More red ink for Solstad Offshore as vessel impairments bite

Solstad Offshore, a Norwegian offshore service and supply vessel provider, expects low vessel activity combined with overcapacity to continue through 2017. The company’s loss increased during 4Q 2016 hit by vessel impairments. 

The shipping company completed its merger with another OSV provider, REM Offshore, last December, increasing its fleet from 44 to 61 vessels.

Following the merger with REM, the company in early February announced another merger, this time with Farstad Shipping and Deep Sea Supply. Once this merger is complete, the new offshore supply vessel company will be formed in Norway with a fleet of 154 vessels. Solstad Offshore will be the parent company in the consolidated group.

In its quarterly report on Thursday, February 23 Solstad said that the market for offshore service vessels in general is still characterized by low activity, while there is overcapacity of vessels. This is expected to continue through 2017.

The combination of higher oil prices and reduced costs through 2016 means that oil companies are considering commissioning of new projects that will be positive for the demand, the company added.

More red ink

Solstad Offshore said that the group’s result for the fourth quarter was a loss of NOK 1.497 billion, compared to NOK 1.36 billion loss in the same period of 2015.

Solstad Offshore’s freight income in 2016 was NOK 2.58 billion, compared to NOK 3.66 billion in 2015. The decrease in revenue was due to a significantly weaker market in 2016 compared with last year.

For the fourth quarter alone, revenues were NOK 476 million, a decrease compared to NOK 705 million in the corresponding period in 2015. The decline in revenue in the fourth quarter 2016 compared to last year was due to more vessels in lay-up, as well as lower rates mainly in the CSV segment.

The group has contracts of about NOK 1.9 billion for 2017.

Over NOK 1 billion in impairments

Given the weak market outlook for the first few years, combined with other indicators such as falling broker values and effects of restructuring of the industry, the company has conducted independent valuations of its vessels.

All ships, whose book value exceeds 65% of the average market value set by three independent brokers, were tested for impairment based on value in use calculations. Based on this, the group has decided to write down the value of its fleet by NOK 1.099 billion in the fourth quarter.

Offshore Energy Today Staff