How to benefit from the stagnant demand for oil & gas sector, with oil price hanging below psychological benchmark of US$50/barrel? It has made some dents on offshore E & P support service providers. There are two most loyal and closest service providers as almost like partners of oil majors, field operators and E & P contractors:
1) Offshore Support Vessels (“OSVs”); and
2) Offshore & Marine Supply Bases (“OSBs”).
As long there is even a single well operating at an offshore site, these two partners are critical backbones for national oil companies (“NOCs”) and international oil companies (“IOCs”). With suspension of new exploration projects and slowdown of current projects, numbers of OSVs have become idle, whether temporarily or for foreseeable future. The long term Charter Party Agreements (“CPAs”) of some OSVs have been terminated prematurely. Unlike merchant ships, OSVs can adapt to such situations by careful planning through quick turnaround from cold stacking to hot standby mode. The careful planning starts with finding a solution as to where the owners can put an OSV, during off-hire period, at no or minimum cost of anchoring, without the risk of making the vessel a potential target or bait for pirates. Instead of keeping like orphans in rivers, estuaries or near beaches with minimum crew, the collaborative strategies with fellow supporter in oil & gas and offshore & marine industry segment i.e. an OSB can be a proposition worth evaluation.
OSBs on the other hand besides providing end to end logistics support services and inventory warehouse to oil & gas companies, also act as a place of refuge for OSVs while waiting for orders. Given the current market conditions and reduction in movements of goods and services from OSBs, there is also some reduction in operating income of OSBs. This reduction can be partially overcome through offering LAYUP management services to OSV operators and owners. In context of the facilities and sea-front anchorage area available within the limits of lease agreements and or rights of use licenses, an OSB can segregate a section for Laying-up of OSVs. Once within the custody and management of an OSB, the OSV managers can focus on other businesses or marketing instead of worrying for the care and upkeep of laid-up vessels.
New Opportunity vs Within Current Business Portfolio
This may not sound like a novel idea for some of the OSBs who are already having 5 to 10 vessels waiting in their Bases at any given time. However the key difference lies in the modus-operandi both from OSV owners and OSB operations point of view. When an OSV is anchored or berthed in an OSB, the upkeep of the vessel is vested in the OSV owners and OSB only charges for berthing or anchoring fee and services as and when requested from an OSB. But if OSB is entering into an LAYUP Management Agreement, then OSB will not only provide safe and secure place of refuge but will also take on the responsibility of the upkeep of the vessel according to the agreed terms of management with the owners. Some owners may choose to Lay-up for short durations (3 to 6 months) while some owners or vessels may have to be under Lay-up for a year or two (specially construction and accommodation barges type vessels). The owners may also make a condition of the agreement for turning the vessel from cold-stack to warm standby within a defined time period. The OSBs will then be offering value-added services while owners will benefit from manning, management and insurance costs. This does sound like creating a win-win situation for comrades-in-arms!
Benefits for OSV Owners
• Enhanced Safety and security of their vessels;
• Reduction in costs of vessel management without charters;
• Machinery and vessel is kept in sea-worthy condition despite presence of crew;
• Faster turn-around when mobilization for a charter; and
• Easy access for inspection, sales purchase negotiations and marketing purposes.
Opportunities for OSBs
Improved occupancy of the Base despite downturn in the oil & gas industry;
Enhanced business model with LAYUP Management services added in;
Improved revenue streams;
Better utilization of assets and facilities; and
Building mutual trusts and relationships for sustainable growth and others.
Now the question arises, how to go about launching this service from an existing OSB without prior experience? Well, this is where critical thinking and planning will pave the way. The OSBs who have been offering vessel husbandry and agency services and who own some OSVs, it is a readymade business opportunity. For the OSBs willing to venture into this arena and reap benefits from this short term opportunity, some of the following steps can be considered as a starting point:
a) Review the available anchorage area limits and spare berths including pontoons (if available);
b) Work out the details about maximum number of OSVs with limits of principal dimensions, which can be moored and anchored;
c) Study the commonly used LAYUP management contracts to familiarize with the owner’s requirements;
d) Review port state controls for providing LAYUP services whether applicable to OSB or exempted; and
e) Prepare the business plan with target customers and financial reports.
The critic and comments on the above will be duly appreciated. The readers are welcome to send an email enquiry for further details or consultancy services from Tiberias MC, your innovative management consultancy services providers.