OSV Companies Running Out of Options


#1

personally I am praying for the day that HGIM crashes and burns and mini Massa Shane gets his. I wished it could be Edison Chouest but am wise enough to know that Massa Gary is not going down anytime soon. at least everyone else would have to crash first and it would be years in the future before ECO might implode…it is possible Chouest in 10 to 15 years will not be the same Chouest as today when that Joe Boss of Bosses finally dies

OSV Companies Running Out of Options

New Reality: Lower Demand, Shorter Charter Contracts and Reduced Rates

By AlixPartners 2017-07-10

As oil continues to sell below $50 per barrel, 2017 could be one of the toughest years in decades for Offshore Supply Vessel (OSV) companies, according to a study of 44 companies in the industry by AlixPartners. The firm’s analysis highlights these companies’ rising debt burdens, making it increasingly unlikely that most of them can maintain solvency. The industry faces grave financial pressure, which is clear from recent bankruptcy filings and distressed mergers.

Exploration and production (E&P) companies have drastically reduced their rig counts, causing demand for OSV services to plunge. Excess rig capacity has hit platform supply vessels (PSVs) and anchor-handling tug supply (AHTS) vessels the hardest. For the next few years, OSVs will have to confront their new reality: lower demand, shorter charter contracts, and reduced day-rates.

“There simply isn’t and won’t be enough work for all players going forward into the foreseeable future. And it’s hard to persuade others to scrap their vessels, because like your own, they were built to a high technological and engineering standard – read: expensive – just a few years ago,” said Albert Stein, managing director and leader of the shipping team for AlixPartners.

Offshore Rig Dynamics and its Impact on the OSV Sector

Over the past two years, total rig count has declined by approximately 4 percent, while marketed vessels have declined by 15 percent (owners tend to stack rigs in lieu of scrapping). However, in the same time period contracted rigs have declined by more than 30 percent with fleet utilization levels hovering between 65 and 70 percent. Operators continue to see a fall in operating income as day rates and utilization remain at depressed levels.

Due to this decline, the total global E&P spending on OSV’s has declined from $18.1 billion in 2014 to $14.8 billion in 2015 and $11.9 billion in 2016. That is a staggering 34 percent decline in just two years. Rates are down 60-65 percent in some markets, and utilization is down 40 percent. The rig count was reduced while the vessel population increased 73 percent to 3,510. These dynamics caused the OSV-population-to-working-rig ratio to go from 3.37 in July 2008 to 8.2 as of December 2016. Until the working-rig-to-OSV ratio drops back to a healthy level, the industry will see an ample oversupply, which puts pressure on day rates and utilization.

IHS Markit reported that as many as 1,000 vessels need to be scrapped or permanently removed from service to achieve market balance by 2020. The current scrap rate is only about 13 percent of what is needed.

Regional Roundup

Gulf of Mexico – While not unique to the region, the Chapter 11 filings of Tidewater and GulfMark Offshore will most likely allow these companies to operate with a much lower financial leverage. This could in turn put additional stress on other OSV players that still have significant leverage and resulting debt service to cover from their operating income.

“Operators who leverage the current market situation to successfully trim their balance sheets are likely better positioned to withstand a prolonged downturn and ultimately potentially drive the consolidation so badly needed within the sector”, said Esben Christensen, Managing Director and co-leader of AlixPartners’ shipping team.

North Sea - The North Sea market continues to be depressed. That is unsurprising, as this is the most expensive area worldwide to extract a barrel of oil. The vast majority of Norwegian owners are in debt restructuring talks with their creditors and bondholders. Some consolidation is afoot, with Farstad, Solstad, and DSS merging to create one of the biggest OSV operators with a fleet of 157 vessels this year. For operators to survive, they will have to withstand a cash burn for the next 3-4 years, as a recovery in utilization isn’t expected until 2020 or later.

Brazil - The Brazilian market remains subdued as Petrobras, the key driver, continues to deal with a corruption scandal and financial problems. Charter risk has been high for foreign OSV operators. Circularization rules, which allow owners of Brazilian flagged vessels to challenge contracts issued to foreign-flagged vessels, continues to put lucrative term contracts and non-Brazilian vessels at risk.

Southeast Asia - The downward trend in oil prices has put pressure on OSV firms in Southeast Asia, which has led to an unprecedented number of bankruptcy filings of firms, including Ezra, EMAS–Chiyoda, Perisai Petroleum Teknologi Bhd, and Swiber. Given the less than bullish tone of oil prices, reduction in chartering rates, and newbuilds coming to market from China, there will likely be more bankruptcy filings in the next 12 to 18 months. Deleveraging existing balance sheets and streamlining operations to keep costs low should be the main focus for operators going forward.

Notably, the Singapore government has taken proactive steps to help the ailing offshore marine sector. An agency under the Ministry of Trade and Industry introduced the “Bridging Loan for Marine & Offshore Engineering Scheme” in late 2016, and another agency introduced the “Internationalization Finance Scheme” to help the sector with alternative financing options. Pacific Radiance became one of the first firms to use the available financing schemes by borrowing $61 million this June. However, it is yet to be seen how successful these steps will prove since the Singapore government only backs 70 percent of this.

“Many of the companies in this sector in Asia used debt to fuel very rapid growth, but this very debt is now crippling them.” said Lian Hoon Lim, managing director, AlixPartners. “Many companies are focused on buying time for recovery, but this is a risky proposition that depends on a massive demand rebound in the next couple of years.”

Middle East - The Middle East is the only region where OSV demand is holding steady because of favorable oil economics. Break-even prices are relatively low, the national oil companies continue to dominate the region, and OPEC members remain committed to maintaining oil production in line with market share. What the market has not been able to escape is downward pressure on rates, as new contracts have attracted tonnage into the region.

How Can OSV Fleet Owners Weather the Storm?

Here’s the bottom line: there are excess shipyards, OSV operators, OSVs, and too much debt. OSV companies need to be diligent and take some steps to survive:

  • Companies need to be disciplined about capacity management and do everything they can to reduce tonnage – preferably through scrapping.
  • Explore more radical or innovative ways to reduce overhead costs and adjust their operating structures in light of current market realities with lower day rates projected at least until 2020.
  • Develop a liquidity plan with sufficient runway, based on realistic market assumptions. Identify and address key risks to any liquidity shortfall, while bearing in mind that this could be a prolonged market downturn.
  • Aggressively seek to de-lever and trim balance sheet to remain competitive and position themselves for opportunities to consolidate.
  • Become realistic about priorities. Each company must identify and rank its own projects and cut out any spending that will not generate sufficient cash-on-cash returns.

All that said, a couple of positive trends may also factor into the OSV operators’ fortunes. Some OSV operators have made significant strides reducing costs across the board, and in pursuing M&A, which generates opportunities for additional synergies and potentially greater capacity discipline. Another sign of hope is that many experts still see a positive environment for oil prices in the longer term, which will eventually lead to increased demand for OSV services.


#2

Most of the OSV operators with significant leverage (that’s probably most OSV operators) are going to be forced into bankruptcy. Their public shareholders are going to be wiped out. Insider/manager shareholders may be able to make a deal for new equity going forward, but they will suffer significant dilution. The creditors are going to either take a very big haircut, or they are going to become the new equity owners, or some combination of both.

The investment firms from Wall Street that own significant percentages of some OSV operators may provide debtor in possession financing or post-bankruptcy new equity and then end up becoming the sole owners.

Diversified family companies with substantial cash flow from outside the OSV sector and modest OSV leverage will survive. Some of them, like Seacor, will use their superior cash position to grow by buying up newer high quality OSVs at distress sales.

It would make sense for the super major oil companies to buy newer high-end OSVs at distress sale prices and then put them to work as contracts with independent OSV operators expire. This would be particularly true for state owned oil companies— most likely in the Persian Gulf.

Unless there is a major war in the Mideast, prolonged civil war in Venezuela, or similar large scale disruptions to the oil supply, it seems unlikely that offshore is going to see any big recovery within the next five years.


#3

I heard that Harvey Gulf just gave their boat hands a RAISE.


#4

Yea my buddy works there they did get a raise don’t know how much it is though


#5

Somebody must be trying to poach their people.

I see Hornbeck advertising.

What is the general range that OSV companies paying now?


#6

Heh… I have yet to see anybody on here willing to risk their heads on the chopping block for answering this one any time it’s been asked. Maybe someone that’s been “laid off” and no longer with an OSV company will chime in though.


#7

https://career4.successfactors.com/career?company=HornbeckProd&career_ns=job_listing_summary&navBarLevel=JOB_SEARCH&_s.crb=%2FxsezCkVLSQAUOVLkztELibB1A0%3D

Pay range is listed with each job description.


#8

True for Hornbeck, one of the few I’ve seen that places it so clear. It’s still a large range, almost $30k per year for a 2nd Mate on a 28/14 schedule.


#9

This is day rate right up front the way it ought to be. Good for them. However, they don’t mention the salaries for the shoreside positions.

Are these day rates more or less comparable to other OSV companies?

I would say that these day rates are a little low, but fairly similar to many tug companies. About 50% of the OSV day rates at the peak of the boom?


#10

These are comparable to other companies as we all know someone working elsewhere that can confirm. They have been posting dayrates with job descriptions for about two years now. We had a guy that recently went to Harvey for a sit down. They have one rate when your boat is off charter and another rate when on contract. Some companies will obviously pay a little more for tenured employees. I imagine Chouest has some long time masters and chiefs making way more than others. I think Jackson marine and Candies are still paying close to peak wages. They could have taken a small cut in the last year I’m not sure.


#11

From what I hear from some friends of mine…4 of them are on equal time making mid 300s for two of the big companies. Three of them are deck licenses with most if not all the bells and whistles and one is a licensed chief.

Another friend of mine with a smaller limited license with minimal endorsements working for a small ma and pa type company is still doing 28/14, making low 300s. He counts his blessings everyday but muses how he is making less money than when he first went to the gulf in 2007.


#12

Market coming into balance?

From Tradewinds

"Anchor-handler rates double to $77,000

Supply of North Sea spot ships running low as market hots up.

July 12th, 2017 13:18 GMT

by Gary Dixon

Published in Offshore

Anchor-handler spot rates have jumped in the North Sea as tonnage ran low on Wednesday.

A trio of vessels owned by Viking Supply Ships secured £60,000 ($77,000) per day each for the Stena Spey rig move from AGR for three firm days, plus 11 days of options.

This is up from the last-done level of £30,000.

Broker Westshore said: “Things have tightened up over on the UK side following AGR taking a Viking trio for the Stena Spey move. Meanwhile in Norway tonnage with no forward commitment is in short supply too.”

Two vessels remain free in Norway and one in the UK, with OMC looking for one unit this week. Utilisation stands at 73%.

In the platform supply vessel (PSV) market, ships were still very tight on both sides of the North Sea with utilisation now up at 95%, Westshore said.

There are just two open ships left in the UK and Norway.

Vessels are fixing at £10,000 or above, although not quite at the peak of £16,500 reported last week.

Utilisation was 95% on Wednesday."


#13

Yes it is peak summer and construction season in the North Sea, which meas high activity.
But bear in mind that there are dozens of large AHTSs and PSVs in cold layup, some of which could be activated in a matter of a week or two if the demand keeps up.

It should also be noted that the “standard” AHTS size in the Norwegian sector is now well over 20,000 Bhp and DP2 class. (On the UK side over 15.000 Bhp.)
PSVs range from 800 - >1.000 Sq.m. deckspace, with from 6-10.000 Bhp and DP2 class.

Here is Clarkson Platou’s Spot List for the North Sea: http://reports.platou.com/spotlist/Pages/NorthSea.aspx


#14

I see that two of Mokster AHTS have changed names from Stril Challenger and Stril Commander to Siem Challenger and Siem Commander. Can’t see how much they changed hands for on either Moksters website http://www.mokster.no/ or Siem website http://www.siemoffshore.com but I reckon that Siem got a couple of good bargains for two of Moksters well maintained vessels. I saw a couple of days ago that the Siem Challenger was sat off Aberdeen perhaps on spot market or waiting for a rig move.


#15

They were owned 50/50 by Mokster and Siem. Now fully Siem, but I believe another vessel or two went the other way. Checking.


#16

Sorry got that confused. Here is what little I found on these two vessels: http://www.offshoreenergytoday.com/report-simon-mokster-in-double-vessel-sale/

The 50/50 deal was with Meling for Siem Pilot, which is now in Canada and Siddis Mariner, which is now working in the Wind Farm industry…


#17

Did Havila nearly go bust because they didn’t see the increasing nationalization of the Brazilian Offshore market coming?: https://sysla.no/maritim/brasil-2etter-ni-ar-brasil-fikk-havila-alle-batene-fanget/


#18

Although I would never wish bad on a man over his success, Gary seems to be one the guys who see things coming before others. As far as his company holds up after he steps down might be questionable as usually the 3rd generation can sometimes bring down what previous generations built.


#19

Solstad Farstad has handed over the AHTS Far Shogun: https://www.solstadfarstad.com/fleet/ahts-vessels//far-shogun
to an absentee owner (believed to be a Norwegian bank) as per an agreement reached in March this year, before the merger of Solstad and Farstad: http://www.hegnar.no/Nyheter/Boers-finans/2017/03/Ukjent-investor-kjoeper-Farstad-skip

She has been operating in Australia/Asia Pacific for some years and is presently idle but ready in Singapore. She will be drifted by DOF under their “lucky name” Skandi Bergen: https://sysla.no/maritim/denne-baten-far-lykkenavnet-dof/

Nothing said about the price, but believed to have been part of a re-financing deal between Farstad and their creditors, which was not enough to safe them as an independent company.


#20

The Subsea vessel Olympic Delta has obtained a new contract, but the duration is not made public: http://www.smp.no/nyheter/2017/07/13/Olympic-med-langtidskontrakt-for-subsea-skip-15013989.ece?cx_front_click=baseline_test&cx_front_click_place=5&cx_front_click_articles=3

It is becoming more and more apparent that high spec vessels like the Olympic Delta has more attraction in the worldwide market than the older and/or less well equipped vessels in the CSV/IMR segment.

This vessel was originally built for a long term contract with Delta Subsea LLC, Montgomery, Tx. which has since been cancelled. According to their website they also have (had?) the HOS Bayou on contract for work in the GoM: http://www.deltasubsea-rov.com/rov-systems/vessels

Interesting to note the difference in specs between these two vessels, built at abt. the same time (2014/15) and intended for the same type of operations.
It shows the different thinking of the Fosnavaag and Bayou owners and the requirements in their intended markets. The Olympic Delta was designed and built for the worldwide market, while the other one obviously only for the GoM market.

PS> Interesting to note that Delta still have their ROVs onboard O.D. and rent them out to whoever is the Charterers. Make good sense for all parties.