Abu Dhabi’s Gulf Marine Services (GMS) is feeling the effect of weaker oil prices as usage of its vessels falls.
Analysts say it could take two years for the sector to work through excess capacity left in the wake of almost three years of weak oil prices. The contractor operates a fleet of self-elevating support vessels (SSEV’s) that can provide various offshore maintenance tasks.
But the usage of such vessels fell to 56 per cent in the first quarter compared with 93 per cent a year earlier.
Alex Brooks, an energy analyst at London-based Canaccord Genuity, said that the “rate will almost certainly drop further for GMS but at least the company has the advantage that it offers a cost-effective solution”.
Demand for rigs and the vessels that support them continues to fall as budgets remain tight.
The order backlog for GMS declined to US$251 million in the first four months compared with $413m a year earlier.
Mr Brooks said that it was unlikely for the company to see levels reaching $400m this year.
“It would apply if GMS was burning $15m of backlog every month, and the only way that would happen is if the company took $250m in awards – which isn’t very likely,” he said.
Oil services companies, which provide support to drilling companies, had good returns for a decade. Then the price of oil crashed in 2014, resulting in cost cuts throughout the hydrocarbon industry supply chain.
“The industry is steadily working through the overhang of capacity but it’s highly unlikely that will be worked through for at least another two years,” Mr Brooks said.
The company’s offshore vessels, which cater to the oil, gas and renewables sectors, help reduce operating costs for oilfields while maximising production. While contracts are down, GMS has been able to trim debt by 10 per cent to $370m.
Barclays said that the company has reached an inflection point.
“Debt has peaked and started to come down and orders have begun to materialise,” said Mick Pickup, an analyst at Barclays. He said this was the result of the restart of renewables in the North Sea, while a rebound in GMS’s home market of Abu Dhabi is still yet to come.
Barclays expects its debt levels to fall by another 10 per cent by the end of the year.
Mr Pickup said: “This equates to an 11 per cent free cash flow yield in the last eight months of the year.”
Duncan Anderson, GMS’s chief executive, said that the company expected the pace of recovery to build momentum with usage increasing ahead of day rates.
“There is clearly more to do and we are confident that much higher utilisation levels will again be achievable for our fleet,” he said.
lgraves@thenational.ae
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