20101101 - The Standard OSV Developments in South East Asia - November 2010, Singapore

M3 Marine Pte Ltd15 Jalan Kilang Barat #06-03 Frontech Centre Singapore 159357 t: +65 6327 4606 m: [email protected] w: www.m3marine.com.sg All rights reserved.

Monday 29 November 2010

The Offshore Market

OSV Development in South East Asia

Standard Asia Offshore Forum

Captain Mike Meade, MNICEO, M3 Marine Group


Who are M3 and what do we do ?M3 Marine Group

• M3 Marine - Offshore Brokers

• M3 Marine - Expertise


M3 - Services

•Brokerage – Time and bareboat Charter, S&P

•Newbuild – Design, Consultancy, Contracting

•Vessel Valuations – includes Bank panels

•Due Diligence and Market research – includes Banks and Financial institutions

•Contract Analysis, Drafting and Negotiation – Buy and Sell side exposure

•Legal and Insurance Claims Support – Expert Witness and Arbitration

•Technical Editing And Business Writing – full range up to Board papers

•Dynamic Positioning Consultancy – includes IMCA audits, FMEA and trials

•Specialist marine manning – High end, NOT Crew

•Vessel Suitability – Consultancy, in the main ‘Client based’


Geography….’this’ market

•Where are we?

•Singapore the ‘hub’ of marine activity in Asia

•The ‘hub’ of Offshore Marine, no different.

•Commercial centre for Oil & Gas trading, Insurance and Finance (Marine)

•The largest Rig building market in the world

•Singapore, Singapore influenced ‘Batam’ and Singapore influenced ‘China’ builds the majority of OSV’s in the world.

•Most project mobilisation(s) in the Asian sub continent start or have a large component centred on Singapore

•Most of the ‘commentary’ (broker reports, LL, Fairplay etc) focus on North Sea, GoM or ‘Deep’ Brazil…..but


Geography

Sphere of influence here? – half of the world ?


What is an OSV?•AHTS - Anchor Handling Towing SupplyAHTS vessels are built Tow and to deploy and recover mooring systems for drilling rigs. These can be highly specialised vessels that range in horsepower from 5,000 to 15,000 BHP (brake horsepower) in Asia. In harsh environments it is not unusual to see BHP up to 30K BHP but this is a ‘highly’ specialised business with the attendant risks.

a typical 5000+ BHP vessel (70T BP)

Built in Asia

The new ’index’ ?

Features on the decks of these vessels include large capacity-conventional waterfall winches, sometimes with multiple drums and using fibre ropes for mooring of deep water semi-submersible drilling rigs. Most have Dynamic Positioning capabilities and high cargo capacities. These powerful vessels double as rig and platform supply vessels that are capable of supporting any supply operation, but with the inefficiency of ‘fuel burn’.


What is an OSV 2?

•PSV - Platform Supply VesselPSV’s range in length from 60 M to over 90 M and have Deadweight capacity from 1000T to over 5000T. A ‘small’ PSV in the North Sea would have a DWT of 2800T.

SPO UT755L3

Built in Asia

3,250T DWT

These vessels provide the supply support needed for drilling, construction and production operations. Most PSV’s have features such as Dynamic Positioning, a large deck, a high volume liquid capacity and a large capacity for liquid mud and dry bulk. PSV’s allow greater flexibility in an enhanced logistics environment and economies to a Oil Co’s chartered fleet.


The Market - Fundamentals

• Rising living standards, and the current low organic reserve replacement ratio are supporting oil fundamentals in South East Asia.

• Current OSV fleet may not be sufficient in meeting demand as a result of charterers’ increasingly demanding requirements, and the push for younger and “greener” vessels by regulators.

• This will benefit patient shipowners with younger and more sophisticated vessels, and OSV shipyards with the capabilities to build the “replacement” vessels.

Post the GCF, current oil fundamentals and sentiments are continually improving. We see increased opportunities in the Offshore Support Vessel (OSV) market, and OSV Shipbuilding sector in South East Asia.


Higher E&P activities expected on improving oil fundamentals

• Declines in oil prices in 2008 caused caused oil companies to temporarily lower their E&P spending budgets in 2009.

• However, oil fundamentals are improving. It is expected to see a 5% and expect a 15% y-o-y increase in E&P spending growth in 2010, and 2011, respectively.

E&P spending vs oil price……”it’s the price of Oil stupid”

Source: M3 with Pareto research


OSV market in South East Asia driven primarily by E&P spend which is correlated to Oil demand

Correlation: Oil Co E & P spending vs offshore Service sector performance

Source: Reuters

• The OSV market in South East Asia is ultimately also driven by the demand for oil.

• Increases in oil demand will increase oil prices, which in turn boost E&P spending.

• This translates to higher demand for oil services assets.


Current organic RRR suggests a need for higher E&P investments

• Organic reserve replacement ratio has been declining despite higher E&P spending by oil companies.

• This supports the need for higher E&P investments.

• Note this graph predates the GFC but is still relevant

Organic reserve replacement ratio vs E&P spending

Source: Pareto research

0%

50%

100%

150%

0

100

200

300

400

1997 1999 2001 2003 2005 2007

%

Total E&P Spending Organic reserve replacement ratio

USDm


Oil and gas demand in South East Asia also expected to grow

• Oil and gas consumption growth in South East Asia has grown significantly over the last 29 years.

• The region’s demand remained resilient despite the challenging market since H2’08.

• Expect oil and gas demand to grow in the region going forward supported by rising living standards in South East Asia.

Oil and gas consumption growth

Source: BP

0

1

2

3

4

1981 1984 1987 1990 1993 1996 1999 2002 2005 2008

US and Europe Middle East Africa

South East Asia Other Asia Pacif ic

Base index (rebased to 1980)


There are approximately 4,500-5,000 OSVs globally

• Globally, there are over 2,500 Anchor Handling Tug Supply (AHTS), and Platform Supply Vessels (PSV).

• The global OSV space contains 2,000-2,500 other OSVs including Construction Support Vessels (CSVs), Dive Support Vessels (DSVs), Tugs, and Crew boats.

Global AHT, AHTS, and PSVs

Source: ODS-Petrodata

56

1,761

102163

472

0

500

1,000

1,500

2,000

Operating En route Inshore for repairs/ref it etc.

Idle / laid up Spot market

No. of units

AHT AHTS PSV


Approximately 800-1,000 OSVs located in South East Asia

There are nearly 400 Anchor Handling Tug Supply (AHTS), and Platform Supply Vessels (PSV) in South East Asia.

The region also contains a further 500-800 other OSVs including Construction Support Vessels (CSVs), Dive Support Vessels (DSVs), Tugs, and Crew boats.

This fleet represent approximately 20% of the global OSV fleet.

AHT, AHTS, and PSVs in South East Asia


16

242

63

6

61

0

50

100

150

200

250

300

Operating En route Inshore for repairs/ref it etc.

Idle / laid up Spot market

No. of units

AHT AHTS PSV


Majority of the OSV fleet in South East Asia are smaller in size

• Approximately 74% of the AHT, and AHTS operating in South East Asia have 10,000 bhp capacity and below.

AHT and AHTS fleet capacity in South East Asia PSV fleet capacity in South East Asia

• Approximately 78% of the PSVs in South East Asia have less than 2,000 dwt capacity.


0

50

100

150

200

250

< 5' bhp 5' - 10' bhp > 10' - 15' bhp

> 15' - 20' bhp

>20' bhp

No. of units

AHT AHTS

0

10

20

30

40

50

< 2' dwt 2' - 4.5' dwt > 4.5 dwt

No. of units


33% of the OSV fleet in South East Asia may be “non-competitive”

• Approximately 12% of the OSV fleet in South East Asia are older than 30 years, and have past their economic useful life.

• Approximately 21% of the fleet lies between 20-30 years. This fleet may be considered “non-competitive” in most eyes.

• OSV charterers are increasingly looking for younger and more sophisticated OSVs.

• There is also a push towards younger and “greener” vessels (e.g. vessels with diesel electric engines, etc)

• Room for more OSVs in South East Asia?

• If so, what size ?

Age profile of OSV fleet operating in South East Asia

Source: M3 with Pareto research, ODS-Petrodata

251

9

83

45

0

50

100

150

200

250

300

1-10years 11-20 years 21-30 years > 30 years

No. of units

AHT AHTS PSV


Committed OSV newbuildings will replace “non-competitive” vessels

• 13 AHT, and 326 AHTS are scheduled for delivery between 2010 and 2012.

• However, 41 AHT, and 201 AHTS are older than 30 years.

• Further, 21 AHT, and 383 AHTS may become “non-competitive” in the next few years.

AHT and AHTS newbuilds by delivery time PSV newbuilds by delivery time

• 196 PSVs are scheduled for delivery between 2010 and 2012.

• 128 PSVs are older than 30 years.

• 205 additional PSVs fall between 21-30 years.• Note DOES NOT include recent ‘flurry’ of PSV orders in Europe

Source: M3 with Pareto research, ODS-Petrodata

0

40

80

120

160

Q1'10 Q3'10 Q1'11 Q3'11 Q1'12 Q3'12

No. of units

< 5' bhp 5' - 10' bhp > 10' - 15' bhp > 15' - 20' bhp >20' bhp

0

10

20

30

40

50

Q1'10 Q3'10 Q1'11 Q3'11 Q1'12 Q2'13 Q3'13

No. of units

< 2' dwt 2' - 4.5' dwt > 4.5 dwt


OSV market has a bigger appetite for OSV newbuildings?An investment Bankers view….

Net OSV supply should not deviate significantly from 2008 levels if we consider the “non-competitive” fleet.

The OSV market was able to achieve very high utilisation in 2008 when offshore fundamentals were still good.

Increasing demand for oil will only increase demand for more OSVs going forward.

Bigger appetite for OSV newbuildings?

Net AHT, AHTS, and PSV fleet (global)

Source: M3 with Pareto research

2,1102,283

271

535 370

609

0

500

1,000

1,500

2,000

2,500

3,000

3,500

2008 2009 additions Newbuildings > 30 years "Non-competitve"

f leet

Net f leet

No. of units


Miclyn

Swire

Zamil

Jaya

PACC

Maridive

Zakher

Lamnalco

Bumi Armada

Tidewater

Sea Lion

Svitzer ME

Topaz

EzraWhitesea

RK

Great Offshore

GAC Marine

Swissco

Alam Maritim

EsnaadSanko

NIOC

Greatship

Hadi Est

Scomi

Pacific RichfieldCH Offshore

SwiberBourbon

Sealink

Seacor

GMMOS

Eastern Offshore Brit Oil

Mermaid AusPetra PerdanaPelican

Garware

Trinity Offshore

MISR Gulf

MinnowSCIVietsovpetro

Tanjung Offshore

Ajang Pacific RadianceAhmed Shipping

Varun OM

Chuan Hup

Mermaid

HellespontStrato Tag SL

ASLNor OffshoreSea Eagles

Gulf Glory NCEssarKei-Rsos

Qatar Nav

GMSDolphin Bakri NavSical

0

10

20

30

40

50

60

70

80

90

0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5

Siz

e (C

urr

ent +

NB

Fle

et)

Market Presence Score

Local Regional Global

Competitive landscape on OSV players in SEA / ME

SE Asia

India

ME

Europe and Others


Siz

e (

Cu

rre

nt

+ N

B F

lee

t)



Competitive landscape on OSV operators based in South East Asia


Swire

Jaya

PACC

Ezra

RK Swissco

Scomi

Pacific RichfieldCH Offshore

SwiberSealink Eastern Offshore Brit Oil

Petra PerdanaPelican

Trinity OffshoreVietsovpetro

Tanjung OffshoreAjang

Pacific Radiance

Chuan Hup Mermaid Strato ASL

Nor OffshoreOtto

NC

Bumi Armada

0

10

20

30

40

50

60

70

80

90

0 0.5 1 1.5 2 2.5 3 3.5 4 4.5

Siz

e (

Cu

rre

nt

+ N

B F

lee

t)


Great Offshore

Greatship


Competitive landscape on OSV operators in Middle East

Zamil

Maridive

ZOMCO

Zakher

Lamnalco

Svitzer METopaz

Whitesea GAC Marine

EsnaadNIOC

Hadi Est

GMMOS

MISR Gulf

HalulAhmed Shipping

OM Sea Eagles

Gulf Glory M.LogArab Petroleum

Qatar NavGMS

Bakri Nav

Minnow

0

10

20

30

40

50

60

-0.3 0.2 0.7 1.2 1.7 2.2

Siz

e (

Cu

rre

nt

+ N

B F

lee

t)

Market Presence ScoreSource: Pareto research

M3 Marine Pte Ltd15 Jalan Kilang Barat #06-03 Frontech Centre Singapore 159357 t: +65 6327 4606 m: [email protected] w: www.m3marine.com.sg All rights reserved.22

South East Asian yards well-positioned to capture new orders

• South East Asian yards specialised in building smaller OSVs.

• Coupled with their proximity to regional shipowners, South East Asian yards are in a good position to capture orders for smaller OSV newbuildings.

• More South East Asian yards are also increasingly able to build larger vessels at lower costs due to “technology transfer” from the European yards.

• This provides further revenue upside for the region’s yards.

Global AHTS built Year 2000 and later

Source: Pareto research, ODS-Petrodata

Note: 1) AHTS is used to represent the sizes of OSVs built in Asian and European yards.2) Vessels built in Other Asian yards may include vessels that are outsourced from yards in other regions.

243

58

178

280

4020

622

60

83

5370

12 110

0

50

100

150

200

250

300

< 10,000 bhp 10,000-15,000 bhp 15,000-20,000 bhp > 20,000 bhp

South East Asian yards Other Asian yards European yards Others

No. of units


Larger yards in a better position to win more newbuilding orders

• Larger yards with more efficient operational capabilities, and access to additional yard capacity would be in a better position to win more newbuilding orders.

• However, yards need to be in a healthy financial position

OSV yards situated East of Suez

Source: M3 with Pareto research, utilising Lloyd’s register, Company data

Sapor

Nam CheongShin Yang

Sealink

Otto

ASL

Muhibbah

NGV TechPenguin

YCK

Jaya

Berjaya

Boustead

Sarawak

Marco Polo

ABG

BharatiTopaz

Fujian SE

Guangzhou HangtongCoastal

Sinopacific

Drydocks World

0

2

4

6

(1,113)(1,020)(928)(835)(742)(649)(557)(464)(371)(278)(186)(93)0 93 186 278 371 464 557 649 742 835 928 1,020 1,113 1,206 1,299 1,392 1,484 1,577 1,670 1,763 1,855 1,948 2,041 2,134 2,226 2,319 2,412 2,505 2,597 2,690 2,783 2,876 2,969 3,061 3,154 3,247 3,340 3,432 3,525 3,618 3,711 3,803 3,896 3,989 4,082 4,175 4,267 4,360 4,453 4,546 4,638 4,731 4,824 4,917 5,009 5,102 5,195 5,288 5,381 5,473 5,566 5,659 5,752 5,844 5,937 6,030 6,123 6,215 6,308 6,401 6,494 6,586 6,679 6,772 6,865 6,958 7,050 7,143 7,236 7,329 7,421 7,514 7,607 7,700 7,792 7,885 7,978 8,071 8,164 8,256 8,349 8,442 8,535 8,627 8,720 8,813 8,906 8,998 9,091 9,184 9,277 9,370 9,462 9,555 9,648 9,741 9,833 9,926 10,019 10,112 10,204 10,297 10,390 10,483 10,576 10,668 10,761 10,854 10,947 11,039 11,132 11,225 11,318 11,410 11,503 11,596 11,689 11,781 11,874 11,967 12,060 12,153 12,245 12,338 12,431 12,524 12,616 12,709 12,802 12,895 12,987 13,080 13,173 13,266 13,359 13,451 13,544 13,637 13,730 13,822 13,915 14,008 14,101 14,193 14,286 14,379 14,472 14,565 14,657 14,750 14,843 14,936 15,028 15,121 15,214 15,307 15,399 15,492 15,585 15,678 15,770 15,863 15,956 16,049 16,142 16,234 16,327 16,420 16,513 16,605 16,698 16,791 16,884 16,976 17,069 17,162 17,255 17,348 17,440 17,533 17,626 17,719 17,811 17,904 17,997 18,090 18,182 18,275 18,368 18,461 18,554 18,646 18,739 18,832 18,925 19,017 19,110 19,203 19,296 19,388 19,481 19,574 19,667 19,759 19,852 19,945 20,038 20,131 20,223 20,316 20,409 20,502 20,594 20,687 20,780 20,873 20,965 21,058 21,151 21,244 21,337 21,429 21,522 21,615 21,708 21,800 21,893 21,986 22,079 22,171 22,264 22,357 22,450 22,543 22,635 22,728 22,821 22,914 23,006 23,099 23,192 23,285 23,377 23,470 23,563 23,656 23,749 23,841 23,934 24,027 24,120 24,212 24,305 24,398 24,491 24,583 24,676 24,769 24,862 24,954 25,047 25,140 25,233 25,326 25,418 25,511 25,604 25,697 25,789 25,882 25,975 26,068 26,160 26,253 26,346 26,439 26,532 26,624 26,717 26,810 26,903 26,995 27,088 27,181 27,274 27,366 27,459 27,552 27,645 27,738 27,830 27,923 28,016 28,109 28,201 28,294 28,387 28,480 28,572 28,665 28,758 28,851 28,943 29,036 29,129 29,222 29,315 29,407 29,500 29,593 29,686 29,778 29,871 29,964 30,057 30,149 30,242 30,335 30,428 30,521 30,613 30,706 30,799 30,892 30,984 31,077 31,170 31,263 31,355 31,448 31,541 31,634 31,727 31,819 31,912 32,005 32,098 32,190 32,283 32,376 32,469 32,561 32,654 32,747 32,840 32,932 33,025 33,118 33,211 33,304 33,396 33,489 33,582 33,675 33,767 33,860 33,953 34,046 34,138 34,231 34,324 34,417 34,510 34,602 34,695 34,788 34,881 34,973 35,066 35,159 35,252 35,344 35,437 35,530 35,623 35,716 35,808 35,901 35,994 36,087 36,179 36,272 36,365 36,458 36,550 36,643 36,736 36,829 36,921 37,014 37,107 37,200 37,293 37,385 37,478 37,571 37,664 37,756 37,849 37,942 38,035 38,127 38,220 38,313 38,406 38,499 38,591 38,684 38,777 38,870 38,962 39,055 39,148 39,241 39,333 39,426 39,519 39,612 39,705 39,797 39,890 39,983 40,076 40,168 40,261 40,354 40,447 40,539 40,632 40,725 40,818 40,911 41,003 41,096 41,189 41,282 41,374 41,467 41,560 41,653 41,745 41,838 41,931 42,024 42,116 42,209 42,302 42,395 42,488 42,580 42,673 42,766 42,859

Ya

rd s

op

his

tica

tion

(by

pro

du

ct ra

ng

e ty

pe

s)

Production output p.a.

Verysmall yards

Note: Production output is computed basis the average gross tonnage of OSV vessels delivered p.a. over periods 2008 and 2009. Delivered vessels may include vessels outsourced to, and constructed from the Chinese yards.


Summary

• Rising living standards, and the current low organic reserve replacement ratio are supporting oil fundamentals in South East Asia.

• However, current OSV fleet may not be sufficient in meeting demand as a result of charterers’ increasingly demanding requirements, and the push for “greener” vessels by regulators.

This has yet to be tested.

• However, we have seen NIL ‘distress’ in a purported over building since GFC. Still to come?

• Increase in requirement ‘demands’ will benefit shipowners with younger and more sophisticated vessels, and OSV shipyards with the capabilities to build the “replacement” vessels.

• A contrarian view is that the market is overbuilt, Does the Singapore anchorage tell a story ?

• Will Asia catch a cold from the looming ‘Euro zone’ financial crisis….. The GFC brought a mere sniffle ! (note I am not an investment banker)

Current oil fundamentals and sentiments are improving. We see opportunities in the Offshore Support Vessel (OSV) market, and OSV Shipbuilding sector in South East Asia.


Thank you

QuestionsQuestions ?

20101101 - The Standard OSV Developments in South East Asia - November 2010, Singapore

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