ContributionsOffshore

Offshore 2021: Grounds for optimism?

After the shocks of 2020, can offshore operators hope for a better year? The concluding part of Splash’s markets outlook series.

In the final instalment of our markets outlook with our tongues firmly in our cheeks we asked a number of offshore experts three ‘simple’ questions – reasons to be optimistic, reasons to be pessimistic and who might the winners be in the offshore space in 2021.

After so many years of bad news, the responses we got to our survey give hard pressed executives in the offshore sector some grounds for hope.

Mike Meade, who runs Singapore offshore brokerage M3 Marine, is happy to see so many vessels going for scrap, though the numbers are still not enough.

Banks will not lend into the offshore space, call it ‘wind’ and they will fall all over you

“Even with improved utilisation the rates are remaining low, there’s too much competition. No OSV owner is making a profit, I repeat, no one,” Meade stresses.

“Banks will not lend into the offshore space, call it ‘wind’ and they will fall all over you,” he relates.

Garrick Stanley, CEO at Australia’s GO Marine Group, warns that OSV day rates remain depressed and will cast a long shadow over offshore balance sheets.

“In many cases a vessel reactivated will not repay its docking cost over the next five years,” Stanley tells Splash.

Joshua Politis, head of offshore at Transport Capital, says a key theme for this year will be the growing demand for more efficient and lower emission support vessels as charterers need to reduce their own emission profiles.

“Operators’ debt levels are still much too high and this is hindering the much needed consolidation, which is a prerequisite for the increased scrapping and discipline, which the industry so desperately needs,” Politis says, adding: “The outlook for commoditised OSVs remains poor. The industries access to and cost of capital, outside renewables, is unsustainable.”

Rig prospects

“Believe it or not, I think there are a lot of reasons to be optimistic in 2021,” says Teresa Wilkie, a rig analyst at Esgian, going on to highlight the steady improvement in oil prices thanks to the vaccine roll out and OPEC and its allies appearing to be on track to regulate the energy market throughout 2021.

The first few days of 2021 have seen a number of interesting rig awards made already including several deals off Brazil, one off Timor-Leste and an extension off Norway. There’s several that the team at Esgian know are just about to be announced too, including campaigns in the North Sea, Mozambique, Ghana, Angola, Guyana, Brazil and Malaysia.

“We are already seeing a lot of rigs returning to work following contract suspensions, some of which are much earlier than expected,” Wilkie says.

Rig supply is rapidly shrinking, another positive for prospects in 2021, as many rigs went for scrap last year.

“More than ever mergers of drilling companies seems to be a likelihood and this would be good news for the offshore rig market as it is a highly fragmented market at present. It is also likely that if we see some mergers there will be further scrapping of rigs once fleets are combined,” Wilkie says.

New projects sanctioned

Audun Martinsen, Rystad Energy’s head of energy service research, estimates that new offshore projects will go from $40bn in 2020 to $60bn in 2021.

“Despite growth in sanctioning of new projects, investments in 2021 will stay flat from 2020 levels as E&Ps reduce further investments in exploration and the low sanctioning volume in 2020 has preprogrammed reduction in 2021,” Martinsen says. “With flat capex, and continued pricing pressure, contractors will continue to generate low profits, causing more bankruptcies and restructuring.”

Martinsen says winners will be companies that have already have a healthy backlog built until end 2019, which will secure good activity in 2021. This is typically subsea equipment, SURF and FPSO contractors that are driven by long lead projects, Guyana and Brazil developments. Also contractors focusing on offshore wind will be able to navigate the storm with a large growth of offshore wind turbines, which Martinesen says will double from 2020 to 2021.

The winners

Concluding, we return to Singapore and to the offices of M3 Marine where Mike Meade predicts this year’s winners will be those who have a “sound” investment in renewables as well as companies that have picked up good assets at distressed prices and ride dollar below the day rates of rivals that have too much debt on their balance sheet and are trying to drive up the rates.

“The guys with cheap assets should make a killing,” Meade predicts.

Splash has rejigged its free daily newsletter to ensure that every day subscribers get dedicated offshore coverage from around the world. For exclusive, free global offshore coverage sign up to our newsletter today by clicking here.

Splash has also carried out market previews over the past week covering shipmanagement, maritime tech and shipowner consolidation gauging the views of more than 100 senior maritime executives from across the world.

Grant Rowles

Grant spent nine years at Informa Group based in London, Sydney, Hong Kong and Singapore. He gained strong management experience in publishing, conferences and awards schemes in the shipping and legal areas, working on a number of titles including Lloyd's List. In 2009 Grant joined Seatrade responsible for the commercial development of Seatrade’s Asia products. In 2012, with Sam Chambers, he co-founded Asia Shipping Media.

Leave a Reply

Your email address will not be published. Required fields are marked *

Back to top button