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Reduced rates and oversupply will continue to hit OSV operators

Reduced rates and oversupply will continue to hit OSV operators
Offshore support vessel (OSV) operators will continue to come under pressure on reduced charter rates and tonnage oversupply, amid the low oil price environment, industry players observed.

Neil Glenn, managing director of Swire Pacific Offshore Operations (SPO), told delegates at the Sea Asia 2015 conference that the imbalance in the supply and demand equation has put pressure on OSV charter rates, especially for existing contracts.

“There are requests to reduce rates on existing contracts. Reduced capex by oil companies has also reduced demand for OSVs. The collective impact is weaker utilisation and softer day rates,” he told delegates at the offshore marine forum as part of the conference on Wednesday.

Eddy Kurniawan Logam, president director of PT Logindo Samudramakmur Tbk and chairman of Indonesia Shipyard and Offshore Association, said that even without the fall in oil price, the oversupply of OSVs is already a cause for concern.

Furthermore, some major oil and gas projects are being delayed, putting pressure on existing charter rates for both jack-up rigs and OSVs.

“What we are seeing in Indonesia now is that some projects or contracts are being terminated and OSV contracts are tied to them. We are waiting for the market to pick up and for the oil price to stabilise,” Eddy commented.

Some OSV operators have been known to accept a 20-30% discount on charter rates, according to Eddy. “We have not allowed (20-30% lower rates) but we are looking at 10-15% discounts on existing contracts. We will see more pressure when we come to the renewal of these discounted contracts and that is when 20-30% discounts may happen,” he said.

Glenn also pointed out with OSV utilisation and day rates both weakening, the priority of operators is to secure stable contracts even at lower rates just to keep vessels employed.

“Moreover, expectations from the clients are just as high today with oil at $60 per barrel as when oil was at $100,” Glenn said. “The industry is not going to trade reduction in cost for an increase in risks, nor will they [clients] accept lower levels of performance.”