The worldwide market for offshore support vessels (OSVs) has been in recovery mode since the financial crisis of 2008 and the resulting plunge in oil prices, with some regions recovering better than others. Now, the offshore industry is seeing positive outlooks around the world in 2012.

This has been primarily because of the recent high and stable oil price, with Brent Crude peaking in May 2011 at more than US $126/bbl. It has remained above $100/bbl, which has been fueling increases in oil company confidence and spending. With forecasters predicting that the oil price will average around $110/bbl this year, oil and gas companies will once again be able to pursue more marginal fields in far deeper waters that would not be profitable otherwise.

The rise in oil company spending on E&P has a “waterfall” effect on the whole offshore industry, with E&P companies requiring more drilling rigs, which in turn need supplying and moving. This is where the offshore support sector comes in.

Other industry sectors also are having a knock-on effect on the offshore industry such as renewables, where there is an overlap in the tonnage required for certain tasks, especially construction and installation. This has tightened some markets, especially in the North Sea and Europe, where vessels are able to compete for jobs in both industries – and are therefore less reliant on just one or the other.

US Gulf of Mexico

The US market has faced many problems over the past few years: the financial crisis, the fall in oil prices and – just as the industry had started to recover – the Deepwater Horizon disaster, which put a halt to activity in the US Gulf of Mexico (GoM) region.

With the moratorium on deepwater activity instituted as a result of the oil spill, rates for supply vessels plummeted , and many vessels were laid up or relocated to other regions. When the moratorium was lifted in October 2011, it took some time for activity to begin increasing because of the complicated nature involved with applying for deepwater permits.

These hurdles were eventually overcome, and activity is now steadily increasing. And, because of the number of vessels that left the region for greener shores, there is a shortage of good quality DP2 PSVs, and rates have started to rise. The industry also has started to see increased rates for anchor handlers, but not as much as had been seen before the Macondo disaster in the GoM when they were in extremely short supply.

There is an expectation that 2012 is the beginning of a new revival for the GoM as many owners are starting to renew their new-build programs, and some substantial orders have been placed. Hornbeck has ordered 16 PSVs and Harvey Gulf also has a number on order.

In total there are around 50 PSVs on order, which will be delivered over the coming months and years from US-based shipyards.

Another positive note for US and Mexican players is the further development in talks between both governments regarding cooperating on offshore fields, where legal ownership has been a contentious issue near the maritime border. Once this is fully resolved, oil companies will finally be able to explore offshore regions where there is massive potential for discoveries.

North Sea

The North Sea is among the most mature offshore markets in operation today and benefits from many years of experience where the major E&P players have endured tough times before. The market for OSVs has managed to remain fairly buoyant. The 2011 summer season had proven to be especially favorable for vessel owners, with rates finally reaching the heights that were seen before 2008.

The North Sea spot market for OSVs is often used as the benchmark for regions around the world, but it is often more volatile than the others because of a number of factors. The main factor is the weather, which can cause many vessels to suddenly become available, while at other times when the weather is good, rates can rocket upward because charterers are looking to get their work completed before the weather becomes inclement. In the North Sea, a significant number of orders have been seen for large DP2 PSVs, which are due for delivery over the coming months. This could have a significant impact on demand and supply, which has been fairly balanced over the past few years. A number of the vessels delivered since January have had little effect on the market because they have been chartered on long-term contracts or taken out of the North Sea and relocated to regions such as Brazil.

Anchor handlers saw an influx of newbuild vessels, especially extra-large tonnage vessels, a few years ago. These vessels have been in high demand because of their high specifications and variety in capabilities such as ROV support. The industry might start to see a new round of orders over the coming years as confidence has increased. This was evidenced by the impressive day rates seen toward the end of the 2011 summer season, when some vessels were chartered for as much as $308,700/day.

West Africa

The West African offshore market is one where traditional trends do not seem to apply, due in part to the special make up of the region where there is an emphasis on trying to include local content. However, these indigenous companies are still developing and sometimes lack the stability of other regions as governments can change quickly. Some local companies also lack the experience that those from other countries often draw on.

To counteract local content laws in this region, international contractors might form joint venture (JV) partnerships with local companies so their vessels can operate without hindrance.

The creation of companies such as Sonatide (a JV between Tidewater and Sonangol) have allowed companies like Tidewater, Bourbon, and Sanko Shipping to dominate the West African market because of their high-quality tonnage (fairly young DP2 tonnage), which is in high demand in the region. These vessels often are quickly snapped up by oil companies on long-term contracts.

Piracy is another factor that plagues the region, especially around Nigeria where attacks are almost an everyday occurrence that do not just affect the shipping industry. As well as affecting the vessels, the attacks also increase insurance costs and deter other companies from investing in the region.

Meanwhile, East Africa is a region showing immense growth potential and opportunity, but there are signs that this area will take a few more years to fully mature. This is because of security concerns and the lack of clarity in the region in terms of local content laws that could arise. With Somalia so close to countries like Mozambique and Tanzania, where exploratory work is accelerating, many owners are wary of the region and will want to stay clear until the situation resolves itself.

Asia Pacific

In the lead up to the 2008 financial crisis which led to many oil and gas companies significantly reducing their spending budgets, operators active in Southeast Asia and the Pacific already had a significant number of vessels on order and many being delivered at the same time.

This led to massive market oversupply with little activity occurring, which has left many newbuilds idle. Anchor handlers were the worst hit among the offshore fleet with the 5,150 BHP design the most popular in this region because of its shallower waters.

It has taken a long time for activity to rebound, but the industry is seeing signs of this, especially in Malaysia and Australia, where the majority of offshore projects seem to be focused on the present . Projects such as Gorgon and Ichthys in Australia have been a lifeline for some operators, with large injections of cash from Shell and the other oil companies. But quarantine laws around Australia have not made matters easy, and few operators qualify for some of the work.

Orders for newbuilds are on the rise, however, and activity levels are expected to continue rebounding through 2013 as other regions such as Vietnam increase their activity levels.

Looking ahead

When oil companies are more confident, this allows the service and supply industry to budget in line with them. While this growth in confidence and activity is occurring in some regions globally, it is only now starting to happen in others where specific market conditions have not allowed recovery until the present time. The overall outlook for the OSV market, meanwhile, looks to remain on a steadily improving course for the remainder of 2012.