Financiers see grim outlook for offshore

A number of key financiers to the offshore sector have expressed a lack of optimism for the growth outlook for the industry, and believed the industry is expected to experience a downturn over the next two to three years.

Red flags for the offshore market were raised due mainly to the sudden and sharp collapse of crude oil prices, leading to capex cuts by oil majors and contracts being vulnerable to cancellations.

Jan Solemslie, senior vice president, offshore finance, DVB Bank, predicted that the offshore downturn would last two to three years, and an early recovery would be considered a bonus.

“I don’t think we have seen the worse yet,” Solemslie said while speaking at the Singapore Offshore Finance Forum held on Wednesday.

But the plunge in oil price is not the only problem for the offshore industry, as the sector has already been struggling with an overcapacity of assets for a year now, according to Magnus Piene, global head of offshore, DNB Bank.

Piene believed that industry players have “definitely underestimated” the troubles ahead. “This downturn will come with or without the impact of oil prices,” he commented.

“It is about oversupply. The industry will take a while to scrap excessive vessels, in addition to the time needed to make a decision on whether to scrap or not,” he said.

Piene added that 2016 is considered “far too early” to witness a recovery, and an improvement is possible only from end-2017.

“We are quite nervous on what lies ahead of us,” he said.

Tan Zhen Hong, assistant vice president, maritime asset finance department, Sumitomo Mitsui Banking Corporation, pointed out that companies have been “a bit overly optimistic” about the market outlook. He noted that banks have yet to see concrete plans by the companies on how their businesses can within the oil price shock.

“Companies still believe that the oil price will recover and the market will become rosy again,” Tan told delegates at the industry conference.

Abhishek Pandey, managing director & head, South and Southeast Asia, shipping finance, Standard Chartered Bank, said that bankers are now observing the situation closely.

While Pandey agreed that the dive in oil prices has negatively impacted the offshore market, he questioned whether the industry has actually identified the fundamental problem before any outlook forecasts.

 



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