The Middle East offshore support vessel market is sometimes cited as having come though the crisis in the offshore oil and gas industry better than others, but the reality is that vessel rates and utilisation levels remain severely depressed
Speaking at the 2017 Annual OSJ Conference, Awards & Exhibition in London in February, Fazel A Fazelbhoy*, chief executive officer of Synergy Offshore, noted that national oil companies and international oil companies had been cutting back on exploration and production (E&P) spending for the last 36 months (2014, 2015 and 2016), but he expected that E&P spend will recover to 2014 levels – but not until at least a couple of years from now, probably longer.
Against this background, he explained, there has been a 30 per cent decline in vessel utilisation in the Middle East, from a level of around 90 per cent to 60 per cent. Rates for offshore support vessels in the region are down by 30 per cent since 2014, with key players such as Aramco asking offshore vessel owners for an average of 30 per cent discounts on existing contracts. Vessel values have also plunged by 30 per cent or more.
In the Middle East, he explained, there are around 450 offshore support vessels (OSVs), of which 20–25 per cent – getting on for 100 vessels – are from the Southeast Asia region.
“In the Middle East, the average utilisation level currently is 65–70,” Mr Fazelbhoy told delegates, “with three leading companies claiming utilisation of in excess of 90 per cent. More than 50 vessels are stacked, and NPCC is in the process of redelivering more than 30 vessels.”
He explained that rates in the region were not expected to recover until late 2018–2019, and the forthcoming merger of Adma-Opco and Zadco is likely to further delay implementation of projects in 2017.
Looking at the market in the Middle East state by state, Mr Fazelbhoy told delegates that Adma-Opco and Zadco both plan to increase production in the United Arab Emirates (UAE) from 600 barrels/day (bpd) and 650 bpd respectively to 1.0 million each by 2021, helping the UAE go from 2.85 million bpd to 3.5 million bpd.
“The good news is that Zadco and Adma-Opco are pressing ahead with a number of projects,” he explained. “The bad news is that the Adma-Opco and Zadco merger will delay implementation, especially new projects.”
In Saudi Arabia, Mr Fazelbhoy explained, there is growing interest in ‘in-kingdom total value added’ or IKTVA with regard to long-term agreements (LTAs). “Aramco is going the LTA route with five EPC contractors – McDermott, Dynamic, Saipem, L&T/Emas and NPCC,” he explained. Upcoming projects in the region that will create opportunities for vessel owners include Marjan, and the extension of the existing field, with nine jackets live in 2019; Berri, and the extension to existing field, with eight jackets live in 2019; and Hasbah, which was awarded to L&T/Emas, which is due to be live in 2020. Expansions are planned at Safaniya, Marjan and Zuluf and are being tendered now. Other future projects include the Marjan, Safaniya and Zuluf decommissioning and replacement projects for a total of 10 platforms, plus pipelines, cables and umbilicals.
In Qatar, projects include the Qatar Petroleum (QP) Bul Hanine redevelopment, where early production is expected in 2019, plus QP’s Bul Hanine FMB project being undertaken by Technip, for which full-scale engineering development is due to be completed this year. Another QP project, North Field Alpha, was awarded to McDermott and is due to go live in 2018. Occidental’s Idd El Shargi North Dome Phase 5 project is at the planning stage and is due to be live in 2020. The RasGas flow assurance and looping project was also awarded to McDermott and is due to be live in 2017.
“Overall,” Mr Fazelbhoy explained, “although Qatar has not been suffering as much as other oil economies, they have been brutal in their approach to cost reduction and have been holding reverse auctions.”
Looking at what this kind of market has meant for offshore vessels, Mr Fazelbhoy said that, whereas a typical dynamic positioning class 2, 8,000 bhp, 110-tonne bollard pull anchor handler with accommodation for 26 might have garnered US$14,000/day, rates were down more than a third to around US$9,000/day.
“In the good old days, an AHTS 5150 was earning around US$12,000/day. Now they are earning US$6,000/day for a DP2 unit and US$3,800–4,500 for a DP1 unit – that is down at least 50 per cent. A platform supply vessel of 80m length overall with 3,000 dwt and DP2 that was earning US$16,000 is now earning around US$7,000/day – that’s down 56 per cent.
“The oil majors are not done yet with renegotiating rates downward on renewal,” Mr Fazelbhoy told delegates, noting that a recent contract for a DP2 anchor handler with 90 tonnes bollard pull that was originally contracted for US$13,000 renewed for US$8,000 after a Dutch auction. This particular vessel will be stuck on that rate for the next five years. “2017 will probably see further rate cuts and not much improvement in utilisation,” he told delegates.
Turning to the Iranian market, which industry observers expect to pick up, Mr Fazelbhoy said everyone is desperate for good news from Iran, but unfortunately, Iran “will not be delivering any in a hurry”.
No formal contracts have been signed yet, he explained, only memorandums of understanding, and new field development is probably at least two years away. “The immediate priority is upgrading existing infrastructure and upgrading efficiency from a level of less than 50 per cent to in excess of 70 per cent.”
“There is a need for inspection, maintenance and repair (IMR) for brownfield rejuvenation projects, but idle Iranian assets will go to work first, followed by UAE-based vessels with connections and then surplus and laid-up vessels from the Middle East, which are actively bidding for Iran offshore work.
“The new dimension will be a premium for newer, more technologically sophisticated vessels that are affordable now due to the low utilisation levels and day rates,” Mr Fazelbhoy said. However, the international oil companies have been the driver for newer and high tech vessels and are not yet active in the field. There could be immediate opportunities for liftboats, IMR vessels and multipurpose PSVs. However, payment challenges remain.”
*Fazel Fazelbhoy is chief executive officer of Synergy Offshore, a consulting firm providing strategic advice to industry and financial sector clients on offshore energy and marine developments as well as advice in support of corporate restructuring and mergers and acquisitions activity. Mr Fazelbhoy will be speaking at the 2017 Middle East Offshore Support Journal conference in Dubai on May 8-9.