SolstadFarstad – the huge offshore vessel owner formed by the merger of Solstad, Farstad and Deep Sea Supply – says its strategy assumes a return to mid-cycle levels of activity by 2020.
Announcing details of its Q2 2017 results, SolstadFarstad said it is using the current downturn to optimise its operating model and strengthen the company.
“Even though demand from customers has increased compared with the same period last year, the offshore service vessel market is still characterised by low activity and overcapacity of vessels,” said the company.
“Commercial conditions are weak, especially the supply and anchor handling segments, where the market is dependent on increased rig activity for demand to increase again.
“However, we have seen an improvement in the spot market in the North Sea, both for supply and anchor management, so far in Q3. In the subsea segment, the company has experienced somewhat higher levels of activity.
SolstadFarstad said the subsea market is benefiting from growing activity in the renewable energy industry.
Looking further ahead, it said “In a slightly longer term, a combination of stable oil prices and a reduced cost levels may cause oil companies to increase their exploration and production budgets. This will then positively affect the market.”
Having merged the three organisations, Solstad having earlier taken over Rem Offshore, the new company is working on restructuring. A new onshore organisation is expected to be in place late in September or October 2017. “Some one-off costs can be expected in connection with this work, but at the same time the goal is to realise large cost synergies,” said the massive offshore vessel owner.
The company has reduced its onshore organisation by 80-90 people worldwide and increased efficiency through economies of scale and harmonised use of systems. Its cost base is also being reduced by using best practice and its newly-enlarged and strengthened purchasing power.
“The process is ongoing to reduce our onshore organisation globally,” said SolstadFarstad, noting that it was combining organisations in Rio de Janeiro, Perth, Singapore and Aberdeen and planned to make more use of cost-efficient countries such as the Philippines, Ukraine and Cyprus in future. A new run rate for administration expenses will be in place from January 2018 onwards.
Overall, said the company, a stable oil price in combination with reduced costs at its customers should lead to a gradual increase in offshore spending.
Renewable energy demand is expected to continue to increase, but given the level of overcapacity in the market SolstadFarstad does not expect owners to place orders for new offshore support vessels (OSVs) until 2020 at the earliest. It anticipates that many vessels that are stacked will not return to the market.
The company expects to exploit a lean operating model with high operational leverage and says restructuring has secured a sufficient runway and financial flexibility for it to focus on creating shareholder value through size and liquidity. The company is also open to further consolidation in the OSV space.
Lars Peder Solstad, chief executive officer at SolstadFarstad, will be delivering the keynote address at the 2018 Annual OSJ Conference, Awards & Exhibition in London. Full details at: http://www.osjconference.com/index.htm