Playing the OSV guessing game

These larger platforms will probably have much bigger top side areas when compared to the present rigs in service, points out one industry source. While a few people may be looking to these new deployments mop up a number of PSVs, it may not happen. Interestingly, he adds: “Although a number of rigs often used to have a couple of PSVs standing by almost as equipment lockers, these platforms might simply have outgrown the need.” And though in deeper water, there’s no telling yet if many more runs will be needed – after all, the PSVs are getting more capable too.

Many have noted that the average day rate for PSVs has been depressed for a while and despite picking up a little during seasonal peaks, the underlying trend is continuing. David Bull of OSC Ltd points out that the oil majors “play the market very carefully”, and although the technology is being driven – hard – by the demands of the new, harsher environments at the same time the oil majors are always looking out for the best time to fix a rate, and so the margin for operating PSVs is going down year on year.

It isn’t helped by the number of owners willing to fix at an uneconomical level says Mr Bull: “Part of the problem is overcapacity in the North Sea; PSVs normally do the trips with the drill bits and liquids which is an ongoing job, so the utilisation rate is still quite high.” Despite this, he says there’s been a run on newbuilding deliveries with a lot of them built on spec rather than for long term contracts, flooding the spot market: “When you have over 300 PSVs on the worldwide order book and an area like the North Sea which has a relatively smallish market, the day rates just drop away.”

Further, Mr Bull says that some owners are willing to keep a vessel and crew together to keep them in the market and ready for a contract, even if it does mean an unsustainable rate for a while.

All agree, it is a long game, even if the short term ups and downs of the market can be sharp: growing areas in West Africa and Asia that will eventually mop up some excess tonnage but it seems there are hardly any place to ‘dump’ old tonnage “as everywhere the oil companies have the same requirements for new technology”, says the industry source.

So, what next? Well, the subsea construction market is looking rather good right now for investment. Despite the overcapacity in the PSV market, there’s a lot of money sloshing around out there, and subsea looks like the coming thing. However, while words of warning about ‘market overshoot’ ring true, is it likely to happen again with subsea?

Although predictions are always difficult, there are some who say not. The oil service companies say the bottleneck holding back the fizz in the subsea projects is finding engineering capability for this particular sector. Their point is that there aren’t that many specialists to go round right now, and it’s a very specialised market – but where there’s a well, there’s usually a way.

Brazilian heat

Brazil is often mentioned in this context of a ‘growth area’, despite the fact that some operators are perched to pull out of the market there if anything gets any more difficult. Many point out that costs are high and frankly protectionist as you have to prove that you have added two thirds of the value locally.

Further, the heating up of the market has resulted in labour and maintenance prices spiralling and at present there’s also issues with maintenance capacity to deal with.

One operator, Farstad, even calculated that it would be cheaper to run a PSV up to a yard in the Canary Islands, fix the boat and run it back than use the local Brazilian facilities. Further, the long term contracts are not much comfort: the average-price index escalation clauses in these contracts simply can’t catch up with the real, incendiary cost increases that (at least for the time being) seem embedded in Brazil’s offshore sector.

By Stevie Knight