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More corporate failures lie ahead in OSV sector: Fazelbhoy

More corporate failures lie ahead in OSV sector: Fazelbhoy
Synergy Offshore chief executive, Fazel Fazelbhoy, revealed the scale of the downturn facing OSV operators in Middle East waters when he moderated a session of regional updates at Seatrade Offshore Marine & Workboats Middle East yesterday. Generally, the picture was bleak although the Saudi market has shown signs of life recently as Saudi Aramco invites bids for various major offshore projects.

Fazelbhoy, an offshore expert who is expecting significant restructuring across the sector as OSV companies and their bankers come to terms with plunging vessel values, says that an influx of tonnage from Southeast Asia has only added to the woes of local owners as utilisation levels and day rates have come under further pressure. Many vessels, he said, are valued in company books at levels which are wholly unrealistic today and cites examples of financed ships worth just 30% of their value four years ago.

According to statistics from Pareto Securities, more than 40% of the global fleet of 3,500 anchor handlers and platform supply vessels are currently idle; approximately 730 vessels are laid up, and there is a backlog of 350 more vessels ready or nearly ready to be delivered from China and Southeast Asia.

These vessels constitute a particular threat to Middle East operators, Fazelbhoy said, because this region – with low breakeven production rates – is likely to recover first. The Middle East fleet consists of 450 units, about 100 of them from Southeast Asia, with 50 currently laid up.

Fazelbhoy believes that 2017 is likely to be the worst year of the downturn as energy companies are only just beginning to consider lifting E&P spending constraints. This has seen global spend slashed from $650bn in 2013, Fazelbhoy says, to $400bn in 2016, and a further $40bn cut by the end of this year. However, from 2018, it is possible that spending will stabilise or begin to inch upwards again, filtering through to vessel operators probably in two-to-three years’ time.

However, despite some positive signs in Saudi Arabia including a requirement by US offshore contractor McDermott for more than 200 offshore vessels of various types, Fazelbhoy is convinced that more OSV corporate failures are likely in the months ahead “as bankers make the right decision to take some of these companies off life support”. He goes so far as to predict a sub-prime crisis in the sector unless bankers bite the bullet and revalue vessels realistically.

Jasamin Fichte, managing partner of law firm Fichte & Co, spoke of the Iranian market which many had believed held such potential but which had so far come to nought. She mentioned the $4.8bn deal between Total and the National Iranian Oil Company but said that she did not believe any mobilisation had started yet and, despite the lifting of sanctions, there was still no way of getting paid from Iran in dollars.

Koh Chen Tien, chairman of Makamin Offshore Saudi, gave an upbeat view of that market in which he said that E&P spending was rising significantly as Saudi Aramco fixed more deals with its long-term agreement partners including the National Petroleum Construction Company of Abu Dhabi.

Meanwhile, the world’s largest energy company had invited bids from other possible long-term agreement partners including Lamprell, Subsea 7, Aker and Technip.

Then it was the turn of Sunil Chaudhary, founding director of CS Offshore, to give a brief on the West African market. Utilisation of PSVs in that market was running at a little more than 50%, he said, but anchor handlers were down below 20%.

Meanwhile, local bank funding was virtually non-existent in today’s market, partly because of very high interest rates, and partly because banks with little understanding of shipping required a full payout over the relatively short tenors of contracts that have come to market.

For more updates on what is happening live at the show click here