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HANSA 06-2018

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Offshore Singapore’s

Offshore Singapore’s OSV owners fight to survive For decades, the offshore support vessel sector in Singapore thrived on oil exploration and production in the South China Sea and elsewhere. Today, reducing costs is the order of the day, reports Zeng Xiaolin Entrepreneurs such as Lee Kian Soo and Pang Yoke Min, who founded companies such as Ezra Holdings and Pacific Radiance, shot into the limelight as their OSVs enjoyed healthy demand from oil majors. When Ezra was publicly listed on the Singapore Exchange, the company, which operates 25 OSVs and one floating production, storage and offloading (FPSO) vessel under the Emas brand, became a stock market darling. These companies and various others, expanded rapidly during the years of high oil prices, using bank loans and bonds to expand their fleets. Everything went well until oil prices collapsed in late 2014. As oil majors cut back on investments in new oil fields, OSV owners suffered a reversal of fortunes. On 18 March 2017, Ezra applied for Chapter 11 protection in the US when it became increasingly clear that the company could not keep up with debt repayments, as its cash flow declined amid falling demand and charter rates for OSVs. This was despite implementing cost-cutting structures that included reducing its manpower by 96%, following the weakening of oil prices. On 22 March, the Singapore High Court approved Otto Marine’s application for judicial management, after the company incurred 877 mill.$ of debts. Otto Marine’s liquidity deteriorated after it was delisted from the Singapore Exchange in October 2016, amid rising red ink. At the time Otto Marine, which has a fleet of 18 OSVs, sought judicial management, its executive chairman, Malaysian magnate Yaw Chee Siew said that the company’s cash reserves were enough for Duncan Telfer Commercial Director, Swire Pacific Offshore only two months. Nonetheless, Yaw said that there is a »reasonable probability of rehabilitating the company«. On 26 April, Pacific Radiance, which owns 44 OSVs, received in-principle support from its banks and anchor investors on the broad terms of its debt restructuring, which involves debt forgiveness and debt-to-equity swaps. The company’s investors will also inject capital to reduce its 500 mill.$ debt and to raise working capital. In October 2016, Swiber Holdings was placed under judicial management, after backtracking on a voluntary winding-up application. Like its peers, Swiber, which owns 16 OSVs, was hit by falling demand and charter Photo: Swire P.O. rates. However, its creditors indicated support for rehabilitation and, till today, the company’s judicial managers are still in talks with lenders and potential investors. The situation in the offshore and marine sector is such that Singapore’s three local banks, DBS Bank, United Overseas Bank and Oversea-Chinese Banking Corporation, made provisions for potential defaults in 2017. Despite the gradual improvement in oil prices, this has not resulted in an immediate recovery for the OSV sector, said Swire Pacific Offshore’s (SPO) commercial director Duncan Telfer. Telfer estimates that of the 3,500 OSVs in the market, there are approximately 1,200 vessels that are unemployed. Vessel utilization is around 90% in a healthy market. Telfer told HANSA: »The biggest challenge facing the OSV market has been and continues to be the excessive oversupply of OSV vessels. Unless vessel operators and owners collectively take proactive steps to take older vessels out of the market, it will take a long time for the market to see a full recovery.« Part of the Hong Kong-based Swire group, SPO operates 77 vessels, down from 100 vessels prior to the oil shock. Many of the company’s vessels are anchor handling tug supply vessels and platform supply vessels that are servicing clients in New Zealand, Norway and the Americas. After oil prices fell, SPO scrapped and sold older vessels, weathering the challenging market through cost management. Telfer said: »This prolonged downturn has affected every player in the offshore industry and SPO is no exception. The conscious effort to remove the older vessels is also part of SPO’s efforts to help reduce the number of vessels in the market. The reduction of our fleet is challenging but it was a necessary move to ensure that we manage our costs down and keep our fleet trim and young to be future-ready to ensure the long-term sustainability of our operations and business.« He added: »Cost-cutting continues to be the order of the day. We are constantly reviewing our work processes to identify ways to reduce costs, do more with less and improve our efficiency.« SPO’s measures included headcount reductions, offering employees unpaid leave, pay freezes and removal of bonuses and laying up vessels. Meanwhile, Kim Heng Offshore & Marine, has seized opportunities, securing one-year charters for two AHTS vessels and purchasing secondhand modern vessels at bargain prices. Interestingly, the aforementioned AHTS pair was acquired at an auction of Swiber’s vessels, and Kim Heng is on the lookout for more purchases to expand its 15-strong AHTS fleet. Kim Heng chairman Thomas Tan told HANSA: »Leveraging our 50 years of experience in managing industry cycles through booms and busts, we continue to focus on commercially viable business that is sustainable during the downturn 64 HANSA International Maritime Journal – 155. Jahrgang – 2018 – Nr. 6

Offshore and thrives in an upturn.« Kim Heng’s experience is what has enabled the company to avoid the crises that have befallen its peers, said Tan. In January 2014, after Kim Heng raised 40 mill. SGD (32 mill. $) from its initial public offering, the company built up its cash reserves, instead of acquiring highly priced vessels. Tan said: »We avoided a herd mentality and did not follow the crowd with overpriced asset purchases ahead of the downturn. We maintained patience and refrained from chasing high asset prices with our capital and instead, built resilience across our business by searching for strategic niche businesses that are sheltered from the worst of downturn. We have avoided the worst of the crisis, having learned through many previous crises to guard against overleveraging and to remain prudent with sufficient cash on hand to sustain through the downturn.« The downturn has also affected third-party ship managers, although many OSV owners prefer to manage their vessels in-house to ensure quality control. Thome Offshore Management, the OSV managing arm of Thome Group, is now managing 15 vessels, a significant reduction from the pre-crisis years. The group’s president and chief commercial officer, Claes Eek Thorstensen, told HANSA that Thome Offshore Management is now operating »at the minimum« to reduce overheads. The wider group is active in all shipping segments and thus, the loss of revenue from the OSV arm has been compensated by earnings from the healthier sectors, said Thorstensen. Maintaining standards at lower costs is challenging, especially when oil majors have stringent requirements. The recent improvement in oil prices has led to OSVs being reactivated and Thome is inspecting vessels and has received requests to manage OSVs going on charter. Thorstensen said: »I believe we have reached an OPEX level where there is not much more to reduce. Thome Offshore maintains added value with not only expertise and a track record but also Claes Eek Thorstensen Chief Commercial Officer, Thome Group Photo: Thome the large support that smaller managers don’t have. We do see smaller emerging offshore managers offering unrealistic OPEX levels and management fees. Owners who are professional and understand the business know that this is just false assurance. There is no room for trial and error.« Created and produced by OFFSHORE WIND OIL & GAS Register now! Offshore Energy attracts a global audience of more than 12,000 offshore energy industry professionals. The three-day event features an exhibition where over 600 companies will showcase their products and services. The accompanying conference addresses current and future issues in the offshore industry, covering developments in oil & gas, offshore wind and marine energy. See you in Amsterdam! MARINE ENERGY WWW.OFFSHORE-ENERGY.BIZ Supported by HANSA International Maritime Journal – 155. Jahrgang – 2018 – Nr. 6 65

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