Pareto and DVB spark intense debate at offshore conference

Shipowners, shipbrokers, charterers, bankers and analysts traded views on the offshore sector at TradeWinds Offshore Marine in Singapore, while one discussion on OSVs had something of an edge to it

A lively debate on the strength of future markets for offshore-support vessels (OSVs) developed into a friendly, if loud, clash of titans — mostly between Pareto Securities and DVB Bank at the recent TradeWinds Offshore Marine conference.

About 130 participants gathered for TradeWinds’ fifth global offshore event and the third in Singapore.

In terms of the health of the OSV market, speakers and panellists for the all-day conference delivered a fairly universal positive tone — although most views were tempered with varying degrees of caution on items such as expectations for oil prices and oil companies’ spending on exploration and production (E&P).

Pareto Securities Asia chief executive David Palmer gave the financier’s view of the market, with his trademark “traffic-light” system for rating the health of the offshore sector.

Geir Sjurseth, the managing director and global head of offshore for DVB Group Merchant Bank, took the greatest exception to Palmer’s traffic lights, and thus steered the session into a lively discussion.

Session panellists Stig Erik Kyrkjeeide of Swedbank First Securities and Icon Offshore chief executive Dr Jamal Yusof also took part, while Jaya Holdings president George Horsington fought to keep order as a rather deft moderator.

Palmer’s traffic-light system —using red, yellow and green markers — categorises aspects of the vessel market on just one page. For his latest updated version, Palmer has turned a number of red lights into yellow lights to reflect a positive change but also uncertainty in the sector.

He gave red lights for increased yard capacity, financing challenges and secondhand market pressure because of rising newbuilding prices.

Yellow lights went to items such as E&P spending and the OSV orderbook, while green lights were given to the expanding rig fleet and rising subsea activity, among other items.

The bottom line for Palmer is rather positive as he maintains that the rising cycle for oil services, which includes OSVs, will be long and flat with no large spike in the market.

“Frankly, only a demand shock can change this market significantly,” Palmer told the delegates, in giving his nuanced view of the strength of the offshore sector.

To be fair, the Pareto chief’s view included caveats, but Sjurseth, who is known as the contrarian’s contrarian, pounced on Palmer with gusto during the question-and-answer session.

“We are heading for another crash,” said Sjurseth, raising his voice and pointing his finger at the ceiling, while lamenting the availability of cheap finance from China.

Sjurseth says he does hold a positive view of offshore, but that most people are overly positive and on course to derail the sector.

Meanwhile, Mark Lewis, group-vice chairman and managing director of Facts Global Energy (FGE), set the scene for the day with a look at his company’s expectations of oil prices, which are the primary driver of all activity in the offshore sector.

He believes current oil prices are generating excess supply and so prices will adjust downwards, with the tipping point between 2015 and 2017, when Saudi Arabia is forced outside its “comfort zone” as a swing supplier for the market.

He thinks prices are likely to settle at below $90 per barrel for Brent, which will cut oil company profits and capital expenditure and reduce non-Opec production.

Lewis also predicts prices will recover after 2020, with a rising call on Opec.

Douglas-Westwood lead analyst Thom Payne also delivered a broad view of the sector, touching on oil-company activity.

Three offshore shipowners —Pacific Radiance managing director James Pang, Icon Offshore’s Yusof and Chellsea chief executive Gautam Chellaram — served as panellists to relate the operator’s view on analysis from FGE and Douglas-Westwood.

The conference also put a focus on offshore shipowners’ clients and addressed some vessel requirements, but, inevitably, the client session centered on the keystone item of safety.

Given the capital intensity of any given operation, such as a drilling spread in particular, it is not unusual for delays to cost upwards of $1m per day, so extremely high demands for safety and performance are placed on OSVs and their crews.

SapuraKencana Drilling senior vice-president Raphael Siri and BP (Asia) marine authority Jim Fortnum shed light on the client’s perspective, while Swire Pacific Offshore commercial director Duncan Telfer and EMAS Marine chartering manger Keith Ng were on hand to speak from the shipowner’s side of the table, with American Bureau of Shipping (ABS) engineering director Gareth Burton serving as moderator.

Fortnum says that even with all the in-depth vetting and the intense pre-qualification process for a vessel to work for an oil major, continuous vigilance on the charterer’s part is necessary to check that certifications on paper actually exist on ships. He says owners need to develop cultures of extreme safety.

“It is too bad some [vessel] guys don’t have a big red “X” on their chest, so we can see right away who to stay away from,” said Fortnum.

Meanwhile, Kyrkjeeide delivered Swedbank’s take on the global migration of vessels, which are moving to fill in gaps created as vessels switch back to the US Gulf of Mexico (GoM) and the rising profitability at listed owners, which shows the strength of the global recovery.

The analyst believes demand growth, in the form of rigs, is well ahead of supply growth, in terms of vessels, so a tipping point is coming soon for utilisation and rates.

Three Singapore-based shipbrokers — M3 Marine’s Mike Meade, UNO Offshore’s Max Hartvigsen and Fearnley Offshore Supply’s Harald Paulsen Lovik — took Kyrkjeeide’s bird’s-eye view down to the local hands-on level, along with Wartsila Ship Design’s Andrew Loh Han Guan.