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Friday, December 05, 2008

FPSO owners sell tankers at discount prices as credit dries up

Technorati Tags: ,,,,,,,,,,,,,,,,,,,, A SLUMP in credit availability is causing a fire-sale of tankers by owners of oil production ships.

One owner has already sold two tankers for drop-down prices of around $10m each and another two are up for sale.

Brokers said more idle tankers owned by floating production storage and offloading vessels operators will go up for auction in 2009 as contractors are squeezed by the lack of credit, rising costs and falling demand.

If all tankers owned but unused by FPSO owners were sold now they would collectively raise $100m less than when they were bought, said George Horsington, general manager of Singapore-based offshore vessel owner Swire Production Solutions.

Owners of half-finished tanker conversions have failed to raise cash to finance the remainder of their projects, so they have to sell vessels they are holding for future conversion into FPSOs.

Oslo-listed FPSO investor PetroProd has already sold two double-sided 105,385 dwt, 1985-built aframaxes — Archimid and Trust — to a Greek owner for $22m, to be upgraded into double-hulled vessels, a broker said.

FPS Ocean, another owner in financial trouble, this week said it would sell the 97,172 dwt, 1988-built aframax Semakau after terminating a conversion contract.

FPS Ocean said it would continue to convert 480,000-barrel shuttle tanker Nordic Laurita at Drydocks World Dubai, but costs have risen to $375m, so would need to raise $95m more in equity finance.

There has already been one financial casualty. Vessel owner Multi Purpose Floater Corp failed to secure funding to complete its drilling and production ship and went bankrupt with only the hull finished.
Clarkson Asia broker Andrew Bray said an auction in China for the steel hull of this vessel, which is similar in size to a very large crude carrier, would have to be extended beyond December 9 because of a lack of interest.

Other FPSO owners are fighting to stay afloat and looking to sell tankers include Nexus and Songa Floating Production, brokers said.

Nexus, which is majority-owned by BW Offshore, itself owned by tanker major BW, is trying to sell its newbuilding FPSO to oil companies as an alternative to a leasing it. Songa Floating Production has the 460,000-barrel, 1989-built Songa Annette idle and available.

“Companies are selling the conversion candidates to focus on cash. If all speculative tankers are sold then $100m will be lost by all of the FPSO market,” Mr Horsington said.

“FPSO stocks have been hammered far more than other sectors such as drilling, tankers and offshore support vessels. For example, Aker Floating Production lost 90% of its share value. So FPSO owners are looking more vulnerable.

“There has been a melt down in market capitalisation and the value of the entire FPSO [sector] is only $5bn. Half of this is SBM Offshore,” Mr Horsington said.

Glen Ole Rødland, director at Norwegian investor Ferncliff, said share prices had fallen between 60%-90%.

“The oil industry is profitable, but owning FPSOs is a losing game because the returns are too low and owners are over-estimating the value of their vessels. Returns are only 7%-9% and conversion projects capital expenditure is on average 20% over budget,” Mr Rødland said.

Mr Horsington said costs were rising and contract terms were so poor that day rates might not match capital expenditure of some FPSOs. When they are completed there could be $300m of assets waiting around for months for a contract.

Demand for FPSOs is set to fall in 2009 as tender processes are likely to be delayed.

“We are expecting to see an impact on mid-term bidding prospects. We have not seen any delays in tenders yet, but there is fear about what will happen on bids in the first quarter of 2009,” said Boyd Howell, a director with Japanese FPSO owner Modec.

As adapted from Lloyds List