Interview: New tool set to disrupt the way offshore vessels are valued
VesselsValue, a well-known website covering the shipping sector and providing values for the shipping vessels, is moving into the offshore market. Namely, the company has launched VesselsValue Offshore, covering the offshore support vessels sector. The VV Offshore database currently has almost 6.000 offshore vessels, and will probably be expanded by drilling rigs as well.
Offshore Energy Today has interviewed Mr. Miles Cole, VV’s Offshore Manager to learn more about the service. Read on.
Q: Dear Mr. Cole thank you very much for accepting the interview. Can you please make a quick introduction about VesselsValue in general? How did it all start?
A: Hello. It all started during the financial crisis of 2008, onwards. Richard Rivlin, the CEO of VesselsValue, had been a ship broker for thirty years. He was appalled to see that during the financial crisis, the large ship broking companies declined to quote values, as no ships had been sold. He reasoned that an online system, using artificial intelligence and carefully modeled algorithms, would be able to provide current values, even if there had been no sales. VesselsValue was launched in May 2011, and five-years later following demand from our clients, we launched VV Offshore.
Q: Who are the clients of VesselsValue, and what benefits they have from using your services?
A: The majority of clients are banks and other finance providers. As you may be aware, most vessels are financed with a loan. The provider of the loan will require some form of security, and in most cases, the ship itself as collateral. If the owner fails to make the repayments, the bank has the right to sell the ship to pay off the loan. The banks monitor the loan-to-value-ratio. If the value of the loan drops too low, action must be taken. This might be to grant a waiver (for a fee) on the loan-to-value covenant or insists the owner puts more equity into the facility. The banks benefit from having instant and accurate information on the position of their security.
Q: You recently launched the VesselsValue Offshore service. Can you tell us more about it? I imagine the timing is related to the effect low oil prices have on the industry, and the OSV market?
A: We have been researching the OSV market for 18 months, working with offshore brokers and specialists worldwide and it became apparent that current OSV values given by brokers can vary wildly. We saw current market values for the same AHTS ranging from USD 30m to USD 90m. When these were compared to the calculated approach of VV Offshore, it was clear that most values were highly subjective. So while we cannot claim to have timed the launch of VV Offshore with one of the most dire OSV markets in living memory, the timing was fortuitous.
Q: Can you make a quick comparison on how the OSV value has decreased following the collapse of oil price?
A: Our research shows there is a close correlation between the crude oil price and the current value of OSV vessels. Intuitively, this makes sense, as the demand for the use of OSV vessels depends on the activity in the oil and gas fields and this, in turn, depends on the crude oil price.
Q: Also, can you speak about the methodology behind the OSV value estimation? It must be complicated as there are various factors involved such as age, deck space, fuel consumption, demand (or the lack of it)?
A: The basic VesselsValue methodology is based on five factors; Type, Features, Age, Cargo Capacity, Market Sentiment. For each specific vessel, we track around 180 different features, which all carry an individual score and can affect the value. As mentioned before, the crude oil price is one of the main demand drivers, and we use this as a proxy for the Market Sentiment (we call this element the “State of the Market”).
Q: Also, there is another factor. Due to low oil prices, and a lack of work, there are OSV suppliers out there with a relatively young and capable fleet, but unable to meet their financial obligations. Such owners, cornered, and in need of quick cash may be forced to sell their vessels for bargain prices. How do you evaluate such cases?
A: At the moment, we provide current charter-free values for AHT, AHTS, and PSV. Other vessel types will follow. We will also provide Discounted Cash Flow values, also known as DCF value, or total income value. The DCF module can be customized, such as changing the charter rate, or the operating costs. The DCF value module allows owners to analyze a potential vessel purchase under different scenarios, such as value with charter.
Q: What is the response from the OSV community to your latest product?
A: We launched VV Offshore in Norway, and to be honest, I think the local owners were a little bit shocked. First, there is very little transparency in the OSV market, and owners have controlled the flow of information. Second, it was the banks and offshore finance providers that requested VV Offshore, not the owners, precisely to bring some realism to current values. Basically, VV Offshore is disrupting the power base of the owners.
Q: Have there been cases where owners, or potential buyers, disagree with your vessel value estimates?
A: It would have been a surprise if the owners had agreed with VV Offshore current values. As stated above, these are charter-free, and have tracked the oil price downwards. Of course, when the crude oil price recovers, the values will increase.
Q: I’ve seen some pretty detailed maps in VV Offshore, with oil fields, and offshore installations included, as well. What else can be found in VV Offshore?
The aim of [email protected] is to provide a one-stop shop for the offshore oil and gas information. The GIS data includes the licenses and the fields (operated and open), plus the type of installation. The beauty of the system is that it marries sub-sea data with the position and specification (including value) of the OSV working in the field.
Q: How many OSV vessels are there in your database. Do you cover all such vessels out there? Also, which types of OSV’s are covered?
A: Currently, VV Offshore cover AHT, AHTS and PSVs are valued, with other types being researched. The fleet is approximately 700 AHT, 2,800 AHTS, and 2,300 PSVs.
Q: If you may, what is the most expensive OSV currently in your database?
A: There is currently a small group of Super Large AHTS with current values in excess of USD 80m each.
Q: Reading the quarterly results of OSV owners, not much optimism is seen in the short to mid-term outlook. What is your take on the OSV market? Do you expect to see some big M&A deals in the near future?
A: At the same phase of the cycle in the shipping market, it was the banks that were driving the move toward consolidation. In some cases, the same banks are involved, and it might be reasonably expected that they will apply the techniques learned in the shipping crisis, to mitigate their potential losses.
A: A rig owner recently bought a drillship previously estimated at $600 million, for only $60 million. Are there plans within VesselsValue to include a service covering offshore drilling rigs?
Q: Yes, indeed. Our aim is to provide values for all the major offshore types, including drillships and semi-submersibles. As well as continuously updating the current fleet, the offshore research team is working toward complete coverage of the global offshore fleet.
Interview prepared by Bartolomej Tomić, Editor at Offshore Energy Today.