A high-powered panel of OSV operators explain the actions industry needs to take to return to profitability, discussing obstacles to consolidation and overcapacity, as well as opportunities ahead
Over the last six years, the global OSV industry has been in a conundrum, strapped with too much debt, too many management teams and too many boats, according to Tidewater president, chief executive and director Quintin Kneen. “The cavalry isn’t coming. Activity levels aren’t returning to the levels we saw in 2008 and 2014.” The solution for a healthier global OSV industry, he said, is consolidation.
Always thoughtful and thought-provoking in his observations, Mr Kneen made his comments at Riviera Maritime Media’s Offshore Influencers in conversation webinar, part of Offshore Webinar Week in January.
One of the chief obstacles to consolidation in the OSV sector is the lack of incentives among management teams to merge, leaving investors with no returns. “Debt holders are on the losing end of this game because they’re continuing to sit by while management teams are spending money on G&A and vessels are atrophying,” said Mr Kneen.
But Mr Kneen was quick to point out that positive trends are building in the OSV market. While OSV activities aren’t returning to the levels that they once were, Mr Kneen said “recent tendering activity looks strong, and I’m expecting to see an increase in activity in the second half of 2021.”
Joining the high-powered discussion were Vroon Offshore Services (VOS) BV managing director Niek Spiljard and V.Ships Offshore, managing director, offshore ship management Harry Knox, who both agreed with Mr Kneen.
Mr Spiljard characterised 2020 as “a terrible year” for the OSV industry, weighed down by low utilisation, low oil prices, low charter rates and the tremendous pressures placed on the health and wellbeing of mariners. However, he said, the industry showed resilience and should “be proud of what we achieved” in the face of the pandemic.
Mr Knox said the OSV industry’s resilience was “only possible because of our seafarers. The support that we give them is of the utmost importance. People need to stand up and take notice of what they deliver.” He said the industry has a responsibility to make the public and government more aware of the contributions and sacrifices made by seafarers during the pandemic.
One of the key lessons that emerged from the crew change crisis was the need for a flexible approach, as requirements in different regions tend to change at a moment’s notice, Mr Knox said.
Follow the lead of offshore rig companies
Driving home his point about overcapacity, Mr Kneen said: “OSV activity levels around the world are not dependent on day rates. They are not dependent on unit price. The demand curve at any point in time is largely inelastic. There’s no job that any of us are bidding, that is going to not happen [whether] the boats are going to go out at US$40,000 a day or if the boats go out at US$10,000 a day. We’re not that meaningful in the spread of overall costs in offshore oil and gas activities. The reason that we are suffering is because there’s too much capacity in the market today.”
Mr Kneen said the OSV industry should tear a page from offshore drillers that are looking to reduce capacity and G&A through consolidation. “They have done a better job at reducing capacity; just the fact that we have fewer rigs out there than we did in 2014 is going to tell us something. There’s not going to be as much demand, and we were overbuilt even going into the downturn in 2014.”
He said reducing excess capacity is “the key to normalising our global industry’s profitability.”
“It’s about time that people get a bit of money back from their investment”
Mr Kneen added: “Debt capital providers need to recognise that there’s more value, and quicker cash flows by consolidating, reducing excess capacity and thereby normalising day rates and eliminating G&A then in remaining fragmented, working at marginal day rates and then spending that marginal cash flow on G&A.”
Mr Spiljard agreed that consolidation would be beneficial for the market, saying, “it’s about time that people get a bit of money back from their investment.”
What keeps him up at night, Mr Spiljard said, is vessel oversupply and the low level of entry into the OSV market that allows new companies to “grab a couple of boats and put them to work in the market, only to realise it is not a very profitable business. There’s a lot of damage done.”
Another sore point for Mr Spiljard is that there are still too many older vessels finding their way back into the market.
Outlook and trends
Providing his outlook, Mr Spiljard said he expects to see opportunities emerge in offshore construction, pipeline activity, inspection, repair and maintenance (IRM) work and platform maintenance. Decommissioning should create opportunities as well, he noted, “not because oil and gas will come to a grinding halt,” but rather assets would come to the end of their productive life.
Mr Spiljar said he enjoyed looking at growth in the offshore wind market. “It’s fantastic. Offshore wind is a fast-growing industry.” He cautioned, however, that vessel support requirements are much different from offshore oil and gas. Where several OSVs might serve a handful of offshore oil and gas platforms, one service operation vessel will serve dozens upon dozens of offshore wind turbines.
“Debt holders are on the losing end of this game”
Those entering the offshore wind market will need to adjust their expectations.
“There’s a lot of work out there for both renewables and oil and gas,” he said.
One trend in the market that has caught Mr Spiljard’s eye is the uptake of technologies such as batteries and new fuels to reduce fuel consumption, improve energy efficiency and reduce greenhouse gas emissions. He said the industry needs to look at how it can improve the environmental performance of existing OSVs “because there’s perfectly good tonnage around which is already highly, highly efficient. We can further improve this. And that’s also an obligation I think for many shipowners in the industry.”
Echoing the comments of his fellow panellists, Mr Knox said he was also seeing more tendering activity, with the second half of 2021 benefitting from higher utilisation driven by oil price stability.
Agreeing with Mr Kneen and Mr Knox, Mr Spiljard noted that offshore oil and gas exploration and production is recovering, saying there was very little exploration in 2020, “so we can only recover. And that’s not for the weeks to come, not for the months to come, but for years to come. So, there’s more activity out there.”