With as few as 30 vessels actively being marketed for spot charters, conditions in the UK North Sea for anchor-handler owners are either excellent or dire, depending on your perspective
A “feast or a famine” – that is how Seabroker analyst Paul Dear described conditions among anchor-handling vessel owners operating in the North Sea, during the Annual Offshore Support Journal Conference, Awards & Exhibition in London on 6 February.
To drive home his point, Mr Dear told delegates that during the first three weeks of 2019, six drill rig movements pushed spot day rates for a large anchor-handling tug supply (AHTS) vessel from £9,500 (US$12,270) to £65,000 in the span of a two-week period. A week later day rates had dipped again to below £10,000.
This roller-coaster effect is the result of elevated market expectations, an oversupply of anchor handlers and the use of drill rigs fitted with dynamic positioning (DP) systems, according to Mr Dear.
“Last year at this conference, one of the CEOs on a panel highlighted the high-specification AHTS vessel market as one that he thought would be the best performing in the year ahead” said Mr Dear. “In actuality, it proved to be one of the worst sectors.”
According to Seabrokers’ data, cumulative average day rates for AHTS vessels for 2018 were actually worse last year than they were in 2016 or 2017. Last year, the annual average day rate for a medium AHTS vessel was £12,672, as compared with £18,846 in 2016 and £18,886 in 2017.
Why did the anchor-handling sector not improve like everyone expected? Partly because, as conditions began to improve in the AHTS market, owners started to reactivate vessels that were in layup, while other vessel owners repositioned vessels from other regions, pushing supply up.
Mr Dear also noted that drilling contractors have employed more drill rigs equipped with DP systems and position mooring (posmoor) systems, requiring less assistance or none at all from AHTS vessels. Posmoor is used to actively reduce tension in individual lines, or assist the position mooring system’s winches in moving the rig from one location to another.
'With the demand for DP drill rigs rising, you can see why AHTS owners are struggling'
Westshore Shipbrokers offshore analyst Inge Moy agreed. At the European Dynamic Positioning Conference on 5 February 2019, Mr Moy said the use of DP on drill rigs has had a significant impact on the AHTS vessel market worldwide. As of 2004, 29% of the drill rig fleet operating worldwide were fitted with DP systems. As of 2013, this level increased to 59%. As of 2019, 74% of drill rigs have DP systems, and, as Mr Moy explained, some regions have 100% or close to it. When drill rigs are fitted with DP systems, AHTS vessels are not required.
With the demand for DP drill rigs rising, “you can see why (AHTS) owners are struggling,” said Mr Moy.
Mr Moy pointed out, however, that the lack of newbuilding in the AHTS market — no new vessels were ordered in 2018 — should be a concern to the oil majors because the industry is not investing in the latest technology.
Mr Dear warned charterers that they should not be complacent about the UK North Sea market. With only 30 to 35 vessels trading on the spot market, as few as two or three drill rig movements in a short period could tighten the market significantly. “It really is a market that can fluctuate massively,” said Mr Dear.
He also noted that a “significant portion” of the 60 AHTS vessels in layup were not North Sea-class tonnage. “Rather,” he said, “these are vessels that have finished contracts in other regions and been brought to the North Sea for layup. If they go back to work, it probably won’t be in the North Sea.”
The current global AHTS fleet, including those in layup or under repair, is 1,942 vessels, totalling 16.32M bhp, according to Italian ship broker Banchero Costa.
Over half of the fleet, 1,057 units, falls into the standard type AHTS vessel, with a power range of between 5,000 and 9,999 bhp. Those AHTS vessels under 5,000 bhp account for 19% of the fleet, while those over 10,000 bhp account for 27%.
While the current AHTS orderbook is a healthy 164 vessels, no newbuilds were contracted for in 2018. According to Banchero Costa, 38 of the AHTS vessels on order were scheduled for delivery in 2018 and another 126 in 2019. However, in the first 11 months of 2018, only 26 vessels totalling 0.27M bhp were delivered, down from the 37 AHTS vessels of 0.4M bhp delivered in 2017.
Banchero Costa anticipates that because of the current weak market conditions deliveries will keep falling due to postponements. Many of the vessels contracted on speculation are now ready for delivery but remain tied up at shipyards because “the contractor disappeared, went bust or the contractor is the yard itself and there are no buyers in the market.”
About 71% of the orderbook are the most common type of AHTS vessels — between 5,000 to 9,999 bhp — with the most powerful vessels above 10,000 bhp represent 24% and smaller vessels below 5,000 bhp about 5%. There are currently 28 vessels on order between 10,000-14,999 bhp and 11 vessels on order over 15,000 bhp.
The overall AHTS fleet remained flat in 2017 and due to the acute crisis in the whole industry, says Banchero Costa, deliveries will continue to slow and will be much lower than originally expected.
With significant levels of oversupply in the AHTS market, 2016 orders collapsed and only nine newbuilds have been ordered since then. By comparison, 133 AHTS vessels were ordered in 2014 and another 84 in 2015.
Over the past decade, Chinese shipyards have emerged as the dominant builders of AHTS vessels. Over 44% of the AHTS fleet, 854 vessels, have been built in China. By contrast, European, Singaporean and Indonesian shipyards have built 15%, 8% and 8% respectively of the global fleet.
Around 74% of AHTS vessels currently on order are being built at Chinese shipyards, followed by 10% for Indian shipyards and 6% for Malaysian shipyards. Chinese shipbuilder Fujian Southeast currently holds orders for 31 AHTS vessels, followed by Zhejiang Fenghua, with 17, Jiangmen Hantong, 14 and Guangzhou Hangtong, 12.
Demolitions pick up
In a bid to address the issue of oversupply, demolitions did start to pick up in 2017, when 32 vessels under 35 years of age were scrapped. This trend continued during the first 11 months of 2018 when owners scrapped another 28 vessels with an average age of 22 years, according to Banchero Costa.
“We remain positive that the efforts of the offshore industry to adapt to the new low oil price environment will start to ripen,” said Banchero Costa, “and new, simpler and more efficient designs, together with the use of new technologies, will drive down costs and will lower breakeven prices. However, present oil prices leave a very thin margin, if any, for the development of new offshore projects.”
The major constraint for the offshore industry remains onshore fracking, which does not require the vast amounts of capital investment involved with offshore exploration and development and can offer much quicker returns.