It has been a perfect storm for the U.S. Gulf of Mexico offshore support vessel (OSV) market. There has been prolonged low demand due to the downturn in oil prices and limited large projects in the market. In addition, there was an excess of new tonnage brought on to the market when oil prices were high.
Fleet utilization rates fell from an average of 50% to 58% from 2010 to 2014, to 34% in 2015. Rates fell further in 2016, to 25%, and then again in 2017, to an average of 21%, having hit a low of 20% in Q1 and Q2 of that year, according to figures from IHS Markit.
In late April of this year, including dive support vessels, there were 30 vessels in service, said Greg Rivera, senior data specialist, offshore North America, at IHS Markit. Of those 30, eight were listed as cold stacked. Of the remaining 22, just 18 were actually active.
Hornbeck Offshore Services’ (HOS) Q4 2017 new generation OSV fleet utilization (covering all active and stacked vessels) was 24%, down from 26% sequentially. Its effective utilization (i.e. vessel days available for the active fleet) in that period was 81%, the company says, down from 86% sequentially. At end of Q4 2017, HOS had a total of 44 OSVs stacked and had expected this to increase to 45 by the end of Q1 2018.
Part of the problem is the excess tonnage on the market, even with a large proportion of the fleet stacked and the Jones Act, which limits the use of foreign flagged vessels, being enforced. Then there is a lack of work for this oversized fleet. “There have not been many large-scale inspection, repair and maintenance (IRM) contracts, it’s mostly routine maintenance or one-off work on fields here and there,” Rivera said, using smaller vessels on the spot market.
One company that recently bucked this trend is Edison Chouest’s subsidiary C-Innovation, which recently signed a three-year deal with BP to provide construction vessel services. Market sources anticipate C-Innovation using the Dove and Island Venture vessels as part of the contract.
The broader use of the spot market has led to low pricing, giving operators little incentive to sign up vessels for long-term contracts. This has left newer vessels, high-capacity in particular, out of work. These are new vessels sporting 150- to 250-metric tonne cranes, built when the market was buoyant.
“When things were going well, Otto Candies, Harvey Gulf, HOS, all built large ROV support vessels (aka multiservice vessels), because they can do light lifting and other types of services,” Rivera said. “The thinking—and it made sense back then—was that these large vessels could be tied into long-term contracts for decent day rates, because they can do everything you need, with the bigger crane capacity, more free deck space, more accommodation. They weren’t thinking about mobilization cost or the amount of crew you need for a vessel—things were good.”
Two newbuild multipurpose vessels that were due in the market in 2019, and are part-built in Gulf Island Fabrication’s construction yard, were recently cancelled by HOS.
Others that are already in the market are, where possible, being deployed for alternative work. Vessels such as the Grand Canyon II, for example, have been acting as accommodation units, with walk-to-work systems.
Reacting to this environment, Bordelon Marine has converted three platform supply vessels into ultralight intervention vessels. They’re smaller, have less free deck space and lower crane capacity, but they’re more affordable to hire, Rivera said. The third, the Connor Bordelon, was completed in March and is now chartered to Oceaneering. The other two are the Brandon Bordelon and Shelia Bordelon.
While there are signs of the market returning, it’s slow, according to Rivera. “It was very slow in January to February, but we’ve also seen more optimism and a bit more activity, including field development drilling activity,” he said.
Aside from BP, which maintains major operations in the Thunder Horse and Mad Dog fields, along with Shell which hosts 10 deepwater facilities, operators including Anadarko and LLOG are still developing assets, albeit mostly small subsea tieback projects, said Rivera. “These projects require, once the drilling is done, 20 to 30 days of vessel activity. It’s better than nothing.”
One bright spot is LLOG’s Shenandoah project, which the company recently targeted as a floating production system development.
One potential future source of new work for the U.S. Gulf of Mexico OSV fleet could be offshore wind, suggests Rivera. But, this industry is still young, and it could take a number of years before there is a significant amount of work. This hasn’t put off Europe’s DeepOcean, which recently acquired Montgomery, Texas, based Delta SubSea, with part of the reasoning being to give it access to the US wind farm market as it grows.
Until this activity, and offshore oil and gas activity, ramps up, it is likely there will still be pain in the OSV market for some time to come.