Offshore Supply Vessel Owners Face Bankruptcy with Drop in Drilling Rigs

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December 8, 2015

By David Wethe

(Bloomberg) — The relatively unheralded corner of the oil sector that sends supply boats out to offshore oil rigs may see bankruptcies as the worst crude market downturn in decades spreads.

More than half of the public companies in the offshore supply-vessel industry face a high probability of restructuring or bankruptcy, according to research released Tuesday from the consulting firm AlixPartners.

The vessels are a lifeline to the rigs, hauling everything from pipes to food from shore. The supply boats are custom-made for the oil industry and depend on the rigs for work, Esben Christensen, a director at the firm’s maritime practice in New York, said Monday in a phone interview.

“If the rig market is down or not doing well, it’s very, very difficult to find employment for this type of asset anywhere else,” Christiensen said. “They really go hand in hand.”

Similar to the offshore rig industry, where new rigs continue to be built amid a slump in demand for the equipment, the vessels are facing a glut. There are now more than five supply vessels for each offshore drilling rig, according to AlixPartners. That’s up from roughly three vessels per rig in 2008.

Double Whammy

The offshore industry is facing the double whammy of falling demand from steep costs at the same time that new rigs keep rolling out of the shipyard and add to the global glut of equipment. All that is occurring during the worst crude market downturn in decades. West Texas Intermediate crude, the U.S. benchmark, is down 40 percent in the past year.

Oil prices may remain lower for longer than many expect after the Organization of Petroleum Exporting Countries said Dec. 4 that it was essentially lifting its production target for crude. WTI fell 5.8 percent to $37.65 a barrel Monday on the New York Mercantile Exchange.

The amount of debt the companies carry compared with earnings before interest, taxes, depreciation and amortization, which is known as leverage, climbed over the year ended in June, according to AlixPartners. Sustained debt that’s more than four times Ebitda is often a precursor to restructuring or bankruptcy, according to the firm, which looked at 33 publicly traded companies as part of the study.

Transocean Ltd., the world’s largest supplier of offshore drilling rigs, has said the challenging offshore market is expected to last into 2017.

©2015 Bloomberg News

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