Safety standby vessels or emergency response and rescue vessels haven’t ever been the most profitable segment of the offshore vessel sector, but at the moment they are at least providing a profit, unlike most other vessel segments
Almost nobody operating platform supply vessels (PSVs) or anchor-handling tug/supply vessels – let alone really expensive assets such as diving support ships – is making money on them at the moment. Most deals see vessels contracted to operate at or below opex, but in the emergency response and rescue vessel (ERRV) segment in the North Sea, it seems the market is holding up reasonably well.
What differentiates it is that they’re not a ‘nice to have’ asset and likely to be culled in a downturn – the regulations mean you have to have them – and secondly, ERRVs work under long-term contracts, many awarded before the downturn.
As OSJ reported in mid-July, the nature of the ERRV market, based as it is on relatively long-term charters, means that liquidity levels are generally relatively low, and this general picture has been exacerbated by oil companies in cost-cutting mode. At the time, brokers Clarkson said that rates for modern multirole ERRVs were in the range of £7,500–8,500/day, having softened in the region of 10 per cent over the course of the previous year. For a modern Class B ERRV, term charter levels were assessed to be in the region of £6,000–6,500/day. This was a reduction of just over 15 per cent over the course of the last year, although the broker notes that – in the current market – these levels are relatively untested. This softening in rates comes after a slow firming in rates over the period 2010–2015, although the levels of stability in the ERRV market mean that this encompasses a range of only a couple of thousand pounds. Again, this is a far cry from the volatility levels present in the mainstream offshore support vessel spot markets in the North Sea.
Another important fact to bear in mind is that, although a good number of newbuilds were ordered in recent years, the level of overordering was never as high as in some other segments, such as PSVs. ERRVs are nowhere near as expensive as a large deck PSV, and although owners who invested in newbuilds undoubtedly have mortgages on some of these vessels, there are also a lot of older vessels out there that are debt free. One well known owner of ERRVs, Rory Deans at Sentinel Shipping, explained that, of the 126 vessels operating in the sector, 40 (32 per cent) are 30 years old or older. As he also noted, there are only four vessels on order in this segment, all of which are Sentinel Marine vessels.
“There are some older vessels that have been laid up,” he explained. “They probably won’t come back, but although rates have dipped, they are above opex,” which is more than you can say about most other offshore vessel segments.
Mr Deans expects that, when new requirements come to market, rates will, as he put it, be “keen”, but he notes that, as recently as December, Sentinel Marine fixed a contract for four years at what he described as a “reasonable” rate. As he points out, owners of older vessels are finding it increasingly difficult to compete against new vessels, which are much more fuel efficient and less expensive to operate. A new ship might burn 1 tonne of fuel a day, compared with 3–4 tonnes on a much older ship. Newbuilds also tend to be multirole units, capable of providing oil companies with a range of services other than just standby – some have picked up work with remotely operated vehicles, and other multirole vessels are part-time supply vessels. The walk-to-work market provides another kind of opportunity for the right kind of vessel. Having dynamic positioning and meeting the terms of the SPS Code also help. In this way, they provide a kind of value-added service to an oil company whilst enabling the client to meet regulatory requirements.
Of the other leading players in the market, North Star Shipping has invested heavily in fuel-efficient newbuilds in recent years. Vroon Offshore has too, but also has some “old ladies” in its fleet. Then there are a number of long-established companies such as Boston Putford, where there has been comparatively little investment, who might be more at risk from a further fall in rates or increased competition.