2022 was a positive year for the Offshore Support Vessel (OSV) sector,
as it consolidated and built upon the gains seen in 2021. OSV demand grew by a further 8%
last year (now up by 19% vs start of 2021) on the back of increased drilling and offshore
field development activity. Moreover, OSV supply remains "manageable" (following
several years of rebalancing) with the size of the fleet still 4% below the 4lh
quarter of 2017 peak and the order book falling to approx. 100 units (just 3% of the
fleet). Against this, OSV markets tightened further in 2022, with global OSV utilization
rising to 71% by end 2022, up by 5 % year on year. Sentiment remains optimistic that 2023
will bring further improvement.
THE INDUSTRY:
i) The market for both Anchor Handing Tug and Supply Vessels (AHTS) and
Platform Supply Vessels (PSV) continued on an upward trajectory across year 2022.
ii) By end 2023, utilization is expected to reach 77% before firming to
82% by end 2024.
iii) In recent years, OSVs have become increasingly technologically
advanced and are now capable of performing many duties in addition to their primary
purposes. More recently, increasing pressure from Charterers to reduce emissions has seen
owners retrofit existing vessels with battery packs (particularly in PSV fleet).
iv) As of February 2023, there were a total of 4472 vessels in OSV
fleet, This included 1611 PSVs of more than 1000 dwt, along with 1829 AHTSs of more than
4000 BHP.
v) OSV demand reach 2364 active vessels (AHTS >4000bhp, PSV >
10OOdwt) by February 2023, a 6% year on year improvement.
vi) OSV utilization was 69% having peaked at 71 % in late 2022.
vii) A combination of continued modest supply side growth (0.4% across
2022-23) and firmer demand is contributing to an optimistic outlook for the sector.
viii) The outlook is not without risks, particularly current
macroeconomic headwinds feed through lower demand and price.
ix) Energy prices are likely to remain supportive of offshore activity
in 2023, despite some uncertainty as to how they will precisely trend.
x) It is estimated that oil price may average $ 88/ bbl in 2023 and $
83/ bbl in 2024.
xi) OSV demand is projected to improve by a further 10% in 2023 and 7%
in 2024.
xii) Small AHTS demand growth in the east of Suez market showed
positive signs in 2022 and is expected to be firmer in 2023.
Source : Clarksons Research
OPPORTUNITIES & THREAT :
Energy markets have had an extraordinary 2022, sparked by Russias
invasion of Ukraine and subsequent retaliatory action. But the full effect on the oil
market has yet to be seen. It is expected the oil market to be in deficit through 2023,
which should see oil prices move higher.
Russian oil exports have proved to be more stubborn this year than
expected. While oil bans and self-sanctioning from a handful of buyers have certainly had
an impact on flows, the willingness of other buyers to pick up discounted Russian crude
oil has largely offset reductions elsewhere.
However, the largest disruption to oil flows still lies ahead. The EU,
which is the largest buyer of Russian oil, is set to see a ban on seaborne imports from
Russia come into force for crude oil and refined products. The big question is whether
China, India and a handful of other buyers are willing and able to pick up this oil.
Their ability to absorb significantly more Russian oil is likely
limited, so it is believed that Russian supply will have to fall more aggressively.
Russian supply is likely to fall by a little more than 2mn bl/d in 2023.
The other unknown is how successful the G7 price cap on Russian oil
will be, if and when it is implemented. It will be difficult to convince big buyers to
follow the cap, and there is always the risk that Russia reduces supply as a result. This
would have the opposite effect of what is intended with the price cap.
Opec+ surprised the market with the magnitude of its announced supply
cuts in October. The group agreed to reduce production targets by 2mn bl/d from August
2022 target levels, in response to concerns over demand. The cuts will run from November
until the end of 2023.
However, given the bulk of producers are pumping well below their
target levels, the actual supply cut will be c.1.1mn bl/d. While this is significantly
below the headline number, it is still enough to dramatically change the outlook for the
oil market in 2023. It was expected the market to be in small surplus over the first half
of the year. However, lower Opec+ supply pushes the market firmly into deficit in 2023.
The lack of response from the US industry also appears to have given
Opec+ the confidence to cut supply without the fear of losing market share to non-Opec
producers, as seen in previous years.
It is becoming increasingly clear that the days of US producers pumping
as much as they can are well and truly behind us. Instead, the top priority of the
industry is maximizing shareholder returns and, with that, showing restraint when it comes
to capex.
Despite the bullish outlook, it is still worth identifying where the
floor for the market could be. The US administration has made it clear it will look to
start refilling strategic petroleum reserves - which were heavily tapped into this year -
should WTI trade down to c.$70/bl. This should provide a solid floor to the market. But it
could see Opec+ intervene before the market has the opportunity to trade down to these
levels.
OUTLOOK:
The outlook for demand through 2023 is becoming increasingly uncertain
as the macro picture deteriorates. For now, oil demand is forecast to grow by 1.7mn bl/d,
but there is downside risk given the global macro picture, along with uncertainty around
China. A large share of demand growth next year is driven by expectations of a recovery in
Chinese demand.
Operational Performance:
During the year under review, 3 of 6 vessels were sold during the year.
“Post” the year under review, in May, 2023, one additional vessel was sold. The
average age of the Companys fleet stands at just over 14 years. Both the vessels are
on long term Contracts.
As regards Netherlands subsidiary, the only remaining Vessel in the
fleet was on a long term contract in Angola. Unfortunately, in view of an Engine Motor
problem, the vessel lay idle for 4 months of the year. The vessel was, post the year under
review, contracted for sale.
Your Company is keenly aware of the need to ensure that costs are
monitored closely and monies are spent prudently in order to be able to obtain the highest
value out of all maintenance and repairs, while at the same time conserving precious
funds.
Financial Ratios:
Pursuant to the Provisions of Schedule V - Part B, Clause I, Sub-Clause
(i) & (j), the details of the significant changes in the financial ratios (i.e. change
of 25% or more as compared to the immediately previous financial year) are as follows :
1 ] Debtors turnover ratio : N.A.
2] Inventory Turnover Ratio : Not Applicable.
3] Interest Coverage Ratio has declined by (2150.93%) This is due to
reduction in operating margins as a result of vessels remaining idle for extended periods
during the year.
4] Current Ratio has increased by 729%. This is due to a substantial
decrease in short term borrowings in view of settlement arrived with secured lender
Phoenix ARC Pvt. Ltd.
5] Debt Equity Ratio has reduced by 98%. This is due to substantial
decrease in debt in view of settlement arrived with secured lender Phoenix ARC Pvt. Ltd.
6] Operating Profit Margin has reduced by 143.56%. This is due to
reduction in sale and corresponding operating profit while costs remained approx, the
same.
7] Net Profit Margin Ratio has increased by 545%. This is due to
“write back" of debt as of result of the settlement made which in turn
contributed to increase in profit.
8] Return on Net worth has increased by 263%. This is due to
“write back" of debt as of result of the settlement made which in turn
contributed to increase in profit.
RISKS & CONCERNS:
The Offshore Industry faces two main challenges - maintaining the
existing assets in the field and creating new platforms that are capable of exploiting
future oil and gas deposits. In each case, industry expertise and engineering innovation
will be required to deliver these goals.
In 2022, the results of a supply shock with a tight oil supply and
supply disruptions drove the price of oil well north of $100 / barrel to near record
highs. Volatility is likely to continue for some time. Potentially in the not so distant
future, the world could see an oversupply scenario, if OPEC makes good on its commitment
to continue unwinding the supply cuts it made in 2020, and U S. unconventional production
grows as much as some analysts are forecasting. If these events occur (and of course the
effects of the war tapers off), organizations may end up with an oversupply of oil, with
as much as an extra 6.4 million barrels per day late this year. Add to that a potential
new nuclear agreement with Iran and the volume of new oil coming onto the market this year
will be even higher; some estimates have Iranian exports growing by up to a million
barrels a day within a few months if a new pact is struck. Of course, if a U.S.-lran deal
occurs, it might factor into OPECs decision to continue unwinding its cuts.
However, as of now, on the flipside, Russias invasion of Ukraine, and
the risks that it will lead to a further curtailment of Russian oil exports - including
more drastic measures from Europe is keeping price of oil “buoyed". Outrage over
the invasion has led to some self-sanctioning by western buyers; the US has already
initiated a ban on Russian oil, and the European Union (EU) is actively contemplating one.
The IEA currently predicts as much as 3mm bpd of Russian exports could be taken off the
market. On to the demand side, higher energy prices from the Ukraine crisis could have a
knock-on effect on international economic growth.
Meanwhile, Chinas economic and environmental policies may slow down
economic expansion, and therefore decrease its demand for oil. This could have a ripple
effect on the global economy, making forecasts of increased global oil demand of 3.3
million barrels per day illusory.
For the time being, a tight oil market is experienced, although many
are forecasting a growing oil surplus beginning in the second half of the year.
INTERNAL CONTROL SYSTEMS AND ADEQUACY:
Your Company continues to emphasize the importance of the set-up of
suitable systems which would drive its performance. A regular audit of systems and
processes is carried out and findings help your Company improve continuously.
Cost management is an important issue for the Company and the
Technical, Procurement and Health & Safety teams are continuously exploring ways and
means to be able to manage assets at optimal costs - but never at the expense of safety.
HR AND PEOPLE:
The Employees of the Company continue to be the most important and
valuable asset of your Company. The relationship with all employees remains cordial.
Special attention is being paid to this in order that your Company is
able to retain good talent.
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