Navigator May 2016

NAVIGATOR May 2016

The Westshore North Sea report

A balance of sorts a quiet normality settles on the spot market

SUBSEA VESSELS why operators should be hiring NOW!

rig forecast the next 12 months will be critical for some

Con ten ts 02

4. spot market 6. market balance?

8. drilling & production 10. subsea vessels 12. spotlight 16. vessel news 18. rig forecast 20. wind industry

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Written & Created by Inger-Louise Molver Offshore Analyst inger@westshore.no

www.westshore.no Image used with kind permission of Andreas Wolden Insta @andreaswolden

04 average spot market rate ahts

spot market

March

average spot market rate psv

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or the PSVs the market in March was subdued, steady activity but rates that gave little to shout about.

GBP 3000 for a cargo run was a common rate level, and a level that is still totally unsustainable for owners. A handful of owners choose to layup further PSV tonnage due to the bleak market and little faith that it was going to turn around any time soon.

The AHTS segment, largely due to the number of vessels currently laid up, can and did tighten fairly quickly and easily.

When so few vessels are left to pick up any work it only takes a handful of requirements coming at once for things to quickly pile up and rates to take a jump. These periods of rate respite for owners have become more of a game than usual. Positioning yourself so you can hit the high just as it kicks in means the chance of earing above break even, and right now those opportunities are few and far between.

05 average spot market rate ahts

spot market

april

average spot market rate psv

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he market for the PSVs showed little change from the previous month despite the addition of several new entrants to the spot market that had come of term contracts. The drop in number of vessels operators have on term contracts has however changed the pattern of what their demands are from the spot market. Longer spot jobs of 20 or 28 days are becoming common, keeping the utilization for vessels at an average of 80%.

For the AHTS vessels the continued drop in the number of rigs out drilling and the corresponding drop in number of rig moves being carried out left owners fighting for the scraps of work that came out. There are hopes that the summer will yield some interesting project work and take some of the spot fleet out of the market for a spell.

This type of work was sparse last summer but announcements of this nature are starting to trickle through for this year. Will it save the market and see a return to all the laid up tonnage? Probably not, but it could lead to some tight spells on the spot market where rates take a leap.

A balance of sorts When do you think the market will balance? That’s a question, as brokers, we get asked frequently. Well for the past month or so, it seems we have come reasonably close to a harmony both owners and charterers could live with. But of course, there’s the small matter of over 100 North Sea vessels still in layup. with commentary from Jørgen Welde Knudsen

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t seems we pin our hopes and despairs quite directly to the oil price. The past three months have seen only a modest pickup in activity, but a healthy hike in the oil price. At time of writing we approach USD50 and as if our troubles were over a collective sigh of relief can be heard suffusing through the North Sea. I need not patronize the reader with how the oil price fluctuations take time to filter down and affect the offshore support vessel market, but the point is despite this – the very much current hike in oil price has had a positive effect in sentiment across the board.

The spot market is still in a state of oversupply.

But there have been periods where for the PSVs out of Aberdeen, the market has crept thrillingly close to sold out. Westshore broker

Jørgen Knudsen comments “Though the number of vessels trading on term charters is way down on where it was pre-crisis, the spot jobs out of Aberdeen are often longer. We are seeing day/ day 20 or 28 jobs frequently. Where previously operators had a couple of vessels on term, now they have one plus a rolling requirement for vessels from the spot market taken on longer than your average period.”

Some owners have been quick to capitalize on this. One owner more than most, Nordic American Offshore now trades no fewer than eight PSVs out of Aberdeen. The eight sister ships have carved a successful track record for themselves on the back on impressively low fuel consumption and cornering a segment of the market with their 800m2 deck, small for Norway but more than

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adequate for the British sector.

Though things have been periodically sunny on the spot market, the peaks are still far apart and relatively short lived. The average rates are definitely up however, particularly when compared to the picture this time last year. As an example VOS Pace fixed mid-May this year at around GBP 9000 and almost exactly a year ago the same vessel brought in GBP 2000 for a spot job. We can but hope the worst is over. There has been no new North Sea PSVs heading into layup since April, how long before owners are tempted to resurrect laid up tonnage and try their hand at the spot once again? We take a look at the impact laying up tonnage can have on the integrity of the vessel and its equipment later this issue. Because for some vessels, sitting idle for a significant period

headline news

of time – the cracks of insufficient preservation will start to show. The question of do we take the vessel back to the market or do we kick in a more rigorous preservation programme will now be a pressing concern for many.

For the AHTS vessels a smattering of project work has cropped up which will keep some of the familiar faces in steady employments for chunks of the summer. It is not much however. In order for there to be a significant tightening on the spot market for the AHTS vessels the project work needs to pile up on top of each other. In short, when everything comes at once a premium has to be paid for those left to secure tonnage. Now we may see instances of this happening briefly, but our expectations are not for a particularly hot summer.

Subsea 7 pushes into offshore wind

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ews of a USD 1bn contract secured with an undisclosed contractor emerged mid-month and was later revealed to be connected to the Beatrice Offshore Wind field. The field is located off the North-East coast of Scotland and will comprise 84 turbines. The contract with Subsea 7 involves the installation of jacket foundations and array cables for which the installation phase is estimated to be carried out in 2017/2018. Though Subsea 7 has some experience in the offshore wind sector, this represents a major push into what is essentially a non-traditional market for the company.

Speculation over the near term future of Subsea 7 has been high this month following the announcement of the merger between two of its biggest rivals, Technip and FMC. The merger will greatly strengthen the capabilities of the new Technip/FMC entity, putting Subsea 7 at a disadvantage and prompting rumors of a possible merger/acquisition between Subsea 7 and OneSubsea (former Cameron/ Schlumberger).

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Drilling & Production

Ivar Aasen topside completed As we have continued to pump more oil and gas than we needed, that excess has gone into storage facilities of one shape or form all over the world. The EIA estimates that there is now 3.03Bn barrels of oil stored in the OECD countries alone. That’s far more than has ever been lying in storage before.

The current amount of oil in storage equates to 66 days of global energy demand. So, if we stopped producing oil and gas completely, the world over – we would still have enough in storage to satisfy demand for 66 days.

What’s perhaps more interesting is that the amount in storage equates to well over a year of exports of Saudi oil – 378.75 days to be exact. With current turmoil in the Middle East many people might be asking, with so much political unrest in the Middle East, why has the oil price not been affected? Well here’s why, even if we didn’t see another drop of oil from Saudi Arabia for the next year, the oil in storage would cover demand.

23rd norwegian licensing round The Norwegian Ministry of Petroleum & Energy this month released the companies granted licenses in the 23rd licensing round. This is the first time since 1994 that new acreage in the southeastern Barents Sea was awarded. Among the companies awarded acreage were Lundin, Statoil, Centrica Capricorn and Det Norske. The acreage was awarded with certain commitments such as shooting new seismic or drilling wells. For Statoil that means drilling five wells, four of which are in the southeastern area of the Barents Sea. Five new licenses were awarded to Lundin, three with commitment wells. It is understood Lundin will also shoot new seismic as part of the new acreage award.

HEY OPERATORS! The time to repair the roof is when the sun is shining!

Data and market view supplied by Mark Rae, Principal Researcher, IHS

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inside story

Cost cutting is one thing, but canning anything deemed non-essential is right now a missed opportunity.

Whether it’s well intervention, plug and abandon or repair and maintenance programmes, the time to hire a vessel for these work scopes is NOW!

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he oil downturn has hit the subsea vessel sector more than most. While operators chose to shelve new projects and scale back on maintenance work scopes, the vessels took a big hit. New and expensive tonnage with significant debt attached were sent into layup. The financial impact of having a NOK 600million subsea vessel in layup as opposed to a NOK 300million PSV is undoubtedly worse.

But with the work increasingly thin on the ground the vessels have had very few options to turn to.

Average utilization for well intervention vessels globally was a steady 75-85% from 2007 – 2014.

Last year that fell to 48% and year to date 2016 its down as low as 32%. It’s a similar story in other parts of the subsea sector, pipe lay, ROV support vessels, dive support etc. The impact of this has been devastating for a few companies. The latest to hit the wall was Harkand, the UK based outfit established back in 2013 with ambitions at the time of becoming one of the industry’s leading IRM players. Rumors of financial troubles abounded throughout the April and early May before the announcement finally came that the company had begun administration proceedings. A management buyout concerning the US GoM and West African assets is currently being discussed in an attempt to save the 100-odd jobs at the company .

Harkand however is the latest in a list of subsea vessel owners and managers to have gone bust.

The list includes Reef Subsea, Cal Dive , Cecon and Ceona and there are plenty rumors over who will be next to fold.

The problem with this from the operator’s perspective is, come time when the market turns, the pool of contractors of subsea vessels is going to be reduced. This means potentially less choice and a higher premium to be paid.

So bearing in mind that often these vessels carry out essential work programmes that will sooner or later need to be done, it seems like madness to ignore the opportunity to hire a vessel at a greatly reduced price now. Doing so could theoretically at least keep heads above water just long enough to keep them afloat.

And it is cheaper to hire these vessels now. The drop in average utilization has been echoed by the drop in day rates. Of the 220 odd ROV support vessels in existence around the world, 16 are cold stacked, 79 are idle, a handful are undergoing repairs or working outside the traditional market – taking the number of vessels actually working to around 50% (global basis). The glut of available tonnage has meant day rates for a typical North Sea capable ROV vessel have gone from USD 54000 per day in 2013 to USD 45000 in 2015 and this year we are at around USD 41000*. Those are significant cost savings right there.

So our message here is clear, fix the roof while the sun is shining folks. There are repair and maintenance jobs requiring vessels that could be done now, and can be done a lot cheaper than what you might pay in 18 months’ time. Save a subsea vessel owner, hire a vessel today, contact Westshore for more details.

*Global averages, some regions such as Australia incur far higher day rates.

spotlight on presserv

There is still over 100 North Sea PSVs and AHTS in layup and this can be multiplied several times over around the rest of the globe. But when the market picks up – will these units be in a fit state to resume service?

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t’s been well over a year since the trickle of vessels going into layup became a flood and it’s been taken as a given that once the market picks up, these vessels will sail merrily back into service. But the definition of layup differs from owner to owner and vessel to vessel, the level of maintenance, active crew onboard and technology used to preserve the asset, will have a very significant outcome once a vessel is ready to resume active service.

Preservation during a period of layup is critical, the alternative could mean costly repairs, equipment replacement or a vessel in poor condition due to lack of investment in a robust preservation programme during lay-up. Operators are now favouring vessel owners that can demonstrate that their vessel or vessels have been adequately preserved and protected during the lay-up period.

The true cost of lay up

contact us: Presserv AS Kvitsøygata 10 4014 Stavanger E-mail: office@presserv.no Phone: +47 51 54 90 00

14 Warm or Cold?

The decision to warm stack or cold stack a vessel often hinges on the long term view an owner may have on the market.

Because keeping a vessel warm stacked means keeping the unit in a state of semi-readiness but that comes with a price tag.

Should you believe that things will improve in the short term and that your vessel will secure a contract worth taking, the cost of warm stacking the unit is understandable. But of course a market turnaround is far from guaranteed. The recent boost in the oil price has given us all hope, but just as there was a delay in feeling an impact from the downturn on offshore support vessels, the knock on effect from an upturn will take time to trickle down to us too.

Should you choose to cold stack a vessel, the layup costs are slashed. In theory at least. But without adequate care and attention to machinery problems set in, rust, mould, electrical failure – all costly problems.

There has been much discussion in the industry around a steady ‘cannibalization’ of vessels in layup where spare parts and equipment are removed from laid up vessels and fitted on to the existing fleet.

Over supply of vessels is a problem now on a global basis, but when the market picks up the issue of whether or not those vessels in layup have been adequately preserved could leave us with a whole new set of issues.

Adequate preservation

Presserv is the leading preservation specialist firm within oil and gas and industrial shipping. The firm offers standardized as well as custom solutions for the preservation of assets during layup. From the bridge to the propellers, electronic equipment, tanks, cranes, engines and everything in between, solutions are available to avoid the onset of rust or damage from inactivity or humidity-causing mould.

Presserv provides simple solutions that puts the brakes on the gradual demise of a vessel caused by a prolonged period of layup.

Presserv services

Among the range of solutions available from Presserv are corrosion inhibitors, dehumidification, desiccants and coatings, protective packaging, lubricants, cleaning and rust removers as well as additives for oil and cooling water. In addition to the technical services Presserv offers on board surveys and execution of preservation work from their team of engineers located at the main offices in Norway, UK and Brazil but available to be mobilized over the entire globe.

Mothballing and lay-up procedures have been developed and implemented for all classes of vessels and mobile drilling units. This technology is adopted throughout the oil & gas supply chain and is widely used by

operators are increasingly taking into account whether or not a vessel has been in layup and what impact that may have had.

ole lilland cco & partner equipment manufacturers as well as vessel owners for protecting high value equipment and spare parts in storage and transit.

Presserv have worked with most vessel owners, operators and drilling contractors over the last 25 years from their facilities in Norway, UK, Brazil and Singapore The techniques and services developed by Presserv creates a unique package and one that has become increasingly under focus as the preservation of the fleet of offshore assets becomes a more pressing concern.

For further details of the services and solutions offered by Presserv please visit www.presserv.com

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Securing term work for a North Sea AHTS? Boa’s done it

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here are but a handful of the North Sea AHTS that have secured term work. Though this is by far a common occurrence for this type of vessel, with a depressed market it’s even harder.

But as we have long said, every difficulty presents an opportunity.

In this case some firms are looking to change the way vessels are secured for rig move operations.

First Marine Solutions (FMS) is a leading international marine service and mooring equipment organization with operations worldwide. They provide expertise, techniques and support to safely moor offshore drilling units, accommodations vessels and FPSO’s.

Basically they provide a one-stop shop for rig moves – including the vessels. In order to do so they have taken Boa Jarl on a six month contract starting early May this year.

The vessel will be used on various projects for FMS and will be available as a sublet on the spot market should the opportunity arise.

Rig forecast A best and worst case for the UK & Norwegian sectors for drilling rigs. We calculate how the picture could look a year from now.

norwegian sector Following Lundin securing the Leiv Eiriksson for its drilling programme in the Barents Sea, there is now just one firm outstanding tender for a drilling rig on the Norwegian sector. Repsol, seeks a semi for a one well plus one well option on the Stordahl field. Other than that there is a raft of rigs that could come off contract. Notable rigs with contract due to expire in the coming months include Rowan Norway (ConocoPhillips), TO Winner (Det Norske), West Alpha (ExxonMobil) and Songa Dee (Statoil).

Our best and worst case scenarios are Best case: All options on rigs are declared and tenders out for rigs result in an award of contract – this time next year there is a slight increase in the number of rigs out drilling in the Norwegian sector (2.36% increase) Worst case: If no options are taken up and no new contracts are awarded then there could be as much as a 30% decrease in number of rigs drilling on the Norwegian sector this time next year.

Change in number of rigs May 2017

+2.36% -29.2%

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uk sector

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or the UK sector the tendering activity is surprisingly higher, but whether this results in an actual award of contract remains to be seen. Confidence in the sector is fragmented; some areas are viewed as super mature with limited expectations of a find of a commercial magnitude. But west, and increasingly – east, of Shetland still holds some promise.

If costs come down to acceptable levels, there is a perception of the Shetland area harboring some pretty interesting future projects. Cost reduction is still critical though. Among the operators with tenders out at present there are; Maersk Oil, drilling at the Janice field, Nexen, also central North Sea and a host of others looking to secure rigs for plug and abandonment work.

Our best and worst case scenarios Best case: despite the tendering activity being higher in the UK sector the number of rigs set to come off contract is far higher. Notable units that will finish firm periods in the next 12 months include Ocean Valiant (Premier), Sedco 704 (Zennor), Deepsea Stavanger (JX Nippon) and Byford Dolphin (BP UK). We put a figure of best case scenario where all options are declared and tenders result in an award of contract there is a 23.3% reduction in number of rigs out drilling this time next year.

Worst case scenario: no options taken, no new work awarded – 55.5% reduction in number of drilling rigs out working on the UK sector.

market forecast

Change in number of rigs May 2017

-23.3% -54.7%

The future of wind farm support is nearing delivery

offshore wind

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n a shipyard on the west coast of Norway there are two wind farm support vessels being built. Ulstein Verft has long been the site of innovation and is no stranger to building ships that push boundaries and change the traditional view of what a vessel should look like.

In 2006 the very first X-bow designed vessel was delivered, Bourbon Orca, an AX104 designed AHTS vessel. Now Ulstein Verft is set to deliver the first X- Stern vessel to German owners Bernhard Schulte Offshore.

Bernhard Schu in shipping. Es the company in headquartered owner and man vessels and ma Transferring sk traditional ship segments was a The German w exploded in the companies with precedence hav new niche with total offshore w on line in Euro from Germany. suppliers and w are located in G responsible for installations in developers taki connections to and RWE Inno

ulte has a long history stablished in 1883, n its current form is d in Hamburg. This ship nager own around 100 anage in the region of 600. kills and knowledge from pping into the offshore a natural progression. wind success story has e past five years and h such significant shipping ve been able to find a h offshore wind. Of the wind capacity brought ope in 2015, 75% came . The main turbine wind farm developers Germany. Siemens was r 60% of European turbine n 2015 and the two biggest ing nearly 30% of the total the grid in 2015 (E.On ology). So the meeting of

offshore wind

German wind expertise and Norwegian ship building has resulted in a very innovative product.

Bernhard Schulte Offshore then ordered two new, state of the art SOVs. The company offers a range of solutions for the offshore wind industry from crew transfer, guard and survey to the service operation vessels as well as technical consultancy.

What makes the vessels unique?

For wind farm support, station For wind farm support, station keeping is a big deal. So the two new vessels have been developed with the optimized station keeping and an integrated gangway.

The vessels are also equipped with the Siemens Bluedrive DC system to reduce fuel consumption. The focus on single man cabins has been fulfilled with a full 60 single cabins and this has the potential to be extended to 109 POB

should the need arise.

The vessels are fitted with a large under deck warehouse for storage of equipment and has several offices for technicians and engineers to carry out administrative tasks.

Wind contracts

The two, yet to be named, SOVs will go on to long term contracts with Siemens. The first of the two will work on the Gemini field, sea trials are set to commence in June this year. The hull for the second vessel recently arrived at Ulstein for outfitting and will go on to work in German waters. The vessels were built on the back of a tendering process with Siemens that sought to build and contract specific SOVs for their offshore wind requirements. In this case the vessel owner will be responsible for and will guarantee the performance of the vessel during operations and this is constantly monitored via KPIs.

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