Has Marine and Offshore Industry Recovered?

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The Maritime
and Offshore exhibition Sea Asia took place in MBS this week and I was there. It is my 17th year in the industry. I met many
old pals, although the number of them still active in the industry has significantly
declined. Had many chats and below are some of the key takeaways?
The big question: "Has Marine
and Offshore Industry Recovered?" 
Still at Bottom!
I am not too sure if the industry is recovering? But one thing I
am certain is “we are still at the bottom of the cycle”. Obviously when you hit
rock bottom, the only way next is up! That said, it is unlikely that we will be anywhere near the glorious days for the foreseeable future.
The sentiments from the show is definitely not that rosy in my
opinion. News of recent retrenchments and pay cuts are not unheard, and it is
very difficult to find new jobs. SMEs who survived and still enduring the ordeal, are
very cautious with cost overheads. Most are also striving to diversified into
other sectors.
Many companies which failed to do so, are either liquidated or in
process of liquidation. So what if they have decades of solid track records to
speak of? Those once glorious local listed O&M companies with hundreds of
millions/billions market cap are now languished with hundreds of millions of
debts. Many had already filed for administrations or had their shares
suspended. The rest are kept afloat because creditors have not much options but
to provide more time.
I also met quite a handful of retirees who still want to have a
sniff of the industry. On the other hand, I did see some old guards back into the
industry again either being employed or acting as consultant. This is good news.
Mergers  
Big companies are either struggling or some sees opportunity.
Either they continue to cut overheads or they merged. Norway’s Kongsberg Group
completed acquisition of Rolls Royce Commercial Marine, one of the big names in
the industry, for 500millions GBP this month. I have friends in both Kongsberg
and Rolls Royce and I am sure they will face uncertainty as mergers always
create redundancy due to positions overlapped. MacGregor also announced
acquisition of O&M business of TTS Group but completion of acquisition has
further delayed due to regulatory approvals from competition authorities.
Oil production sector is
still good
On the other hand, upstream oil such as production side of the
business is definitely doing much better. Floating Production Units (FPU) which
comprised of FPSO, FSO, FLNG etc. are vessels for producing/processing, storing
and offloading oil and gas to tankers. FPSO vessels are often in billions of
dollars and chartered over 20 to 30 years.  
Many FPSO projects were planned in the pipelines with Brazil Petrobras
having the most announced. One FPSO contractor with a huge setup in S’pore is Japanese
operator Modec being extremely busy flooded with many projects. Other FPSO
contractors are BW Offshore, SBM, Yinson, MISC, Bumi etc. Sembmarine and Keppel
are basically the shipyards capable to convert or build the FPSOs. Both
companies have FPSO orderbooks and are definitely eyeing for more ahead.
Rigs, OSV & Offshore Construction sectors still very battered
During the good old days, the sectors that propelled the market to
a boom in SG are from Rigs, OSV & Offshore Construction (OC) sectors. E.g.
Rigs are Keppel, Sembmarine, Ezion, Falcon, Baker etc; OSVs are Nam Cheong,
Pacific Radiance, Swissco, Marco Polo, Vallianz etc; Offshore Construction companies
were Swiber and Ezra in which both filed for administrations.
To understand more about the different sectors within O&G,
please refer to my blog in March 2014
here.
These sectors are definitely still very much battered with huge oversupply.
While there are few Drill rig orders lately, buyers dictates the margin and
terms. Furthermore, contracts are often on the basis that Sellers have to
finance a big part of the sale for the Buyers.
OSVs are without questions the worst of the lot with huge
oversupply. Many vessels are still lying unfinished mostly in Chinese shipyards.
Charter rates of OSV in most cases cannot even cover basic cost. Companies who
are still with decent jobs are normally those with country’s protection or special
relationships. Vallianz is one of them which is still busy with jobs thanks to
their Saudi owner. Most of their vessels are operating in the Middle East
region serving Saudi Aramco. Then there are companies with vessels serving
Indonesia market which is with local content. But even so with jobs, margins
are battered because supply exceeds demand.
Other sectors within the
Offshore & Marine
Many O&M companies also look to diversify into sectors
independent of oil and gas or with projects related to technologies or “environmental
friendly”.
For instance, port developments will require Dredgers, Tugs and Barges. Keppel announced recently that they
received grants from MPA for the development of an autonomous tug. And I also
heard from friends that this is the sector where they still managed to sell. However,
the value of tug boats are very small compared to OSVs or Rigs or OC.
The Dredging vessels are bigger in value compared to tugs and
barges. This sector however is very niched and dominated by few companies,
which essentially meant that new players often had to pay school fees of
learning. Keppel has already forayed into this sector with few wins since 1-2
years back. Many other companies also want to have a bite of the pie.
Renewables sectors such as Wind
especially in Taiwan and LNG sectors
are also generating a lot of interests. But bearing in mind that these sectors
are more niched and also many players are swarming in with limited projects to
satisfy everyone. Renewable sectors are also dependent on Government
regulations and hence progress will always be very much slower. Thus driving
out many smaller players who are not financially strong to wait so long for a
project confirmation.
The world also see a rise in internet data. And the most efficient
way of data transmission is laying of submarine fibre optics cables. Therefore Cablelay of Fibre Optics is definitely a
viable business looking forward. Again these are sectors with lesser and niched
players and volume of business is also not as big as Rigs and OSVs during the
heydays. 
Conclusion
The O&M industry is at its rock bottom. It was the worst ever
three years since the Oil downturn.  
Oil price is still unstable. Last year, oil price was mostly above
$60 and everyone started to be more positive until in Dec when it tumbled below
$50 spoiling all good sentiments. Hence, banks are still cautious in lending or
totally not lending at all. When financing is tight, not many companies can
afford to invest in new projects using self-funding. The lack of investments spiralled
down the value chain which explains why the industry is still in distress.
Nonetheless it is not gloom and doom. Many reckon that the worst
of the downturn is behind us in upstream oil and gas. The pro-longed downturn
cannot go on forever and upstream oil and gas still need to invest, and banks
still need to lend. Companies or workers who are still in the industry today
are likely to represent those who are more resilient forming the backbone of
the sector. If oil price stables or steadily increases this year, I am sure confidence
will rise and activities will increase. Besides, we already seen many projects
sanctioned in the FPSO sectors.
For me, I am in a strangely positive situation where we still see
growth in the sectors we operate in. Perhaps it is due to the niche in our
product offerings and our core business is not all oil and gas related. I thank
God for that and really hope that the industry will recover soon. My prayers extend to all those who suffered within the industry. 

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6 thoughts on “Has Marine and Offshore Industry Recovered?

  1. hi rolf, long time…

    50 is the new 100.

    i feel the worst is over too. there is sense of activity slowly picking up, but only just barely. hiring has picked up too… i still rmbr when the prices was ~140 and then nosedived in a few months. like it just happened yesterday…
    blink of an eye, its 2019. but like u said, we are still at the bottom. how long this bottom will last. who knows… lets hope we all manage to ride it out and survive long enough for the next up turn

  2. Hi FC, long time indeed. Thanks for stopping by. Time do flies. It is almost 5 years now if you consider Oil price started declining in late 2014.

    Hope you are also still surviving strong in the industry?

  3. I survived.
    Stronger ? Hmm, I don't know.
    But I take comfort in the saying, whatever doesn't kill you, makes you stronger.

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