ROV market outlook

The ROV market isn’t out of the woods yet, with plentiful supply in the market dampening any perceived uptick in activity. But, offshore wind might offer some respite. Elaine Maslin reports (first published in the January 2018 OE, access full issue here). 

A 6000m Quasar Work Class ROV system, from SMD, which was supplied to Shanghai Salvage, with SMD’s firm’s first electric winch, late 2017. Image from SMD.

The remote operated vehicle (ROV) market has had a tough time during the last few years due to its reliance on drilling operations. 

The impact of the downturn on utilization rates and pricing, as well as the market outlook, was discussed by Andrew Reid, managing director of Douglas Westwood, part of Westwood Global Energy Group, at Subsea UK’s Underwater Vehicles Conference in Aberdeen late November. 

“It’s quite evident that the ROV market has been in real trouble over the last couple of years,” Reid says. “We’ve seen drops in pricing, anywhere between 10-40%, since the downturn.” Utilization rates, as activity has dropped, has seen market reductions for some by as much as 50%, he adds. 

ROV days have seen a 33% average reduction. Drill support ROV days are down 37%, and construction support -46%. 

“We do expect a recovery, but not to 2014 levels,” Reid says. “This time around we have seen IMR (inspection repair and maintenance) also hit hard, down 22%. We always saw maintenance as a relatively protected market. But, there’s been a combination of a reduction in activity and a delay in work programs that were not a necessity. 

“Certain work practices prevailed during the better times, which led to, I suppose, overinvestment, i.e. if someone has a construction vessel on a term-based contract, you’re more inclined to do jobs because you already have a fixed cost base as an operator. Now that we’re moving more to a spot market, we’ll see more necessary work.”

Bottomed out

Hopefully the worst is over, however. “We are coming to the view that the market has at least bottomed,” Reid says. “Many of the characteristics that have influenced it are starting to stabilize. There’s light at the end of the tunnel. Where the tunnel ends is still quite a challenge to predict.”

That’s because final investment decisions (FIDs) are still being delayed, he says. There was sentiment from Tier 1 contractors that 2017 would be a bell weather year, with FIDs coming through, “but we are not seeing those yet,” he says. How much the growing autonomous underwater vehicle (AUV) market chips in to the ROV market also remains to be seen. 

_{Oceaneering’s eNovus compact work class ROV. Illustration from Oceaneering.} 

Drilling is a core driver for the ROV sector and this segment saw a peak year in 2014, with more than 2500 offshore wells drilled. While the outlook today is improved, compared with the past two years, and is relatively stable, growth is only expected to 2022, Reid says. “This has created big issues in an industry where there was, in 2013-2014, an expected continued growth trajectory, perhaps surpassing the 3000 offshore well mark. The industry invested in capability to supply that demand, but the activity didn’t come and that’s led to oversupply and it’s going to remain a stressed market from supply and demand.” 

One area of optimism is offshore wind. “It’s the good news, particularly in Europe,” Reid says. “There’s significant investment in building out offshore wind infrastructure, and many projects are deeper offshore, with greater complexity, and lend themselves to the experience and capabilities from oil and gas. We’re looking at just shy of US$355 billion (€300 billion) being spent between now and 2025, two-thirds in Europe and a third of that in the UK, mirroring that almost of drill support work.” 

Making up the rest of the balance of ROV activity is construction support, IMR, and decommissioning, “everyone’s silver bullet,” Reid says. “I don’t see it particularly. There will be ROV driven activity from those programs, but it’s going to represent 5% of ROV days through the forecast period, it’s still small.”

In summary, he says the macro outlook is improving, but it still remains vulnerable. While the ROV market will improve and “come off bottom,” pricing isn’t expected to grow any time soon, due to the supply overhang. “We’ve got more to look forward to, but it’s going to be hard for us all to prosper.”