Solstad Offshore Says Consolidation Needed to Restore Profits

Photo credit: Solstad Offshore

OSLO, Feb 24 (Reuters) – Offshore supply vessel owners must form larger companies in order to restore profitability to an industry battered by plunging demand from oil firms, the head of Norway’s Solstad Offshore said on Wednesday.

With crude prices down more than 70 percent since mid-2014, energy firms have sharply cut their investments and thus rent less equipment from suppliers.

So far about 100 vessels have been removed from Solstad’s main North Sea market, but with only limited effect on rates for its anchor handling ships and no effect for its platform supply ships, where rates remains below crew costs.

“Something has to happen on a structural level because even though boats are taken out of operations and laid up, the owner side is so fragmented that the path to reaching sustainable rate levels is far too long,” Chief Executive Officer Lars Peder Solstad told Reuters.

According to Solstad there are currently some 70 to 80 vessels operating in the spot market in the North Sea and up to 30 different owners.

“I think the industry will look different a couple of years from now. There will be bigger units, either at the company level or within segments. Maybe both. We believe this is coming and we want to be a part of this,” he added.

So far, Solstad has mothballed 13 vessels and initiated cost saving initiatives of up to 500 million Norwegian crowns ($57.35 million) on an annualised basis to prepare for weak markets lasting for a longer period.

It has also started discussions with banks and creditors to come up with a plan for how to adjust to a new activity level that none of the players in the industry had prepared for.

“It will be weak into 2018. There may be rays of lights, the oil price might rise and things can happen, but we must be careful about being too optimistic. We have to be realistic and take into account that it might even get worse,” Solstad said.

The firm said however that the subsea segment was still a bright spot, despite pressure on rates, and that it had ongoing discussions with clients regarding new contracts and contract extensions.

Late on Tuesday, Solstad reported an operation loss of 1.1 billion Norwegian crowns for the fourth quarter, hit by vessel impairments of 1.35 billion, compared to a profit of 273 million in the same quarter last year.

Solstad also said the board would propose that no dividend was paid for 2015. ($1 = 8.7178 Norwegian crowns) (Reporting by Henrik Stolen, editing by Terje Solsvik)

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