Delivery of Hornbeck Offshore’s seven newbuildings has been delayed by the company, while construction has been hampered by “deficiencies” and financial troubles on the part of the US shipyards building the Jones Act offshore vessels.
“We are delaying as much as we can with the shipyards for taking delivery of additional equipment,” said Todd Hornbeck, chairman, president and CEO of Hornbeck Offshore, in a conference call to investors today. “We are slowing the build process down as far as we can so that it can be more aligned with market recovery.”
Louisiana-based Hornbeck has two 310-class offshore supply vessels (OSVs) under construction for delivery this year. The builder has not been announced publically but the vessels’ sisterships have all been built at Eastern Shipbuilding in Panama City, Florida.
Hornbeck also has four 310-class multipurpose supply vessels (MPSVs) being built for delivery in consecutive quarters during 2016. At least two of these vessels are being built at LEEVAC in Louisiana.
One 320-class OSV, likely to be Cedar Ridge, is still awaiting its delivery from VT Halter Marine in Moss Point, Massachusetts.
In its Q3 2015 financial results, NYSE-listed Hornbeck said it has “experienced deficiencies” at two of the shipyards. Hornbeck expects to “invoke dispute resolution mechanisms” against one of these yards; the other is “experiencing financial difficulties”. Neither yard was named.
“The company has security from a AAA-rated third-party that would support completion of the work should these financial problems persist,” Hornbeck Offshore said in its Q3 financial statement.
Todd Hornbeck denied the “deficiencies” pointed to problems with the vessels’ design, noting that nine of the OSV sister vessels have already been delivered.
“Our vessels have one year of warranties on equipment and systems, and we see some of those systems that we’ve worked need to be modified or changed – just to work the kinks out, you might say – that’s where we might delay in the shipyard to fix those things on the last vessel before it’s delivered,” Todd Hornbeck said during the conference call today.
“It’s not that we’re not going to deliver the vessel or there’s any latent defects with the design – there’s none of that. We’re tweaking our systems to where we think they’re gonna be the most optimal for the customer.”
He also ruled out rejecting delivery of the vessels or withholding payment, saying that the US shipbuilding industry does not function in the same way as international shipyards, which provide refund guarantees. Vessel orders in the US are instead underpinned by bonds and parent company guarantees.
Hornbeck has undertaken an aggressive lay-up scheme during 2015 to date and expects to have 30 vessels stacked before 2016. Some 18 vessels were stacked by the second quarter this year, nine more were idled during the past quarter and Hornbeck expects to lay up three more before the end of the year.
The lay-ups have come in response the low offshore services market, particularly with respect to Petrobras’ cancellation of vessel contracts and changes to its exploration and production activities in Brazil, Hornbeck said. Mexican offshore activities, too, have shown lower growth than had been expected.
The NYSE-listed company said it expects market conditions in the Gulf to worsen over at least the next two quarters, but remained confident that a rebound would come eventually.