I wrote something recently for one of my content customers about the economics of offshore support vessels (OSVs). These are the specialized ships that provide a range of support services to offshore oil and gas drill platforms.
The bottom line is that OSVs are a lousy investment idea. If given an opportunity to invest in such a vessel or in any corporate entity whose main line of business involves owning or operation such vessels: run the other way!
There are too many of these darned things and (though I wasn't allowed to put it this bluntly for the
commercial cite I was writing for), the oil majors take advantage of the fact that there are so many
of them. They pocket the savings.
commercial cite I was writing for), the oil majors take advantage of the fact that there are so many
of them. They pocket the savings.
Understanding the oversupply problem requires taking into consideration both cold stacked and
warm stacked OSVs. To review: a warm stacked vessel is left at port, but continues in operating
condition. It can readily be reactivated. Indeed, a warm stacked vessel continues to have a
working crew. As some people like to say, the term “warm” can refer to the crew beds.
warm stacked OSVs. To review: a warm stacked vessel is left at port, but continues in operating
condition. It can readily be reactivated. Indeed, a warm stacked vessel continues to have a
working crew. As some people like to say, the term “warm” can refer to the crew beds.
A cold stacked vessel, on the other hand, is one where the crew’s beds, as well as the engines
and kitchens, go cold. If a vessel is cold stacked not because of its age or infirmities but for
market reasons, and without any expectation of a scrapyard to come, then the engine must be
filled with protective fluid, and the vessel as a whole protected from the elements. A cold stacked
vessel protected in this way can be reactivated, but that entails costs between $1.5 and $2.5 million.
and kitchens, go cold. If a vessel is cold stacked not because of its age or infirmities but for
market reasons, and without any expectation of a scrapyard to come, then the engine must be
filled with protective fluid, and the vessel as a whole protected from the elements. A cold stacked
vessel protected in this way can be reactivated, but that entails costs between $1.5 and $2.5 million.
Further, the longer a stacked vessel stays idle, the less likely it is ever to make a return to the market.
Thus: it is tricky to do a economics textbook’s supply-and-demand discussion of the vessels available in relation to the demand for the services they provide, because the percentage of the cold stacked vessels that are truly still available to service demand is itself a judgment call. What is certain is that there exists considerable oversupply and that the law of supply and demand applies not just to the value of the vessels but to the value of the services they provide. Right now, there is a buyers’ market for the chartering of OSVs.
This is not offered merely as a random bit of business news. I'll have something to say tomorrow about the idea of "supply" in economics, drawing on this matter.
Comments
Post a Comment