It has been well documented that mobile offshore newbuild prices have undergone a period of decline. Clarkson Research indices for newbuild prices of both rigs and OSVs sit well down on their 2008 peaks. Although lack of liquidity makes assessments difficult, it may be the case that the bottom of the cycle is approaching. Given this historical context, it is interesting to look at the decline in price levels.
Better Times
As can be seen from the Graph of the Month, the MODU and OSV newbuilding price indices climbed rapidly in 2005-07. These indices peaked in 2008 at 112 and 113 points respectively during a period of strong newbuilding demand. Whilst the financial crash in the second half of 2008 was first to affect the firming price trends (the OSV newbuild price index fell 29% during the second half of 2008 alone), the oil price crash in mid-2014 set in place a second wave of downward pressure on prices. The “Average Offshore Newbuild Price Index” fell 10% y-o-y in 2014 (see inset graph) followed by a further 13% year-on-year decline in 2015. Whilst the scarcity of orders has made it increasingly difficult to accurately gauge price levels, it appears guideline newbuild prices have not slipped further in recent months.
Lower Prices
As of April 2017, the newbuild drillship price assessment was $400-500m, whilst a 350ft+ jack-up newbuild was assessed at $130-180m. In the OSV sector, a c.12,000 bhp Asian-built AHTS was quoted at $24m at the end of April, whilst a 4,500 dwt European built PSV was assessed at $31.5m. Guideline prices for Asian and European built OSVs have been steady since September 2016, although lack of liquidity has hindered price assessment. Minor fluctuations in the indices have been the result of movements in exchange rates against the dollar. As the graph shows, the OSV and MODU newbuild price indices currently sit fairly close to 2005-06 levels. Whilst prices here are in nominal terms, adjusting for inflation might well suggest that the current situation marks a cyclical low point below levels last seen in 2004-05. However, back in the mid-2000s, contracting was considerably more active. Ordering in 2005 was nine times higher than annualised 2017 year to date levels.
Ordering Drops Away
Indeed, price cuts are often one way for builders to attract orders, yet they have had little impact since the oil price crash in 2014 due to extremely weak markets and demand for new vessels. Since start 2016 there have been just 9 OSVs and five rigs ordered. In all, ordering activity since start 2016 sits 95% below activity in 2008 alone. Moreover, market conditions have led to issues surrounding deferred delivery of the current orderbook and resale prices offering a potentially more attractive alternative to newbuilding.
Slim Pickings
So, newbuilding prices, whilst increasingly difficult to assess given the lack of liquidity, don’t appear to have made further downward movements recently. However, despite current price guidelines suggesting that the market has fallen fairly close to historical lows, it is clear that any fresh round of ordering would require a considerable improvement in the wider market environment.
Source: Clarksons