Local OSV work is driving a sharp rise in profitability for vessel owners, operators and regional shipyards
Offshore supply vessels are the lifeblood of all offshore operations. Demand rises and falls along with the performance of the offshore sector, and in unison with global economic conditions. As with all sectors of the energy industry, the offshore supply vessel industry has its challenges and problems, but with new technology and regulations, it seems to have a prosperous future ahead.
Demand for offshore supply vessels is currently picking up following the slowdown of 2008. This is a familiar cycle to the industry. The oil industry is extremely cyclical, we had a downturn in the late 70s, one in ‘86/’87 another one in ‘98 and another one in 2008,” comments Roy Donaldson, COO, Topaz Marine.
Donaldson goes on to explain that following these downturns, there have been periods of inactivity in ship building. These gaps lead to a shortage of ships in the industry. However, a new regulation from the oil firms has gone a long way to ensuring the impact is diminished in the future.
“Oil companies are putting a time limit on the age of vessels, a maximum of twenty years from the end of the contract year. So that’s bringing down the useable age of the offshore supply vessels,” says Donaldson.
There has previously been a debate on whether it is more cost effective to buy an old fleet rather than a new one, however, industry leaders say the argument for buying old ships for less is quickly diminishing.
“In the Middle East particularly, the difference between a new vessel, with low interest rates that we see today, and operating an older vessel is not that great. There’s not much of a difference for the operator between taking on a new vessel and an old vessel. The only difference is reliability and all that good stuff which comes with a new ship,” opines Donaldson.
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Deep Water
As the industry adjusts, it also heads into more challenging waters, literally. “Oil and gas projects are heading into deep water – as seen in Brazil, East and West Africa, the Timor Sea, Western Australia and, lately, the Saudi Red Sea – so demand for DP II vessels is increasing at all those locations as well as in the North Sea where there is renewed interest for harsh weather equipment,” reveals Ismayil Manzil, Group Oil and Gas logistics manager at GAC.
This move towards deep water exploration has given the industry a host of new opportunities and has led to increased business in particular regions.
“The demand for offshore supply vessels has never been stronger, largely due to an increase in deep water exploration,” says Khamis Juma Buamim, chairman of Dubai’s Drydocks World and Maritime World.
“We have built over 75 offshore support vessels at our dedicated new build facility in Nanindah – Indonesia. Our recent deliveries have been vessels with highly advanced multiple capabilities. There are several new projects in the pipeline and we expect a reasonable growth in volume as we have accumulated experience and expertise in building vessels of diverse scope and scale.”
Buamim says his company’s most promising regions span the Gulf of Mexico, Brazil, West Africa, the North Sea, South East Asia, the Med and India. He adds that there is great demand for PSVs, AHTS, Seismic Research Vessels.
Other areas may become more profitable for OSV firms in future. “If the shale gas boom does not make a major negative impact on traditional LNG markets, I foresee a boom in activities in places like East Africa, and the Mediterranean.
“However, the current state of the LNG market and lack of infrastructure for distribution in Africa makes that rather difficult to predict,” says Manzil.
The Middle East and the Caspian remain extremely profitable areas for some as well. “The Middle East, on our own back door, the older vessels are now leaving, we have had 14 brand new vessels come into the region in the past two years and all of them are actively employed, even at the higher rates that we expect for newer tonnage,” says Donaldson.
“The Caspian is obviously a big market for us and it always will be, we have good strength in the Caspian. The barriers to entry are making competition wary, should we say, but that will change and more people will move into the Caspian, it’s a great growth market,” he adds.
Improvements in technology have led to an increase in safety and control, but have also brought staffing challenges to the sector.
Advancements in dynamic positioning through GPS, sensors and better control systems have helped remove mistakes from the day to day business of the vessels. This technology, and the time it saves, also drives demand for newer vessels.
“Every operator you go to today wants a vessel that takes out the human element – they want DP. It’s safer and it’s more reliable. The offshore units are older, so they don’t want any problems with ships touching, and it’s a first for new technology,” reports Donaldson.
However, this is an issue which also brings up challenges. One of which is centred around recruitment of people with the right skills.
Mirroring the human resource problem in the wider oil and gas sector, there is a worldwide shortage of good qualified seafarers, and it’s not getting any better.
“Appetite for DP vessels increases the need for DP operators. That requires another two staff onboard each ship; two DP operators as well as the captain and the chief mate. And it’s really difficult to get hold of these guys,” adds Donaldson.
As order book swell, prosperity in the industry increases, and the number of challenges decreases or become less severe, a natural by-product is for competition to intensify. In the Middle East, some of this competition has come from outside of the region, and further East in particular.
“Competition is here to stay, no matter what we do or where we go. When it comes to equipment, both Chinese and South Korean operators are serious threats to existing operators. However, in the Middle East, client relationship and experience hold the key,” says Manzil.
“Our philosophy has been always to focus on the client to gain a strong understanding of the nitty-gritty of their projects and become part of their team. The name of the game is innovation, creativity and flexibility,” he adds.
Companies across the sector are reacting to competition with similar bullishness.
“There is of course competition. But we have the edge as we have already been building vessels for more than two decades and we have our list of faithful clientele,” says Buamim.
“We believe in operational excellence and continuous improvement and have implemented several customer-friendly procedures and processes to streamline our production, reduce cost and wastage. We have our pulse on the market and always react to market demand.”
The Middle East has seen a considerable rise in its profitability according to Donaldson, and this is what is attracting competition to the region. “There are quite a few companies moving into the Middle East.
If you go back three of four years ago, you could only expect $6,000 a day for a bog standard 50 tonne anchor handler in the Middle East. We’re now achieving $10,500, $11,000 a day. Saying that, costs have gone up. Crew salaries have gone up etc, but it’s still a good growth market for newer tonnage,” he explains.
The offshore supply vessel market has been recovering strongly following the downturn in 2008. Now with new areas of business to exploit, such as the deepwater exploration areas, and better technology with which to do it, the industry has a bright future.
Challenges remain, but overall the sector looks set to chart a profitable course in the foreseeable future.
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Client check
Three of the offshore supply vessel’s biggest players describe their client list
Khamis Juma Buamim, chairman of Drydocks World and Maritime World
We have several large international operators as clients. For eg, Transocean, Lewek Shipping, Swire Pacific Offshore, Bumi Armada Berhad, Tidewater International, Hallin Marine, Greatship, Saipem to name a few.
Ismayil Manzil, GAC Group Oil and Gas logistics manager
We have long-term contracts with Oil Majors and EPCs. We also engage our fleet in rig moves, and we have recently been involved in a highly specialised niche project related to coral reef and sea grass relocation in the Arabian Gulf.
Roy Donaldson, COO, Topaz Marine
Our biggest client by far is BP. We have 14 vessels operating for BP. So they are by far the biggest client. We’ve just sent two 190 tonne anchor handlers into the Caspian. We’ve just been awarded a five year contract in Oman, We’ve just been awarded a five year contract for Al Shaheen. From the start of 2011 to date, the contract renewals and new contract orders, is coming to something like $450m. That’s full contract terms, not per annum.
