Higher day rates, rising vessel utilisation and increased drilling activity are likely to be the talk of the OSV sector at Nor-shipping, says John Snyder
Higher day rates, rising vessel utilisation and increased drilling activity are likely to be the talk of the OSV sector at Nor-shipping
An industry uptick will make for interesting discussions on the tradeshow floor at Nor-shipping in Oslo this week. The biennial event draws Norway’s biggest OSV players, serving as a forum for lively conversations on market conditions, regulatory challenges, emerging trends and equipment and technology roll-outs.
Discussions in recent years have centred around the challenges of climate change and decarbonisation, increasing digitalisation, battery-hybrid applications and alternative fuels, the implementation of IoT solutions and automation, condition-based maintenance and autonomous shipping. While many owners have embraced technological changes in order to stay competitive and offer charterers an improved value proposition, their primary concern over the past few years has been the prolonged slump in the offshore oil and gas market.
Plagued by an oversupply of OSVs, with upwards of a third of the fleet laid up, combined with low utilisation rates, low day rates and short-term contracts, the depressed market has taken a toll on OSV owners’ balance sheets. Revenue in 2017 among Norwegian OSV owners was about half of what it was in 2014, according to the Norwegian Shipowners Association (NSA).
The good news is that the worst appears to be behind us. A slow recovery in the OSV market is beginning to percolate, with increasing drilling, subsea activity and vessel utilisation and increased levels of spending by oil companies on brownfield and greenfield development.
UK-based energy research firm Westwood Global Energy Group reports an acceleration in offshore rig activity over the last 12 months, with rig utilisation in some regions as high as 90%. There is also increased interest in ultra-deepwater drilling and over 200 drilling programmes planned over the next three to four years, led by high demand from the Norwegian Continental Shelf (NCS), South America and West Africa.
Indeed, a survey by the NSA of its membership for 2019 portrays a brightening picture for Norwegian OSV owners, who expect a 6% rise in revenue year-on-year. NSA members, who control about 550 offshore vessels and 50 rigs, also expect more OSVs and rigs to be working. As of February 2019, 112 OSVs and 20 rigs were in lay-up, compared to 137 ships and 25 drilling rigs a year ago. NSA members expect this figure to drop to 78 OSVs and 15 drilling rigs by year’s end as a result of increased activity on the NCS and vessel sales. It also points to an improved outlook globally, since Norwegian OSVs also operate in the UK North Sea, US Gulf of Mexico, Brazil, Dutch North Sea and Germany.
While international oil companies have spent the last five years reigning in costs, wringing out inefficiencies and revving up profit margins, now they may be looking at paying higher day rates for OSVs.
"When activity levels pick up and the markets tighten on the capacity side, the oil companies must also expect a significant increase in the rates for ship operations," said NSA chief executive Harald Solberg.
Other emerging sectors such as renewables, sea mining and aquaculture are creating opportunities for OSV owners.
With the talk of higher day rates, higher utilisation, more drilling activity, and emerging opportunities, my guess is that the discussions among OSV owners on the trade floor at Nor-shipping will be much cheerier than they have been in years.