Swire has built on a heritage dating back more than a century to become a global leader in the provision of OSVs. Mark Pointon looks at how the company now plans to develop its offering in these difficult times
Singapore-headquartered Swire group operates a modern, diverse fleet of 77 wholly owned and operated vessels, the majority of which are dynamic positioning- (DP) classed as DP1 or DP2. The company’s core areas of operation include anchor-handling tug supply and platform supply vessels; however, in line with one of its key strategic objectives - to reduce its reliance on the oil cycle - it also operates seismic survey, windfarm construction/support, accommodation and multi-purpose support vessels that service the seismic survey, exploration, drilling, pipelay, subsea construction, production and floating production storage offloader markets.
Swire Pacific Offshore (SPO) is part of the Swire Pacific Group of companies, one of the leading commercial groups in the Asia Pacific region. SPO rarely builds or purchases single vessels; a central tenet of its new build strategy is that the company utilises its own experience and expertise to play a central role in the design, specification and build process for each new series of vessels. This ensures that the vessels are fit for purpose and that the fleet has high quality, standardised equipment, enabling the fleet to benefit from strong inventory and supply chain arrangements.
“SPO is adopting a twin-track approach to the economic situation, disposing of underutilised and loss-making vessels, while seeking sustainable growth across a broad range of businesses”
The fleet is supported by a network of regional offices in Angola, Australia, Azerbaijan, Brazil, Brunei, Cameroon, Canada, Denmark, Equatorial Guinea, Ghana, India, Indonesia, Kenya, Malaysia, New Zealand, Norway, Philippines, Qatar, Russia, Scotland, Trinidad and the United Arab Emirates; allowing the company to maintain a close and personal relationship with clients and customers. A direct benefit of this is that a detailed understanding of each project is possible across the specific technical, personnel and commercial areas.
Anchor-handling Tug Supply (AHTS)
AHTS are an essential feature of the offshore Oil and Gas Industry, undertaking the towing, positioning and mooring of drilling rigs and other marine equipment. They are powered by powerful engines, are highly manoeuvrable and are fitted with specialised high-power winches. In addition, AHTS are required to carry out supply duties. This includes replenishing other vessels and rigs with a diverse range of supplies, such as mud, drilling fluids, cement, fresh water, fuel oil and equipment.
The four categories of AHTS are broadly based on the vessels break horse power (bhp):
Small: 4,000 to 9,999 bhp
Medium: 10,000 to 14,999 bhp
Large: 15,000 to 19,999 bhp
Ex Large: 20,000+ bhp
Within the Swire Pacific Offshore fleet, operating globally in all areas outside North America, AHTS vessels represent the largest number of vessels by type. There are 44 vessels across six different classes, the most recent being the D Class vessels and the eldest the W and R Class vessels.
In terms of size, 28 of these vessels fall within the small AHTS category, six are medium size and the remaining 10 are large AHTS, that primarily operate in deep water.
D Class vessels, of which Swire operates eight, are built to work in deep water environments with Clean Class SPS 2008 specifications. They are fitted with 500 MT Rolls-Royce Marine Brattvaag winches and feature safety-improving anchor recovery frames and travelling cranes. Equipped to DP Class 2, their design focusses on fuel efficiency and reducing environmental impact.
Platform Supply Vessels (PSV)
SPO rarely builds or purchases single vessels, preferring to use its experience to support the design and build of new vessels elsewhere
Platform supply vessels specialise in the logistical support required to operate in an offshore field. Typically, they work between an onshore supply base and a variety of offshore locations such as rigs, platforms and construction vessels. They transport essential supplies such as drilling fluids, mud, cement and methanol in their tanks, and equipment such as casings, drill pipes and containers on their decks. Deck containers are used to carry supplies such as food, spare parts and provisions.
PSV’s are categorised as small, medium or large, depending on the clear deck space and their cargo carrying capacity or deadweight (dwt).
Small: clear deck up to 300m2 and 1,000 dwt.
Medium: clear deck up to 500m2 and 2,000 dwt.
Large: clear deck space 900+ m2 and 4,000+ dwt.
PSVs represent the second largest number of vessels within the SPO fleet. There are 22 vessels in four different classes. (L, H, G & A Class) All the L, H & G Class vessels are categorised as Large PSVs.
Seismic Survey Vessels
The seismic services division operates two vessels, the Pacific Falcon and the Pacific Finder (pictured), which perform offshore seismic exploration and collect 2D and 3D data
The seismic services division offers a “one stop shop” survey solution and operates two vessels, the Pacific Falcon and the Pacific Finder. These perform offshore seismic exploration and collect 2D and 3D data.
Windfarm Installation Vessels
The formation of Swire Blue Ocean gave SPO the capability to operate in the wind energy sector. It currently operates two O Class vessels, the Pacific Orca and the Pacific Osprey.
Pacific Orca is suited for the transport and installation of offshore foundations and wind turbine generators, among many other operations
These are six-legged jack-up vessels that have the capacity to work with components up to 1,200 tonnes above and below the water. The vessels are DP-controlled for precision positioning and have a diesel-electric power system that delivers up to 24 MW power.
Multi-Purpose Offshore Support Vessels (MPSV)
MPSVs undertake a variety of specialist operations, including construction support, inspection, maintenance and repair, remote operated vehicle (ROV) trenching and dredging support and decommissioning support. The five SPO MPSVs in the fleet provide heavy-lift cranes rated up to 100 tonnes; accommodation for up to 95 persons; deck/hold space between 800 and 1,000 m2; ROV systems deployed by moonpool LARS; and AHC A-frame rated to between 3,000 and 6,000 m.
SPO has five MPSVs in the fleet, which provide heavy-lift cranes rated up to 100 tonnes; accommodation for up to 95 persons and deck/hold space between 800 and 1,000 m2
Swire operates two, I Class vessels that are barges with multi-purpose capability. They offer accommodation facilities with Pacific Installer having 236 berths and the Pacific Intrepid 372. Both vessels have cranes rated at 200 tonnes safe working load that are capable of working at up to a depth of 1,000 m. In addition, they can carry liquids, mud and dry bulk cargo and provide warehouse facilities to support projects.
Pacific Installer is a multi-purpose capability barge with 236 berths and cranes rated at 200 tonnes safe working load
Based in Hong Kong, publicly quoted Swire Pacific Limited has five operating divisions: Property, Aviation, Beverages, Marine Services and Trading & Industrial.
The divisional portfolios include: major property developments in Hong Kong, International Aviation Carrier, Cathay Pacific and extensive aviation support interests, such as aircraft engineering and air cargo terminal operations. In 2017, the group had an operating income of HK$80.29Bn (US$10.29Bn) and profits of HK$4.7Bn.
SPO operates as part of a larger group, meaning that within the business cycle, higher performing divisions can be used to underpin poorly performing divisions during cyclical downturns.
This is highlighted in the current 2017 Swire Pacific Annual report published in April 2018.
Weaker results from the Aviation and Marine Services Divisions were offset by better results from the Property, Beverages and Trading & Industrial Divisions.
"SPO operates as part of a larger group, meaning that within the business cycle, higher performing divisions can be used to underpin poorly performing divisions during cyclical downturns"
The group’s ability to operate in this way is linked to its proven track record over more than a century, of conservative, prudent financial behaviour. One of its primary objectives when managing capital is to ensure that it operates as a going concern, so that it can secure access to finance at a reasonable cost. Factors such as credit rating, gearing ratio, cash interest cover and return cycle on investments are monitored to ensure a sound capital structure.
To secure funding for itself and its subsidiaries, Swire has entered into financial covenants in respect of gearing limits and the maintenance of minimum consolidated net worth.
These financial covenants, together with the long-term objective of maintaining a high credit rating, establish the framework within which the capital structure of the Group is determined. To date, none of the covenants have been breached. The figures for 2017 show a healthy gearing ratio of 23% that is well below limits. Credit ratings of A3, A- and A- with Moody’s, Standard & Poor and Fitch respectively were reported in December 2017.
The dividend structure within the group involves two share types: ‘A’ and ‘B’. In the latest annual report, the directors declared second interim dividends of HK$1.10 (US$0.14) per ‘A’ share and HK$0.22 per ‘B’ share; together with the first interim dividends paid in October 2017, this amounts to full year dividends of HK$2.10 per ‘A’ share and HK$0.42 per ‘B’ share.
In the annual report, former group chairman John Slosar outlined the group’s aim of generating sustainable long-term growth in shareholder value: “We deploy capital where we see opportunities to generate long-term value. The difficult market conditions faced by some of our businesses have led them to take measures to reduce costs and to improve efficiency where possible and to focus on profitable core operations. This should serve us well in the longer term.”
The weak levels of exploration and production spending by oil majors, despite an increase in oil prices, together with the oversupply of OSVs, has adversely affected vessel utilisation and charter hire rates across the offshore support industry. SPO was no exception.
SPO reported an overall utilisation rate of 62.5% across its fleet for the year-ending 31 December 2017. Average charter hire rates were US$18,900 per day, which are generally in line with industry figures.
In 2017 SPO recorded a loss of US$154M. In line with the group’s prudent financial policies, a review was undertaken of the realistic book value of the vessels in the fleet. This led to a downgrading of the fleet value by US$130M. This was presented as an accounting impairment charge in the 2017 annual report. Altus Oil & Gas Services was sold as part of a company re-structure, along with five vessels (four older AHTS and one older PSV).
In terms of charter hire revenue, the largest proportion (43%), came from construction and specialist vessels. This represented a 7% increase from 2016. AHTS vessels provided 42% (2017: 44%) and platform supply 15% (a 5% drop from 2016).
Across the fleet, there are four AHTS, an accommodation barge and two seismic vessels in cold stack
Globally, industry conditions remain difficult, but there are signs that the offshore support market may be bottoming out. Exploration and production spending is expected to increase modestly in 2018/19 and the utilisation of mobile offshore drilling units and other OSVs is gradually recovering. Charter hire rates remain depressed, but there was an increase in Rig fixing activity in the first half of 2018, which is encouraging and in line with predictions.
SPO is adopting a twin-track approach to the economic situation. On the one hand, it is reducing its operating costs by stringent cost controls and the disposal and removal from active service of underutilised and loss-making vessels.
On the other, it is seeking sustainable growth in a broad range of businesses over the long term. To this end, SPO has invested US$105M in new assets, which include two PSVs delivered this year and a further four to come across 2018/19. An additional specialist construction vessel is also expected.
Swire: Company history
The Swire Maritime lineage and heritage can be traced back more than a century to The China Navigation Company, which was founded in 1872 to operate Mississippi-style paddle-steamers on China’s Yangtze River. The company quickly expanded its operations throughout South East Asia, Australia, New Zealand and Japan. Today, the company operates a global network of multi-purpose liner services, through its three core operating divisions: Swire Shipping, Swire Bulk and Swire Bulk Logistics.
Swire’s involvement in the offshore oil industry began in 1975, with the formation of a joint venture with Northern Offshore Limited to develop Offshore Support operations.
In 1980 Swire Pacific Offshore (SPO) a wholly owned subsidiary of Swire Pacific Limited, acquired full control of the joint venture business and assets. In what was a pioneering era, the company operated initially with six vessels. The company is headquartered in Singapore, which is beneficial in terms of its strategic location and because it provides various incentives and schemes, including tax concessions, that encourage companies to register their ships and locate their businesses there.
Consistent growth, initially through the building of the J Class vessels, followed by the building of the subsequent S and B Classes, established the company as a leading anchor-handling operator.
Swire successfully negotiated the turbulent economic situation of the early 2000s, strengthening the fleet with the building of the P Class, R Class, V Class and W Class vessels. This, combined with a series of acquisitions and joint ventures, enabled Swire Pacific Offshore to widen its service offering in the first decade of the century.
2007 saw the establishment of the Swire Survey Services Division, followed in 2008 by the establishment of marine salvage, oil spill preparedness/response services. In 2010, the company acquired Blue Ocean Ships, which it re-named Swire Blue Ocean to manage its operations in the offshore wind industry.
2012 saw further expansion, with the acquisition of the Norwegian company Seabed AS, which provided SPO multi-purpose support vessel capabilities and high specification remote-operate vehicle capability.
A strong emphasis on quality, a proactive attitude to safety and a strategic objective to build an industry-leading team, led to the establishment of Swire Marine Training Centre in 2007. Based in Loyang Singapore, this world-class centre provides training in safety management, anchor handling (basic level through to advanced skills), dynamic positioning (operations and system maintenance), electrical and control systems engineering and engineroom operations, using bespoke state-of-the-art simulations.
In recent times, the fleet has been further expanded with the building of the C Class, UT736 AHTS vessels and the 17,864 bhp, 220 tonnes bollard pull, D Class AHTS vessels. In the platform supply vessel market, multiple G Class, H Class and L Class vessels have been built.