The OSV market, which has been quiet for several years, is finally expected to usher in a new round of "order wave". Petronas plans to order up to 100 OSVs in the next four years, and the first 16 have already been tendered.
According to foreign media sources, about 60% of the OSVs currently in operation have been in use for at least 11 years, approaching their 15-year life span. In its 2021-2023 activity outlook report, Petronas recently said it is working to replace the aging vessels currently in operation by partnering with the shipping industry. The company is considering new vessel technology solutions for its business operations to accommodate 365 days per year operational capacity.
Currently, PETRONAS has launched a tender for the construction of the first batch of 16 OSVs, the new vessels will be used mainly for upstream activities and PETRONAS will enter into long-term contracts to lease these OSVs. considering that OSV construction takes 18 to 24 months, the new vessels currently tendered for construction will be completed and delivered in 2023, in time to replace the old vessels that will be phased out.
Although the offshore market is not yet out of the crisis, PETRONAS said it is a great time for local companies and financial firms to re-evaluate investment opportunities. Given the uncertainty of the future market, PETRONAS will enter into long-term charters for 3+3+2 years, renewable up to 8 years, before each vessel is built, which will allow OSV operators to avoid the risk of not being able to secure a contract once the vessel is completed.
PETRONAS' plan to replace older vessels will give a significant boost to OSV operators' confidence. After a five-year-long period of lack of chartering activity, weak charter rates and oversupply, OSV operators are hoping to get out of the woods as soon as possible with the Malaysian Statoil project. However, some OSV operators expect that new contracts from PETRONAS will face stiff competition, including from overseas players, as the number of long-term charter contracts in the market is currently very limited.
Sources said Malaysian state oil has imposed some mandatory requirements for new vessel orders, including that new vessels must be built in local Malaysian shipyards and bidders must obtain financing from Malaysian banks. PETRONAS also clearly mentioned in its 2021-2023 Activity Outlook report that "local vessels" will continue to have priority.
Malaysian shipyards are no stranger to building OSVs, and one of the main business models of Malaysian shipyards led by Nam Cheong is to build OSVs speculatively for inventory and find buyers to sell them near completion to get a better price, according to ISPS. Over the past few years, due to the recession, Malaysian yards have had a large number of OSVs awaiting delivery that have failed to find buyers, and some have chosen to incorporate new-build OSVs into their own fleets.
In the first half of 2019, Nam Cheong's fleet size expanded from 23 to 34 vessels, and chartering revenue increased 183% year-on-year, while shipbuilding business did not generate any revenue, and chartering business also helped the company to turn around successfully.
It is worth mentioning that a distinctive feature of these Malaysian "speculative" yards is that most of them choose to outsource OSV construction to Chinese yards, where they pay a small amount of money to build a large number of standardized offshore vessels.
For example, Nam Cheong has orders for as many as 21 vessels in 2019, of which only 2 will be built by Nam Cheong's yard in Malaysia, while the other 19 will all be built in Chinese yards. Another shipyard, TAS Offshore, ordered 16 OSVs from 2013 to 2015, which were scheduled to be delivered from 2014 to 2017, but the two sides finally reached an agreement in July 2020 to terminate the entire contract. Malaysian shipyards are no strangers to building OSVs, and one of the main business models of Malaysian shipyards, led by Nam Cheong, is to build OSVs speculatively for inventory first and find buyers to sell them near completion to get a better price, according to ISPS. Over the past few years, due to the recession, Malaysian yards have had a large number of OSVs awaiting delivery that have failed to find buyers, and some have chosen to incorporate new-build OSVs into their own fleets.
In the first half of 2019, Nam Cheong's fleet size expanded from 23 to 34 vessels, and chartering revenue increased 183% year-on-year, while shipbuilding business did not generate any revenue, and chartering business also helped the company to turn around successfully.
It is worth mentioning that a distinctive feature of these Malaysian "speculative" yards is that most of them choose to outsource OSV construction to Chinese yards, where they pay a small amount of money to build a large number of standardized offshore vessels.
For example, Nam Cheong has orders for as many as 21 vessels in 2019, of which only 2 will be built by Nam Cheong's yard in Malaysia, while the other 19 will all be built in Chinese yards. The other shipyard, TAS Offshore, ordered 16 OSVs from 2013 to 2015, which were scheduled to be delivered from 2014 to 2017, but the two parties finally reached an agreement in July 2020 to terminate the entire contract.
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