Term rates in the North Sea platform supply vessel (PSV) market have been rising steadily since the beginning of the year, but it’s hardly an outbreak of spring fever
According to offshore vessel brokers Seabrokers, March 2018 PSV day rates for high-end tonnage rose to NKr110,000–125,000 (US$14,000–$16,000) in Norway and £7,000–10,000 (US$10,000–14,000) in the UK. These are still relatively low, although a significant increase from 2017.
Term rates in March crept upwards for PSVs on the back of an increase in tendering activity in the previous six months. The broker noted that Statoil has chartered in three large PSVs for the summer season in the Norwegian sector of the North Sea, with options to extend the charters into 2019. Normand Leader (6,200 dwt, 2013-built, VS499 design, 1,053 m2), North Barents (4,513 dwt, 2017-built, ST216 Arctic design, 1,053 m2) and Viking Lady (5,500 dwt, 2009-built, VS493 design, 1,000 m2) have been chartered for four months from April/May, with a two-month option. The rates have not been reported.
Other PSVs set for North Sea work this summer include Troms Mira (4,100 dwt, 2016-built, 108 CD design, 830 m2) chartered to Spirit Energy for 12–13 months for the Noble Hans Deul jack-up drilling session. The PSVs Stril Luna (5,000 dwt, 2014-built, UT 776 WP design, 1,030 m2), Stril Orion (4,900 dwt, 2011-built, STX PSV 09L CD design, 1,040 m2) and Stril Polar (4,900 dwt, 2012-built, STX PSV 09L CD design, 1,055 m2 ) are also committed to three-month extensions to their charters with Aker BP.
However, Seabrokers felt this encouraging increase in renewal activity failed to lift spot PSV rates.
“We have not yet seen an equivalent jump in spot rates for platform supply vessels, with most fixtures still coming in around the £5,000–7,500 (per day) mark,” said the broker. “However, the anchor-handling tug/supply vessel market did tighten considerably in the final week of March, with most owners offering (day) rates of £25,000–50,000 for spot jobs.”
Indeed, on an annual basis, medium-sized PSV spot rates were nearly 25% softer in March 2018 compared to March 2017, while the larger PSVs experienced a 30% decline in rates on the same basis.
But over the same March 2017 compared to March 2018 timescale, the anchor-handling tug/supply (AHTS) vessel market witnessed a much greater decline in average spot rates. Rates for <20,000 bhp units reduced by nearly 40%. The larger >20,000 bhp AHTS vessels saw rates decline by 57%. The fall in rates suggests a general decline in utilisation across the AHTS fleet.
Supply and demand
If the rates in the first quarter of 2018 did not paint a pretty picture, then the supply situation is not going to make it any better. According to VesselsValue, there are still 191 PSVs scheduled for delivery in 2018. However, only 35 PSVs were delivered in 2017, and the last peak deliveries were 170 vessels in the 2014. Therefore, it is safe to say there is not going be the avalanche of PSVs entering the market that the schedule suggests. Nonetheless, to the end of March 2018, 15 PSVs had been delivered in 2018. In the current market, a steady trickle of around five PSVs per month is going to dampen the market.
The rate of new AHTS vessels entering the fleet in 2018 has been a little more benign. So far this year, eight units have entered the fleet, with another 188 on the schedule. It has been five years since the additions to the fleet reached triple figures. As with the PSV fleet, it is highly likely that the bulk of these scheduled units will be delayed or even cancelled.
Expectations of future earnings are a key feature in determining values, so it is no surprise to see that, during March 2018, PSV rates declined by 8% for the newest vessels across all size ranges.
VesselsValue reported that the least decline was in the 2013 and 2014-built category, which only saw values fall by 4.5–4.8%. This could be explained by the ‘five-year rule’, which is an untested convention that five-year-old vessels are favoured because they have been tried and tested but are not so old that the maintenance curve is steepening, which is probably the case with those PSVs reaching 15 years old, which saw values decline by nearly 20% in March 2018.
Two much older PSVs were sold in March 2018. Havila Faith and Havila Favour (4,700 dwt, 1998-built, VS 483 design, 902m3) were sold by Havila of Norway for an undisclosed price. VesselsValue suggests a value range of between US$1.21M and US$1.38M.
It was also reported that Standard Drilling bought ER Narvik and ER Trondheim (3,200 dwt, 2009/2008-built, UT 755 LN design, 680m2) for an en bloc price of US$4.9M. These two PSVs are now listed as under the management of Fletcher Group in the names of FS Carrick (ex-ER Narvik) and FS Crathes (ex-ER Trondheim).
Special purpose vehicle sale?
The subsequent management of the former ER Narvik and ER Trondheim under the Fletcher Group follows a familiar pattern where Standard Drilling is a substantial investor in project-financed special purpose vehicles (SPVs).
Under the much lower entry costs afforded by the relatively low sale values, such SPVs will be able to turn a profit at rates that are far lower than those that, historically at least, have been required by PSV operators.
The tightening March 2018 AHTS market was reflected in the change in the values. The recent additions to the fleet appreciated by between 1.6% and 2.2% in the month, which may have brought some small relief to Q1 loan-to-value covenants bank tests. Even the older AHTS vessels enjoyed a static movement in values.
There were five AHTS sales in March 2018. VesselsValue reports that Breakwater Capital bought ER Luisa and ER Vittoria (16,315 bhp, Dec, Oct 2010, Sekwang HI) for an undisclosed price. VesselsValue values the en bloc deal at US$17.89M.
Also, in March, Swire Pacific Offshore sold Pacific Warrior (10,800 bhp, May 2002, Vard Brevik) to Karadeniz Holding for US$1.1M. In another AHTS sale, Tidewater Marine sold Rogelio Tide (5,150 BHP, Jul 2011, Chongqing Jinlong) for US$1.6M.
In the short term, Seabrokers noted that, with more rig move activity on the horizon and with six to seven vessels soon to be tied up for the tow-out and hook-up of the Aasta Hansteen spar, owners will be hoping for some headline rates as spring progresses.
Looking further ahead, Siem Offshore of Norway did not raise expectations of a general increase in rates for 2018, noting in its Q42017 report “Although we expect an uptick in the activity level during the summer period, we believe that the market rates will remain volatile and generally low in 2018.”