Slowly but surely, changes are taking place in the structure of the offshore vessel industry as it reacts to the effects of the downturn caused by the low oil price. In the last couple of weeks, that price has fluctuated a little but remained firmly in the doldrums, with overproduction remaining an important reason for the weakness. It is said that the oil market remains oversupplied by around 2 million barrels per day, and there appears to be no sign that the oversupply might reduce in the near future, either: OPEC seems unwilling to cut supply unilaterally, without the involvement of non-OPEC states – especially Russia and Norway.

More and more vessels are being laid up, and companies are adjusting to the new reality in the only way they can: by reducing costs, selling vessels, or getting out of the business. Late November saw Seacor Holdings in the US take steps to spin-off its offshore marine subsidiary, Seacor Marine Holdings; days earlier, it was confirmed that Pacific Richfield Marine in Singapore was selling around 40 vessels – essentially, the company is up for grabs. The same week saw World Wide Supply – which recently lost contracts for some of its vessels in Brazil when they were blocked – confirm that it is in default of some of its obligations under a bond agreement.

Elsewhere, advisory firm FRP said it anticipated “a wave of company failures,” which it believes are “inevitable” in the oil and gas sector in the UK, with businesses supporting the wider energy sector the first to fail. FRP said it believes downstream companies and those supporting the sector could be particularly badly affected, and said Aberdeen and the northeast of Scotland could suffer.

Statoil said it will probably drill fewer wells offshore Norway next year, as exploration in the Barents Sea is put on hold for a second year after a plunge in oil prices and, in an interview with Bloomberg News, Sturla Henriksen, ceo of the Norwegian Shipowners Association, said 2016 and 2017 could be very challenging years for the offshore vessel sector. “The worst is still to come,” Mr Henriksen said in the interview. “2016 and 2017 will be very demanding years.” Although a recovery is inevitable as the world will need oil and gas for generations to come, he said it was “anybody’s guess” whether it will start in 2017, 2018 or even 2019.

In such an environment it is hard to find reasons to be cheerful, but they are there. With a mere four orders so far this year, the Floating Production System (FPS) sector is suffering. But as Douglas-Westwood (DW) noted at the end of November, this particular market is expected to be better next year, with the Gulf of Mexico in particular having a surprisingly bright future. DW believes that an upturn has already started there, with the contract recently awarded for the Appomattox floating production semi-submersible. A few years ago this would have been unthinkable, with interest in the deepwater Gulf of Mexico waning as numerous companies gave up their offshore acreage to focus on the shale market onshore.

“However,” said DW, “the declining oil price has, if anything, bolstered interest in the region,” noting that a representative of a major engineering company had expressed surprise at how many tenders there were in the region. “This demonstrates the fact that the US sector of the Gulf of Mexico is an attractive investment area at a time of low oil prices, with field development approvals despite the low oil price,” it said. “This highlights the appeal to operators of a well-established, politically stable investment climate.”

For the US, cheaper developments were already the norm due to smaller reserves, leading to a preference for ‘mini-FPS’ developments. The downturn has seen even these costs slashed with the Mad Dog Phase 2 development that was uneconomical at US$110 a barrel being ready for a final investment decision next year, after numerous front end engineering design revisions, despite the bleak oil price forecast. As DW noted, after such a dismal 2015, any kind of upturn would be greeted with relief by shipyards and suppliers, who are hurting badly.

Source: - http://www.osjonline.com/news/view,analyst-sees-chink-of-light-in-gulf-of-mexico-fps-market_41096.htm