“With Brent continuing to rally above $70/bbl the market conditions continue to be brutal for the subsea industry, which is working to recover from the downturn, but activity is gradually improving with more work expected this year. The subsea market activity maintained momentum this quarter with several small awards. Our differentiated service offering, strong client relationships and early engagement capability helped us to grow our order backlog,” Mermaid said in a stock market announcement on its second quarter results.
“Although the market environment remains challenging, MSS (Mermaid Subsea Services unit) continues to see a gradual recovery in tendering activity especially in the Middle East. Of significance MSS has been awarded a $16m project with NOC in Qatar,” it added.
The company warned however that “at present pricing is challenging and we expect margins to remain low until excess capacity is utilized”, adding that it using its experience and technical expertise to drive out inefficiencies.
Mermaid expects to see more contract awards in the third and fourth quarter of 2018 for conventional projects in the subsea installation engineering space, with tenders for work on projects for fields offshore in the Middle East such as Qatar, Saudi Arabia and Kuwait in the short to medium term.
“The current tailwind in the oil market is likely to propel 100 new offshore projects to be sanctioned in 2018,” said Mermaid. This compares to only 60 projects in 2017 and below 40 in 2016.
Mermaid noted however that these projects are geographically well spread out and that of these, 30 project approvals are forecasted to come through in Asia, including Pegaga in Malaysia and D6 in India and 30 will be in Europe, including Neptune Deep in Romania and the Penguins redevelopment in UK. Meanwhile Africa should see sanctions for nearly 20 projects with a similar number forecasted in the Americas.
“Deepwater projects on either side of the Atlantic Ocean—from Norway to the US and from Angola to Brazil—are leading the charge toward new approvals. Higher oil prices, an improved outlook for gas demand, and lower offshore development costs are driving this rebound in the industry,” concluded Mermaid.
These projects represent a collective $100bn worth of capital investment, giving an average of about $1bn per project. In contrast, the average projected capex for offshore projects approved in 2013 was $1.8bn, Mermaid noted.
Mermaid added that MSS is also sourcing lucrative projects in Kuwait as well as formulating a deal with a European EPCI company to focus on Gulf of Thailand decommissioning works scheduled for 2019.
In the drilling segment, all three of Mermaid’s jack-up drilling rigs in its jv Asia Offshore Drilling, AOD I, AOD II and AOD III had nearly full utilization in the second quarter and remain on contract in the Middle East until 2019.
Looking ahead, Mermaid continues to leverage on its reputation and stability to access additional geographical markets and services across regions with increased business development activities in the Americas which requires extensive subsea infrastructure. It also sees Australia, Brazil and the North Sea as potential areas for subsea installation growth.
The company continues to preserve cash while exploring options to purchase distressed assets where appropriate.
Mermaid Maritime turned to a $7.7m loss in the second quarter, compared to a $3.6m profit in the previous corresponding period.