Complete Fall 2012 Newsletter.pdf
Offshore Supply Vessels in the Gulf of Mexico
By: Richard Sanchez
Marine Editor, North & South America
Changing times for the OSV industry in the Gulf of Mexico
The US Gulf started experiencing a resurgence of deepwater drilling activity in November 2011, which has grown through most of 2012. This surge in activity came after a long lull created by the US drilling moratorium and subsequent period of adjustment to the permitting processing for offshore wells, which some had called a “Permitatorium”. Operators and regulators have worked together to streamline the process, which was running much more smoothly by the end of 2011.
Today’s utilization is up along with significant increases in dayrates for Platform Supply Vessels (PSVs) with certified dynamic positioning systems. The US Gulf currently has in operation: 31 floating drilling units, 29 jackups and 9 platform rigs, supported by a fleet of 199 PSV and AHTS (over 180ft LOA). Much of the shallow water support fleet has had dayrates remain stagnant through 2012, as the supply of vessels outnumbers demand. For larger vessels, especially those with dynamic positioning, demand and dayrates have continued a steady rise which began in November 2011. The demand for large PSVs with dynamic positioning has outpaced the supply of vessels for most of 2012. New deliveries and PSVs mobilizing back to the US Gulf have been unable to keep up with demand, forcing drilling operators to supplement smaller vessels, which are readily available. While these smaller vessels may be adequate, they are not optimal for deepwater support work. Where drilling operators would prefer to have a 4,000 dwt PSV with DP-2, some have had to make do with a combination of smaller PSVs (1,000-2,500 dwt) with DP-1. Large DP-2 PSVs (3,000+ dwt) are currently earning $26,000 to $44,000, compared to $20,000 to $34,000 before the Deepwater Horizon disaster when supply/demand was more balanced.
A few rigs left, but many more OSVs sought work abroad
During the deepwater drilling moratorium in 2010 many feared a mass exodus of drilling rigs, however, the more mobile OSVs actually left in significant numbers. Over 50 medium and large OSVs sought term work in Brazil, Mexico, West Africa and the micro-markets of Latin America. Many found long term work with contracts lasting up to four years. The moratorium and temporary slowdown in permits created pent-up demand and a backlog of scheduled work among the drilling operators. While the Moratorium officially ended in November 2010, the first new deepwater drilling permits were not issued until February 28, 2011, after new well control technology was tested and made available to the industry. For the rest of 2011, drilling operators and the reformed, Bureau of Safety and Environmental Enforcement (BSEE) spent many months adjusting to the new requirements and process for approving offshore drilling permits. By November 2011, drilling operators started lining up OSV charters only to find that the supply of modern PSVs had significantly shrunk. Operators were forced to compete for the remaining tonnage and offer better terms to vessel owners. From early 2012, vessel managers with DP-certified equipment were getting higher dayrates and longer charters.
Bright future for OSVs in the US Gulf
The PSV market in the US Gulf is expected to remain relatively tight well into 2013; some industry veterans predict demand will continue to outpace supply even into 2014. Those vessel companies able to get new tonnage in the water between now and 2014 can expect to command high dayrates, with multiple operators offering medium to long term charters. Recent deliveries in the US Gulf, such as Edison Chouest Offshore’s 4,500 dwt PSV “Robert Adams” (delivered July 10th), have been fixed to long term contracts with major oil companies months before delivery.
Rising tide has not lifted all boats
The US Gulf has long been developing into a bifurcated market; divided between shallow water and deepwater support jobs. This divide seems to have grown even larger in the wake of the Deepwater Horizon. Ideally, deepwater supply jobs require larger vessels with high capacities and state of the art technologies, such as dynamic positioning, firefighting, vessel designs that include high-fuel-efficiency/low-carbon-emissions and sometimes oil recovery capabilities.
While increased deepwater activity and ever-increasing safety requirements have been a boon for deepwater PSVs with dynamic positioning, older conventional PSVs lacking any kind of dynamic position have seen their dayrates mostly languishing in the range of $4,000 to $5,100. Small and medium sized PSVs with DP-1 are earning $7,000 to $17,000.
While August saw an uptick in utilization of older PSVs without dynamic positioning, the overall trend for these vessels has been negative. Older vessels in the US Gulf have generally been competing for a shrinking pool of jobs, and it is likely to get worse over the next two years; as the fleet of large new PSVs with DP-2 delivers from shipyards along the Gulf coast, they will push those small and medium PSVs with DP-1 back into shallow water work. Furthermore, much of the aging PSVs are reaching a point where repair costs start to outweigh a vessel’s future earning potential. Over the last year, some of the older PSVs from the US have found extended lives in West Africa; and it is not unusual for a PSV that has out lived its technological viability in the oil patch to be refitted for ferry service, fishing & fish processing, dive support and general cargo service outside the oil industry.
The main problem for conventional PSVs is that their main demand driver, close to shore support of jackup rigs, has been gradually diminishing in the US Gulf of Mexico. In the US Gulf, shallow water drilling generally means natural gas, which has experienced slumping prices on account of abundant natural gas found onshore. Veterans of the oil patch say natural gas prices need to be closer to $4.00-$5.00/MCF (per 1,000 cubic feet) in order to stimulate more offshore shallow gas drilling; the current price in the US is closer to $2.14/MCF.
US Gulf AHTS market not what it used to be
Demand for 8,000+ BHP Anchor Handling Towing Supply (AHTS) vessels in the US Gulf has not recovered as much as it has for large PSVs. In April 2010, 31 AHTSs were serving the needs of deepwater operators, with utilization at 94% and steady dayrates. By August 2012 the AHTS fleet shrunk to 21 vessels, with utilization at 62%. The reason behind this decline in anchor-handler utilization is a combination of technology and geology.
As the offshore industry in the US Gulf has matured, it has progressed into deeper water in the region of the Sigsbee escarpment. At the Sigsbee escarpment, the sea floor drops very steeply and mooring systems are less tenable than in the more shallow regions of the continental shelf. Anchor handlers are most necessary for supporting moored semisubmersible drilling platforms. The growing prevalence of drillships and dynamically-positioned-semis has resulted in less need for anchor handing capabilities. Some industry sources have suggested that hurricanes have factored into the equation as well. It is much easier to move a drillship or DP-semi out of the path of a hurricane, than to reposition a rig moored to the seafloor. Another factor could be cost; the US Gulf AHTS market is relatively small and protected from foreign competition because of Jones Act restrictions. AHTS term and spot rates in the USA have been historically more expensive than other regions of the world.
Mexico is a growing market for Modern OSVs
Over the last few years PEMEX has been increasing its requirements for long term vessel contracts, demanding newer modern vessels. In the past, the low cost of operating vessels in Mexico and its proximity to the main hub of vessel activity in the US made Mexico an attractive prospect for some US vessel managers looking for jobs to occupy their spare capacity. Until a few years ago, it was common for older US tonnage to find its way into the Mexican market. Now PEMEX is demanding vessels younger than 10 years, with at least Class-1 dynamic positioning. During the US Moratorium, some vessel owners were happy to work their boats in Mexico; however, as the US market has bounced back, PEMEX’s Max Bid Prices have not been able to compete with higher rates from US operators. This has created opportunities for vessel owners outside the Americas. Over the last two years Mexico’s new fleet of PSVs and AHTSs have been coming from yards in Northern Europe and the East, provided by companies such as Bourbon, Grupo TMM, Oceanografia, Seacor and Tidewater. Demand for new tonnage in Mexico continues to grow. If PEMEX’s ambitions to develop its deepwater prospect are successful, a larger market for deepwater tonnage could emerge south of the border. Mexico currently has three deepwater drilling units at work, compared to 31 working in the US Gulf.