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Maybe it’s cheap for a reason?Norway Ship and Offshore Finance ForumJune 2019
1
© Maritime Strategies International www.msiltd.com2
1. Where are we in the cycle2. Offshore in Focus3. Technological Disruption4. Rig Market5. Vessel Market6. Is it Cheap for a Reason?
© Maritime Strategies International www.msiltd.com3
1. Where are we in the cycle2. Offshore in Focus3. Technological Disruption4. Rig Market5. Vessel Market6. Is it Cheap for a Reason?
© Maritime Strategies International www.msiltd.com
RoRo
Bulk
er
LNG
MPP
Cont
aine
r & O
il Ta
nker
Chem
ical
Tank
er
LPG
& P
CTC
MO
DUs
Where on the Earnings Cycle Are We?
4
Schematic for illustrative purposes only
RoRo
OSV
s
© Maritime Strategies International www.msiltd.com5
1. Where are we in the cycle
2. Demand by sector
3. Supply Side Response
4. The Need to Green Shipping
5. Balancing Risk and Reward
1. Where are we in the cycle2. Offshore in Focus3. Technological Disruption4. Rig Market5. Vessel Market6. Is it Cheap for a Reason?
© Maritime Strategies International www.msiltd.com
Utilisation is in the early stages of recovery
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0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
Employment Rate
PSV AHTS Jack-Up Floater
© Maritime Strategies International www.msiltd.com
Earnings still have a long way to go
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-200
0
200
400
600
800
1000
1200
1400
1600
180020
00
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
Net Earnings, 2000 = 100
3.2 k DWT PSV - North Sea18 k BHP AHTS (North Sea)Standard Jack-Up - Middle East3rd Gen. Semi-Sub - UK
© Maritime Strategies International www.msiltd.com
The long-term context
8
0
1
2
3
4
5
6
719
80
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
2016
2018
3rd Gen Semi UK Day Rate / Daily OpEx Ratio
© Maritime Strategies International www.msiltd.com9
1. Where are we in the cycle2. Demand by sector3. Supply Side Response4. The Need to Green Shipping 5. Balancing Risk and Reward
1. Where are we in the cycle2. Offshore in Focus3. Technological Disruption4. Rig Market5. Vessel Market6. Is it Cheap for a Reason?
© Maritime Strategies International www.msiltd.com
Rise of integrated projects…
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Integrated subsea packages are anenabling technology and a keyelement to tacking offshore’sstructural cost issue
Coupled with improved technology(EHC pipe, subsea boosters), moreprojects are viable than would havebeen previously
Started with small tiebacks(Trestakk) before now moving tolarge greenfield projects (Tortue,SNE, Scarborough)
Integrated drilling contracts notincluded in the chart but alsoincreasingly a phenomenon
Integrated SURF/SPS Projects
0
20
40
60
80
100
120
2016
2017
2018
2019
2020
2021
# Trees
High Case
Base Case
© Maritime Strategies International www.msiltd.com
…but not a global disruptor
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The key impact will be to threaten the position of independent engineers, not disrupt the remainder of the supply chain
Integrated drilling contracts also may be gaining traction, performance-based contracts certainly are, but overall underlying rig demand not yet disrupted
From a vessel and rig side, incremental upgrades (batteries, automation) are far more likely to be significant
Implication – technological obsolescence will not play a major role in driving the offshore recovery
Upstream Oilfield Services Supply Chain*
Well Services Drilling FabricationIndependent Engineering
SchlumbergerHalliburtonBaker Hughes GEWeatherfordCore LabsHuntingSBOEWeirHelix
Subsea & Offshore OEM
Aker SolutionsTechnipFMCSchlumbergerBaker Hughes GEMSP-DrilexNOVNexansPrysmianOceaneeringJDR
TransoceanSeadrillEnscoRowanDiamondNaborsSaipemMaersk DrillingAtwoodAban Offshore
WoodWorleyParsonsKBRFluorJacobsMott MacDonaldDorisXodus
EPC/I
TechnipFMCSaipemSubsea 7McDermottNPCCLarsen & ToubroSapura EnergyPetrofacGSPAllseas
DSMESamsungHyundaiSembcorpKeppelLamprellDry Docks WorldKvaernerAibelKiewit
© Maritime Strategies International www.msiltd.com12
1. Where are we in the cycle2. Demand by sector3. Supply Side Response4. The Need to Green Shipping 5. Balancing Risk and Reward
1. Where are we in the cycle2. Offshore in Focus3. Technological Disruption4. Rig Market5. Vessel Market6. Is it Cheap for a Reason?
© Maritime Strategies International www.msiltd.com
Offshore Contract Awards
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Offshore awards increased byaround 5% in 2018
Awards to market tracking morethan 30% higher y-o-y after robustQ1 for subsea and LNG
NWECS accounted for than 35% ofawards in 2018 – momentum slowerin 2019 as Norway rolls off
However, expect number of awardstowards year-end across UK andNorway
Floating rigs (particularly harshsemis) well-positioned
Offshore Project Awards
0
5
10
15
20
25
30
35
40
45
50
2014
2015
2016
2017
2018
2019
ytd
$ Bn
Middle East Europe Asia Pacific Americas Africa
© Maritime Strategies International www.msiltd.com
A Throwback to the 80s
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1981-1988 2012-2019
0
100
200
300
400
500
600
1981
1982
1983
1984
1985
1986
1987
1988
# Active Rigs
Floater Demand
Jack-Up Demand
0
100
200
300
400
500
600
700
800
2012
2013
2014
2015
2016
2017
2018
2019
# Active Rigs
Floater DemandJack-Up Demand
1980s saw a sharper demand recovery – driven by stronger jack-up activity.
© Maritime Strategies International www.msiltd.com
Different Supply Side Dynamics
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Jack-Up Fleet Dynamics Floater Fleet Dynamics
-40
-30
-20
-10
0
10
20
30
40
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
# Units
Removals - Semi-Sub
Deliveries - Semi-Sub
-40
-30
-20
-10
0
10
20
30
40
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
# Units
Removals - Jack-Up Deliveries - Jack-Up
Floaters have done the hard supply-side work – which is still to come for jack-ups
© Maritime Strategies International www.msiltd.com
Floaters out on top
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Jack-Up Employment Floater Employment
35%
45%
55%
65%
75%
85%
95%
1 2 3 4 5 6 7 8
Employment Rate
Year
Jack-Up Employment 81-88Jack-Up Employment 12-19
35%
45%
55%
65%
75%
85%
95%
1 2 3 4 5 6 7 8
Employment Rate
Year
Floater Employment 81-88
Floater Employment 12-19
Jack-up utilisation recovery already slower than floaters, and likely to remain so
© Maritime Strategies International www.msiltd.com
The recovery in context
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0
20
40
60
80
100
120
140
160
180
200Ye
ar 0
Year
1
Year
2
Year
3
Year
4
Year
5
Year
6
Year
7
Year
8
Year
9
Year 10
Net Earnings for a UK 3rd Gen Semi
(Indexed, Year 0=100)
1980-19902010-2020
Aggressive scrapping pays off for floaters
© Maritime Strategies International www.msiltd.com18
1. Where are we in the cycle2. Demand by sector3. Supply Side Response4. The Need to Green Shipping 5. Balancing Risk and Reward
1. Where are we in the cycle2. Offshore in Focus3. Technological Disruption4. Rig Market5. Vessel Market6. Is it Cheap for a Reason?
© Maritime Strategies International www.msiltd.com
Demand Decomposition
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Small AHTS Demand Large AHTS Demand
0
50
100
150
200
250
300
350
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
# Vessels > 12 k AHTS Production Demand>12 k AHTS Drilling Demand
0
200
400
600
800
1000
1200
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
# Vessels < 12 k AHTS Production Demand<12 k AHTS Drilling Demand
Large AHTS rebound driven largely by floating rigs and FPSO installations
© Maritime Strategies International www.msiltd.com
OSV Supply/Demand Balances
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OSV Demand OSV Fleet
PSVs see high fleet growth and slow demand – large AHTS see the opposite
0
20
40
60
80
100
120
140
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2010 = 100
>12 k AHTS Demand<12 k AHTS DemandPSV Demand
0
20
40
60
80
100
120
140
160
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2010 = 100
>12 k AHTS Fleet<12 k AHTS FleetPSV Fleet
© Maritime Strategies International www.msiltd.com
Utilisation rates compared
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0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%20
10
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
>12 k AHTS Utilisation
<12 k AHTS Utilisation
PSV Utilisation
AHTS outperform PSVs, with large AHTS exposed to drilling market volatility
© Maritime Strategies International www.msiltd.com
Utilisation in perspective
22
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%20
10
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
>12 k AHTS Utilisation<12 k AHTS UtilisationPSV UtilisationJack-up UtilisationFloater Utilisation
Rigs are still ahead on the recovery curve
© Maritime Strategies International www.msiltd.com23
1. Where are we in the cycle2. Demand by sector3. Supply Side Response4. The Need to Green Shipping 5. Balancing Risk and Reward
1. Where are we in the cycle2. Offshore in Focus3. Technological Disruption4. Rig Market5. Vessel Market6. Is it Cheap for a Reason?
© Maritime Strategies International www.msiltd.com
MSI – FMV Online Service
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• MSI Forecast Marine eValuator (FMV) is the first web-based tool to provide forecast and historical prices
• Data includes forecasts of newbuilding, second-hand prices, 1 year timecharter rates and operating costs for specific assets.
• MSI FMV draws on MSI’s proven, proprietary models and a consistent cross-sectional view across all principal shipping and offshore sectors.
Crude Oil Tanker
Product Oil Tanker
Dry Bulk Carrier
Chemical Tanker
LPG Carrier
LNG Carrier
Multi Purpose
Containership
PCC/PCTC
AHTS PSV
Drillship - NEW Jack-Up - NEWSemi-Sub - NEW
© Maritime Strategies International www.msiltd.com
It is cheap, but is it good value?
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IF you can guarantee utilisation, now is the time to invest
8%
9%
16%
17%
24%
24%
VLCC
Capesize Bulker
PSV 4.7 k Dwt
AHTS 16 k BHP
Ultra-Deepwater Drillship
High-Spec Jack-Up Rig
Estimated IRRs when buying a 5 Yr Old vesselthis Year and selling in 2024
Note: Assumes 100% Equity
© Maritime Strategies International www.msiltd.com
MSI Offshore Team
James FrewDirector of Consultancy
+44 (207) 940 7194
James has more than ten years experience of analysing maritime markets, and takes overall responsibility for MSI’s analysis of the container shipping and offshore oil and gas markets. In addition, James takes a lead role in larger bespoke consultancy and research projects across shipping sectors.
James holds an M.Sc. in International Trade, Finance and Development from the Barcelona Graduate School of Economics, a Graduate Diploma in Economics from Birkbeck College, London and an M.A. in Modern History from the University of Oxford. He is a member of the Baltic Exchange.
Gregory BrownAssociate Director - Offshore
+44 (207) 940 7190
Gregory leads the development of MSI’s Oil and Gas Project Tracker, as well as delivering market consultancy, analysis and commercial modelling to MSI’s offshore client base of contractors, operators and the financial community.
Gregory received his degree in 2008 from the University of Surrey’s School of Management where he read Business Management. Gregory is also an Authorised Person with Part 4A permission under section 31 of the FSMA, 2000 and was admitted to the Association of Surrey with Distinction. He is a member of the Society of Petroleum Engineers.
Dr. Ferenc PasztorSenior Offshore Analyst
+44 (207) 940 7196
Ferenc is responsible for analysing the offshore oil & gas industry and related vessel markets as well as developing MSI's offshore support vessel and drilling rig market forecast models. He is involved in bespoke research and consultancy projects and provides valuations for specialised offshore vessels.
Before taking this role at MSI, Ferenc worked as a post-doctoral researcher at the Commission of Atomic and Alternative Energy (CEA) in France. He has a Ph.D. in Natural Resources from BOKU, Vienna.
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For over 30 years, MSI has developed integrated relationships with a diverse client base of financialinstitutions, ship owners, shipyards, brokers, investors, insurers and equipment and service providers.
MSI’s expertise covers a broad range of shipping sectors, providing clients with a combination of sectorreports, forecasting models, vessel valuations and bespoke consultancy services.
MSI’s team is comprised of professionals with extensive academic credentials, deep industry knowledgeand many years experience of delivering successful client projects.
MSI balances analytical power with service flexibility, offering a comprehensive support structure and asound foundation on which to build investment strategies and monitor/assess exposure to market risks.
While this document has been prepared, and is presented, in good faith, MSI assumes no responsibilityfor errors of fact, opinion or market changes, and cannot be held responsible for any losses incurred oraction arising as a result of information contained in this document.
The copyright and other intellectual property rights in data, information or advice contained in thisdocument are and will at all times remain the property of MSI.
MSI Background & Disclaimer
© Maritime Strategies International www.msiltd.com27