After a tough handful of years with an oversupplied offshore supply vessel (OSV) market, OSV companies may be finding the tide is finally turning.
At the peak of the last upturn, OSV companies were ordering newbuilds to meet projected demand, but when the downturn hit, OSV owners faced an oversaturated market. Vessels were cold-stacked, and many vessels that were working pulled in close to breakeven prices. Consolidation and bankruptcies followed.
And then the offshore rig count – a key indicator for OSV demand – started ticking upward.
“Over the last five years, a lot of companies were just trying to keep their active fleet as busy as possible,” said Jason Stanley, VP marketing and sales at Tidewater.
The OSV market looked to be improving as of the third quarter of 2018, he said, as drilling activity began to increase, some projects received positive final investment decisions (FID) and operators were “making some noise” about additional capex being spent in 2019 and 2020.
A dip during the fourth quarter of 2018 raised concerns that this prolonged lower-for-longer cycle may not be verging on recovery.
“The good news is we haven’t seen any changes in our customer’s behaviors this year,” he said.
For instance, even activity in emerging markets like Suriname is still on track, he said.
Last year demand for OSVs in the North Sea prompted a number of vessel operators to unstack OSVs or bring vessels from other locations, which led to a drop in prices although it was a “decent season,” he said. “We counted 34 vessels coming back into the market.”
This year, demand for OSVs in the North Sea has picked up more quickly than anticipated, he said. The demand there has spiked rates, he said, adding he hopes OSV operators will “remain rational and disciplined” and not oversupply that market again in order to keep rates higher.
At the same time, demand for OSVs to support the Nordstream project is pulling OSVs out of the North Sea, which should support a net decrease in available supply, benefiting those vessels that remain, he said.
The Middle East was consistently busy during the downturn, and jackups are being added to the region, he said. Saudi Aramco tends to sign multi-year contracts but with lower rates, Stanley said, noting Pemex is pursuing a similar strategy in the Mexican sector of the Gulf of Mexico.
The US Gulf of Mexico has been fairly flat in terms of demand, but he said he is cautiously optimistic that the industry may see a bump in rates there.
“Gulf of Mexico owners have been more disciplined. We didn’t see a bunch of irrational reactions when there was more work last year. That did keep utilization levels up,” Stanley said.
Brazil looks set to trend up as well, he said, but “I think that’s a 2020 story” before that market gets in full swing. “Brazilian-flagged tonnage will benefit first.”
Another encouraging factor, Stanley said, is the move to bring more technology into the OSV sector. He’s noticed what could be the start of a trend of OSV operators using monitoring systems like those used by drilling and subsea equipment providers to drive performance improvements and find potential cost savings. Another is how oil & gas companies are incentivizing OSV owners to add battery power to help the operator reduce emissions and fuel consumption.
“We are seeing all markets slowly improving right now, and this is the first time we’ve seen it pick up across the globe in years,” Stanley said. “We’re confident we’re off the bottom.”