Maybe it’s cheap for a reason? - Homepage | Marine Money · 2019-10-04 · delivering market consultancy, analysis and commercial modelling to MSI’s offshore client base of contractors,

Maybe it’s cheap for a reason?Norway Ship and Offshore Finance ForumJune 2019

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© 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.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?

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Schematic for illustrative purposes only

RoRo

OSV

s


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



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


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


The long-term context

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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


1. Where are we in the cycle2. Demand by sector3. Supply Side Response4. The Need to Green Shipping 5. Balancing Risk and Reward



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


…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





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


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.


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


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


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





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


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


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


Utilisation in perspective

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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 UtilisationPSV UtilisationJack-up UtilisationFloater Utilisation

Rigs are still ahead on the recovery curve





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


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


MSI Offshore Team

James FrewDirector of Consultancy

+44 (207) 940 7194

[email protected]

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

[email protected]

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

[email protected]

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.

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Maybe it’s cheap for a reason? - Homepage | Marine Money · 2019-10-04 · delivering market consultancy, analysis and commercial modelling to MSI’s offshore client base of contractors,