Major US players in the offshore oil and gas sector of the shipping industry appear in serious difficulty or seeking protection from their creditors.
The proposed three-way merger of Farstad, Solstad and Deep Sea Supply, recently announced and subject to regulatory approval, may take some tension from bondholders and creditors fearing any immediate threat of collapse. Yet it is reported that of the intended combined fleet of more than 150 vessels at present less than half are in employment.
For others, as one might expect, this market condition is a source of opportunity. In recent weeks we have seen Norwegian-owned company SD Standard Drilling plc acquire 16 platform supply vessels. Purchased as two separate fleets from sellers needing to realise liquidity, often in lay-up condition in warm climates, this strategy requires some reserves of both capital and patience.
In legal practice too, we have seen an uptick in sales of ships at unheard of prices by companies in stressed situations and anticipate movements of those vessels to the regions which are expected to rekindle exploration and production.
What this spike of sorts in sale and purchase activity represents is not the green shoots of recovery but rather a small group of hunters in an ample bargain basement. Indeed, certain of these assets – with a conventional expected working life of 20 years or more – bought at less than ten years old, are reportedly acquired at discounts of over 75 per cent against a benchmark four-year-old vessel of this type or discount of over 45 per cent against a benchmark nine-year-old equivalent.
For the hunters of the pack, that appears good business. Furthermore, the Scottish shipping workforce stands to benefit. In this context, the outlook report for the year ahead recently published by DNV-GL finds that industry confidence has stopped falling.
That is not to say that recovery is imminent. The report suggests the downturn may represent not only “lower for longer” but possibly “lower forever” if a cyclical trend has been broken. Braemar ACM, a leading offshore sector shipbroker, also suggests that it is too early to call the bottom of the market but that the picture may be clearer one year from now.
• Ed Watt is a partner with HBJ Gateley, Edinburgh