The Offshore Support Vessels sector and Offshore Supply Base sector are two core components of Offshore Oil & Gas sector, which must remain available and can’t be shutdown. The petroleum products demand fluctuations can only impact the production rate of operating fields and slowdown in new deep water E & P project investments. It is not unusual but seasonal or as some economists may term it as cyclic for balancing the demand and supply equation. The excess OSV fleet availability due to lack of new E & P projects depress the day charter rate for new charters, spot charters and put pressure on existing long term time charters, which could be at much higher rates than the prevailing market rates.
Lower Day Rates Unsustainable
For some OSV operators, which are heavily geared and management infrastructure with high operating cost often find hard to balance the monthly P & L. To add insult to the injury, some bankers nervous about the future, make calls on the outstanding loans, mortgages and cancel Over Draft facilities. Some OSV operators may not be able to withstand such burdens and succumb to either closure or judicial sales of the assets. This saga is not new and repeats with every downturn cycle in shipping as well as offshore sectors of the global industry.
Opportunities in Distress
The OSV operators with surplus idle vessels and financial pressure would be willing to sell their assets at prices much lower than usually traded rates. The attractiveness of lower or distressed sale prices and hope of better times ahead provide a good catch for owners with excess cash in hand or secured time charters. The driving factors for this optimistic view lies in the following factual data of ongoing commissioning of new offshore assets:
- Launching into service in March 2016 World’s first FLNG Vessel, owned by PETRONAS: Delivery of PFLNG SATU (PFLNG-1) with 1.5 mtpa capacity to be moored at Malaysia’s Kanowit Gas field off the coast of Sarawak;
- Prelude FLNG world’s largest FLNG Vessel set to commence operations in 2016;
- Other several FLNG project are steadily steaming ahead in their development phase are: PFLNG DUA, Conversion based FLNGs of Golar, Sevan FLNG etcetera;
- In terms of geographical zones undeterred by low oil & gas prices are Mozambique, Tanzania, Cameroon, Nigeria and Countries in the Middle East North Africa (MENA) region;
- Two years of slowdown in offshore development expenditure and 2016 being a flat year, indicates that the upward swing is likely to start as early as 2017;
- A quick review of oil supply, demand and reserves reflects that demand has started increasing while the surplus has vanished bring the stocks to the levels at par with the inventory in 2014 (See OPEC MIR for March 2016); and
- The strongest indicator in favor of OSVs is that before any offshore project can start, these vessels starting from Seismic Survey to supply Vessels to Crew Boats and accommodation barges will be in demand soon.
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