Sunday, 26 July 2015

O&M Companies – If No Rig or OSV Orders, Then What? Specialized Vessels?

This month Keppel O&M and Semb Marine had announced orders of US$770mil and US$1bil respectively. Keppel was awarded FLNG and liftboat orders while Semb Marine was awarded a Heavy lift Semi-Sub Crane Vessel. For the two leading O&M companies in Singapore, these are orders after some very quiet 2015 so far when order intake is concern.

The last time Keppel O&M announced order intake was in January this year when they were awarded a S$265mil contract to build an ice class vessel and S$65mil contract to build an Anchor Handling Tug and providing of technical services for the construction of a liftboat. As for Semb Marine, the only other order for the year was a FSO conversion contract worth S$56mil.

Exploration Halted
The number of Oil Rigs required is closely related to the capital expenditure (Capex) programs of Oil companies. Due to the low oil price, capex and other exploration works on new fields all come to a halt. So SGX listed O&M rig builders such as Keppel O&M, Semb Marine, Cosco etc will continue to feel the pressure of NO Rig orders.

With oversupply of oil rigs, Offshore Support Vessels (OSV)’s demand also dropped in parallel drastically. OSVs typically include vessels such as Anchor Handling Towing Supply Vessels (AHTS) and Platform Support Vessels (PSV) etc. Similarly, we will also see less offshore construction work, due to the low levels of new oil field developments.

Specialized Vessels!

So as alternative, yards will be counting on specialized vessels. What are specialized vessels, and why are they still in demand?

Operational & Maintenance activities Ramped Up
To compensate for the low oil price, production of oil has to increase. Therefore specialized vessels are employed to support the operational/production and maintenance side of the oil and gas value chain.

Floating Production Storage Offload (FPSO) vessels will store and process the extracted crude oil of existing oil wells, before the processed oil is transferred to a shutter tanker. Then there will be Pipelay vessels that lay offshore pipes to transfer oil and gas from one place to another. With almost little or no new developments of oil fields, older oil fields will need maintenance or well stimulation to increase production. Liftboat, Well Stimulation Vessels, Diving Support Vessels or Multi-purpose vessels will then be needed.

Fleet Renewal
Some ship owners may also take this opportunity to renew their older fleet at an attractive price. This is the case for Hereema when they awarded the US$1bil contract to Semb Marine just this month, mentioned earlier.

Anyway, I have included below some of the specialized vessels and their typical contract value.

Disclaimer: The values of these vessels provided below, are very rough indications use as a guideline only. The actual values vary depending on the specifications of the vessels and the complexity of the main equipment installed onboard.

FLNG / FPSO / FSO conversions
FLNG conversion ~ US$700mil
FPSO conversion ~ US$100mil and above
FSO conversion ~ US$100mil and below

FPSO (source: Modec)

Heavy Lift Crane / Pipelay Vessel
~ US$300mil to US$1bil

Heavy lift Crane / Pipelay Vessel (source: Hereema)

Reel Lay Vessel (source: Technip)

Flexible Pipelay Vessel (source: SapuraKencana)

Liftboat
~ US$60mil and above
Refer to Rolf Suey’s article “LiftBoat Lifting Expectations?

Cablelay Vessel
~ US$50-100mil

Cablelay Vessel (source: Van Oord)

Windfarm Installation Vessel
~US$200-300mil


Windfarm Installation Vessel (source: Deme-group)

Multi-Purpose Support Vessel
~US$100-200mil

Multi-purpose Vessel (source: Bourbon) 

Well Stimulation Vessel
~US$200-300mil

Well Intervention Vessel (source: Island Offshore)

Diving Support Vessel
~US$80mil and above

Diving Support Vessel (source: Subsea 7) 


Rolf’s Summary

Even if there is still demand for specialized vessels, it is inevitable that the numbers of vessels required will be greatly muted in the current pessimistic O&G environment. Furthermore, profit margins will be squeezed since there will be so many shipbuilders chasing for the so little newbuild vessels projects.


Related Posts:



7 comments:

  1. Replies
    1. Oil crisis affects O&G directly. GFC affects banks which indirectly affects O&G companies.

      End of the day, which is worse is going to depend on which has oil price more depressed over a longer period of time!

      Delete
  2. Hi Rolf

    How you can get so technical with O&G? It sounded like an O&G lesson. I remembered you are from this industry?

    May I know how much you are vested with O&G stocks?

    ReplyDelete
    Replies
    1. Hi FD,

      Ah... I am still learning to be more technical. Anyway you can find the answer from my "purpose" page why I am slightly more technical on O&G than the usual. :-)

      Regarding my O&G vested interest, refer to
      http://www.rolfsuey.com/2015/04/my-portfolio-1q15-review.html?m=1

      Suffering now.. haha!

      Delete
    2. Haha. I remembered reading somewhere but lazy to go through pages again to dig out.

      Great portfolio size and diversity you have.

      Delete
  3. Hi Rolf,

    I remembered you are holding to Ezion. May I know what is your view on it? I was about to do some bottom fishing but stopped by this article.

    http://splash247.com/hollow-man-or-how-inattention-to-industry-fundamentals-can-kill/




    ReplyDelete
    Replies
    1. Hi Chin Wei,

      Thanks for the reference link. It is a very good article and I kind of agree with it. haha.

      Yes U remember correct, which is BAD news for me. I hold Ezion, and my buy price is 1.5. It is suffering.

      Frankly since oil price decline drastically, it is extremely difficult for even fundamentally good company even those like Keppel and Semb to turn around quickly. The only time the share price will go up is due to market reaction solely. Unless oil price rebound and orders come in. But even oil price rebound, the reaction of companies rebounding up profit will take awhile, bcos of the backlog order nature of the business.

      The GOOD news is, Ezion is less than 1.5% of my overall portfolio of stocks. If includes my cash position, percentage is even lower.

      The best news to me though, is Acceptance. I acknowledged that it is not a good decision now. The same applies to Sembcorp when I buy it over $4.

      By not covering my shortcoming, or not creating too many stories why I do this and that then, this is the only way I will learn really fast going forward.







      Delete