NAVIGATOR Westshore’s monthly North Sea report
December 2015 Issue: 52
all quiet on the western front
Further drop in spot market activity
Con ten ts 02
I
Front cover image used with kind permission of @allbabesarewolves Instagram
3. market in november 4. headline news 6. drilling & production 8. inside story 10. market forecast 12. wind industry 14. the last word This image: Bourbon Calm loadout in Takoradi, Ghana.
Written & Created by Inger-Louise Molver Offshore Analyst inger@westshore.no
www.westshore.no
03 350,000
300,000
250,000
NOK
average spot market rate ahts
the market in NOVEMBER
200,000
150,000
100,000
50,000 November 2014
> 25,000
October 2015
18,000 to 25,000
November 2015
< 18,000
67.0% Average AHTS utilisation in November
85.6% Average PSV utilisation in November Oct 2014
Nov 2014
Oct 2015
Nov 2015
Number of supply spot fixtures
90
81
91
91
Number of AHTS fixures
86
53
50
38
11 Rig moves in November (compared to 18 in November 2014)
22 110,000 100,000 90,000 80,000
NOK
average spot market rate psv
Rig moves in October (compared to 24 in October 2014)
70,000 60,000 50,000 40,000 30,000 November 2014
> 900 m²
October 2015
November 2015
< 899 m²
Create infographics
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ovember’s spot market was characterised by an increase in rates but a big drop in activity. We counted just 11 rig moves were carried out throughout the month, half as much as the month previously and the lowest figure since we started keeping track of this. This resulted in just 38 AHTS fixtures, signifying a big drop in the amount of work available for anchor handlers on the spot market right now. Despite this the significant level of layups has kept the market in balance to a degree meaning owners were able to pick up more for their vessels this month then they were last. For the PSVs it’s been another fairly typical month. It’s worth noting that there’s been on average an extra 10 supply fixtures each month compared to last year. This is as a result of the reduction in vessels working on term contracts – so when operators need a cargo run, they have to turn to the spot market when they previously might have relied on a vessel they had on term charter. Of course all those would be term-vessels are now fighting for work on the spot market, meaning rates are down consistently month on month from last year.
04
Headline News
Barents Sea – back on the agenda? Low oil price, costs cutting is the order of the day – so high cost areas like the Barents Sea are being put on the back burner right? Wrong…
D
espite Norway’s latest licensing round taking place in the grip of one of the most dramatic downturns since the 80s, a surprising amount of interest was displayed. Of the 57 blocks or parts of blocks offered up in Norway’s 23rd round, 54 were located in the Barents Sea, the other three lay in the Norwegian Sea. Many of the blocks lie in the newly opened south-eastern area of the Barents Sea and it’s here in particular that interest was sparked by operators. These are frontier areas where little to no exploration has been carried out yet. This means higher risk yet operators such as Statoil, Shell, Chevron, ConocoPhillips and BP amongst others showed willingness to take the leap. In total 26 companies applied for exploration acreage and the work of reviewing all the applications begins now according to the Norwegian Petroleum Directorate. It will seek to award licenses to companies with the best applications and strategies in exploring these areas. The list of companies applying takes in mostly large to medium sized companies with a couple of newcomers too – namely INPEX and Kufpec – the Kuwaiti Foreign Petroleum Exploration Company. Awards from the 23rd round are expected within the first half of 2016. In the meantime activity in the Barents Sea
in the near future has by no means dried up. Lundin is actively involved in the area with a development solution for its Alta/Gohta prospect currently being worked out, it’s expected that a floating solution will be selected. Lundin says it plans to drill 11 exploration wells by the end of 2015, and further rig capacity is being tendered for with March 2016 start up, four of these wells will be drilled in the Barents Sea. Exploration in the Barents Sea will continue to be an ongoing part of its core interest and it foresees that the number of producing fields in the Barents Sea will increase too. Having acquired several licenses from ENI in the area, managing director Kristin Færøvik described the potential of the Loppa High area as being like ‘pearls on a string’. Statoil’s excitement has not been echoed by that on Lundin’s however. It was widely reported that the development decision for Johan Castberg was hit by a third delay. Although Statoil states that development of the field is entirely possible, it remains firmly on hold until the second half of 2016. Statoil also does not intend on drilling any exploration wells in the Barents Sea in 2015 or 2016 after a disappointing campaign in 2014. The areas applied for by Statoil in the 23rd round lie in the long disputed territory between Norway and Russia. It is expected that if an award is made then Statoil would start drilling in the new acreage within two years.
06
Investment down says SSB
T
he Central Bureau of Statistics in Norway released findings of investment levels in oil and gas activity this month and as might have been expected, the figure for 2015 is down on previous years. Cost cuts and setbacks in offshore projects have culminated in total investment dropping from 208223 million NOK in 2014 to 182420 million NOK in 2015 with the figure expected to flatten out somewhat to 184902 million in 2016. A similar picture was painted when Oil & Gas UK released its annual Economic Report earlier this year. Capital investment on the Uk sector reached GBP 14.8 billion in 2014, the highest ever figure on record even adjusted for inflation. The figure is expected to fall to GBP 10-11 billion in 2015 and continue to decline with a further GBP 2-4 billion per year ‘as large ongoing projects reach completion’. While these figures can look shocking on face value what’s perhaps more important is to ascertain how much of this reflects a decrease in activity, and how much of it reflects a maintained activity level just carried out at lower costs. If anyone’s got a copy of that report – please let me know!
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07
Drilling & Production
Husky takes Henry Goodrich back The Transocean managed Henry Goodrich semisubmersible will be contracted to Husky Oil offshore Canada once more. The unit had been working in Canadian waters for years, for Husky amongst other operators when it was decided she was to be towed to Scotland and cold stacked in July this year. Husky has now confirmed that the unit will resume operations in the first quarter of 2016 on what will be a two year contract.
Lundin brings Edvard Greig online First oil from Lundinâ&#x20AC;&#x2122;s Edvard Greig was achieved at the end of November. The NPD said in a statement that expected recoverable reserves from the field totals 29 million standard cubic meters of oil equivalent, most of which will be oil. Edvard Greig is located on the Utsira High and has been developed using a fixed platform resting on the seabed. The original development plan for Edvard Greig tied in the nearby field Ivar Aasen which will be routed using the same transport system and production is scheduled to start at Ivar Aasen in 2016. The plan furthermore calls for tying in other discoveries in the area to Edvard Grieg as capacity gradually becomes available.
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Merry Chris from Westsh A look back on the changes thatâ&#x20AC;&#x2122;s happened at Westshore over the last year and our hopes for 2016.
2 stmas 09
hore
015 kicked off with the opening of our Oslo office and a new string to Westshore’s bow in the form of an offshore wind department. Roger Holden joined us in January taking with him a background in several large offshore wind farms around the globe from Fred Olsen Wind Carriers. It’s been a busy year as several new offshore wind parks picked up pace with corresponding need for vessels at various stages of the development. As the oil industry took a nose dive many owners have ramped up interest in wind in the hopes it will provide a little shelter from the down turn. An alliance with SRC Nordic has resulted in a contract being secured for modification work on Fred Olsen’s wind farm installation jack up vessel. Over in Brazil Daniel del Rio has stepped down as managing director and is succeeded by long term Westshore do Brasil employee Alexandre Vilela. Daniel will be staying on with us in the capacity of shipbroker and consultant. The troubles faced by Petrobras over the past year have doubled the worries of the average oil industry worker over in Brazil already burdened by the drop in oil price. It has however meant that other players have increased in importance for brokers and owners. In addition Petrobras is still tendering for vessels and activity across the board has been sufficient for us to need to increase the team down in Rio. Joana Rodrigues joined us in October coming from a background in logistics and ship chartering totaling over ten years offshore experience coupled with an MBA in Petroleum and Gas. Joana will be working with the rest of the team as a broker. And we are on the hunt for an established tanker broker to join the team in Rio, adding a new area to the
inside story Westshore service. Over in St John’s a couple of contracts have been secured for work in and around Newfoundland and Darrel continues to work closely with the oil companies working there. In Singapore Westshore Raffles continues to work on a diverse range of activities but the work coming from yards be that newbuild sale and purchase, conversions and upgrades to drydocking or maintenance work has necessitated that the team increase. In October Westshore Raffles took on Chia Hong Ju. Hong Ju has a background in working at Asian shipyards – specifically Sembawang and also has a degree in mechanical engineering from the University of Singapore. For vessels in the region this means that Westshore can facilitate in finding the right yard at the right price. And at Westshore HQ in sunny Kristiansand this year has brought little change to the make up of the team. Both Eirunn and I returned from maternity leave at the start of the year and quickly got back into the swing of things. The spot team comprising Jørgen Welde Knudsen, Alexander Albert and Gøran Røstad continues to work at securing the vessels needed for work on the spot market. Tore Kopland and Sølve Høyrem are working on various projects both in the North Sea and abroad. They say imitation is the best form of flattery, but even so we think it’s about time our website got a facelift and our IT aficionado Jonathan Cummins is in the process of rustling up something new for the New Year. So all that’s left to say is on behalf of Westshore Shipbrokers we wish you all a very merry Christmas and a happy and healthy new year.
10
Waiting for the oil price to go up? Youâ&#x20AC;&#x2122;re in the wrong game, mate
11
market forecast
T
here are some who say that you should never miss the opportunity of a down turn. And there are others who take an extremely dim view of statements like this. Regardless of which camp you’re in, the decision about waiting out the downturn until the oil price picks up, or changing the way you work – may be about to be taken out of your hands. Like it or not for companies supplying services to oil companies, like vessels and rigs, when the oil companies say ‘jump’, there’s little else for us to do than ask ‘how high?’. So what are the oil companies saying about this downturn? There have been clearly visible signs of slow down. Like fewer rigs and vessels being contracted on long term charters. Major projects being delayed or put on hold – like Statoil’s Johan Castberg, Mariner, Aasta Hansteen and DEA Norge’s Zidane field. But we’re not at a complete standstill; in fact the slowdown is more indicative of the reorginisation going on than a battening down of hatches, waiting until the oil price goes up again. Indeed what the likes of Lundin, Det Norske, Centrica, Maersk Oil and several others have stated publicly is that they are NOT waiting for oil prices to return to USD 100 plus, but reorganizing the way they are running their operations so they cannot just survive – but thrive in a USD 50 environment. This means cutting costs, obviously. Cutting out waste and taking a ‘good enough is enough’ stance. Standardization must be pushed into areas where complexity and bespoke solutions has ruled for decades. For the vessel owners however it is my view that at its worst in 2015 – attempts to press down rates were taken too far. Unsustainably far at least. While measures to improve efficiency and cut
costs within ship owners are undoubtedly necessary, there’s only so much you can do in this area before you’re left with a business struggling to stay afloat, and of course there’s the aspect of maintaining safety. The graph below shows how the average rates in the North Sea spot market compare to the break-even range for this type of vessel. Costs can come down, but what type of vessel, crew or operation are you going to get from a vessel you’ve paid GBP 3000 per day for a cargo run? Either one that’s running at a heavy loss and will soon disappear from the market or one you shouldn’t be hiring in the first place. Back to that oil price though. The experts at Rystad Energy see significant potential for an upturn in the demand for oil mid next year. And this will eventually it’s said, lead to the price of oil increasing. There will most likely be a time delay however between demand increasing, oil price going up and activity (and crucially rates) for vessels going up. That leaves us another year of painful rates, sluggish activity and being at the mercy of the storm. That’s one option at least, but the opening statement of not missing the opportunity of a downturn holds true in my opinion. What can be done here to create a sustainable industry for everyone? Yes we all have to streamline our businesses and put a stop to chucking money at a problem in the hope it gets solved quickly. But the oil price will go back up again, we will emerge from this down turn eventually – and when we do, what sort of business do you want to find yourself in? My advice is; reshuffle, reorganize, cut out the unnecessary and go after a future that’s suited to your individual skills and ability. Because there’s always lessons to be learned and opportunities to be had – especially in a downturn.
12 nordergrunde nordsee one
hywind pilot park veja mate
burbo bank extension
2016 uk
race bank dudgeon galloper rampion
wiking
2016 germany
Wind Industry
An update on the market As 2015 draws to a close we reflect on offshore wind activity this past year and what’s in the pipeline for next year and beyond.
ger
A
lthough we really needed it, offshore construction activity in 2015 was limited. Next year? – an increase, especially in the UK. In 2015 just five offshore wind farms were under the construction phase in Europe, the activity was most seen offshore Germany with Gode Wind 1 &2 and Sandbank along with Gemini and Westermeerwind offshore Netherlands. On a smaller scale final installation work was being carried out at Kentish Flats Extension offshore UK with full commissioning expected to be done by December 2015. Germany continues to push ahead and increase its market share in offshore wind. 2015 will see it add an additional 2.35GW of wind power to the grid – its most productive year to date. The current pipeline shows an additional 40GW of planned capacity, this includes projects for which consent has been authorized as well projects in the early planning stage and ones for which consent has been submitted. The official German target is 6.5GW fully installed by 2020, an ambitious target considering that will almost double the 3.27GW already installed. Next year the three big German fields to get under way are Nordsee One (RWE Innology), Wikinger (Iberdrola) and Veja Mate (Veja Mate Offshore Project). Although Germany continues to have the biggest pipeline of projects for next year and beyond in Europe at least, the UK still has some significant upcoming activity. The current tally of installed offshore capacity for the UK stands at 5.128GW, the highest in Europe by far. But the initial push that led to the UK taking the leading position has been overtaken somewhat by German drive. The pipeline of UK planning sits at 25GW – that’s for
fields where consent has been submitted or authorized or the fields in an early planning stage. Some skepticism over the future of governmental subsidies has plagued the UK scene following the withdrawal of government for onshore wind farms earlier this year. The current government has stated clearly however that these subsidies applied to new technologies requiring assistance to establish themselves, something that can no longer be said for onshore wind farms. Energy minister Amber Rudd has committed to three offshore wind auctions by the end of 2020 and has said that subject to the correct cost reduction initiatives, up to 10GW could be supported by current schemes. The big names to watch for next year and 2017 are Dudgeon (Statoil), Burbo Bank Extension (DONG), Rampion (E. On), Race Bank (DONG) and Galloper (RWE Innology). In addition is of course Statoil’s exciting floating turbine park, Hywind Scotland. The offshore construction activity in 2016 will be markedly up on the activity seen in 2015. Not least due to the new parks named above but what’s going on in China is really significant. China currently has 488 MW under construction, third highest figure over the whole world at present and by 2018 the figure will be much higher. Elsewhere around the globe offshore wind continues to create interest. The US is well underway with planning an ambitious offshore wind target. The first park to be fully commissioned will be off the coast of Rhode Island and named Block Island. The initial pilot project will generate 30MW from five turbines, construction commenced this year and full commissioning set for next year. If the field is a success it is expected to be followed up by a further 110MW expansion.
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the last word
Eirunn celebrates 10 years at Westshore
At our annual julebord party this year office manager Eirunn Brekke celebrated her 10 year anniversary at Westshore. Yes, for the past 10 years Eirunn has diligently kept track and dealt with all the post fixture work at Westshore and done so in a manner we know our clients appreciate greatly. Hereâ&#x20AC;&#x2122;s to the next 10 Eirunn!