Offshore & Marine

Kim Eng on 18 June 2014

• OSV operators/owners remain optimistic of the long-term fundamentals of the offshore oil and gas sector but are cautious about near-term headwinds.
• Echoing our view, key players expect demand for newer vessels to drive replacement demand for OSVs.
• Maintain NEUTRAL on the sector. For exposure, we like Ezion, Mermaid Maritime, Nam Cheong and Vard.

Reading through outlook statements of key players
In this report, we comb through the outlook statements released by OSV operators/owners in their latest quarterly results. This exercise is instructive as views and sentiments of key OSV players invariably translate into operation and investment decisions which affect other industry stakeholders.

Resoundingly positive
OSV operators/owners remain optimistic of the long-term fundamentals of the offshore oil and gas sector on account of stable oil price, a structural rise in energy demand, and continued increase in rig count. Farstad echoes our view that offshore oil and gas activities are moving into the development and production phase. This should benefit oilfield services companies like Ezion (BUY, TP SGD2.70) and Mermaid Maritime (BUY, TP SGD0.59).

Newer and more sophisticated OSVs are in demand with Gulfmark Offshore seeing this even in Indonesia and India, which traditionally have higher tolerance for older vessels. The following OSV owners are committed to invest and upgrade their fleet: Tidewater, Gulfmark, Perdana Petroleum, Pacific Radiance and PACC Offshore Services Holdings. Replacement demand is expected to be strong as a quarter of OSV fleet is more than 25 years old. In terms of growth prospects, the operators are particularly confident of Brazil and Asia Pacific. The North Sea should enjoy a seasonal uptick this summer. The market for AHTS is expected to improve, while an oversupply of PSVs remains a concern. Demand for subsea construction vessel stays robust across the regions. As existing fleet is being upgraded, OSV shipbuilders like Vard (BUY, TP SGD1.27) and Nam Cheong (BUY, TP SGD0.45) stand to gain from stronger order momentum.