In recent years, the speed with which newbuild vessels have entered the market has amplified the subsea vessel demand/supply imbalance. This has been further exacerbated by sustained low oil prices, as operators defer the sanctioning of new offshore projects which could have supported vessel utilisation. As a result, the average vessel dayrates declined by an average of 35% between 2014 and 2016. The weak market conditions have meant that many low specification vessels have struggled to hold on to existing charter rates, whilst some contracts were cancelled entirely. Furthermore, several high specification vessels have been forced to offer significantly lower day rates so as to stay competitive in such challenging times. A combination of these factors has forced a number subsea vessel providers to rethink their approach and help stem the oversupply by scrapping non-competitive vessels, whilst also cancelling a number of high-profile vessel orders.
As investors’ anxiety grows over the subsea vessel market, Douglas-Westwood’s World Subsea Vessel Operations & Hardware Market Forecast 2017-2021 gives a detailed indication of market trends over the next five years. Douglas-Westwood forecast subsea vessel operations spend will total $52bn, equating to over 371,000 vessel days over 2017-2021 period.
Forecast expenditure is set to grow at a modest 6% CAGR (Compound Annual Growth Rate), following an initial decline of 50% over the 2014-2016 period. The report further highlights that the growth in vessel day demand will be driven by the inspection maintenance and repair (IMR) sector, as further delays in maintenance and repairs could compromise the integrity of production facilities. Over the forecast period, South East Asia, USA, and West Africa will account for 52% of forecast IMR expenditure. Evidence of future improvement in IMR activity can be seen, with the likes of DOF Management winning long-term IMR contacts for the Prelude project and a three-year frame agreement in Asia Pacific and Brazil in recent weeks.
Despite the negativity linked with a prolonged industry downturn, with companies such as Harkand, Cal-Dive and Ceona declaring bankruptcy, progress appears to have been made towards securing long-term stability within the subsea vessel industry. The current book-to-fleet ratio stands at 11%, an indication of a cautious approach, with recent vessel orders declining significantly. This is a sharp contrast to the book-to-fleet ratio of over 21% in 2014, which was encouraged by attractive financing supported by high commodity prices. The current market conditions have also led to opportunistic merger and acquisition (M&A) activities, with some high-specification vessels being bought at a fraction of their original cost. Such transactions are seen as progressive approach to help expand the technical capabilities of striving vessel owners and help create an integrated subsea solutions market to assure future competitiveness and sustainability. Although dayrates are expected to remain supressed in the near-term, overall Douglas-Westwood expects offshore vessel activity to improve alongside any potential recovery in oil price, as field operators begin to sanction a number of mega projects that were stuck at the final investment decision (FID) status over the past two years.
Mark Adeosun, Douglas-Westwood London
+44 1795 594743 or Mark.Adeosun@douglaswestwood.com