Recent weeks have seen a growing realisation that the old way of working in the offshore vessel sector is coming to end, by which I mean that, as the crisis in the industry continues, so family-owned companies are finding it ever more difficult to continue in the present form. This is particularly so in northwest Europe, but in the US there are some big companies for whom the next 6-12 months will be make or break. It’s not out of the question that one or two of the biggest names in our industry might soon file for bankruptcy protection. Some have admitted as much; other companies are openly being discussed as potentially having to do so. When industry-leading companies such as Hornbeck Offshore have getting on for three-quarters of their vessels stacked and Bourbon has a whopping 85 vessels laid up, something needs to give. And it will.
As it ‘gives’, industrialists such as Kristian Siem – an industrialist with an industrialist’s view of an industry that is wallowing in debt and overcapacity – who is a believer in consolidation, and Kjell Inge Røkke, another industrialist taking an industrialist’s view of the industry, are playing a growing role. If a regular reader of OSJ, you will know all about the role that Kjell Inge Røkke’s Aker Capital has already played, blocking Rem Offshore from refinancing in order to bring about a merger with Solstad Offshore, creating an entity that will probably act as a vehicle for further consolidation in the sector before long. More recently, Mr Siem’s company Siem Industries has been talking to family-owned Farstad about Siem – or a fund managed by Siem – acting as an equity investor in Farstad. In the US, of course, Charles Fabrikant has his eyes on GulfMark and has written to that company’s board members spelling out just why he thinks a merger with Seacor is GulfMark’s best option.
It’s important not to forget of course that there are those who are strongly against consolidation, but it helps if your company has already refinanced. Håvard Ulstein, managing director of Island Offshore, is one of them. He told OSJ consolidation is not an option and noted that, in his view, the main problem in the industry right now is long-term debt taken on to cover new vessels. The problem is, he says, that mergers will not reduce the number of newbuilds. He is quite right of course; everyone knows there are too many vessels by far in the market, and nothing like enough of them are being sold out of it or being scrapped. They never are. The banks have shown endless forbearance and have been supportive – perhaps too supportive – and even bondholders have been convinced to support restructuring, but in doing so, they are delaying a reckoning for many industry leaders.
As broker Chart Shipping noted recently, in addition to the continuing slump in day rates, the increasingly frenzied competition between owners to secure what little opportunity remains is driving a dramatic revision on the basic tenets of vessel chartering. Even for little more than spot work, owners are now routinely agreeing to liabilities that previously would have been a red line for most, if not all owners. This includes accepting an obligation to provide a substitute vessel in case of breakdown and a liability on owners for higher than anticipated fuel consumption.
As Chart Shipping noted, with 200 units offered against certain requirements, charterers are now able to immediately reject candidates for contractual non-compliance. An increasingly pertinent question in a charterers’ selection is the financial health of contractors and their ability to meet liabilities as may be agreed under a contract. However, the world fleet is still way too numerous to match extremely weak demand based on current and predicated activity over the next year at least. Prominent commentators are predicting this imbalance between supply and demand may persist into 2020. The broker is surely right when it says with second-hand values already down by 50-70 per cent, and likely to dwindle further in 2017, most bargain hunters, such as they are, are biding their time.
The Annual OSJ Conference
The 2017 Annual Offshore Support Journal conference, awards and exhibition will take place in February 2017 with the opening keynote on "What is the new normal?" being delivered by Seacor CEO, Charles Fabrikant.