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Laid up or on the way out?

Tue 24 Jan 2017 by David Foxwell

Laid up or on the way out?

I looked at how many vessels are in layup – and how many might or might not come out of layup once the market picks up – in my comment last week, so it was interesting to see a well known broker, Westshore, doing the same thing in its latest newsletter.

With more than 150 platform supply vessels (PSVs) and anchor handlers (AHTS) from the North Sea market laid up, the oversupply situation seems a long way from being in balance. Scrapping among offshore vessels is fairly rare, due to the relatively small amount of steel. So, as I noted last week, the question is not so much how many will be or need to be scrapped to return the market to balance (because they won’t be scrapped) but how many laid up vessels will actually be reactivated and return to service.

Westshore’s layup list shows all of the vessels listed as laid up in the North Sea and the date they went into layup. At time of writing there were 102 PSVs in layup of which 87 are 15-years old or younger. “Vessels of 15 years and older are in many if not most cases not necessarily at the end of their working lives, and a well maintained vessel can have decades of service left. However, particularly on the Norwegian side, age restrictions might make this a tough sell when the market picks up,” said Westshore.

Of the vessels in layup younger than 15 years only 47 of them have a deck larger than 800m2. Again, this is an issue more on the Norwegian side of the North Sea as smaller-decked vessels can secure contracts on the UK side relatively easily. Looking to the future, particularly for operations as far north as the Barents Sea, where distance from shore is a major factor, a vessel with a deck area of less than 800m2 will struggle to secure work.

Westshore says that, of the vessels in layup that are 15 years or less old with a deck larger than 800m2 only 26 of them do not have class surveys due in 2016 or 2017. Costs for undergoing a five-year class survey come in around NKr10 million (US$1.2 million), but if work needs to be done on overhauling a ship’s dynamic positioning system for example, you can double that figure. For many owners cashflow constraints meant putting a vessel through its class survey was simply not an option in the current market. And of course a vessel needs to be in class to return to service.

The moral of this story is that the length of time a vessel has been in layup, coupled with the state of layup it has been in (warm/cold), will have a strong bearing on how quickly a vessel can come back into work – and how much it will cost to bring it back into service. Taking the cost of a class survey and the cost of reactivation into account, Westshore believes that the only way some ships are going to make it out of layup is if they win a lengthy, profitable term contract. And long-term contracts are as rare as hen’s teeth at the moment and will be for the foreseeable future.

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