As John Snyder looks in on an industry looking inwards after one of its worst downturns, he finds signs of a nascent OSV recovery
Those of you who attended this year’s Annual Offshore Support Journal Conference, Awards and Exhibition in London have now returned home to unpack your luggage and follow up on all of the new business leads and contacts generated at the event. As it was my first OSJ Conference as editor, it represented a fantastic opportunity for me to meet my new teammates and also to check the pulse of the offshore support vessel market with fresh insight from the industry’s top-level decision-makers.
As I looked in on an industry looking inwards after one of its worst downturns, four key takeaways struck me at the conference as the OSV sector prepares for its recovery.
One takeaway was a renewed feeling of optimism among delegates. That optimism stems from improvements in regional sectors such as the UK North Sea, where the platform supply vessel (PSV) market has been in recovery for about 18 months, and the Middle East, which remains stronger than other regions, with utilisation rates of between 60-65%.
Synergy Offshore chief executive Fazel A Fazelbhoy told delegates that the worst utilisation and day rates in the Middle East market might be behind us, but the recovery will continue to be slow. One of the problems, which is typical of all the regions, is that there are too many PSVs chasing too few drilling contracts.
A second takeaway is that investments in drilling exploration are expected to increase from US$22Bn in 2018 to US$27Bn this year, and then climb to in excess of US$30Bn going forward. That should lead to new opportunities for OSV owners.
A third takeaway is that leading OSV owners are positioning themselves for the recovery by strengthening their balance sheets.
US-based Tidewater, Gulfmark and Harvey Gulf International Marine have successfully used Chapter 11 bankruptcy to reorganise and emerge as stronger companies, with healthier balance sheets. [They do.]. While it is a painful process, Chapter 11 reorganisation offers many OSV owners the opportunity to find firmer financial footing.
I feel there is going to be additional market consolidation. The ownership landscape is likely to look very different at the 2020 OSJ Conference.
Another observation that struck me at this year’s event was the very sensible (and painful) approach being taken by Tidewater.
Following its all-equity acquisition of Gulfmark last year, Tidewater is now the largest OSV owner, with a fleet of 253 vessels and market capitalisation close to US$1Bn. The marriage between Gulfmark and Tidewater was a nice fit, giving the merged company a global footprint. In short, the new entity has emerged with scale and presence.
That said there was a refreshing lack of complacency. Tidewater is continuing to right size its fleet, scrapping or selling 41 older vessels last year and targetting another 40 this year.
Perhaps my biggest takeaway was that other owners need to follow Tidewater’s common-sense approach. One of the fundamental problems is that there are still too many older OSVs—those of 15 years or more—overhanging the market. Many of those OSVs, which are currently stacked, are owned by a group of 400 vessels owners that control six vessels or less. Wringing out this older tonnage is going to continue to be a very thorny problem.