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Offshore Support Journal

Offshore activity may be increasing but OSV oversupply remains

Thu 21 Jun 2018 by Ed Martin

Offshore activity may be increasing but OSV oversupply remains
Laid up vessels may take a lot of work before they can compete in today's offshore sector (credit: Iain Cameron)

Offshore activity is increasing and more vessels are being chartered, but oversupply remains. Ed Martin looks at what can be done to bring these vessels back into service, and if it makes economic sense to do so

The oil price is now approaching a comfortable level and offshore oil and gas activity has clearly picked up, but a lot of vessels remain in lay-up and nobody seems quite sure what do with them.

Some suggest converting them, while others highlight the amount of work required to bring them up to the standards necessary for today’s offshore sector.

Independent offshore marine consultant Ian Perrott questioned what surprises might lay in store when vessels start coming in from the cold. Starting with a scenario where increased day rates result in the laid-up fleet being returned to service, he noted that “It doesn’t take a genius [...] to see that if significant numbers of laid-up vessels were re-activated, then the additional supply alone might cause any rate recovery to falter on the back of an increased supply.”

Mr Perrott then questioned how many of the laid-up vessels are even worth the time, money and effort required for reactivation, and what risks might be involved: “Some vessels have been well laid-up with a long-term view to their reactivation, but many have not.”

“Many vessels, either built speculatively by shipyards or investors without an owner’s supervision or started under an owner’s supervision but completed without it, are also in layup,” he added.

As work on bringing an OSV out of lay-up progresses, costs and the complexity of the work are likely to increase, for example “unexpected big-ticket items, such as dynamic positioning computers” explained Mr Perrott.

He added that “the risk of latent defects may also be increased where an owner did not supervise the building, or where shipyards were forced to cut costs when an owner cancelled a half-built vessel.”

Mr Perrott also questioned whether, given the attractive low day rates, anyone would be willing to take the gamble of chartering a reactivated vessel in the first place, noting they are “built without independent supervision, never before used, laid-up in the cheapest way possible but still only three or four years old”.

He concluded that “There will be no simple answers to how, when and which vessels re-enter the OSV market from lay-up, only that there will be risks, there will be mistakes and some will lose money.

“To those who wish to try their luck, then diligence, caution and deep pockets may be the only way to end up owning a vessel that does not keep you awake at night.”

With these issues in mind, Westwood Global Energy Group director Thom Payne’s speech at Riviera’s Middle East Offshore Support Journal Conference in Dubai in May seems particularly apposite: “Of the 3,600 OSVs currently being tracked, around one third are in lay-up and around a further third are above 30 years old and will never come back to the market. But there is still quite a large number that are less than 15 years old; a lot are potentially in Chinese yards and never really had owners and could fall away as well.”

Clearly, misgivings about the abilities of parts of the laid-up fleet remain, particularly with regard to older vessels. In December 2017, Clarksons Research said up to 1,000 ageing laid-up vessels could end up never rejoining the fleet.

VesselsValue head of offshore Charlie Hockless concurred, noting that “The OSV space is poised for significant movement over the coming years.”

Mr Hockless believes that OSV demand will recover and those with modern, high quality tonnage are in a strong position to ride the market up, provided their vessels are in good working condition. Those with older vessels (15-years or more) face a challenging and costly period.

He noted that: “Vessels that are low-spec and laid-up at this age are finding their asset values aligning with (or being lower than) the costs associated with reactivating and re-classing them. This will lead to a point where owners and financiers will have to decide to either accept these costs or scrap the vessel and take the financial write off.”

At a recent press event in Ålesund, Norway, ÅKP’s chief executive Per Erik Dalen said “[shipowners] have to get rid of a lot of vessels - how they’ll do it I don’t know but they’ll probably never see an oil field again”.

Discussing the issue of ABB’s preparations for a resurgence in the offshore market, vice president of azipod sales for the offshore segment Arthur Solvag said the company has “a crew of experts” working on the issue of what maintenance and work would be required to bring laid-up assets back into the offshore sector’s workforce. Addressing PSVs specifically, Mr Solvag said “I think PSVs will still be struggling for a while because there are so many units out there and a lot of things need to be done in order to use that number of vessels.”

He suggested that some may find other uses, for example in the growing area of offshore wind, but added that nonetheless “a lot of things need to happen and a lot of vessels need to be scrapped”.

Havila OSV to come out of lay-up for AGS contract

Havila Fortune’s AGS contract sees the vessel come out of layup for the first time since its June 2017 Maersk Oil contract (credit: Alf van Beem)

Fosnavåg, Norway-based OSV fleet owner Havila is bringing its PSV Havila Fortune out of lay-up as part of a charter contract with Houston, Texas-based Axxis Geo Solutions (AGS).

The contract, which commenced in June 2018, is for an initial six months with options. Havila Fortune is an MT 6009 MK II PSV with a DNV GL “Clean” notation. Built in 2009 at Havyard’s Tomrefjord yard, the PSV measures 74.87 m in length by 16.4 m in width and has a 3,205 dwt.

It is powered by four 1,291 bkW Cummins KTA5DC engines and has a maximum speed of 13.6 knots. With a dynamic positioning class of DP2, Havila Fortune is equipped with two 1,500kW azimuth thrusters, with a diameter of 2.7 m and two 800 kW tunnel thrusters. The vessel can accommodate 31 people, with 11 officers and crew plus 10 two-berth cabins.

Havila Fortune was previously taken out of lay-up for a contract with Maersk Oil in June 2017.

 

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