The Big Short
There’s been a wave of short term fixtures in the North Sea offshore vessel market, but is it only a band aid which, once ripped off, will reveal a problem still very much untreated?
By Inger Louise Molver, Senior Offshore Analyst at Westshore Shipbrokers
Cautious optimism is where we are at right now. But this sentiment has influenced the duration of new term fixtures we have seen so far this year, and there’s been enough of them to necessitate vessels coming out of layup – both to fulfill requirements and speculatively to reactivate a vessel due to general market improvement. But many of these term fixtures are only a matter of weeks or a few months. What are we headed for when they are released from contract?
The start of the year is usually the busy period operators to review and renew its vessel requirements from the term market. This year was no exception and happily saw a big improvement of 2016 s numbers. At least 81 new term fixtures have been concluded in the North Sea so far in 2017. compared to less than half of that in 2016* of the term fixtures concluded so far this year two thirds of them are for six months or less, many typically supporting drilling programmes of a well or two.
A handful of operators bucked the trend and by doing so secured tonnage for longer periods. This can be interpreted as these specific operators having a belief in the market that securing vessels on term is a safer bet than relying on the spot market going forward – does it mean they believe the market will tighten and spot tonnage prices will inflate? It’s certainly one interpretation.
The main names on this list are Statoil and ConocoPhillips Norway, two companies that so far this year have secured no fewer than 11 vessels on term charter for periods of three, four and five years plus options.
The remainder of the fixtures are far shorter in duration and are in respect of a broader spectrum of operators on both the Norwegian and UK sides. Some of these new fixtures have allowed owners to take vessels out of layup in order to fulfill the contract. Ugland Offshore’s Evita was taken out of layup after it secured a three month plus options charter with AkerBP which should keep it busy at least into the autumn if not further.
For others the perception of recovery has encouraged some owners to take tonnage out of layup. It’s an understandable move for an owner that has had no income from a vessel for a period of months if not years. Moreover, if the class survey is approaching, there’s a strong argument that the vessel should be reactivated and out trading before the crunch decision of putting it through its class surveys hits the table.
As our layup analysis shows, this will be an issue for several of the vessels currently in layup over the next 12 months. Dina Scout came back to the spot market earlier this summer after nearly two years in layup. Havila Borg was also taken out of layup earlier this year but has subsequently secured a short term charter with Peterson in the Dutch sector, firm until August.
The big question is, although drilling and offshore activity in general is picking up (and as a consequence the level of term fixing), caution and reluctance to commit for anything longer than a few months could be just delaying the problem. If the market quietens down again at the tail end of the year – are we in for another heavy winter?
*Westshore classes anything over 30 days as a term fixture. If the vessel starts work on a spot charier and is extended beyond 30 days, this is still classed as a spot fixture.
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