Siem Offshore braces for prolonged downturn in offshore supply vessel market
Norwegian offshore and subsea shipping company Siem Offshore believes that overall rate levels will remain volatile and at generally low levels throughout 2019. Siem also expects the imbalance of supply and demand for offshore vessels to remain for several years and continue to put pressure on the charter rates and has therefore prepared for a prolonged downturn in the offshore supply vessel market.
The fourth quarter continued as the previous quarters in 2018, with low activity and excess capacity, resulting in low rates for offshore supply vessels, when Siem experienced a slight increase in the activity on a world-wide basis, but insufficient to increase rates.
According to the company, the North Sea spot market was, as expected, very disappointing with low activity and oversupply of tonnage. Term contracts for AHTS vessels are still more or less none-existent. However, Siem sees a positive sign in the increased number of requests in the market for medium-term PSV requirements.
Offshore construction vessels saw high utilization with support from the offshore wind industry, but day rates continued to be weak.
“We expect to see more activity in 2019 compared to 2018 but still believe that overall rate levels will remain volatile and at generally low levels throughout 2019,” the company said.
Siem noted that the consolidation efforts seen so far have not appreciably improved the market. The company therefore believes that a reduction in the number of offshore support vessels through lay-ups and by scrapping is necessary to improve the market balance.
“The uncertainty related to the number of upcoming drilling campaigns makes it difficult to predict when the market will improve, especially for AHTS vessels and PSVs,” Siem added.
Commenting on its financial situation, the company said it is exposed to a number of risks, among which the most important is the demand for its services. A stable oil price at today’s level of approximately $66 per barrel over time would increase exploration and production spending and related drilling activities. There are positive signs that the activity in the offshore market will increase in the coming years. However, the significant excess capacity in the offshore service-vessel fleet has increased the competition amongst owners for any vessel requirements, thus depressing charter rates and vessel utilizations.
“The imbalance of supply and demand for offshore vessels is expected to remain for several years and will continue to put pressure on the charter rates and our cashflow,” Siem said.
Siem’s revised finance plan
In preparation for a prolonged downturn in the offshore supply market, the company and its banks agreed to a revised finance plan.
The bank lenders agreed in August 2018 to an extension of final bullet payments on all mortgage debt to December 2022, 30% deferral of instalments for the fleet (except for the Canadian vessels, the Brazilian vessels and the two Helix vessels ), with a cash sweep mechanism and an easing of certain debt covenant requirements for the next 4.5 years
As a consequence of the continued weakness in the AHTS vessel offshore market during the second half 2018, the company agreed with its lenders in February 2019 to increase deferral of installments from 30% to 70% for the 10 AHTS vessels for an interim period of 12 months.
Siem explained that the agreements reached with the banks and changes in the bond agreement provide the company a stronger financial platform to meet the challenges for an extended downturn in the offshore supply market.
When it comes to its financial performance in the last quarter of 2018, Siem’s operating revenues increased to $73.1 million from $67.5 million in the prior-year period driven by higher revenues and utilization from the PSVs and the OSCV fleet.
The net loss attributable to shareholders was $48.9 million compared to a $71.2 million loss in 4Q 2017.
Offshore Energy Today Staff