Oversupply continues to blight the OSV recovery

Utilisation rates are trending upwards but asset values are currently weak, as around 1,000 OSVs remain stacked

While there is a substantial oversupply of OSVs worldwide, conditions in the offshore market are improving, with “a number of companies experiencing an increase in sentiment within the North Sea,” according to VesselsValue head of offshore Robert Day. “Standard Drilling reported 100% utilisation for its five large PSVs in February, all of which were reported to be fixed at increased day rates,” said Mr Day.

Owner of 17 platform supply vessels, Standard Drilling reports that Standard Princess, Standard Supplier and Standard Provider secured term contracts that will provide “solid utilisation going forward, with well-known and reputable counterparties, all at increased day-rates in line with our 2019 forecast. The total firm period of the contracts corresponds to about 460-470 days. In addition, these term contracts have a combined option period of about 265 days.”

S.D. Standard Drilling chairman Martin Nes says the contracts and rates paid “confirm our optimism for the spring and summer season in the North Sea."

Other OSV owners such as Havilla, Viking Supply, Olympic and DOF are reactivating vessels, which is another sign of improvement, says Mr Day. “Reactivating vessels is an expensive and time-consuming exercise, so they clearly see future potential within the region,” he says.

Notable term fixtures in the North Sea in April were for two Skandi Offshore PSVs: Eldborg – which has a length overall of 78 m, beam of 17.8 m, capacity to carry up 2,500 tonnes on deck and clear cargo deck area of 800 m³ – was chartered for one month + 40 D/D options by Norway oil company Equinor at Nrk155,000 (US$18,100); the slightly larger PSV Torsborg, with an overall length of 86 m, beam of 17.6 m, capacity of 2,500 tonnes of deck cargo and clear cargo deck area of 901 m³, was chartered for four months by OKEA at Nrk155,000 (US$18,100).

Oversupply of tonnage persists

The OSV market recovery is still being curtailed by a substantial oversupply of tonnage, with an estimated 1,000 OSVs stacked worldwide. Half of the OSVs that are stacked have been out of service for at least three years and about 400 of those are 15 years old or more. Reactivating older vessels that have been cold stacked for multiple years is not economically sound. Many of these older vessels will not be returning to work in the oil patch.

“Reactivating vessels is an expensive and time-consuming exercise, so there is clearly future potential within the [North Sea] region”

OSV owners have tried to shed older and less desirable vessels from their fleets. Over the last six years, US-based Tidewater has made such tough decisions with its fleet, selling or scrapping 217 vessels — 85 of which went to scrap yards. Just last year, Tidewater sold or scrapped 38 vessels.

With one of the world’s largest fleets of OSVs, Tidewater reported active utilisation levels of 82% in Q4 2018 – the highest rates since 2014. Active utilisation, however, only refers to the percentage of vessels in the active fleet; in Tidewater’s case, 165 vessels. Taking into account the combined active and stacked fleet of 257 vessels, Tidewater’s utilisation rates were a sober 54%.

Paris-based Bourbon reported similar utilisation rates for its fleet, with 82.3% active utilisation and 52.2% overall fleet utilisation. Its average day rates also slipped in 2018 to US$7,942, down from US$8,725 in 2017. Bourbon had a fleet time equivalent average of 183 stacked vessels.

Still, prospects for the near term are brightening. This year, Tidewater plans to reactivate 10 OSVs for contracts in the Middle East, Nigeria, Thailand, Angola and Guyana that will generate a backlog of US$110M. Reactivation costs are substantial, averaging about US$1.4M per vessel.

At the Scotia Howard Weil 47th Annual Energy Conference, Tidewater reported vessel average day rates were stable and that utilisation rates were trending upwards – but both were at substantially lower levels than 2014.

Deepwater oil and gas development in Brazil is also seeing increasing levels of activity. DOF chief executive Mons S Ase says Skandi Recife, the third of four new PLSVs in a joint venture with TechnipFMC, was delivered from a Brazilian shipyard last June and went on charter under an eight-year contract with state-owned oil company Petrobras. Petrobras also awarded DOF ASA a three-year contract for the dive support vessel Skandi Achiever.

One distinct advantage that DOF enjoys in Brazil is that it owns nine AHTS vessels that were built locally. Overall, DOF had a healthy vessel utilisation of 74% in 2018, well above industry averages.

Norway’s Solstad Offshore signed a contract with Shell Brazil Petroleo Ltda (Shell) for the PSV Normand Starling that will commence in Q2 2019 and have a firm duration for two years.

Asset values still weak

Asset values continue to be weak. Mr Day says asset values for PSVs and AHTS vessels, both globally and in the North Sea, show no signs of improving. “This has been driven most recently by the Toisa bankruptcy sales flooding the market,” he points out.

Toisa sold 21 vessels over a 12-month period for a total of US$220M, one of the largest court auctions of any offshore support vessel owner. The most recent transaction was for three AHTS vessels and three PSVs to Hong Kong’s China Sunrise Group for US$19.3M.

One vessel acquired by Swiss geotechnical and engineering firm Geoquip Marine from the Toisa fleet was the 13-year-old PSV Toisa Vigilant, which has a market value of US$1.69M, according to VesselsValue.

“Toisa sold 21 vessels over a 12-month period for a total of US$220M, one of the largest court auctions of any offshore support vessel owner”

Renamed Geoquip Saentis, the 80-m PSV is currently being refitted in Liverpool with the latest version of Geoquip’s GMR600 fully heave-compensated offshore geotechnical drilling rig. A moonpool is also being added to the centre of the vessel to allow drilling operations. Geoquip Saentis has two work-class remotely operated vehicles (ROV) and a clear deck area of 720 m³.

The PSV, which was built in China and delivered in 2005, has accommodation and workspace for 55 crew. It will provide a stable platform for offshore geotechnical operations, allowing seabed cone penetration testing equipment and ROVs to be mobilised alongside the company’s geotechnical drilling system GMR600, suitable for conducting drilling and sampling in all soil conditions up to 800-m depth plus borehole depth using steel API drill pipe.

Increasing activity in GoM

“The Trump administration has made no secret they want to open up new acreage for drilling,” says Mr Day, “and the oil majors are taking every opportunity they can to secure their position for the future.”

There were 22 drill rigs operating in the US Gulf of Mexico (GoM) as of early April, according to Baker Hughes, which is up by 10 rigs from a year ago, but still substantially below 2014 levels. “Fewer rigs within the US Gulf are a direct result of the depressed offshore market experienced over the last few years,” says Mr Day. “As the price of oil falls, oil majors look to owners to improve processes and increase efficiencies. This improvement comes at a cost and many rigs (especially vintage units) become surplus to requirements. These rigs are either sent into layup or are scrapped, thus reducing the rigs operating.”

Adds Mr Day, “In the short to medium term, I believe there will be fewer rigs in the US Gulf. However, this will begin to change as the market improves and the financial incentives are there to bring a rig out of layup.”

For now, OSV owners will have to wait a little longer for conditions to improve in the GoM. “We are seeing this occur in other operating regions so there is no reason it will not translate into the US Gulf,” says Mr Day. “However, there will be an obvious lag period due to the time required for a decision to be made and the reactivation process to take place.”