Building for a Strong Future

Abstract

For the offshore heavy lift vessel industry, the market re-mains very challenging with a return to robust conditions likely to wait several years. Reflecting the lag in the way multiyear project activity responds to changes in the economy, it wasn’t until late 2009 that the sector’s utilization rate began to plummet. From a 70% rate in August 2009, as calculated by market research firm ODS-Petro-data, utilization sank to 46% by December and 37% by January 2010, edging up only to 42% by the end of the first quarter. With the delay or cancellation of several new vessel projects, as utilization tumbled, excess supply began to dwindle. Utilization stabilized and even pushed above 72% in August, before settling at 56% for the year—hardly a brisk pace but at least well off the early-year lows. While newbuild vessel activity did not disappear and continues this year, there have also been additional project delays and cancellations, according to Mark Rae, senior market analyst at ODS-Petrodata. “I think the industry is going to start to see an uptick in 2013, where heavy lift contractors are indicating that operator interest is increasing,” said Keith Smith, enterprise category manager for offshore installation and heavy lift at Shell International E&P. “Even with the newbuilds coming on, there appears to be a growing demand.” A major question remains on how soon field development activity in the US Gulf of Mexico (GOM) will return to levels comparable to those seen before the Deepwater Horizon disaster. The effect of the US drilling moratorium, now lifted, was to displace vessels to other global markets. Some of those markets were already beginning to tighten, according to Smith. When GOM activity picks up again, he predicts “there will be a pull on resources.” Bruce Gresham, vice president for North America at Heerema Marine Contractors US, said the utilization rate in the upper tier of the heavy lift market where his company operates “is still healthy, although we have gaps.” Looking at the GOM, he said, “This situation on drilling permits, or lack of drilling permits, without a doubt is going to have an impact on a steady stream of projects going forward. Whereas 2013 looks to be a busy year for us here in the Gulf with some major facility installations, the moratorium on drilling will cause some projects that would have otherwise been executed in 2014 to slip back a year. But the opportunities are there, certainly plenty of prospects in deep and ultradeep water that will create a significant amount of work in the future. We have a bump in the road right now.”