Even as the offshore oil and gas sector struggles to regain its footing, offshore service vessel operators would do well to prioritize tolerable day rates over trying to snatch a bigger piece of a tightening market, said Todd Hornbeck, CEO of Hornbeck Offshore Services.
Hornbeck said despite an improving rig count and expectations that the industry is turning the corner, the market for OSVs, particularly in the Gulf of Mexico, remains weak. “We had expected that in the third quarter, the positive sentiment that we had observed previously would have translated into improved utilization and day rates, but some of that work was pushed to the right,” he told analysts in a Nov. 1 earnings call. “So, the slope of this recovery is very gradual, but its attitude is very stubborn.”
That “stubborn” attitude can partially be blamed on operators pushing for share over price, he said. “Part of this reality is that there are vessel operators that value market share more than we value improved long-term sustainable rates. That is their prerogative. We frankly don’t see the long-term business rationale from such an approach. The challenge is that we are playing a game that does not have a shot clock, and so we are unable to predict with any certainty when the long-term opportunities will reach us or the short-term thinking will catch up with them.”
Fellow publicly traded OSV operator Tidewater, however, believes conditions are ripe for companies to begin pushing for higher day rates. “We will use the improving industry fundamental to get day rates back to where they need to be to properly compensate our capital providers,” CEO Quintin Kneen said on Nov. 12 conference call.
To punctuate the focus on day rates over market share, Kneen said few of the 60 vessels stacked as of November would return to duty. Managing that idled fleet comes at a cumulative cost of $8.8 million a year, he said. “I can tell you with near certainty that these vessels are not all going back to work and our intention is to whittle down those fleet and layup to the dozen or so vessels that will certainly return to service.”
Hornbeck, meanwhile, says of the 35 OSVs and two multipurpose support vessels (MPSV) his company had laid up, one OSV was scheduled to be re-activated in the fourth quarter of 2019, while a single MPSV is slated to return to service in early 2020.