COLUMN | What are the consequences of the offshore surge? Tidewater’s triumph provides Chinese yards with boom, and starts North Sea exodus [Offshore Accounts]
One of the delights of the offshore market recovery has been the surge in charter rates for platform supply vessels (PSVs) around the world. Tidewater’s triumphant presentation at the Barclays CEO Energy Conference earlier this month showed the potency of the market recovery that the company has driven ever onwards and upwards after its acquisition of the Swire Pacific Offshore and Solstad PSVs fleets. These boosted Tidewater’s fleet to over 200 vessels, making it bigger than Edison Chouest and Bourbon.
The company reported that its leading-edge charter rates for DP2 PSVs with more than 900 square metres of clear deck space had hit US$30,000 per day, and had surpassed the previous industry highs of the last boom after the Global Financial Crisis. Tidewater has 69 vessels in this segment and with each potentially earning over US$10 million apiece, it’s no wonder the company forecasts topping more than US$1 billion in 2023 revenues. Tidewater CEO Quintin Kneen also reported that those PSVs with between 700 square metres and 900 square metres, of which Tidewater operates 49 vessels worldwide, were approaching US$25,000 per day, and even the smallest class, vessels similar to the UT755 design with under 700 square metres of clear deck, were hitting close to US$20,000 in new contract awards, more than three times their cash operating cost.
Chinese yards get back to work
These very high margins have triggered a number of predictable responses. Firstly, Chinese shipyards are scrambling to deliver the abandoned and unfinished PSVs left over from the last boom, and sell them for prices that seemed impossible in the downturn. The final two PX121 design DP2 PSV units with over 800 squar metres deck space from Rainbow Nantong Offshore Engineering in China, which had originally cut steel in 2013, were finally delivered to an owner of Slavic heritage for service in the Russian Far East this summer as Aprion and Larga.
Other ship owners and managers have also been rushing around Chinese yards to restart suspended offshore construction projects.
Singaporeans and Egyptians buy
Singaporean manager Blue Ridge Marine has taken delivery of a trio of Chinese-built PSVs and successfully fixed them to BP in Mauritania and in Angola this year. Its most recent purchase Setareh has been fixed in Ghana, we hear. Egypt’s Maridive meanwhile took delivery of a 3,600DWT PSV of 78 metres’ length built to the Khiam Chuan Marine design with DP2 and 750 square metres of clear deck. The vessel named MD Zen 801 was originally delivered to warm-stack in China in 2021, but after Maridive purchased her, the PSV was promptly dispatched to the UAE after delivery, and a sister PSV will be delivered to the same owner from Fujian Southeast Shipyard next year. It will be imaginatively named MD Zen 802.
Britoil, apparently pending the announcement of a long-waited, major corporate transaction, sold two of its PX121s to Fugro for around US$25 million each, but then promptly took delivery of the P128 design, DP2 PSVs Britoil Journey and Britoil Justice. The sister vessels were originally ordered from Guangzhou South China Shipyard by Kuma Shipping in 2013 and should have been delivered in 2015, but then the crisis struck and the vessels were left for the yard to complete at its own account. The first vessel has been sent to Australia under the management of GO Offshore, whilst Britoil Justice just completed its sea trials in China.
The PSVs’ design features 3,000DWT cargo capacity on a 71-metre-long hull with a diesel-electric propulsion system and accommodation for 24 crew and other personnel.
Baas Global Marine Services (BGMS) of Saudi Arabia has also been scouting China for newbuild anchor handlers. Earlier this year the company, part of the BIG Group, took delivery of the small PSV BGMS Mighty from Guangzhou Shunhai Shipyard in China, and will shortly take delivery of a Panamanian-flagged sister vessel from the same yard.
BGMS also took delivery of three other small anchor handling tug supply vessels (AHTS) from the same shipyard – BGMS Success, BGMS Splendor, and BGMS Superb – which were delivered earlier this year and in 2022. The company now operates 15 offshore support vessels (OSVs), it says, but unfortunately has a very limited web presence.
Brazil bounces back, too
Petrobras’ increased tender activity for literally dozens of PSVs in Brazil has also stimulated efforts to increase supply there. Seabrokers reported that Posidonia Shipping, which has won contracts for large anchor handlers from both Canada’s Atlantic Towing and Germany’s United Offshore Support (UOS), has also acquired two partially built, 4,500DWT PSVs from Brazilian shipyard Estaleiro São Miguel.
The two units apparently require 15 months of yard work in Rio de Janeiro and approximately US$70 million of new money to complete, so these should enter service with the Brazilian flag before the end of next year just as Petrobras launches a multitude of long-term tenders. Estaleiro São Miguel previously built two 4500DWT PSVs for its parent the Bravante Group, the imaginatively named Bravante I and Bravante II, which were delivered in 2015 and 2017, respectively. This was before Bravante hit some difficulties with its financiers in the downturn and saw several of its vessels repossessed and towed to the United States.
Rigs also reactivated and redelivered
It is not just boats which have been coming out of the woodwork.
On the rig side, China Oilfield Services (COSL) announced last week that it had agreed to buy four new jackup drilling rigs from formerly bankrupt Dalian Shipbuilding Offshore, rigs that had been cancelled by Seadrill in 2018 and 2019. COSL’s subsidiaries have agreed to buy the four JU2000E jackup drilling rigs at a total contract price of around US$445,3 million excluding tax, with each rig costing US$111.36 million per unit, excluding tax.
The rigs are suitable for operations in water depths of 122 metres and have a maximum drilling depth capability of up to 10,668 metres. COSL has been coy about where it would deploy the rigs, but the purchase consolidated the Chinese company’s global lead as a rig owner. Before the acquisition, COSL already operated 46 jackups and 14 semi-submersibles, a larger fleet that ADES, which operates 46 jackups mainly in Saudi Arabia, and which is book building for an initial public offering on the Riyadh Stock Exchange in the next fortnight.
The purchase also makes COSL larger than Valaris, the largest international owner. Valaris owns 53 rigs, including 40 offshore jackup rigs, 11 drillships (plus two under construction in Korea), and five semi-submersible drilling rigs, as well as seven jackups in a joint venture with Saudi Aramco in the Gulf, and two more under construction for the ARO joint venture. Expect COSL to take greater market share internationally as rates overseas far exceed what the domestic Chinese state oil companies are willing to pay. There is a lot of underutilised drilling rig capacity in China, which COSL could release if it chose.
Brazil also getting new rigs… in Singapore
One of the most amazing photos of the last few months was the sight of the partially completed, 202-metre-long DP drillship Arpoador arriving off Singapore on the heavy lift ship Seaway Hawk from Brazil for completion at Seatrium’s yard (here).
Readers with long memories and a nose for corruption will remember that this was one of four surviving deepwater rigs originally ordered by corruption-blighted and now bankrupt Brazilian drilling contractor Sete Brasil. Sete was an organisation built and founded on colossal embezzlement and fraud, and it planned to own and operate 29 new rigs, 28 of which were secured against multi-billion, long-term charters with Petrobras, the state oil company. As we reported, the whole rotten edifice of Sete came crashing down in the “Carwash” corruption scandal in 2015, which also saw Singapore’s Keppel and Sembcorp caught up in some nasty claims and counter claims, and one former employee of shipyard Estaliero Jurong Aracruz, Martin Cheah, charged with bribery and money laundering, and a consultant to the yard jailed in 2020.
Now the arrival of Arpoador in Singapore for completion heralds a return of this formerly sidelined capacity to the market. The four rigs have contract backlog from Petrobras, which the state oil company promised to honour worth apparently US$4 billion, based on ten-year contracts at US$299,000 per day per rig, when the rigs are delivered. Now that deepwater drillships are going out for close to US$500,000 per day, suddenly this looks like an attractive deal again.
In 2019, Tor Olav Trøim, the Norwegian shipping magnate behind jackup owner Borr Drilling, bid US$296 million for the four rigs through a subsidiary called Knarr Drilling (owned in conjunction with Mubadala Investment Company, one of Abu Dhabi’s sovereign wealth funds) to own the two drillships — Arpoador and Guarapari — then under construction at Sembcorp Marine’s yard in Brazil, and the two semi-subs – named Urca and Frade – which were being built at Keppel’s BrasFels facility in Rio de Janeiro state.
Now Keppel and Sembcorp Marine have merged to form an offshore construction giant named Seatrium, and it appears that the long delayed project is finally coming to fruition. Since Knarr’s website is non-functional and the last we had heard officially was in 2021, when the General Superintendence of the Administrative Council for Economic Defense (CADE) in Brazil approved the acquisition of the rigs, it is hard to know what is going on. But the arrival of the rig in Singapore on a heavy lift ship surely suggests that once again, high rates are stimulating cancelled projects to return to life.
The one tough market
These hot PSV rates have stood up in pretty much all markets, except one: the North Sea.
Previously, for several decades, the North Sea was at the cutting edge of vessel day rates, swinging between feast and famine, but with the most lavish spikes imaginable. Vessels trading the North Sea spot market typically obtained a premium to vessels working elsewhere.
This summer, PSV rates in the North Sea have lagged rates internationally, even though the costs of operating in the Norwegian sector have soared. Recent spot fixtures have been solid, around the US$20,000 mark, much better than the shocking US$4,810 rate at which we reported Vroon as fixing one of its PX121s in February. Even so, year to date cumulative spot rates for large PSVs have only been US$15,000 per day, half the international rate. Term rates have improved, but a gap is opening up with international rates at US$30,000 for the same boat working elsewhere.
The exodus begins from Aberdeen
The result of this is that we are seeing an exodus of PSVs from the North Sea chasing better rates in international markets. Vroon reportedly won rates close to US$30,000 for PX121 VOS Pace with ENI Morocco on a wildcat exploration well with the jackup Topaz Driller and the vessel continues to work out of Agadir ahead of its hand-over the new Norwegian owners.
Borealis’ PX121 Aurora Horizon has been chartered by Shell’s Egyptian affiliate Burullus Gas Company in the Mediterranean for a three-well programme supporting drilling on the West Delta Deep Marine with the drillship Stena Forth; Fletcher Shipping’s 2019-built, UT717 CDX design PSV with 900 square metres clear deck space, Standard Defender, has been chartered to Equatorial Guinea to support the semi-sub Island Innovator for six months with Trident Energy.
Finally, drilling management company Exceed fixed three PSVs from Remoy Shipping for work off Namibia for Portugal’s Galp Energia. Following the massive successes TotalEnergies and Shell have enjoyed off Namibia, Galp contracted the sixth generation semi-sub Hercules managed by Odjfell for a two wells firm plus one option well wildcat exploration programme in block PEL-83, in the Orange Basin.
Why pay Tidewater US$35,000 per day when cheaper vessels were to be obtained in the North Sea? Exceed and Galp ended up fixing the 3,948DWT Seacor Ohio, Sea Goldcrest (owned by John Fredriksen’s Seatankers) and UT 717 CDX design Songa Discoverer. All three vessels are now underway for Las Palmas, we understand, and the rig arrived there last week.
This exodus highlights an interesting problem of Tidewater’s success in raising rates – it is drawing in supply from elsewhere to take advantage of the feeding frenzy, both newbuilds restarted in China and tonnage from the North Sea. We believe that it is only a matter of time before the high rates stimulate new orders of additional PSV tonnage. Tidewater has put out a slide poo-pooing this notion, but another week we will revisit the company’s claims to show the assumptions of “no newbuilding PSVs” are flawed. If you could order a new 750 square metres clear deck, diesel-electric PSV for less than half the assumption Tidewater made in the graph, the economics change radically.
Shipping is a cyclical industry and whilst PSV owners are enjoying a massive boom, high rates always stimulate new capacity. Just ask containership owners, labouring over an overhang of newbuilds as rates sag following their record highs in 2021 and 2022.
The anchor handler conundrum
If the situation for PSVs in the North Sea is poor, it is even worse for anchor handlers.
In 2008, the largest anchor handlers hit day rates of over NOK2 million, then worth US$335,000 per day. In July last year, they briefly spiked to £175,000 (then worth US$211,300) in the UK sector and again to NOK2 million (then worth US$204,000) in the Norwegian sector, according to Seabrokers. Historically, anchor handling owners have always enjoyed higher rates and wild volatility. The two million krone fixtures briefly last summer suggested that the good times for owners of large anchor handlers were coming back. They didn’t in the North Sea this year.
Tidewater also reported at Barclays that in the first quarter of this year, its eleven large anchor handlers of over 16,000hp (11,931kW) and 200 tonnes bollard pull were being fixed at over US$38,000 per day. Tidewater didn’t make any new fixtures in the second quarter and didn’t report on the sector at the Barclays conference. Those high rates seem to be consistent with what we have been seeing in Brazil but not in South East Asia, where rates appear to be seriously lagging and fixtures below US$20,000 have been reported. Yes, anchor handlers that originally cost three times the price of a Chinese mid-size PSV now charter for the same rates in the South China Sea.
Anchor handlers have so far failed to fizzle in the offshore rally, and whilst rates are up, the rally for these large and expensive vessels has so far been underwhelming. At the time of writing, the North Sea spot market is showing weakness not normally associated with the autumn, which bodes ill for the winter. Last week, the 201-tonne BP AHTS BB Octopus was fixed to move the rig Valaris 247 for just £15,000 (US$18,300) per day, whilst Loke Viking of 257 tonnes BP was chartered for only £21,000 (US$25,700) to tow the semi-sub floating production facility Northern Producer.
Part of this weakness is because so many midwater semi-subs were scrapped in the industry downturn by Transocean and Diamond especially. This means that very few of these rigs, which were traditionally supported by large anchor handlers, still exist in international markets, and only two dozen exist in the North Sea. A further nail in the coffin of the asset class came when Saipem announced that it will convert the semi-sub Scarabeo 5 semi-submersible drilling unit into a floating production unit for Eni Congo at CIMC Raffles shipyard.
Governments take tonnage away from offshore
Scarcely surprising then that the former 200-tonne BP AHTS Havila Neptune, built in 2008, which had been sold to Greek owner MCT out of lay-up in the North Sea at the behest of Havila’s banks in 2022, now has a new future out of oil and gas. The Greek owners renamed the ship Achilles Z, and it was recently re-sold outside the industry to the Chilean Navy. Renamed Lientur, the AHTS has relocated to Valparaiso, where she will be refitted for patrol duties for her new owners.
The Chilean Navy purchase continues the exodus of large anchor handlers for government work in recent years. We reported how the French coast guard used the offshore downturn to boost its emergency towing capabilities through the acquisition of two former Siem Offshore AHTS Siem Garnet and Siem Diamond (here), whilst the Norwegian Coast Guard took two huge Boa anchor handlers, Boa Bison and Boa Jarl (here). In 2021, the Icelandic Coast Guard agreed to buy the 200-tonne AHTS GH Endurance (built 2010, UT786 design) from German privately equity owned player UOS for around US$14 million, and renamed the ship Freyja.
MCT has reactivated sister AHTS vessels of the Havyard 842 design Theseus Z (the former Havila Mars) and Apollo Z (ex-Havila Mercury) and dispatched them to Brazil for Petrobras contracts, whilst Maersk announced it would be scrapping three of its large anchor handlers laid up in the North Sea. Until rates improve meaningfully, we can’t see the exodus of tonnage from the deepwater AHTS segment being staunched.
PSVs are sizzling, AHTS outside Brazil, much less so.
Video of the launch of BGMS Splendor is here.
For residents of selected countries, you can access more information on the ADES IPO here. Investors will be reassured that the company has a “lean cost structure… characterised by a high-skill, low-cost, local workforce, an in-house maintenance and technical team, and lean organisational structure.”
Specifications of Arpoador are here.