Has the turning point arrived? The offshore vessel market is picking up again!

Tidewater, the world's largest owner of offshore support vessels (OSVs), predicts that the OSV market has reached an inflection point and is entering a new upward cycle.

Tidewater CEO Quintin Kneen said in a recent earnings report: "We believe the second quarter marked an inflection point for the industry. This is what we have been anticipating, and our current financial performance demonstrates this. With the momentum of offshore vessel activity reaching a critical point, the second quarter saw significant improvements in revenue, gross margin, average daily charter rate, and fleet utilization."

"The average daily charter rate for OSVs increased by nearly $1900, exceeding the improvement we typically expect to see over an entire year during a normal market upcycle. Vessel-level cash margins improved to 38%, an increase of approximately four percentage points, continuing to significantly exceed the 30% target we discussed in recent quarters. These improvements this quarter, particularly the change in daily charter rates, indicate continued growth in demand as offshore activity continues to increase, and given the current shortage of available vessels in the market, vessel supply fundamentals continue to move in our favor."

Looking ahead, Kneen noted: "We expect market activity to continue to increase for the remainder of 2022, potentially strengthening further in 2023." He anticipates that during the next market upcycle, the average daily charter rate for Tidewater's OSVs will increase to over $20,000, exceeding the peak levels of the previous cycle more than a decade ago.

Since the beginning of the year, with the surge in oil prices, the offshore market has become active again, with fleet utilization and daily charter rates reaching new highs in recent years. According to a recent report by Clarkson, the Clarkson Offshore Index (covering the daily rates of drilling rigs, offshore support vessels, and subsea construction vessels) rose 17% to 74 points in the first half of this year, continuing its climb from a 28% increase last year and reaching a seven-year high.

In the OSV market, the Clarkson OSV rate index rose 18% to 126 points in the first half of this year, up 53% since the beginning of 2021. OSV fleet utilization increased by four percentage points in the first half of the year, reaching 68% in early July, 11 percentage points higher than at the beginning of last year. Clarkson expects OSV fleet utilization to reach 80% by the end of 2023.

Meanwhile, OSV asset values have also begun to increase, with the Clarkson OSV used vessel price index rising 39% this year, although it is still 53% lower than at the beginning of 2014.

In addition, the size of the OSV fleet is relatively limited. Since 2018, due to the prolonged market downturn, the overall size of the OSV fleet has shrunk by 4% to 3500 vessels (including AHTS above 4000BHP and PSV above 1000 DWT). On the other hand, the number of idle OSVs still accounts for 23% of the entire fleet, and many long-term idle OSVs are unlikely to return to the offshore market, while newbuilding activity remains sluggish.

Kneen also believes that the possibility of a significant increase in fleet supply in the next three years is unlikely, "There aren't enough vessels that can be restarted, there aren't enough people to crew these vessels, and there aren't enough parts to restart idle vessels." Therefore, he predicts that market supply will be limited in the next three years, which will also push up daily charter rates.

In the second quarter of this year, Tidewater's revenue reached $163.4 million, significantly higher than $90 million in the same period last year, and its revenue in the first half of the year also increased significantly from $173.5 million in the same period last year to $269.2 million. The net losses in the second quarter and the first half of the year were $25.6 million and $37.7 million respectively, both narrower than in the same period last year.

Despite the losses, the outlook for the OSV market is improving as oil prices continue to rise. Tidewater said its average daily charter rate in the second quarter increased by 17% to $12,544 compared to the first quarter, currently at its highest level since the third quarter of 2016.

Meanwhile, Tidewater's global fleet utilization is also growing significantly, reaching 75.5% in the second quarter of this year, compared to only 57% in the same period last year. The number of Tidewater's active vessels increased from 118 to 172. This latest data strengthens the industry's view that the offshore oil and gas market is finally beginning to recover after eight years of decline.

In April this year, Tidewater completed the acquisition of Swire Pacific Offshore, becoming the world's largest OSV operator. All 50 OSVs in Swire Pacific Offshore's fleet joined Tidewater's fleet, expanding Tidewater's fleet size to 203 vessels, including 174 OSVs.