Cosco Corp’s latest profit warning related to a $90m one off charge after it decided to discontinue an Octobuoy at Cosco Nantong project for ATP Oil & Gas in the UK which had failed to pay its debt claims. “The steep fall in crude oil prices over recent months has had an adverse impact on the global offshore marine industry. This has made it even more difficult to secure a buyer for the Octabuoy as industry players have cut back even further on new orders,” Cosco Corp said.
This could be just the tip of the iceberg. In an effort to gain a foothold in the offshore market many Chinese yards offered extremely back end payment heavy contracts. This was particularly prevalent in the jack-up rig sector where yards took orders from speculative buyers with 5% or less upfront and the remainder on delivery.
Speaking to an offshore marine lawyer last week expectation was that many of these contracts will at best be renegotiated for delivery delays and at worst simply walked away from as the buyer has so little to lose. It was a very similar situation to that that played out in general shipping post the 2008 collapse of shipping markets. On top of it some of the speculative rig owners may simply go out of business themselves.
For shipbuilders still trying to get themselves back on an even keel this could be very bad news indeed. Even for more established yards in Singapore and South Korea with better structured contracts new orders could dry up very quickly as oil companies such as Chevron and Petronas cut investment plans for 2015 by 20 – 30%. This week’s results briefing by Singapore’s Keppel Corp, the world’s largest builder of jack-up rigs, through its unit Keppel Offshore & Marine, will no doubt be watched keenly analysts and the market in general as senior management’s views on what lies ahead.
On the chartering side the picture may not be much better and operators could also look to find ways of getting out of unprofitable charters as Singapore law firm Oon & Bazul warned recently.
If the oil price drops further or simply stays where it is the world of offshore marine could be facing some very rough weather ahead.
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