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Offshore Finance – Markets

(Market review as at 31 March 2017) 

Although the oil price stabilised around US$50–60 per barrel in the first quarter of 2017, uncertainty remains on the oil price outlook. As a consequence, oil and gas companies continue to reduce their spending budgets, which affects demand for offshore units.

Shipowners and rig owners are adapting to the continued deterioration of the market environment. Numerous companies have entered restructurings since the beginning of 2016, starting with the most leveraged Norwegian companies. Additionally, more opportunistic companies have initiated consolidation efforts, notably within the more fragmented offshore support vessel market.

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Offshore support vessels

Demand for larger anchor handling tug and supply vessels (AHTSs > 10,000 brake horse power, bhp) continued to decline during the first quarter of 2017. Supply remained relatively stable over the period. As a consequence, the average fleet utilisation deteriorated by one percentage point to 53% in the first quarter.

Demand for larger platform supply vessels (PSVs >2,000 dead weight tonnes, dwt) remained stable during the same period, while supply witnessed a minor increase. This resulted in a further decline in average fleet utilisation for large PSVs from 59% to 58% for the first quarter.

Under pressure from low term rates and competition for employment, shipowners were stacking unemployed units to save costs. As of end of March 2017, 110 large AHTS and 348 large PSVs were cold-stacked worldwide.

Term rates for AHTSs and PSVs (world average)

Chart about Offshore markets: term rates for AHTSs and PSVs as at 31 March 2017

Rigs (jack-ups and floaters)

Demand for jack-ups remained relatively stable compared with the end of 2016. However, it was 10% lower compared with the demand level witnessed during the first quarter of 2016. The fleet also remained relatively stable. During the first quarter of 2017, average fleet utilisation stood at 55%.

Demand for floaters (semi-submersibles and drillships) kept declining over the first quarter of 2017. Supply adjustments only had a limited effect with a minor decrease in fleet size. Fleet utilisation reduced again and stood on average at 49%.

Oil and gas companies have reduced their drilling requirements, sometimes leading to early termination of contracts. This notably affected floaters. Rig owners have reduced available supply through scrapping, with up to 50 rigs scrapped during 2016 and followed by another six units during the first quarter of 2017. The cold-stacked fleet remained relatively stable and currently stands at 145 drilling units.

Day rates for jack-ups have been stabilising at low levels, while day rates for semi-submersibles and drillships are still coming down.

Average actual dayrates for rigs

Graph with average actual dayrates for rigs as at 31 March 2017

Subsea vessels

Oil and gas companies have been delaying projects over the past two years, which has a strong negative impact on demand for subsea vessels. Meanwhile, the backlog of long-term contracts signed before the oil price drop has reduced. As a consequence, the subsea fleet suffers from low utilisation levels. Competition for employment is strong and term rates are below breakeven levels. This especially affects high-end units dedicated to construction work. Less sophisticated units are not as strongly affected as their core market (maintenance, inspection and repairs) is more stable.

Floating production units

While floating production storage and offloading units (FPSO) remain a preferred solution for the development of offshore fields, the low oil price environment affected this market as well. New projects were delayed and tendering activity has come to a halt. Several contracts for units coming off operations were not renewed, contributing to an increase of the idle fleet. Some field operators have also initiated rate negotiations for existing contracts.

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Henriette Brent-Petersen, Head of DVB's Shipping & Offshore Research 

 

Offshore markets in 2015
Henriette Brent-Petersen

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Geir Sjurseth, Head of DVB's Offshore Finance 

 

Offshore industry in 2015
Geir Sjurseth

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Contact

Henriette Brent-Petersen
+31 88 399 7960

henriette.brent-petersen@dvbbank.com

Celine Labelle
+31 88 399 7984

celine.labelle@dvbbank.com