The timing was perhaps coincidental but brokerage BTIG posted a strong “Buy” recommendation for offshore service provider Tidewater in a note titled “All Aboard the Offshore Services Up-Cycle,” the same day that Tidewater's President and CEO, Quintin Kneen, was a featured speaker on a panel discussion on Offshore Service Vessels (OSVs) at the 35th annual Marine Money Week, held in New York.
In his report, BTIG’s equity analyst Greg Lewis wrote that: “After a multi-year downturn which saw many an offshore supply vessel (OSV) company go bankrupt, all signs point to the industry being on the cusp of a multi-year up-cycle following years of underinvestment across the offshore energy sector and the OSV sector.”
This sentiment essentially sums up the view of the conference panel moderated by DNB Markets Managing Director Jim Cerenza, which also included Todd Hornbeck, CEO of the eponymous Hornbeck Offshore Services, and John Gellert, President and CEO of SEACOR Marine Holdings.
In his remarks, Tidewater’s Kneen said: “There is still an air of scarcity,” concerning vessels, adding that the hires are continuing to move up. Noting that the nearby outlook for oil markets, as presented by Citibank’s energy guru Dr. Ed Morse, in a previous presentation, calls for a rangebound and sidewise pricing with a possible recession looming on the horizon, Kneen said, “We acknowledge the macro outlook, but- from our point of view, we’ve seen no pullback, and the day-rates continue to accelerate.”
Explaining some of the market psychology as the mood takes an upward turn, Kneen suggested that in the midst of a downturn, which was experienced in the OSV sector starting in 2015, that OSV owners “would take anything…so that they could get utilisation…the terms had got beaten down, whether it was substitute vessels, or no mobilisation fees”. Taking the macro view, he said: “Things are coming back, but we have a long way to go before the market would balance out. I think we should focus on that…doing the right thing for the industry…all of that is changing…but it will take a little longer”.
During the panel, the subject of consolidation came up, with Tidewater having seen it up close and personal.
During the downturn, the sector saw a number of bankruptcies and in late 2018 Tidewater combined with Gulfmark Offshore, where Kneen had been the top executive, a year after both had emerged from Chapter 11 restructurings. Tidewater had risen to the top of the OSV leaderboard through the acquisition of the fleet of Swire Offshore. Once a deal now in process to acquire vessels from Solstad is concluded, Tidewatere will control some 228 OSVs.
From Tidewater’s vantage point, the future is looking bright. “It’s the supply/demand balance that lets us drive the price, and there’s nothing about the supply/demand balance telling me that it’s going to get anything but tighter,” Kneen opined as the panel wound down. “We can double the price on a vessel and that’s not going to determine whether someone goes FID on a project,” he said.
The experts are agreeing; another analyst presenting at Marine Money, Dr. Adam Kent, from UK-based MSI, which produces a matrix with prospects for all the maritime segments viewed the OSV sector as one of the most attractive to invest in.
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