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Offshore Support Journal

OSV owners told 'When you run out of cash, you run out of time'

Tue 12 Feb 2019 by John Snyder

OSV owners told 'When you run out of cash, you run out of time'
“There are too many vessels in the market and too few rigs working"

When it comes to assessing the demand for offshore support vessels, owners need to look at the fundamentals of the market rather than the price of oil, AlixPartners managing director Jeff Drake told delegates on 7 February at the 2019 Annual Offshore Support Conference, Awards and Exhibition in London.

In his presentation on “Why does the recovery in the OSV market remain elusive?” Mr Drake said the financial health of the OSV market is a function of a supply-demand gap. “There are too many vessels in the market and too few rigs working.”

AlixPartners estimates that OSV demand this year will be at 2,291, whereas the supply is 3,647, equating to a 63% utilisation rate.

Historically, OSV operators have used stacking as a low-cost means of handling oversupply and keeping the option open for a market recovery. However, even with a potential recovery in offshore drilling, the significant oversupply of OSVs could continue to plague the sector, he said.

There are “a lot of old ladies out there,” he noted, with about 900 vessels or 25% of the OSV fleet estimated to be 15 years of age or more. Outside of the top 10 OSV owners, about 71% of those older vessels are controlled by about 400 companies that have fleets of six vessels or less, creating a highly fragmented market and making removing oversupply very difficult, according to Mr Drake.

He said an owner’s financial strength is his greatest asset, with leverage levels of key offshore players varying widely. He said the key challenge for many owners is debt to cash. Some OSV owners have a net debt representing 95% of total capitalisation.

What that means is that a big percentage of every dollar operators with high debt levels bring in goes towards paying debt, rather than covering operating costs. As more companies address their balance sheets, those with less debt will be able to price more aggressively, and those who retain debt will risk being driven out of business. “When you run out of cash, you run out of time,” warned Mr Drake.

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