A brief offshore history
In 1947, Kerr-McGee Oil Industries (now Anadarko Petroleum) made the first offshore oil discovery drilled out of sight of land. Albeit only 29km (18 miles) away from the Louisiana coastline, and in water depths of just 4.3m (14ft), Kerr-McGee’s achievement began an new era of offshore oil production. Current offshore oil operations still face the same challenges of drilling in deeper, harsher and more remote regions, and with a 31% share of global oil production, these are challenges the offshore industry is preparing to overcome.
Deeper and Darker
As the more accessible and conventional fields became less available and less productive, companies moved further offshore and into deeper waters. In 1970 the averagee distance from shore stood at 60km, with the average water depth being 54m. By 2013 the average distance to shore had more than doubled to 134km, and the average water depth was 15 times deeper at an impressive 876m. As the distance to shore and depth of water for offshore activity increases, so too does the severity of the conditions surrounding each operation. Weather conditions in the deepwater drilling regions are often more extreme and dangerous than shallow water drilling regions. High winds, extended periods of heavy fog, week long storms and sometimes the risk of sea ice and icebergs are all dangers when drilling in deeper, harsher and colder environments of the world. With remoteness comes increased transit times for the delivery of supplies and crew. Vessels operating in these areas need much higher specifications in order to deal with the adverse weather conditions, increased lengths in their period of deployment and greater capacity and workload demand.
Over the last 15 years, a trend in contracting for larger deadweight, and hence higher specification, Platform Supply Vessels (PSVs) has emerged. The average contracted deadweight for PSVs between 1990 and 2012 has increased by almost 60% from 2,500 dwt to 4,000 dwt. There was a particular run on ordering of such large Platform Supply Vessels (>4,000 dwt) in 2012, when the number of new contracts placed globally was almost 5 times larger than the number of newbuild contracts in the largest portion of the PSV sector in 2009. In comparison, small PSV (<3,000 dwt) contracting decreased by 14% in the same period. Upsizing is clearly taking place, as owners prefer to order higher specification support vessels equipped to meet the challenges of the move towards deeper water, far-fromshore drilling and production efforts.
High specification drillships are also attracting much attention. Typically the vessel of choice when drilling in harsher, deeper regions of the world’s oceans. In the years 2011-2012 drillships saw their highest ever levels of newbuild contracting, with an average increase of 18% y-o-y since 2008 in the size of the fleet, outperforming the average y-o-y growth in the entire offshore fleet of 6%. There are currently 89 drillships in the fleet, with a further 78 drillships on the orderbook, most of which have specifications allowing them to drill in 10,000+ft of water depth. This equates to 88% of the current fleet size (in numbers terms), which is the largest orderbook as a percentage of the fleet out of any of the offshore sectors. It’s also worth noting that the trend towards ordering more capable vessels extends beyond the very highest specification vessels too: The orderbook of semi-submersible drilling units is also weighted towards those suitable for deeper depths, and the Anchor Handling Tug & Supply (AHTS) sector with the highest orderbook as a percentage of the fleet is the fleet of more than 16,000 bhp (19.3%). The increasing tendency to exploit opportunities in deeper water and harsher environments is also providing growing demand for MSV and ROV support vessels to service the deployment and maintenance of subsea wells. 36 contracts for such vessels were placed in 2011 and 32 in 2012, whilst in the first half of 2013, 22 orders for MSV/ROV/DSV vessels were recorded, meaning that the year-on-year rate of new contracting in this sector is up by 38%.
The effect of the promotion of deepwater drilling is not only evident in the newbuilding markets, but is also evident in terms of day rates. Clarkson Research’s quotation for a one year timecharter for a large PSV (circa 4,000 dwt) was $28,875/ day at the end of June 2013, up from the 2010 average of $24,000/day, after nearly three years of a firming trend. Similarly, ultra-deepwater day rates for floating drilling units have improved, particularly during 2012, and in general these gains have been maintained into 2013. Benchmark rates for a harsh environment floating drilling unit in the Norwegian North Sea were assessed at $525-560,000/day as of start-July, up from a 2011 average of $475,000/day. In South America, meanwhile, rates for ultra-deepwater floating drilling units were assessed at around $520-600,000/ day as of start-July, up from an average of just over $460,000/day in 2012. So, demand exists for drilling units to operate in the more difficult deeper water environments, creating interest in further contracting of such vessels, whilst at the same time generating additional demand for units to support future deep-water drilling programmes.
Although high specification PSV and Drillship vessels in particular have shown disproportionately strong average y-o-y growth over the last 4 years, it is worth noting that vessels equipped to operate in colder, ice laden regions have seen a dramatic reduction in y-o-y fleet increases in the same period. The growth of the fleet of ice class vessels has decreased from a 53% y-o-y increase between 2008-2009, to a 16% y-o-y increase between 2011-2012. Increased risks and costs of operating in Arctic regions may have postponed demand for these vessels, but with companies focussing on the more remote, colder regions of the globe for oil exploration, it is possible the market could soon suffer from undersupply in this sector in the future.
As E&P companies consider opportunities in the deeper, harsher and colder regions of the world it is clear that a move into the higher specification vessel market is being made, providing good opportunities for manufacturers already in, or looking to move into this sector. However, with low levels of newbuild ordering so far in areas such as ice class vessels, it is worth keeping an eye on these currently underdeveloped sectors.