Norway’s OSV owners have experienced a torrid time but are now looking forward to taking advantage of their efforts to reshape their businesses
The dramatic downturn in the offshore oil and gas sector is having a profound effect on many Norwegian owners of offshore support vessels (OSVs). With a large proportion of the fleet laid up and revenue having plummeted, some companies are being forced into taking drastic action. This has already included several mergers and acquisitions and there are set to be more as the depressed market appears likely to continue for some time to come. Some operators are looking at alternative markets such as offshore wind to provide employment for some vessels and diversification of their businesses.
According to the Norwegian Shipowners’ Association (NSA) income for offshore service shipowners is estimated to have fallen by 21 per cent in 2016 with a further decline in income of 11 per cent expected in 2017. This would mean that their income will have fallen by 40 per cent since the peak in 2014.
This slump has been reflected in a high number of vessel laid up with 158 OSVs belonging to NSA member owners reported as laid up in February 2017. This represents more than a quarter of their total fleets. NSA said that its members do not anticipate significant changes in the number of layups in 2017, indicating that the considerable overcapacity in the market is expected to continue through 2017.
Kristian Siem, chairman of Siem Industries and Subsea 7, said: “We will see even more consolidation and vertical integration. This is necessary in order to achieve efficiency and cost levels more in line with lower oil prices, and it will make continued field development possible. Focus on operations in the short run is essential for success in the long run.”
While new orders of OSVs have slowed to a trickle, some owners have continued to take delivery of vessels ordered before the downturn. For example, in 2016 Solstad Offshore took delivery of the offshore construction vessel (OCV) Normand Maximus. It was built in Norway by Vard and is the largest vessel the yard has built so far. The 178m long, 33m wide ship is equipped with a pipelaying system of 550 tonnes, enabling it to do pipe-laying under demanding conditions and in very deep water.
As Mr Siem indicated, there has already been significant corporate restructuring and consolidation among Norway’s OSV owners. The biggest and most high profile so far is the three-way tie up between Farstad Shipping, Deep Sea Supply and Solstad Offshore. Farstad and Deep Sea Supply are being combined into a new company with Solstad, which recently absorbed Rem Offshore.
In February 2017 Farstad Shipping, Aker Capital, Hemen Holding and Farstad Shipping’s senior lenders, some but not all bondholders and F-Shiplease - a subsidiary of Ocean Yield - entered into an agreement for a fully-funded financial restructuring of Farstad Shipping. They agreed to work towards combining Solstad Offshore, Farstad Shipping and Deep Sea Supply following completion of Farstad’s restructuring.
In a joint statement the companies said: “As repeatedly expressed by a range of industry experts, the fragmented Norwegian OSV industry requires consolidation. By agreeing to complete the Farstad restructuring and to work for the proposed combination, senior lenders, bondholders and long-standing family owners supported by industrial investors are making a collective effort to secure a successful refinancing of Farstad Shipping, and to create a new and robust OSV company operating out of Norway in the high-end segments of the global OSV industry.” The new combination created a fleet of 154 vessels.
Farstad chief executive Karl Johan Bakken said: “With this solution, we provide Farstad, Solstad and Deep Sea Supply with an industrial platform to sustain the current downturn in the OSV market and be well positioned to exploit a market recovery. We are pleased to have reached an agreement with our banks, bondholders and other stakeholders.”
Lars Peder Solstad, chief executive of Solstad Offshore, added: “For more than a year we have advocated strongly for consolidation in the OSV industry. One step was taken through the merger of Rem Offshore into Solstad Offshore in 2016. With a successful completion of the combination we are taking further steps to build the world’s leading OSV company.” Solstad Offshore will be the parent company in the consolidated group.
The move followed Farstad Shipping failing to conclude an agreement with Siem Oil Service Invest, part of Mr Siem’s offshore empire, because key creditors rejected the proposed deal.
Jon Are Gummedal, chief executive of Deep Sea Supply, said that the new OSV entity is a “necessary structural measure in today’s offshore support vessel market. The planned merger will enable the combined company to achieve significant synergies through more efficient operations and a lower cost base.”
Farstad had managed to secure a few new contracts prior to the merger which resulted in some of its vessels being able to emerge from layup. For example, platform supply vessels (PSVs) Far Serenade and Far Server were brought out of layup to work offshore Egypt starting in late February 2017. Another PSV, Far Symphony, will start a 12-month contract, with a six-month extension option, with Fairfield Betula to support operations on the UK shelf.
Anchor handler Far Sigma gained a contract with Lundin Norway to support a drilling programme with Lundin’s Island Innovator on the Norwegian continental shelf, beginning at the end of February 2017.
Most Norwegian OSV players are actively talking to their creditors and bondholders about financial restructuring to ensure that they can survive. OSV owner Havila Shipping narrowly escaped going out of business at the end of 2016 before obtaining approval from bondholders for a restructuring plan.
Another operator, Boa Offshore, said early in 2017 that its financial situation had become significantly worse than anticipated only a few months previously. This was mainly due to the offshore construction vessel market weakening more than anticipated, the sale of two anchor-handling tug/supply (AHTS) vessels not progressing as planned and the weaker performance of Boa’s tug fleet. As a result Boa was in discussions with its creditors and working on a financial restructuring plan.
Eidesvik and its French partner CGG have agreed in principle to establish a new ownership set-up for their fleets. It is based on the creation of a new company that will own five vessels currently owned by CGG and cold-stacked together with two vessels co-owned by CGG and Eidesvik, Oceanic Vega and Oceanic Sirius. The new structure will enable the French company to reduce its long-term debt with a new agreement with its Nordic lenders.
Having put a number of ships into layup during 2016 and laid off staff, new contracts in early 2017 have enabled Island Offshore to re-hire 300 staff to support contracts for four of its OSVs, Island Spirit, Island Crusader, Island Crown and Island Endeavour. Håvard Ulstein, Island Offshore chief executive, said: “This is a huge upturn for us as a shipping company. If this is not the start of a recovery in the industry, it is certainly a big step forward for us as a company.”
Island Offshore has also taken delivery of a new offshore construction vessel, built by Ulstein Verft. Island Venture is 160m long and 30m wide and is designed for multifunctional applications. It can be easily transformed for passenger and cargo operations and as a module carrier. It is equipped with a 400 tonne offshore crane for deepsea drilling operations to 4,000m depth, a 140 tonne crane and a 3,000m cable capacity. It is powered by three Schottel Combi Drives and Rudderpropeller.
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