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OSJ conference hears smaller vessels offer the bigger opportunity

Tue 26 Sep 2017 by Edwin Lampert reporting from Singapore

OSJ conference hears smaller vessels offer the bigger opportunity
Thom Payne, Westwood Global Energy Group

OSV companies are reversing their layup strategies, Westwood Global Energy Group’s Thom Payne has told this year’s Asian Offshore Support Journal Conference in Singapore.

“What we had been seeing is a lot of people wanting to layup some of their smaller vessels and keep some of their more expensive vessels working even though those vessels are working at lower rates. But [today] the strategy is somewhat changed. Now we see contractors preferring to layup some of the bigger vessels and bring in smaller vessels because they can potentially make more money. The operators have moved from wanting the best boats at the lowest rates to just wanting the lowest rates.”

Opening the conference, Mr Payne was clear that the industry’s foremost challenge is to work out what to do with the 1,800 OSVs presently in layup, some 1,000 of these are in layup in southeast Asian waters.

“45% of the vessels in layup are less than 15-years-old which means 55% are over 15 years,” he explained. “If we scrapped everything, the business environment would return to 2007 levels. If we were to scrap everything that was over 15 years of age, which is a bit more realistic, we would return to a 2012-2014 level of overall utilisation. Industry was still dealing with oversupply during that period although things were much better [than presently].”

The outlook is not without good news. “We have seen a sustained uptick in offshore drilling – and surprising to some – that uptick has been led by southeast Asia. We have seen bright spots in Myanmar, but the growth expected there from very successful exploration campaigns is not going to be enough to absorb all the overhang. Rather, those who moved [into Myanmar] first will gain.”

He also spoke approvingly of new thinking on new ‘Avis’ or ‘Uber’ business models for the industry, although saw uptake as being a long way off.

“This thinking makes intuitive sense because there is a massive pool of vessels in deep freeze. Demand has fallen 20% for all asset classes globally but there is still a huge amount of work. If you could have an ‘asset lite’ model where utilisation isn't a risk for your business, because you are able to win the work, and then pick vessels that are needed to do the work… that is compelling.

“However, we have a massive lack of standardisation, so getting vessels qualified so a vessel that may be able to work in one country market may not be qualified to work in another country market is more problematic.”

He warmed to this theme in his concluding advice to the audience. 

“Many businesses, especially international non-Asian businesses, have treated Asia Pacific as one area. They have had a regional hub in Singapore, open registry vessels, and they have attempted to penetrate these large demand centres in Malaysia, Indonesia and Thailand, Vietnam and so on…

“But what we have seen over the last five years is a very acute sharpening of local content policy in Indonesia, Malaysia and Thailand. Once this happens the ability to run a southeast Asia business from Singapore will be significantly diminished.”

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