Are OSVs on the Road to Recovery?
Offshore Support Vessels, or OSVs, are often called the underrated workhorses of offshore upstream drilling and are key pieces of equipment for the operation of offshore rigs and platforms. After the fall in global crude prices in 2014, the OSV market was one of the most affected. As oil price volatility calms down, the demand for OSVs is rising again. However, the supply-demand situation may not be as simple as it appears. The OSV market is highly fragmented, with the top ten global suppliers accounting for less than 30% of the vessels available in the market. They function across regions with limited visibility on the condition of the vessels. In the aftermath of the fall in global oil prices in 2014, the OSV industry was one of the worst affected. With no recovery on the horizon, operators started looking to stop bleeding their cash. OSV operators believed that cold stacking, or cold lay, would be an effective option that would help them save expenses.
Is Cold Stacking a Viable Solution?
As crude prices stabilize and oil companies start to focus toward exploration and production activities again, the demand for OSVs is expected to rise. However, these OSVs need to be reactivated before they can be deployed for active duty. The lengthy process of reactivation is dependent on the procedures followed in the last lay-up, the quality of work, attention to detail and most importantly, whether the lay-up procedures were conducted with future reactivation in mind. The OSV’s operating and repair history would play a crucial part here, helping strategize the reactivation plan. Vessel owners must consider all their options before they begin reactivation, as there is no singular approach that can be taken for OSVs.
Modern OSVs are fitted with systems like dynamic positioning, hybrid battery power systems, and vessel and fuel monitoring systems. Some of these systems are a standard requirement for new jobs today and thus, older OSVs would need to be upgraded with these systems to be relevant in the market. Older vessels possess the advantage that, as they are comparatively simple in terms of the systems and construction, they can be easily reactivated and brought back into active duty. The downside, however, is that older vessels can lose their bollard pull due to continuous wear and tear, resulting in questions about their reliability. Older OSVs are also often less fuel-efficient compared to their modern counterparts. It is not surprising that charterers prefer to engage with modern vessels, due to their better capabilities and fuel-efficiency.
What Can Charterers Do?
Due to cold stacking, there can be significant availability issues for OSVs. However, there are multiple ways that charterers can handle the situation. OSVs are highly mobile and not region limited, hence an OSV from a different region can be roped in to manage supply concerns — subject to local laws of course, as some countries have marine laws that limit foreign vessels. The OSV market is highly fragmented and consolidation can prove to be a very helpful solution from the perspective of both, buyers and charterers. Companies can pool-in together and have an umbrella contract with multiple suppliers to provide vessels, a move that would help manage demand and assure availability. Such an umbrella contract would also offer better cost management opportunities because of demand consolidation.
For companies with a significant portion of their fleet in cold stack, an independent survey of the condition of the ships could be carried out by the charterer. This would give charterers an idea of the condition of the vessels and time they would need for reactivation before they engage with the OSV supplier. As vessel operators are strapped for cash at the moment, charterers can help with financial agreements that can result in lowering charterer’s long-term cost while simultaneously financing the reactivation effort of the OSV operator.
The biggest expense for OSV charterers comes from their workforce. During the downturn, operators had scaled back on their workforce but post-reactivation, operators need to scale up this expert workforce before they can begin to charter vessels again. Crew shortages have led to bareboat engagements gaining a lot of traction. In the case of a bareboat charter, the operator provides only the vessel and equipment while the charterer is responsible for crew, fuel and other minor regulatory work. Charterers can thus benefit on cost by having their own crew while the operator provides the vessel. Having their own crew manning a vessel also benefits the charterer, as it ensures a tighter level of control over the complete operation.
The end result of fragmented suppliers providing limited visibility and the added complications associated with the lengthy process of vessel rejuvenation is that the OSV supply scenario might turn out to be radically different from what it appears at first glance. Operators, for example, might not directly invest in rejuvenating their fleets unless there is a guaranteed demand. Furthermore, while new events and trends might generate demand again, the time delay in reactivating OSVs can lead to an artificial supply scarcity, which might drive up volatility in OSV market again.