As the slump in oil drilling activity deepens, the Gulf of Mexico offshore industry has ceased to be a strong job-growth market for professional mariners.
The steep decline in crude oil prices has caused operators to take offshore supply vessels (OSVs) out of service and reduce investment on new and existing crews. Layoffs have even been reported.
That’s in sharp contrast to 2011 to 2014, when the Gulf was a go-to destination for licensed mariners as the offshore industry blossomed following the October 2010 expiration of the U.S. deepwater moratorium. With crude oil prices consistently over $100 a barrel and shipyards launching new support vessels, operators needed crews and specialized skills.
As crude fell below $45 by March, oil companies slashed spending, and the demand for supply vessels, jackup rigs and crew boats is suffering. While deepwater activity is still holding up OK, shallow-water and midwater drilling has slowed severely, according to operators and industry analysts.
Companies have responded by taking so many vessels out of service that they can hardly find enough places to tie them all up. They have a choice between “warm-stacking” — parking them but keeping them crewed for rapid return to the market — and “cold-stacking,” in which they virtually shut the boats down and send the crews home.
Among the fleet operators taking vessels out of service is Hornbeck Offshore Services Inc. The Covington, La.-based company mostly serves the stronger deepwater industry but views the shallower rigs as an alternative market for its smaller vessels. Chairman and Chief Executive Todd Hornbeck said those customers are in financial distress.
“We’re seeing … a sharp decline of shelf drilling activity,” Hornbeck said in an earnings conference call in February. “That sanctuary is eroding daily, which was the principal driver behind our decision to stack 12 vessels.”
As the company needs to conserve cash, “we will not be bashful about stacking additional vessels,” he said. To cut costs — and because its newbuild program is coming to an end — Hornbeck doesn’t want to retain as many extra mariners and pay for their training.
“The big cost difference is going to be the reduction of head count in the fleet … What we call our ‘bench,’ our reserve fleet of mariners, is dwindling down to where we may only be carrying 30 or 40 mariners on the bench as opposed to 80 to 100,” Hornbeck said.
For the month of February, the overall OSV utilization rate in the Gulf of Mexico fell below 60 percent, according to IHS Energy, whose survey covered 332 platform supply vessels (PSVs) and 25 anchor-handling tugs. Before the plunge in crude prices, overall utilization was 80 percent to 90 percent.
While the rate for PSVs above 3,000 dwt — longer than about 250 feet — was still at a relatively strong 86 percent to 95 percent in February, smaller vessels used in shallower waters were less busy. Utilization of PSVs under 2,000 dwt was 39 percent.
“That’s a fairly bad utilization rate,” said Richard Sanchez, an IHS marine analyst.
An offshore supply vessel at a rig in the Gulf of Mexico. The oil-price slump has reduced investment in many drilling projects, causing vessel operators to tie up boats and even lay off mariners.
“Shallow- to midwater, that’s the sector that is having the most difficulties, and that’s where more of the vessels are being cold-stacked,” he said.
Vessels that support jackup rigs are facing the worst near-term outlook. When the industry was healthy, there were 25 to 35 jackup rigs working in the Gulf. By March, the count had fallen to 13.
“Our internal projections say that could bottom out at around nine jackups,” Sanchez said. “So you can see there are going to be a lot of vessels competing for those last remaining jobs.”
Recruiters in the Gulf region say hiring has already slowed. Texas A&M University at Galveston, the nearest maritime academy, held its Spring Career Fair in March. With 45 employers participating, the number of recruiters was about the same as in previous years. However, fewer offshore operators attended, said Ken Bailey, the university’s director of counseling and career services.
“Quite a few companies that had been here in the past few recruitment seasons are not coming this time,” Bailey said the day before the job fair. “A lot of what we’re hearing is that hiring is slowing down. I haven’t heard much about layoffs, but they are clearly not hiring with the vigor that they had in the past.”
Although operators do their best to retain licensed officers through reshuffling and reducing work hours to spread the pain around, layoffs have occurred as PSVs and anchor-handling tugs have been cold-stacked, Sanchez said. Some retirement benefits and bonus programs are being trimmed.
Realizing that the oil business is cyclical, company executives are crossing their fingers that the recovery is V-shaped instead of U-shaped. With the market still well supplied with crude at the lower price, various analysts predict the current down cycle will persist for one year to as long as three years. Tidewater Inc. said in February that it does not expect a “meaningful” recovery until late 2016 or early 2017.
The commodity price of natural gas — recently around $3 — also has been weak. Sanchez said colleagues at IHS forecast a rebound in the crude price to about $70 in 2016.
“At $70, the deepwater will feel good and probably get more active,” he said. “I don’t know if $70 is enough to stimulate shallow-water fields that have some oil but mostly gas.”
Because of the decent outlook for deepwater activity and the cyclical nature of the oil business, maritime careers aboard Gulf supply vessels still appear to be a viable option for new mariners. For example, Bailey believes demand still exists for dynamic positioning officers and marine engineers. Still, he said more academy graduates might gravitate toward the towing industry, Military Sealift Command (MSC) or even Jones Act bluewater cargo ships.
“It will be interesting to see if the unions will be able to pick up some people,” Bailey said. “It will be interesting to see if the MSC will be able to pick up some people.”