Indian offshore support vessel (OSV) owner Greatship is still standing in the oil and gas slump due to its vessel contract cover, its bosses believe.
The subsidiary company of parent outfit Great Eastern Shipping has locked in a "very large" part of its fleet on term deals, it said, giving it revenue visibility of almost INR 10bn ($135m).
Great Eastern chief financial officer G Shivakumar told a conference call with analysts: "Greatship has moved into defensive and consolidation mode. Paying down debt and preparing for the bad market.
"It was also helped by a lot of contract coverage, our conservative approach to the business, where we knew that we were taking a lot of leverage, so we went out and as far as possible.
"We got three and five-year contracts for our rigs and for the vessels where we could.
Shivakumar said that is why the company is still standing on a sound footing amid distress in the offshore business.
He added that the absolute rate numbers do not necessarily make much of a difference, but the extent of cover is important.
"We are happy to operate predominantly on the spot market," he said. "We are happy to go into a largely time-chartered regime as well, depending on the rates that we get."
Spending plummets
Offshore exploration and production (E&P) spending, which is the primary driver of demand for Greatship's assets, has dropped from $295bn to $130bn in 2019 — a 60% fall, Shivakumar said.
"And you can see that in the results of all the oilfield services companies and the distress which is there in the oilfield services business," he added.
"And, adding to the problems, a lot of oil companies have reacted to the pandemic and drop in oil demand by announcing cuts of between 20% to 30% further in E&P spend."
This takes E&P budgets to below $100bn, a level not seen since maybe the very early 2000s, Shivakumar said.
"This is reflected in what's happening in the markets," he explained. "And, some regions have witnessed early terminations, renegotiations of rates."
But he stressed: "We are not talking about our situation."
With rates under pressure, there has been some scrapping of rigs, but the market remains over-supplied, Shivakumar believes.
Global fleet utilisation is estimated to be at between 60% and 70% for jackup rigs.
"This is down from the mid-70s that we saw at around the turn of this year, at which point we thought that the recovery was underway, but it's been cut short by the pandemic and the impacts," Shivakumar said.
Deliveries slip
Ship use is probably 50% or lower worldwide, he added.
Shivakumar also said deliveries of new rigs and OSVs had been slipping.
"So if at the start of 2019, you had 100 vessels to be delivered, you expected 100 to be delivered; less than 20 of them have been actually delivered in calendar 2019," he said.
Almost 40% of the rig fleet could be scrapped, Shivakumar believes.
And about 20% of the platform supply vessel and anchor handling tug supply fleets are more than 20 years old.
He describes these units as "vulnerable", with their removal taking away competition for contracts for the remaining fleet.
"So this is one small bright spot in the offshore business," Shivakumar said.
He pointed out Great Eastern's fleet of 19 vessels is "much younger" than the global average.
Cash reserves grow
Another plus point is the debt repayment profile, Shivakumar said.
Greatship's net debt is $80m, of which $23m is repayable over the next two years.
"Against this, we have close to $140m in cash," he said.
Despite five bad years for the sector, this reserve has risen from $118m in 2015.
Managing director Bharat Sheth told analysts: "Shipping gives us lots more optionality to go long or short.
"We can fix for 10 days, we can fix for 30 days, we can fix one year, we can fix five years. And you can do all kinds of things.
Limited options
"Offshore, your options are very limited, plus it is a much more geographically concentrated business. So you can't just move freely from one geographical location to another geographic location that you can in shipping."
"And therefore, I guess, we are focused on really building our skills to play that game better than we have in the past. That's where all our energies are going now, yes."
Sheth also hailed the offshore businesses' performance compared to rivals.
He told the call: "And one thing all of you must remember is that there are very, very few global oil and gas service businesses that are doing as well as Greatship.
"I can't think of a single one. And I'm happy if any of you can identify one other offshore company globally that is doing better than Greatship. So that is that."
