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ShiftingThroughout 2020, offshore oil and gas services markets were exposed to continuous weak demand and tonnage oversupply. The late-2019 increase of utilization rates and the optimism that arrived with it were derailed by the short-term commercial impacts of the Covid pandemic whilst operating costs increased owing to very tough logistics. Optimism did not totally fade away in 2020 and 2021 opens on some renewed pockets of traction, even more so with the renewable scene rapidly filling with mature projects.

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CONNECTOROffshore construction and power cable-lay vessel, sold by Ocean Yield to Jan de Nul.

Photo: Christopher Petersen

Offshore

Floating production was not spared by last year’s turbulence. Initially it was set to be a good one for operators with numerous projects set to be awarded in Brazil, Guyana, and West Africa. Alas, the first half of the year saw a brutal halt to decision making in the wake of plunging oil prices which hit project economics. The second half of the year was more positive and the gridlock of many projects was resolved. Other decisions have been pushed back to 2021 but with projects of this size, delays remain the norm with delivery lead times often exceeding 4.5 years. As of early 2021 there are about 164 FPSOs in operation with almost as many leased as owned. Meanwhile, an additional 15% of the fleet is on order.

Over a quarter of the units in the world operate in Brazil and it remains the largest growth market. In late 2020 Petrobras announced its plans to bring 12 FPSOs online by 2025. It further confirms Brazil’s determination to continue to develop its oil & gas reserves together with the contribution of private partners including Total, Equinor, Shell and Perenco. All told, 9 out of the 12 FPSOs will be deployed for the pre-salt Buzios, Mero and Marlim fields. Six of these units are already under construction.

Guyana was again at the forefront of the production news, with ExxonMobil potentially adding one FPSO a year over the next decade and an astonishing projected expenditure of $50 billion over the same time period. The Stabroek Field, the latest major discovery, is estimated to contain more than 8 billion barrels of oil equivalent. Exxon’s dedication to oil & gas exploration in the country has stayed steadfast.

In a foreboding of the difficult year that would come for the sector, Shell’s Prelude FLNG had to be shut down in February due to several electrical breakdowns. For other projects, by mid-year, force majeure clauses were levied to either delay deliveries of newbuild units or were used to explain the inability to pay the charter. By end-2020 most of the disputes or delays had

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PRODUCTION AND DRILLING

BRS GROUP - Annual review 2021 BRS GROUP - Annual review 2021

FLOATING PRODUCTION

After a prolonged downcycle, players in the space were starting to see an upturn in day rates and the utilization of their fleet. At the beginning of 2020, total utilization was close to 75% on the jackup side and towards 70% on the floater side, with contracts being signed at healthier levels than those seen in many years. Major rig owners were bullish on their near- and medium-term prospects and eagerly awaiting an uptick in activity. Alas, the opposite developed as the global crisis unfolded. Weakened by years of meagre incomes and increasing financial costs, all but one of the publicly listed participants in the industry entered restructuring.

By end-2020, the same total utilization figures were below 66% on the jackup front and below 60% on the floaters. These figures do not take into account the removal of 4% of units from the total fleet in 2020. Day rates fared no better, a reduction of 10-20% was seen across the board, not leaving much of a buffer between revenue and operating costs to owners.

West Africa, long a part of the global landscape, had fewer rigs working at one stage during the year than had been seen in decades. Northwest Europe, seen as a relatively promising and lucrative region by the end of 2019, also saw a 10% decrease in marketed utilization.

In many ways this turbulence was the coup de grace for companies who had been by many accounts slowly marching towards restructuring. It is hard to understate the operational challenges faced by all, adding to years of

deep staff cuts. Over the short term the effects were devastating, contracts were terminated early or canceled and idle rigs had no visibility for future work. In total, 77 contracts were canceled and only 298 signed. This equated to a 250% increase in cancellations and 45% decrease in the number of fixtures compared with 2019. Over the medium term, the much-anticipated consolidation will be able to commence after restructurings are complete.

For years we have highlighted the oversupply in all asset categories, and the biggest owners have taken it upon themselves to retire assets at a decent pace. The peak of retirement was reached in 2018 with 63 rigs retired but at that time the market was carrying a lot of very old tonnage (70s and early 80s built units). With the spectre of further impairments and restructuring, this phenomenon saw a large uptick in new retirement last year as 40 units were sent to the recyclers. Even more interesting than the sheer number of retirements is the quality of the tonnage that is being sent to the recycling yard. Indeed, many units not even ten years old were put on the chopping block.

Market forces destroyed hundreds of millions of dollars in hard assets in such a short amount of time on the premise that an idle unit is a major liability. A rig that does not work costs money to store and would necessitate anywhere from 20 to 100 million dollars in expenses to reactivate should the contractor win a contract. Current contracting rates do not support such an investment, and with no prospects of generating any profits for years to come, it is sounder in an oversupplied market for owners to simultaneously reduce their running expenses, cut their financial commitments, and hope for a better market balance going forward.

Looking to the future, the industry remains optimistic with drilling campaigns that have been delayed but that will eventually be awarded. Adding to this are the developments of emerging regions and new high-profile wells that will be drilled. If 2021 shall be modestly better than 2020, an upturn can be contemplated in 2022 and beyond.

SUBSEA

The subsea market has hardly fared better than other segments during this tumultuous year. Projects of all sizes have been postponed, except in Brazil where the demand for subsea support was increased with the development of its deep-water fields.

On the asset side, there were several significant transactions. Saipem took delivery of the Wartsila-designed, 2010-built, derrick lay barge DLB Norce Endeavour from Solstad Offshore, this has been newly christened as the Saipem Endeavour. Luxemburg-headquartered Jan De Nul acquired the 2011-built offshore construction and power cable-lay vessel Connector from Ocean Yield ASA. Subsea 7 took delivery of the Seven Vega from Royal IHC in the Netherlands, a reel-lay vessel, and ZPMC eventually launched the JSD6000 deep-water heavy-lift vessel, formerly ordered by PETROFAC at its facilities in China.

McDermott successfully completed its restructuring process whereas TechnipFMC resumed activities toward its expected partition into two publicly, independently traded companies: TechnipFMC and Technip Energies. We expect the backlogs and utilization in the segment to continue to steadily rise over 2021.

been settled and 2021 should see increased activity and deliveries. The much-anticipated Petronas DUA PFLNG which was delayed is set to deliver its first commercial gas this year and the ENI Coral Sul is expected to be launched. Likewise, Shell’s Prelude is set to restart exporting LNG again early in 2021.

Picture: NOBLE BULLY II , Drilling unit, built in 2011, sold to recycling yard.Picture: ENSCO DS-6 , Drilling unit, built in 2012, sold to recycling yard.

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OFFSHOREENERGY TRANSITION

As with other sectors, 2020 started with some optimism in the OSV space. However, following the pandemic the upbeat sentiment quickly dissolved. The market once again contracted leading to reduced activity and low rates. The wave of restructuring and consolidation continued. Some owners completed their restructuring process such as Bourbon (France), Solstad (Norway), and Hornbeck (US). Throughout these processes all have been divesting their non-core assets, aiming to stabilize and rationalize their business.

A severe structural oversupply persists with more than one third of the global fleet currently cold stacked. A significant portion of this cold stacked fleet shall never return to the market, as these units have been inactive for too long.

With less than 3% of the fleet recycled last year, the retirement of OSVs had little to no effect on the market imbalance. Only 20 newbuild vessels were delivered during 2020 with a significant number of finished undelivered units stranded in the yards.

Almost a dozen OSVs from the North Sea home fleet were moved out of the traditional supply segment to gain new life in other markets such as the fish farm industry or survey vessel space.

The two predominant trends for OSV owners are to move towards being more integrated logistics providers and increasing the digitalization of their fleets. Integration increases the presence of OSV owners along the value chain. Digitalization improves operational performance and reduces operating costs. This is in response to a prevailing demand from charterers for connectivity and smart ships to further permit the monitoring of vessels from ashore.

In the North Sea, owners suffered from reduced rates, financial challenges and charter cancellations. Adapting to the harsh realities of the offshore oil & gas industry, proactive owners decided to explore new opportunities in growing markets such as offshore wind. For example, a traditional PSV can be converted into a dedicated service operation vessel (SOV). The demand for pre-lay moorings and turbines’ tow is set to grow in the future and may benefit the larger anchor handling tug supply (AHTS) segment. On a positive note for the region, the oil & gas supply market might be boosted by the introduction of a temporary Norwegian tax incentive to encourage investment in the sector.

The West African market seems to have bottomed out after an impressive 30% decrease in utilization rates over the course of the year. Piracy and armed robbery rose by almost 40% in the Gulf of Guinea compared with 2019. Cutting costs has more than ever been the motto among oil companies. To that end they have been considering switching from helicopter transportations to crew-boats. Newcomers arrived in West Africa to improve comfort, consumption, safety, and autonomy. Some owners placed newbuilding orders to balance the global erosion of the current fleet.

Last year saw more spot OSV fixtures in Asia Pacific. However, day rates remained low. Although there are oil & gas projects going ahead, stringent national cabotage rules have upheld entry barriers in many countries. OSV owners/operators have turned their focus to countries with less access constraints, but more competition, such as Myanmar. Companies aggressively compete by offering cheap daily charter rates. In addition to the traditional Singaporean and Malaysian players, Vietnamese and Indonesian owners are also vying for a piece of the same pie. In recent years, these local companies have expanded their outreach to not only to compete in their home as they see more opportunities overseas.

An escalating offshore wind market offers some hope to local owners with several having units committed for Taiwanese developments. Not only does it allow the deployment of assets, but it also creates an opportunity to learn and develop new skill sets and experience. The largest windfarms are expected to be developed in China while interest in countries including South Korea and Vietnam is rapidly increasing leading to ambitious plans for the next decade.

Demand in the Middle East remains steady for OSVs with long term commitments in Saudi Arabia, Qatar and the UAE. Several Southeast Asian owners have also started to place the bulk of their fleet in the region following the increase in demand from the oil & gas and logistics sectors. Some companies including Britoil and Lanpan have enjoyed the fruits of their labour. Since relocating units to the region in 2015, they have experienced higher fleet utilization for spot charters.

In addition to demand from oil companies, contractors including Saipem and MacDermott have greatly contributed to the increasing demand for OSVs in the Middle East Gulf. In some instances, companies turned to the resale market for newer units and to the yards in the Far East to procure new assets for long-term contracts, proving that owners remain confident about the growing demand in the region. Considering that some projects were postponed to 2021 and the current workload, we expect demand in the Middle East Gulf to remain steady.

Brazilian demand for OSVs has increased significantly with Petrobras pursuing its exploration and production projects especially in the large deep-water FPSO fields. Term utilization for the category has been higher than 60%, and there were some shortages in the high specification PSVs or powerful AHTS during the year. In turn, this enabled the mobilisation of a few units from the North Sea. With a significant number of floating units under construction, the outlook for offshore supply vessels remains better than expected. Mexico, Guyana and Surinam are following this trend with expected additional drilling projects in the near future.

In the crewboat market, the major deal of the year saw CMB (“Compagnie Maritime Belge”) buy Seacor (US)-owned Windcat Workboats and their 46 crew transfer vessels. With the market amiss,Hermitage (US) was forced to sell its offshore fleets. This saw its 11 crewboats going to Tidewater (US).

Pictures: ENA WIZARD and ENA ENDEAVOUR , offshore support vessels owned & operated by Eastern Navigation. Photo: Piet Sinke;Right side: KEIZERSBORG , Newbuilding resale PSV from Chinese shipyard Wuhu converted into a Walk to Work vessel by Wagenborg. BRS GROUP - Annual review 2021 BRS GROUP - Annual review 2021

ENERGY TRANSITIONLOGISTICS AND MOBILITY - OSV

The oil and gas fleet has started to follow the current trend towards decarbonisation and cleaner propulsion. The will is there, but sadly, the severe market conditions and low day rates make owners unable to allocate enough capital to upgrade their units with more fuel-saving and emission-reduction technologies.

In January 2021 Eidesvik announced their award of a 5-year contract with Equinor for their Viking Energy fueled by carbon-free ammonia. Across the total OSV fleet there are only 7 LNG-fueled PSVs and less than 30 hybrid vessels. Ship builders such as Ulstein are developing hydrogen fuel-powered OSVs that could be exploited for short sea operations with bunkering infrastructure located nearby.

Along with new designs and layouts, digital innovation is also occurring apace. These innovations are welcomed by owners, and charterers as they present a unique advantage in maintenance and supervision abilities, helping to curb both costs and negative environmental impacts as well as by increasing uptime.

A severe structural oversupply persists with more than one third of the global OSV fleet currently cold stacked

OFFSHORELOGISTICS AND MOBILITY - OSV

The offshore windfarm industry is steadily increasing its role in energy production. The perceived opportunities in the sector are attracting a growing number of maritime and shipping companies to the business. This is in sharp contrast with traditional oil & gas exploration and production.

IOCs (International Oil Companies) and NOCs (National Oil Companies) are positioning themselves for the energy transition, becoming ‘energy’ companies rather than ‘oil’ companies. Some companies such as Equinor (Norway) stand at the forefront having heavily invested in the offshore wind industry over the last 5 years. Besides this Norwegian player, others such as France’s Total are under growing pressure from investors to further diversify away from oil and gas. The whole offshore ecosystem follows this trend, and it is rare for shipowners today not to have a dedicated renewables department.

At the end of 2020, total global offshore wind turbine capacity reached 30 GW and it is on course to reach 235 GW by 2030 according to the Global Wind Energy Council. This will include today’s emerging floating wind turbines.

Europe, including the UK, is still the leading region for offshore wind power generation. Asia and North America should catch up over the next decade. China plans to install 52 GW by 2030, followed by Taiwan where the offshore wind market is booming (installation of 5,5 W by 2025, with an extra 10 GW by 2035).

Vietnam, Japan and South Korea, respectively, are aiming to install 5.2, 7.2 and 10 GW of capacity by 2035. Some projects are in association with an IOC such as Korean Donghae's offshore floating windfarm which is managed and operated by Shell. To enable this growth, a Japanese JV ordered a Gusto design Wind Turbine Installation Vessel (“WTIV”) equipped with a 1,600 ton crane to be operational by 2023.

In the US there are only 5 turbines which are all currently turning offshore Rhode Island., However, 23 GW is planned to be installed by 2030. Coastal States in the Northeast are investing heavily in infrastructure to adapt their ports. Most of the fabrication, logistics and installation links in the supply chain need to be built from the ground up. This will take time, but the projects are ambitious. In Japan, American company Dominion Energy announced the order of the first locally built Jones Act WTIV at Keppel Amfels US. The Gusto designed unit will be equipped with a 2,200 ton crane. It will be managed and operated by Seajacks.

In Europe, owners and contractors continue to support the growth in the number of projects and increasing size of the turbines. Some vessels only five years old are already perceived as being outdated for several new projects, as they are not able to install heavier turbines. In late 2019, Jan de Nul confirmed the order of their monohull heavy-lifting and installation vessel, Les Alizés at CMHI in China carrying a Huisman 3D compensated 5,000 ton, 36 metre crane. On the Norwegian side, in 2020, OHT announced an order at CMHI in China of another two Gusto-designed NG14000XL-G WTIVs, each equipped with a 2,500 ton crane and capable of operating in 65m water depth.

Following an unprecedented divestment move, Monaco-based Scorpio announced in August its intention to totally exit traditional dry-bulk shipping and dispose of its fleet so that they can firm up a pair of Gusto designed WTIV units to be built by DSME capable of operating in 70m water depth and equipped with a 1,500 ton leg encircling crane.

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Despite the impression of numerous orders for WTIV vessels, unless turbine manufacturers eventually qualify some of the new heavy lift monohull tonnage to perform heavy installations, a future shortage of vessels able to lift current and future generations of massive wind turbines is anticipated.

With regards to foundations installation, some oil and gas heavy lift tonnage has been available. For example, the Heerema-operated monohull heavy lift Aegir was chartered this year by JDN to install the pin piles of the Changhua Phase 1 project in Taiwan. However, this trend may not last long as these vessels will soon be needed in the always busier platform decommissioning market. In addition, these units were not designed to repeat numerous liftings over a short period and are thus less efficient than dedicated ships.

On the maintenance side, whether for existing or future windfarms, the need for Service Offshore Vessels (SOV) is growing. OSV owners are also finding their new role here outfitting some of their vessels with compensated gangways for walk to work (W2W) services. There is now a fair number of established players in Europe. These companies are trying to grow their home market share as well as capitalize on their experience to participate in new markets such as the US and Southeast Asia. For example, MOL has appeared as an SOV player in Taiwan.

That side of the market has also seen a wave of newbuild purpose-built vessels with some designs that boast exceptional efficiency ratings and environmental friendliness. For example, the Norwegian owner Østensjø Rederi has ordered four of those SOVs in Spain. Altogether, the ranks of purpose built SOVs (20) and W2W (about 35) are set to grow rapidly over the next decade. Equinor tendering for the chartering of 4 new SOVs represents a $225m investment opportunity.

The offshore wind sector has years of growth ahead with more confirmed developments, and more economically viable projects. Players expect that this will contribute to a solid increase in rates and returns on invested capital. Technological innovation and the positive public perception will continue to fuel the development of this major offshore energy source.

Picture: OCEAN RESOLUTION , Gardline multi-role survey vessel, converted from a PSV. BRS GROUP - Annual review 2021 BRS GROUP - Annual review 2021

OFFSHORE WINDFARM

Opportunities inthe offshore wind

sector are attracting a growing number

of maritime and shipping companies

ConclusionAs of early 2021, despite the ongoing pandemic, one can note two major trends: Firstly, that energy transition policies have had a significant impact on the investment decisions as well as on the organization of large energy corporations. Secondly, that the traditional oil and gas industry is set to experience a rebound in activity in 2021 and beyond. The demand for oil and gas remains strong even as existing fields are depleted. Furthermore, the capacity of the offshore services sector has been drastically cut by almost seven years of downturn. The steady and lasting increase in oil prices appears to be a signal that improvement is on its way and with cleaner balance sheets there will be the opportunities for owners and contractors to perform greener and more profitable operations.

Picture: KAZANIN EXPLORER ex BOURBON BORGSTEIN , Offshore support vessel, bought by Sevnor and reactivated.