David Foxwell reflects on a respected broker's view of the OSV market in mid-2017
I always enjoy reading the reports that David Palmer at Pareto Securities produces, even if at the moment they don’t make especially optimistic reading.
However, in his latest report he suggests that there is reason to be at least a little optimistic about the OSV market. There is a growing view that things have stopped getting worse, he says.
Looking at the anchor handler market, Mr Palmer says the fleet is increasingly facing challenging fundamentals. There are 1,864 anchor handlers in the current fleet, with 171 on order, possibly more, with the orderbook dominated by smaller AHTS.
Since the downturn, there have been few orders for high-end AHTSs, with vessels mainly to be delivered from China, India and Malaysia. Interestingly, Mr Palmer says he suspects that some PSVs on order might be being converted into anchor handlers, resulting in an increase in the AHTS orderbook over the past six months.
It’s in the PSV fleet that there remains a huge imbalance. There are 1,634 in the current fleet, with 192 on order. Mr Palmer says he anticipates that a number of vessels currently under construction will not be delivered, or not enter the market as PSVs.
• The good news is that the working rig count has bottomed and will start to rise.
• There is a slow shrinking of the OSV orderbook and no new orders.
• OSV utilisation is rising but rates have yet to improve.
• Offshore spending is rising, and no more capex cuts are expected.
• Tender activity is picking up, and there are FID awards.
• Oil demand is robust, and the oil market is rebalancing.
• Restructuring in full swing, and new equity is available.
• Cost optimisation in the last 2-3 years means there are no more ‘low hanging fruit’ and all of the savings are in rear view mirror.
Led by banks and bondholders, consolidation is creating larger companies with lower operating costs, such as Solstad Farstad. It’s happened in Europe, but in Asia there’s still a way to go.
Owners need to change their business models to survive in the new reality. Those that do will be ready to take advantage of the upturn.