In OSVs, All Asset Segments are Not Created Equal

Beginning post-COVID and in the early phase of the European energy shortage in 2022, all segments experienced an immediate uplift due to attractive supply dynamics and strong projections of future demand. The high-end subsea fleet has by far progressed the furthest, where newbuilds in certain cases are economically justified based on recent fixing activity.

Similarly, modern and large PSV tonnage has seen both dayrates, valuations, and utilization rise to healthy levels in the term market, leading to speculative newbuilds scheduled to enter the market in the coming 18 months. However, large AHTS units have seen a mixed period with high volatility, limited S&P activity, and less market certainty.

Of the traditional OSV segments, large AHTS units can be classified as the highest risk assets given the dynamics of the market. High requirements from operators, lack of term contracts, significant CAPEX for both building and maintenance all lead to a highly specialized market. The total global AHTS fleet today is ^~1,700 units, coming down from a peak in 2016 at ^~1,900 units. The majority of assets are of low specifications and aging tonnage operating in regions such as the Middle East, West Africa, and Southeast Asia.

The global AHTS fleet exceeding 250-ton bollard pull, which is the typical North Sea requirements to qualify for all relevant work scopes, consists of ^~75 units, whereof ^~10 can be excluded from the competitive charter market due to flag, ownership or long-term contracts with government entities. Additionally, these vessels are often attractive for advanced project scopes given their power, deck area, subsea features such as ROVs and accommodation capacity.

Of the remaining fleet, roughly 75% is owned by North Sea vessel operators such as DOF, Sea1 Offshore, Solstad Offshore and Aurora Offshore, with the majority of vessels built at yards such as Kleven, STX/VARD and Ulstein. As such, the market is concentrated towards Northwestern European owners who pushed vessel capabilities during the latter part of the last newbuilding cycle. The most recent supply addition is Island Victory, which was delivered in 2020,and the DOF M-class units, delivered from Kleven in 2018.

The North Sea, being the leading region of both shipbuilding, design, ownership, and operation of these assets, has been lagging in terms of offshore activity in recent years. The summer of 2022 saw average spot rates exceeding GBP 100,000 for both June and July, which was driven by a perfect storm of low supply and project work across both conventional O&G and floating offshore wind.

Since then, the market has overall improved, yet the incredible peaks we experienced have not persisted primarily due to weak rig activity in the UK. Additionally, we observe improved efficiency from charterers such as Equinor and AkerBP in Norway during the last decade, as a result of improved internal planning and preference for modern rigs, leading to fewer required vessel days per campaign.

With annualized average spot dayrates for large tonnage increasing from roughly GBP 21,000 in 2021 to GBP 40,000 in 2024, we do see a material improvement, yet the spot utilization in the North Sea did not manage to exceed 70% during 2024. Term contracts are not frequent either, with less than a handful of North Sea assets operating on multi-year contracts as of today and typically just around one in five vessels employed on firm term contracts, somewhat driven by the ample spot availability.

On the other hand, the Brazilian market has continued to absorb large AHTS tonnage on long-term contracts in recent years. Multiple North Sea vessels have been awarded multi-year contracts at healthy rates, including tonnage from Solstad and DOF, contributing to the rising global term dayrates. A further three high-end North Sea units have been fixed for commencement this year, leading to a continued decline in North Sea supply.

Similarly, the Australian market has shown strength with owners such as GO Offshore and Sea1 Offshore securing long-term contracts at elevated levels. Furthermore, the Canadian East coast has absorbed tonnage from Maersk prior to the DOF merger.

As such, while the North Sea market is not where the high returns are made, it is indeed now benefiting from the uptick in activity in other regions. The highest demand contribution to the fleet going forwards will be term contracts in the previously mentioned regions as well as the demand related to specific campaigns requiring advanced tonnage in the commissioning or maintenance phase, often vessels supporting with a mix of pre-lay, heading control, accommodation support or ROV operations.

We have already seen multiple vessels working on strong dayrates for EPC clients such as Ocean Installer, TechnipFMC, Saipem and Subsea 7, which we believe will be a core driver of demand going forward. Moreover, project developments in high growth regions such as South America and West Africa are shifting towards deeper waters, which often specifically requires advanced tonnage with significant operational capacities.

Global CAPEX on offshore E&P saw roughly 30% of total volume in deepwater regions from 2016 to 2020, which is now expected to be 35% in 2025. Most of these projects, such as FPSO deployments in Brazil, Guyana, and West Africa, have solid per unit economics and break-even prices below USD 40 p/boe, suggesting healthy fundamentals for future demand even in today’s turbulent energy markets.

However, with a persistently volatile local North Sea market with overall weak spot utilization, few owners are today prioritizing fleet renewal in the high-end AHTS segment compared to especially subsea newbuilds. As large AHTS units are considerably equipment-heavy, newbuild prices cannot be justified with current dayrates when adjusted for utilization. Additionally, owners of varied OSV tonnage will have to allocate a significant portion of their balance sheet to enter the large AHTS newbuilding market, compared to lower ticket size opportunities in other segments.

With limited term contracts, financing will require significant equity from the owners as lenders seek stable cashflows, further complicating the process. Subsequently, we predict the current fleet in the high-end segment to remain stable towards 2028, which would lead to a global mean average fleet age of 18 years. Owners seem to be acknowledging the supply limitations of the market and have increased confidence, as bids for both long-term work in Brazil and project work globally often exceed USD 100,000 in dayrates.

2025 might be the year when these rates not only materialize over a short period, but can be achieved with healthy utilization. This could be the trigger required for S&P volume to increase in a similar fashion as observed across PSV and subsea tonnage, yet owners are today quoting asking prices that cannot be justified based on current dayrates in most cases.

As a reminder, this article was written in early February and at the time of writing we can record ample supply of available North Sea tonnage in both Bergen and Montrose. The first month of 2025 saw North Sea AHTS rates vary from GBP 12,500 to GBP 100,000, with comparable vessels achieving approximately USD 70,000 on the most recent Petrobras tender or up to USD 100,000 in the project market, illustrating the required risk appetite to operate in the segment. Subsequently, the market is still not trending towards full utilization and requires further project activity or units absorbed over long-term contracts.