The worst is over, the layup list is decreasing. But after the most brutal downturn in memory, what are we left with?
Written by Inger-Louise Molver, Offshore Analyst at Westshore
AHTS will see the quickest recovery
Around a third of the AHTS vessels trading the spot market have disappeared since the high point back in mid-2014, mostly in to layup. The list of vessels laid up in the North Sea was at its highest point in January this year after six months of one rig after another going in to port to be stacked. The rig count literally nose-dived in the second half of 2016 which meant the number of jobs available for the remaining spot vessels fell off a cliff too.
We predicted that the rig count would reach its lowest point in February 2017 and from there we could expect a gradual but definite increase. We have reached the bottom, the only way is up. And the rig count is slowly starting to increase, rigs are coming out of layup and back out drilling.
So far this year Island Innovator is back out and drilling for Lundin, West Phoenix is back out drilling for Total UK, Stena Spey will come out start of April and drill for Repsol and Paragon B391 is due to start its contract with Centrica late March. It is not an influx of contracts, Invergordon is not being emptied, there is still a very long list of rigs without work and still limited prospects of reactivation within the next six months or so. BUT! The trend of rigs rolling off contract and going into layup has stopped, the upturn is gathering momentum.
At time of writing there are 58 rigs stacked in Europe, despite the Norwegian sector being a relatively transparent market in terms of having a clear picture of which company will need a rig and when, we are still seeing signs that additional drilling plans are being added and additional rig capacity is being sought. By the summer that list of stacked rigs will be lower, although I am reluctant to put an exact figure on where it will be.
For over a year if a spot AHTS in Norway was not working for Statoil, it wasn’t working at all. The list of companies that have exited the Norwegian continental shelf is frankly frightening. We need a diverse list of clients to keep the market buoyant. Between strategic decisions to sell up and focus on areas elsewhere and acquisitions from the larger players, there is a long list of companies no longer operating or partnering in anything on the Norwegian sector.
We have been completely dependent on Statoil’s activity this past year or so, when Statoil sneezed we all caught the cold – which is basically what happened as its activity was scaled back. But as the drilling rig count is starting to climb, so is activity from a handful of other players – and it is making a huge difference. Wintershall, Aker BP and ConocoPhillips Norway have all taken tonnage from the spot market over the last month and the result has kept utilization up and day rates getting tantalizingly close to OPEX.
Plans for the summer?
Summer project work over the past two year’s has been sluggish. Few vessels secured work that took them out of the spot market. We believe that trend will also be reversed this year, several large projects will mean AHTS vessels will be busy outside of the spot market during the summer months.
ExxonMobil’s new Hibernia platform offshore Canada will be towed out and installed this summer. In addition bypass work at the Brents field, several smaller IRM work scopes on the UK sector for a variety of operators, plus work in the Kara Sea and Sakhalin.
Again there will not be an exodus of vessels leaving the North Sea but we can expect a healthier market. To the extent it’s realistic to assume we will see some vessels come out of layup, at least more than just what has come out so far. To put a figure on it, we can cope with an extra seven or eight vessels, more than that and we prolong the period of depressed day rates.
Too many vessels too soon is the swing factor for this summer. It is the difference between rates being at 2014 levels, or staying at the levels we saw in 2016. Either way we still have some time to go before activity levels are back where we were three years ago, but we are on the road to recovery at least.
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