OSV operators unlikely to get higher charter rates

Petronas said to be not agreeable to a hike

PETALING JAYA: National oil company Petroliam Nasional Bhd (Petronas) will not agree to higher charter rates for the hiring of offshore support vessels (OSVs) despite the higher average price of crude oil.

Petronas received an official request for a hike in charter rates from OSV operators who claimed that the rates have not been adjusted since oil prices averaged US$30 to US$35 in 2015. Charter rates have more than halved following the crash of oil prices from US$110 per barrel in mid-2014 to a low of US$27 on Jan 25, 2015.

“The charter rates for the OSV players are still at very low levels. They are being paid charter rates as if the industry is still operating in an oil environment of between US$30 to US$35 level. Now that Brent crude have recovered closer to US$68, perhaps charter rates could be re-evaluated in line with the market,” said one source.

“Without a charter rate increase, I think we will see more OSV players closing shop soon,” said an industry player.

Instead of higher charter rates, Petronas would want to see consolidation in the underperforming industry mired in debt and with fixed operating cost.

“Petronas has already told the industry players to consolidate as they do not have enough jobs to be given around, but the OSV players are still hoping for a life-line,” said a source.

Sources said Petronas will not yield any request for rate hikes in line with their policy to cut cost and increase efficiency in production. According to the OSV Malaysia website, there were some 36 members that collectively own 300 OSVs.

Analysts said Petronas only requires some 100 vessels for its current exploration and production activities. But consolidation has been slow as unlike Singapore, Malaysia has not seen any oil and gas (O&G) service provider go belly up.

In Singapore, some of the O&G service companies that have gone under include Swiber Holdings Ltd, Ezion Holdings Ltd and Ezra Holding Ltd.

To put things in perspective, Petronas has some 4,000 O&G companies registered with it, compared to Norway’s 700 registered O&G companies.

The woes in the local O&G industry stemmed from Petronas having to become more prudent in spending in order to accommodate the lower oil price environment. Petronas has reduced both capital expenditure (capex), investment in new projects and operating expenditure by close to RM50bil since 2015.

Last December, in a move to enhance transparency in its spending to ensure banks do not over-extend themselves to the industry, Petronas made public a report on its requirements for the next three years.

The report highlighted the requirements in the various kinds of marine vessels for offshore exploration and drilling activities.

Petronas stated that in recent years, the marine vessel category has been faced with a critical oversupply situation and was unlikely to reach the historical high levels seen in 2013 and 2014. Petronas’ capex spending for the first nine months of 2017 was RM33.8bil, which accounts for only 56% of its earlier guidance of RM60bil for 2017.

Petronas’ spending focus is expected to remain on the downstream segment, with the massive Pengerang Integrated Complex having achieved 81% completion as at November 2017, and remains on track to be ready in 2019.

Petronas has mentioned that for the next five years, oil production would be cut by 100,000 barrels to the level of 1.7 million barrels of oil equivalent per day.

It has said several times that there will be lower demand for service providers over the next three years despite recovery in the price of crude oil.