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The offshore sector has "got legs"

The offshore sector has "got legs"
In early May, people from all facets of the energy services business descend on Houston for the Offshore Technology Conference (OTC). In recent years, savvy shipping players with a long term view of cycles, such as George Economou  and the Ofer family, have built companies in the offshore arena like OceanRig and Pacific Drilling which have raised money in the public markets after putting multi-year contracts in place.

Alongside OTC Marine Money hosted a one-day forum covering offshore finance. The event obviously draws on Houston’s centrality to the Gulf of Mexico and proximity to important basins offshore Brazil. But equipment is mobile, so the subject matter is worldwide in scope. In some ways, the finance side of the business is reminiscent of shipping’s boom times from 2005 through to mid-2008.

Geir Sjurseth, who heads the Offshore Support at DVB said that for many banks, “offshore is the bright spot”. Regions Equipment Finance Corp’s senior vice president, on the same panel with Sjurseth, talked about a competitive environment for the banks, where spreads were decreasing and terms were almost in the “covenant light” categories seen prior to the 2008 financial meltdown. Another speaker on the lending panel, Barbara Gronquist from DNB Bank, talked about the ability of investment grade drilling companies to re-price their debt and revise terms, negotiating longer tenors, for example.

Brazil plays a dominant role in the market; consultant Tom Kellock from IHS, showed that Petrobras accounts for more than third of the world’s contracted deepwater rigs many of which were working at shallower depths than their maximum capacities. He cautioned attendees to be careful about the rig supply, saying: “There appears to be something irresistible about the prices still being offered from the yards.”

The market for jack-up rigs in the US Gulf has consolidated drastically, according to Hercules Offshore’s John Rynd, who said that, “it feels like it’s got legs, but I worry about supply.”

The programme at Marine Money’s forum included Paul Bragg from Vantage Drilling, partially owned in its early years by TMT’s Nobu Su, and Shelf Drilling’s David Mullen, ceo of Ocean Rig prior to George Economou taking full control. Mullen suggested that Shelf, which ormed in 2012 as a private equity consortium bought Transocean’s older jack-ups, might be looking at an IPO as early as next year.

Shane Guidry, from private equity-funded Harvey Gulf Marine, described the cost savings being realized from LNG fuel; Harvey Gulf is the first owner of dual fuelled OSV’s in the Americas. Another one of the industry’s “rock-stars”, Todd Hornbeck, described an ongoing shift underway in the OSV market from a commoditised market to a new paradigm where  the offshore operators are part of the value chain in more complex and technically challenging subsea production processes. NYSE-listed Hornbeck Offshore’s orderbook of two dozen boats, with financing now augmented by $450m of recently issued eight year bonds, includes advanced designs for subsea construction and inspection/repair/maintenance (IRM) markets.