Those OSV owners that are well positioned for the market recovery will drive consolidation, says John Snyder
The fundamentals of the offshore oil and gas market are slowly strengthening. Exploration and production spending are on the rise, new oil and offshore gas projects are being approved and international oil companies’ earnings are better than ever. Optimism has returned to the market.
With the recovery in its earliest stages, however, banks are not yet confident of its sustainability. Average vessel day rates are improving for anchor handling tug supply vessels and platform supply vessels but are still less than half of what they were in 2014 before the market crashed.
The question then is “How will some OSV owners repair their balance sheets?” One answer is through consolidation.
During the downturn, a number of offshore support vessel owners and offshore drilling contractors tried to bolster their financial positions through reorganisations or acquisitions. One of the highest profile marriages in the OSV market, Tidewater and Gulfmark is now complete. The happy couple used Chapter 11 bankruptcy to restructure their debt and strengthen their balance sheets and appear now to be in a strong position for the recovery.
How is the new Tidewater performing? There is some heartening news in its just-released Q1 earnings, which reflect the fully integrated results of the Gulfmark merger. As compared with the same period a year earlier, Tidewater posted revenues that were up 33% (albeit because of the combined larger fleet) and vessel utilisation rates for the total fleet (active and stacked vessels) of 53.6% as compared with 44.4%. As a result, Tidewater was able to narrow its loss for the quarter. The results are trending in the right direction.
Tidewater has also been getting in shape by paring down its fleet, shedding what it considers less desirable tonnage. In its latest quarterly earnings report, Tidewater said it had disposed of 16 vessels in the first quarter, making “considerable progress” towards selling or recycling 40 additional vessels by the end of the year. Tidewater now has about US$400M in cash and equivalents, which could be used to add some relatively new vessels at distressed prices or attract another partner.
Another interesting Chapter 11 case is Harvey Gulf International Marine. The New Orleans-based owner wants to expand its presence in the international market; what better way than through acquisition?
VesselsValue head of offshore Robert Day agrees. He told Offshore Support Journal the companies that have been through consolidation have emerged with stronger balance sheets and are “primed and ready to profit from a market upturn”.
Mr Day said Harvey Gulf continues to show interest in the North Sea, but who they are “intending to takeover or merge with and when is not yet clear, but it will be very interesting to watch its development in the coming months.”
Indeed, the slow pace of the market recovery and low vessel day rates will work against those owners that have modern fleets with large mortgages and low cash reserves. While all OSV owners are not suitable acquisition targets, there are some viable candidates among Norwegian owners who have some relatively young, modern fleets. Consolidation in the OSV market is dead ahead. Stay tuned.
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