Platform Supply Vessel (PSV)

Platform Supply Vessels (PSV) specializes in the logistical support required to

operate in an offshore field. Typically PSV's work between an onshore supply
base and the various offshore work locations, including drilling rigs, oil
platforms and construction vessels transporting essential supplies (such as
drilling fluids, cement, mud, fuel and water) within its tanks, equipment
(including casing, drill pipe, and various miscellaneous pieces) as well as
personnel.

CATEGORY DESCRIPTION
Platform Supply Vessels (PSV) specializes in the logistical support
required to operate in an offshore field. Typically PSV's work between an
onshore supply base and the various offshore work locations, including
drilling rigs, oil platforms and construction vessels transporting essential
supplies (such as drilling fluids, cement, mud, fuel and water) within its
tanks, equipment (including casing, drill pipe, and various miscellaneous
pieces) as well as personnel.
RISKS & OPPORTUNITIES
Value opportunities and risk are features or requirements that may add
or detract from the overall value offered.
To ensure value is maximized attention should be given to the following
areas;
Technology - Advances continue to be made in PSV vessels allowing
operations to be carried out safer, more reliably, more efficiently and at
a lower cost. In all circumstances it is not imperative to have access to
the latest technology and a balance must be struck between the higher
cost of new technology and the operating environment the PSV is
required to function within.
Crew Experience - Even with the latest technology, without an
experienced crew all efficiencies can be wiped out and affect the PSV
vessel ability to meet demand. With the failure of meeting demand often
costing hundreds of thousands this is an important factor.
Fleet Selection - Offshore oil and gas operations commonly feature
multiple AHTS vessels as well as PSV's. It is therefore important to
determine the optimal number of vessels to be contracted in the field
considering the vessels available in the market, the service cost, the
opportunity cost and the cost of failing to meet demand.
SUPPLY & DEMAND DYNAMICS
Global Supply and Demand
The demand for PSV vessels, and offshore service vessels (OSV's) in
general, continues to be driven by the world's increased energy
demands. Although over the long term global energy consumption will
see a significant shift away from oil and gas, oil and gas remain a major
source of consumption representing more than 50% of market share.
Gas growth is expected at 1.9% p.a. and oil 0.8% p.a. through to 2035.
Furthermore it is anticipated that a greater reliance on offshore
resources will be seen as onshore production declines and technologies
open the door to more difficult offshore resources.

Another important factor is the price of oil which strongly affects the
CAPEX and OPEX spending patterns of E&P companies. As of June 2015
the decline in oil prices has significantly slowed global E&P spending.
Analysts remain bullish on the Middle East where growth is expected
driven largely by the large Nationals such as ADNOC and Saudi Aramco.

As of 2014 OSV count was estimated at 3,100. It is also estimated that of

these 20-25% are 25 years of age or older the majority of which are out
of service already. An estimated 450 new AHTS &PSV vessels are
planned for construction through 2016.
With 2015 and 2016 growth OSV growth expected to be marginal across
the globe increases in global fleet size is likely to place downward
pressure on prices.
Regional Supply and Demand
The calm benign waters of the Arabian/Persian Gulf permit are mainly
operated by small to medium size PSV's. E&P spend, oil price and rig
count are all good indicators of the general condition of the PSV market.
Despite the reduction in oil price, E&P spend and rig count remain stable
and as such it likely that PSV prices will remain only marginally affected.
Initially, vessel owners have indicated no more than a 5-10% reduction
in prices as a result of the oil price. This will likely further reduce
depending on the length of time oil price remains down.
A number of vessels owners and operators are moving their fleet from
Southeast Asia to Middle East, due to very low utilization levels in SEA,
creating a large oversupply of vessels in the Middle East. In addition,
continues efforts of regional oil companies to reduce costs and
renegotiating charter rates, resulted in significant reduction in charter
rates reaching up to 50% (Source: OSJ).
At current it is estimated that 156 PSV's work within the Middle East.
Looking forward to 2018 this is estimated to rise to circa 250 driven by
increased rig activity and increase project activity. The dominance of the
large NOC's, such as ADNOC, QP, and Saudi Aramco ensures the prices
are some of the lowest around the globe.
KEY PLAYERS
The AHTS market within the Persian Gulf is highly fragmented. A small
number of vessel owners control circa 31% of the market whilst the
remainder is distributed across 100+ vessel management companies.
The main regional vessel owners are: Tidewater, Zamil Offshore, Halul
Offshore, Bourbon Offshore and Topaz Marine.
 EXTERNAL SCANNING
The market place is strongly favored towards buyers within the region.
The market is characterized by a large buyer and supplier imbalance,
high standardization in vessel specifications resulting in relative ease in
switching to alternatives.

Supplier Power is Low

Lots of alternative vessels and suppliers,
Easy to switch vessel and supplier,
Suppliers are almost exclusively reliant on oil and gas industry,
High utilization is required to cover cost,

Potential of new entry is High

Market has high degree of standardization,
Chartering practises make it relatively easy for companies to manage
vessels with bareboat charters,
Vessels can move across regions easily
Competitive Rivalry is high
No one dominant company within region due to similar specifications
and number of suppliers
 High fixed costs
Threat of Substitution is medium/high
PSV duties can be carried out by AHTS vessels although at a slightly
higher cost (fuel)

Buyer Power is high

Few buyers in region all of which tend to be large NOC's or IOC's
Cost of switching is low
Lots alternate similar specification vessels

PORTFOLIO POSITIONING
Portfolio positioning is essential in guiding strategy within the category.
The category is positioned based upon three factors; 1) supply risk, 2)
profit/value risk, and 3) power structure.
Based upon a detailed analysis the PSV category is positioned as a
LEVERAGE category (ie. low supply risk, medium to high profit/value
risk).
Low supply risk is supported by; 1) the large selection of suppliers
and vessels, 2) the ease of switching, 3) the standardization of fleets
across suppliers, 4) low competitive demand with regional buyers.
Medium to High Profit/Value is determined by; 1) the relative high
levels of expenditure (the sub-category should also be considered with
sub-categories such as Anchor Handling Tug Supply vessels (AHTS) and
Emergency Rescue and Recovery Vessels (ERRV's) given the
commonality of suppliers and similar sub-category characteristics), 2)
High costs of failing to meet demand requirements, in particular rig time.
Power is strongly favored towards the Buyer (See External
Scanning section)
COST & PRICE ANALYSIS
Due to the competitive nature of the sub-category daily hire rates
typically consist of as much 50%-60% direct costs. The most notable
 costs are; 1) depreciation of the asset, 2) crewing costs. Other direct
costs include maintenance (spares, specialist expertise and general
consumables) and other administrative items such as inspections for
class, flag registry, insurance and asset value adjustments. The
remainder of the daily hire rate is made up of 30-40% indirect costs,
such as corporate overheads, interest, and tax assumptions. 10-20%
profit margin can be assumed.
Due to the nature of the sub-category, particularly the competition,
prices tend to reflect the market conditions.
TOTAL COST OF OWNERSHIP
It is common practise to procure the services of PSV's, both short and
long-term, using a standard time charter. Additional costs will be
assumed by the Buyer, other than the hire rate, based on standard time
charter practises. These shall include:
The cost of mobilization and demobilization (to/from home port to
work location port).
Structural alterations as required for the operation and the re-
instatement of the vessel back to its delivered condition at the end of
the hire
Accommodation and meals are charged at an agreed rate as
stated in the contract (on a per night and per meal basis) for the Buyer's
personnel on board
Maintenance Days are accrued by the supplier at a rate of 24
hours per 1 month of operational service. Should the supplier wish to
leave the field to carry out maintenance, subject to having accrued
enough days, the buyer would be required to pay the hire rate during
this period. As well at the end of the charter the Buyer is responsible for
paying the hire rate for each unused maintenance day
Fuel - The Buyer is responsible for the provision of fuel oil that will
be consumed throughout the vessel operation. The fuel efficiency of the
vessel can have a significant effect on the overall cost of ownership. In
calculating the fuel consumption consideration must be given to the
 typical operating conditions, vessel specific fuel consumption during
those conditions and the cost of fuel.
Other items - All lubricants, water, port charges, expenses related
to cargo are for the Charterer's account and may need to be factored
into the TCO.
STRATEGY
The sub-category analysis carried out presents a strong case for a
strategy that maintains or further maximizes the power of the buyer.
There are a number of ways in achieving this however the items should
be considered;
Vessel Specifications - Specifications should be generic - it
should apply to as many possible vessels whilst remaining fit for purpose
- to ensure competition amongst suppliers and the ability to switch,
Aggregate Spend - Buyer's should look to leverage regional spend
across the sub-categories of vessels given the commonality of suppliers
in the category,
Competitive Tender - Tenders should be conducted to ensure
maximum competition and followed with negotiations,
Negotiation Style - Supplier should be approached with direct and
hard (slightly aggressive) negotiations. The buyer should capitalize on
market intelligence and seek to target prices based upon their
understanding of costs and market conditions. Buyer's should target
profit margins,
Hire Periods - Maintain relatively short commitments (1-3 years)
with full flexibility to terminate for convenience at no cost on 90 to 120
days,
In general the sub-category strategy is focused upon a traditional arm
length relationship with the suppliers.
TECHNICAL INSIGHTS
As the PSV's main duty is supply equipment, materials and consumables
to various locations, deck space (for the transport of equipment and
cargo) and tank capacity (for the transport of essential operational
consumables such as cement, mud, fuel oil, and fresh water) should be
considered against the operational needs of the buyer.
The nature of the PSV operation involves working within close proximity
of other marine vessels and structures. As a result it has become more
common for PSV vessels to feature dynamic positioning systems,
computer system that automatically maintains the vessel's position,
minimising the risks of working in and around other marine vessels and
structures.