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No light seen in tunnel for offshore market

No light seen in tunnel for offshore market
Owners and operators of offshore oil and gas assets have not seen light at the end of the tunnel for the severely depressed market, which continued to be marked by stunted activity levels and lingering overcapacity amid tame oil prices.

A panel of owners and operators across the businesses of FPSOs, tender rigs, jack-ups and offshore support vessels presented their views at the Singapore Offshore Finance Forum held in Singapore on Thursday.

Norway-based Yinson Production, subsidiary of Malaysia’s Yinson Holdings, noted that there has been no major FPSO contracts signed since January 2015, summing up the quiet state of the market.

“Going forward we are starting to see a little bit more movements in the market, but there will still not be a huge number of projects or opportunities out there,” Eirik Barclay, ceo of Yinson Production, told delegates at the industry forum.

While Barclay urged for more consolidation in the market, he noted that it is the weakest players that are the ones least willing to take the writedowns to consolidate. He added that it was also “mind-boggling” to be witnessing some new and inexperienced players securing financing in such adverse market conditions and these new assets capacity from the new establishments are not helping the recovery.

Tender rigs operator Energy Drilling and offshore drilling operator Dynamic Drilling Holdco are also challenged by low market activities and prospects have not brightened up, if at all.

“In 2016, we saw low activity in terms of new contracts being issued by oil majors and project cancellations or postponements. Rates will continue to be low and there are expectations that rates for tender rigs will be even lower than jack-ups, posing an element of risk to our business,” said Tue Saabye, cfo of Energy Drilling.

Manav Kumar, president and director of Dynamic Drilling, echoed that 2016 was a difficult year for the jack-up rigs market as well, though the level of enquiries from oil companies are picking up.

“During the last quarter, in particular, there was a tremendous pick up in enquiries from oil companies especially for shallow waters. But the activity levels in deepwater remained low as oil prices need to be higher,” Kumar said.

The oversupply situation for jack-ups is not pretty in view of over 90 new rigs ready for delivery from Chinese yards, according to Kumar. “But as those rigs are without jobs, they are unlikely to come into the market, not at least until oil price hit $75-80,” he believed.

The OSV sphere is probably the hardest hit due to severe overcapacity and unprofitable charter rates, not to mention a huge backlog of newbuilds queuing to be released from the shipyards. “We were used to having OSV charter contracts for three years, signing off and forgetting about them,” said Venkatraman Sheshashayee, ceo of Miclyn Express Offshore (MEO). He quipped that owners today will be lucky to secure one-week contracts.

Sheshashayee reiterated his long standing view that much more scrapping of OSVs need to happen, in view of around 20% of the world’s operational fleet being above 20 years of age.

“As long as that [scrapping] does not happen, the oversupply will continue for at least the next two to three years,” Sheshashayee warned. He pointed out that there are almost 400 new OSVs that are ready for delivery from Chinese yards, but these newbuilds are deteriorating by the day unless their engines can get started.

“Within a year these newbuilds will become older than a five-year vessel of mine,” Sheshashayee said.

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