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Crew/supply boats

Nov 5, 2018 01:08 PM

Offshore vessel builds still down in Gulf’s saturated market

An OSV transits Belle Pass on its return from a Gulf of Mexico oil rig to Port Fourchon, La. Rig counts are slowly starting to rebound from the crash of 2014, but hundreds of vessels that once served the oil patch remain stacked, virtually eliminating demand for newbuilds.

Brian Gauvin

An OSV transits Belle Pass on its return from a Gulf of Mexico oil rig to Port Fourchon, La. Rig counts are slowly starting to rebound from the crash of 2014, but hundreds of vessels that once served the oil patch remain stacked, virtually eliminating demand for newbuilds.

Only a handful of supply, platform and other large offshore vessels will be produced in the United States this year as builders remain affected by the global oil downturn of 2014. Crew boat production is almost nil.

When oil prices sank four years ago, plenty of orders for newbuilds were in the pipeline. Forty-three offshore vessels were produced nationally in 2015, followed by 21 in 2016. A flurry of construction has left the Gulf of Mexico full of these boats. Vessels are being scrapped and retired, or stacked for future use. Others are being converted for new purposes. Gulf shipbuilders have been in and out of bankruptcy, and they’ve consolidated.

Chett Chiasson, executive director of the Greater Lafourche Port Commission in Louisiana, said in August that the Gulf rig count is improving but remains depressed, with 20 rigs currently drilling in the region.

“That’s a huge difference from the over 50 rigs drilling when oil prices fell so dramatically,” he said. “Port Fourchon is busier than it’s been in several years, but not where it needs to be.” The south Louisiana hub services over 90 percent of the Gulf’s deepwater oil output.

Houston-based Tidewater Inc. is one of the biggest vessel owners on the Gulf, though most of its activity is overseas. In the past year, Tidewater took delivery of two 300-foot platform supply vessels (PSVs) built by Gulf Island Shipyards in Jennings, La.

An LNG tank awaits installation last year on Harvey Patriot, the sixth dual-fuel OSV being constructed by Harvey Shipyard Group in Gulfport, Miss., for Harvey Gulf International Marine. Plans to complete the vessel have been put on hold due to market conditions.

Brian Gauvin

Youngs Tide was delivered at the end of July, and Potter Tide was delivered in November 2017,” Tidewater’s investor relations director, Jason Stanley, said in August. The two vessels are identical. “No further newbuilds are on order for Tidewater anywhere, including the Gulf of Mexico.”

Stanley said Tidewater currently has fewer than 10 vessels in the Gulf, calling it “one of our smaller but strategically important areas globally.”

On July 16, Tidewater and GulfMark Offshore of Houston said they planned to merge. “With our recently announced combination with GulfMark expected to close late this year, our presence in the Gulf will increase with the addition of their U.S.-flagged fleet,” Stanley said. “A number of the vessels from GulfMark will be suitable for work in other parts of the world, however.” GulfMark’s 65-vessel fleet operates mainly in the North Sea, Southeast Asia and the Americas.

GulfMark emerged from bankruptcy in November 2017, and Tidewater exited Chapter 11 in July 2017. Both companies had filed for bankruptcy protection in mid-May that year. This June, Tidewater owned 205 vessels, including 64 stacked boats. Tidewater shares on the New York Stock Exchange tumbled in 2014, and by this August they’d risen only slightly from their recent lows in mid-2017.

At Harvey Gulf International Marine in New Orleans, plans to complete a sixth dual-fuel PSV, Harvey Patriot, by late 2018 are suspended until the market improves, CEO Shane Guidry said in August. Patriot is to be delivered eventually by Harvey Shipyard Group of Gulfport, Miss. The fifth boat in the series, the 302-foot Harvey America, was launched early this year. “And we definitely intend to build more LNG PSVs as things recover,” Guidry said.

Sign of the times: Stacked OSVs near Larose, La., in early January included hulls from Tidewater, Otto Candies, Hornbeck Offshore and Edison Chouest Offshore.

Brian Gauvin

Harvey has five vessels powered by liquefied natural gas that meet the Environmental Protection Agency’s regulations for reduced sulfur and nitrogen oxide emissions in the North American Emission Control Area. Three of these vessels are under charter to Shell and two are chartered to Hess, Guidry said. Harvey Gulf built and operates the Gulf region’s only LNG marine bunkering facility at Port Fourchon.

From 2003 to 2017, Eastern Shipbuilding Group of Panama City, Fla., built at least 14 offshore vessels for Harvey. The most recent was the 340-foot Harvey Blue-Sea, a multipurpose supply vessel (MPSV) delivered in November 2017.

Harvey Gulf emerged from bankruptcy protection on May 23 after entering it on March 7, one of the shortest Chapter 11 episodes for any company of its size, according to Guidry. Harvey shed $1.2 billion of debt in 77 days, he said.

On Aug. 6, Harvey Gulf submitted an offer to merge with GulfMark, which under the proposal would acquire Harvey. GulfMark shareholders were scheduled to vote on the offer at a special meeting this fall. On Aug. 6, GulfMark’s board said the Tidewater merger was in the best interest of GulfMark’s stockholders.

Elsewhere in Louisiana, the 332-foot Paul Candies entered service in December 2017 after being launched 11 months earlier. “She’s currently working in the Gulf of Mexico, both in the U.S. and in Mexico,” said Otto Candies III, corporate vice chairman at Otto Candies LLC in Des Allemands, in August. Candies Shipbuilders in Houma produced the U.S.-flagged offshore inspection, maintenance and repair (IMR) vessel.

“Because of market conditions, we have no other vessels under construction,” Candies said. “We have no plans at this time for anything to be delivered this year or next.”

He added, however, that “within the market, we’re starting to see an increase in inquiries, mostly in the IMR space. The OSV (offshore supply vessel) space shows small signs of improvement but not enough to significantly improve things. We expect some more pain ahead.” Candies’ management plans to hold on, waiting for conditions to improve.

At Hornbeck Offshore Services in Covington, La., newbuild initiatives from 1997 to the present have left the company overcommitted. Hornbeck announced its fifth newbuild program in November 2011. After several expansions, the overall project included construction of four 300-class OSVs, five 310-class OSVs, 10 320-class OSVs, three 310-class MPSVs and two 400-class MPSVs. As of early 2018, 22 of those vessels were in service. Builds of two remaining 400-class MPSVs, however, were canceled with Eastern Shipbuilding due to performance issues cited by Hornbeck. The two boats will be finished by a completion yard, with delivery likely in 2019.

Otto Candies LLC welcomed the 332-foot Paul Candies into its fleet in late 2017. The PSV from Candies Shipbuilders specializes in inspection, maintenance and repair (IMR), which the company sees as a growing segment of the offshore market.

Courtesy Otto Candies LLC

Hornbeck’s primary builders have been Gulf Island Shipyards and the former Leevac, along with Eastern Shipbuilding and Mississippi-based VT Halter Marine.

In May, Hornbeck acquired four high-spec OSVs and related assets from Aries Marine of Lafayette, La., for nearly $40 million in cash. As of June 30, Hornbeck owned 66 new-generation OSVs and eight MPSVs. The company expected an average of 40.7 new-generation OSVs and 0.7 MPSVs to be stacked in fiscal 2018, however.

In mid-2017, Hornbeck lined up $300 million in term loans and had due dates on debt extended. The company quickly cut most of its 2019 debt and paid off $8 million of its 2020 obligation. On Aug. 1, Hornbeck said it could fund its activities through 2019 at least, but it might not be able to repay its senior notes as they mature in fiscal years 2020 and 2021. Hornbeck said that given offshore oil’s challenges, the company was reviewing its capital structure and assessing its options.

Privately owned giant Edison Chouest Offshore of Galliano, La., has built nearly a dozen Island-named PSVs and multipurpose platform supply vessels (MPPSVs) at its yards in the past five years. Major oil companies are its customers.

Chouest’s latest PSV newbuilds include the 312-foot Marsh Island, completed early in 2018 by the company’s LaShip facility and operating in the Gulf of Mexico; the 312-foot Paradise Island, also completed this year, which is working on the north coast of South America; and the 312-foot Fantasy Island, was launched last year and is in the Gulf. Chouest this summer declined to discuss the PSVs that it is building, however.

Very few crew boats and fast supply vessels are being built along the Gulf as the industry waits for the oil market to rebound. One of the new hulls is this 194-by-32-foot FSV, under construction in September at Gulf Craft in Franklin, La. The newbuild for SEACOR Marine has five Cummins QSK60 main engines with corresponding HamiltonJet waterjets.

Brian Gauvin

Chouest operates North American Shipbuilding in Larose, La.; LaShip in Houma, La.; Gulf Ship and TopShip in Gulfport, Miss.; Tampa Ship in Florida; and Navship in Brazil. Ulstein Group in Norway and Chouest jointly own the Norwegian supply boat company Island Offshore Shipbuilding. Family-run Chouest has a fleet of over 250 vessels, supporting drilling, construction, heavy lifting and sub-sea work. Among its recent projects, Chouest built tugboats used for tanker escorts and spill response in Valdez, Alaska, this year and last.

As for the Gulf, in the 1960s and early 1970s, the region’s oil was drilled in shallow water. But that changed as producers moved farther out. By 2000, deepwater production accounted for more oil than shallow production did. Deepwater output has continued to grow.

“The Gulf’s current glut of vessels is greatest in the shallow-water sector,” said Richard Sanchez, senior marine analyst at IHS Markit in Houston. “We count about 20 PSVs of 500 to 2,999 dwt seeking jobs there on the spot market. Another 146 PSVs of less than 2,999 dwt are laid up.”

The availability of some deepwater PSVs of greater than 4,000 dwt declined in June to August, and day rates for them rose. “While plenty of deepwater PSVs are around for long-term charters, their spot availability has tightened,” Sanchez said.

The PSV market is expected to improve into 2020. “On the deepwater side, PSV owners seem to be showing more discipline, doing a better job of controlling vessel supply,” Sanchez said. “They’re refraining from building until conditions improve.”

Breaux’s Bay Craft is building a 202-by-32-foot fast supply vessel for Tobias, a boat leasing company based in Erath, La. The fixed-propeller FSV will be powered by four Caterpillar 3516 main engines.

Brian Gauvin

One reason is that a new vessel begins to depreciate as soon as it enters the market. A boat idled on the shore, losing value, can be costly. Some of the older offshore vessels that were busy before 2014’s oil-price collapse are idle and are being scrapped.

At Port Fourchon, “we’ve gone from an average of 475 vessels per day at the port in 2014 to an average of 275 per day by this July,” Chiasson said. Eighty different firms, mostly energy services companies, hold 137 leases at that hub. After oil prices dropped, the port gave its tenants a break. “Since April 2015, the port commission has given port tenants a 20 percent basic land-rental reduction,” he said.

All in all, Chiasson said the commission is optimistic. “In the last year, we added three new leases that total just over 3,000 linear feet of waterfront and just over 56 acres of landside property,” he said. In addition, vehicle traffic at the port is up from last year. “Large truck traffic in particular is growing because of an increase in equipment delivered to the port,” he said.

Louisiana’s Terrebonne and Lafourche parishes have lost nearly 16,000 jobs since mid-2014, with shipbuilding taking the biggest hit. Some of those workers found jobs at shipyards and rigs elsewhere, while others gravitated to inland oil and gas patches. Since 2000, fracking has grown so quickly that it accounts for half of U.S. oil output now. The nation’s oil exports have surged, creating opportunities for builders of tankers and big carriers. The Louisiana Offshore Oil Port near Port Fourchon is the only U.S. terminal that can fully load very large crude carriers (VLCCs).

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