially in light of current charter rates.
POSH is moving towards condition-based monitoring systems, Captain Pandey said. The company is looking into installing a remote machinery operation system where sensors and software are installed on board and controlled from the shore side. Further, the company is working with class societies to help boost 3D printing for small spare parts and looking into underwater hull inspections using drones.
Captain Pandey added that while POSH is conducting feasibility studies for battery-hybrid systems for PSVs, this is aimed at “supplementing current power management systems with battery systems” rather than total electrification.
“Pure electrification for a tugboat is feasible, but for a PSV or AHTS it’s going to take some time” he said.
Riviera’s OSJ Asia virtual conference is the largest forum for shipowners, shipbuilders, charterers and suppliers within the OSV sector in Asia.