PSV market turbulent, Nordic American Offshore says

Nordic American Offshore (NAO), an offshore shipping company, has informed that although the market for the company’s platform supply vessels is turbulent, five vessels in NAO’s eight vessel fleet are currently employed on contracts, up from three last quarter.

“The decline in oil price has led to reductions in exploration activity in the North Sea, in turn lowering the number of working oil rigs and the demand for PSVs,” Executive Chairman, Herbjørn Hansson said.

The remaining three vessels from NAO’s fleet are operating in the spot market.

“We have achieved in excess of 80% utilization which is a sound performance in the current market conditions. Rates for the spot ships have been reduced this year as a consequence of the low oil prices,” said Hansson.

NAO recently contracted two vessels to Statoil to assist on the Polarled project, securing employment for those vessels for several months going forward, Hansson further noted.

Boosted by strong dollar

“When observing PSV rates, we must consider two important factors. First, utilization and rates in our market are always affected by the winter season when non-essential work tends to be postponed until weather conditions are more favorable.

“Second, our vessels operate in local currency, Norwegian Kroner in the Norwegian sector and British Pounds in the British sector. This also applies to our expenses. The weaker reported rates are impacted by the appreciation of the US dollar.

“Conversely, our two vessels delivered from the Norwegian yard of Ulstein earlier this year were ordered from the yard in Norwegian Kroner. The realized currency gain on these two vessels was about USD 8 mill per vessels, actually reducing the USD price from about USD 44 mill to about USD 36 mill. It is indeed comforting to see that an economic advantage of about USD 32 mill may be achieved – spread across four vessels delivered in 2015.”

The two additional vessels will be delivered to NAO later this year. The company expects to capture similar reductions in cost on those vessels, given the Norwegian Kroner/ USD relationship to be at the same level as now.

“Our positioning by ordering the vessels in NOK and reaping the benefits of a stronger dollar, has indeed given our shareholders an extra economic benefit,” said Hansson.

Sanctions against Russia

“The low oil price continues to put pressure on our industry. When Brent crude prices return to the $60 – $80 range per barrel we expect to see renewed activity in our market, and improved demand for our vessels.”

The geopolitical situation involving Russia has also affected the market. Hansson notes that the vessels owned by other companies that were due to work in the Arctic regions had their charters cancelled. Those vessels were drawn from the North Sea and their return to this market has contributed to an oversupply of vessels. Should the political situation change and sanctions against Russia be removed, this should affect our market positively, NAO chairman said.

“With that said we are positive about the oil price in coming years. We expect to reap the benefits of an improved oil price which will be a stimulus to the activities of the PSV market,” Hansson concludes.