Anchor Handling Tug Supply Vessels (AHTS) are an essential feature of the offshore oil and gas industry specializing in the towing, positioning and mooring of drilling rigs and other marine equipment. Equipped with powerful engine and specialized winches the duties of an AHTS vessel may include;
- Tugging/Towing rigs, vessels are barges to location or assistance during berthing
- Retrieving and deploying anchors
In addition to these duties AHTS are required to perform supply duties replenishing other vessels and drilling rigs in the field with operational supplies such as mud, other drilling fluids, cement, fresh water, fuel oil and miscellaneous equipment.
The wide diversity of the vessels duties also means it is often suitable to perform tasks traditionally undertaken by Platform Supply Vessels (PSV's), Multi-Purpose Supply Vessels (MPSV's), Diving Support Vessels (DSV's) or Emergency Rescue and Recovery Vessels (ERRV).
AHTS's come in a variety of sizes. These can be summarised into 4 broad categories as depicted below:
Supply & Demand Dynamics
The demand for AHTS's, and offshore service vessels (OSV's) in general, continues to be driven by the world's increased energy demands. Although over the long term global energy consumption will see a significant shift away from oil and gas, oil and gas remain a major source of consumption representing more than 50% of market share. Gas growth is expected at 1.9% p.a. and oil 0.8% p.a. through to 2035. Furthermore it is anticipated that a greater reliance on offshore resources will be seen as onshore production declines and technologies open the door to more difficult offshore resources.
The AHTS market is highly cyclical. Utilisation and rates are quick to react to oil price due to the influence oil price plays on E&P spending patterns (see Rig Count). As of mid 2017 with oil prices stabilised around US$50 per barrel the short to mid term is likely to remain challenging for vessel owners as new investment levels remain low and offshore rigs continue to be stacked. Without a sustained period of stability at higher oil prices increased activity is unlikely.
AHTS demand remains dampened by the oil price volatility which has seen prices move to 12 year lows of US$26/barrel settling around US$50/barrel more recently. The current prices have left many oil and gas project uneconomical and it is expected that E&P spend will decline a further 20% in 2017 from 2016. Without robust oil price increases demand is expected to be subdued, the exception being the Middle East where small increases are expected in small to mid-size AHTS tonnage due to the favourable oil economics and slowly increasing rig activity.
On the supply side vessel owners continue to suffer from the huge supply glut following multiple years of aggressive new-build programs. OSV’s out number rigs 8:1 as of early 2017 (160% increase from 2008), utilisation has dropped in some areas 40% and rates have sunk as much as 60% since the oil downturn. If demand begins to pick up newer vessels will most likely be the first to see service during recovery.
Circa 24% of the global existing fleet is 20+years in age and not expected to work again. Unfortunately these numbers are offset by a continued new-build program estimated at 8-12% of existing OSV’s. Based on these economics vessel owners remain locked into challenging times for the foreseeable future.
Regional Heat Map
With the exception of the Middle East, most regional markets have suffered the same fate during the oil downturn. See below for a snap shot of the latest trends in each region:
The OSV market is highly fragmented. With a global fleet of circa 3,500 vessels the top 11 owners represent just less than 32% of the market. The remainder of the market is taken up by some 400-500 vessel owners with an average fleet size of 4-5 vessels. The below chart depicts the vessel split between the main AHTS & OSV suppliers.
A five forces analysis reveals the competitive forces acting on the market. The AHTS market is characterized by a large supply and demand imbalance, high standardisation in vessel specifications resulting in relative ease in switching to alternatives. In the present market environment power sits firmly with the buyer.
Supplier Power is low
- Lots of alternative vessels and suppliers,
- Easy to switch vessel and supplier,
- Suppliers are almost exclusively reliant on oil and gas industry,
- High utilization is required to cover cost
Potential of new entry is high
- Market has high degree of standardization
- Chartering practises make it relatively easy for companies to manage vessels with bareboat charters
- Vessels can move across regions easily
Competitive Rivalry is high
- No one dominant company within region due to similar specifications and number of suppliers
- High fixed costs
Threat of substitution is low
- Main function of AHTS vessel is to support towing and tugging actvities therefore no real suitable alternatives exist
Buyer Power is high
- Few buyers in region all of which tend to be large NOC's or IOC's
- Cost of switching is low
- Lots alternate similar specification vessels
Cost & Price Analysis
Due to the low oil price and the competitive nature of the market AHTS's owners are operating at close to breakeven with most owner's recording loses since the downturn. The breakeven point of a small to mid size AHTS is US$5,000 to US$8,000 per day depending on region. This is broken down as follows:
Each vessel size faces significant downward price pressure. The larger size AHTS's (Large & X-Large) see more volatility trading almost exclusively on the spot market in locations such as the North Sea and the Americas. Due to this prices month to month can range from US$40,000 per day to less than US$20,000 per day. The smaller size AHTS's (Small & Medium) see more stability with less volatility in pricing. Rates, depending on location, can range from between US$5,000 per to US$15,000 per day.
Total Cost of Ownership
|Parameter||Service Cost||Fuel Cost||Performance Cost|
|Description||The rates and charges agreed in a contract for the performance of the service||The cost of fuel used by the vessel in performance of duties||The cost of inefficiency in performing duties|
In the current market environment buyers are in a dominant position. The huge oversupply of AHTS's, the regional mobility and low demand place power firmly in the buyers hands. Buyer’s should look to take advantage of this position securing cost reduction and higher specification vessels (fuel economy & safety). Where possible Buyer's should look to aggregate spend to further improve leverage. In summary the strategic objectives should be focused around:
When approaching the market DALEEL recommend the approach outlined below:
In preparation for any tender or negotiation Buyer's should ensure they have:
- The latest market intelligence in the region including utilisation and indicative rates
- The latest supplier intelligence including vessel availability, utilisation and rates
- Information on other regions vessel availability and rates. Given AHTS's are highly mobile Buyer's should look globally and try to take advantage of lower demand in other regions.
Typical oil field AHTS operations are managed via a Time Charter. Below is a summary of the avialble contacting methods, where responsibilities lie for each and how payment is calculated:
|Description||Per day or duration of time||Vessel hull & machinery only|
|Operational Preference||Preferred||Not preferred|
|Vessel Owner Responsibility||Vessel|
|Charterer Responsibility||Port Charges|
Cargo Loading & Discharging
Cargo Loading & Discharge
|Calculation of Charges||Daily hire rate||Monthly lump sum payment|
|Standard Form Contracts (BIMCO)||SUPPLYTIME||BARECON|
AHTS in action
Check out the video below to understand the typical operation of a AHTS:
Dynamic Positioning Explained
A DP system automatically triangulates between GPS satellites and/or other positioning systems to maintain the vessels position within a 1m to 3m radius allowing the vessels to be maneuvered very close to platforms and rigs. Check out the video below of a supply vessel operating in heavy weather in close proximity to a jack-up rig:
When engaged the DP system simultaneously and continuously controls bow thrusters and main propulsions to hold position irrespective of current, wind or wave action. This allows for greater accuracy and safety when manoeuvring removing a large portion of human error risk. DP Systems have 3 classes each representing a greater level of redundancy in the system.
Diesel Electric Propulsion Explained
Diesel Electric Propulsion differs from traditional propulsion systems in that multiple diesel engines each drive an electrical generator producing electrical power that energizes a motor connected to the propellers. This provides efficiency (fuel & emissions) benefits as when loads are low not all diesel engines will be turned on. In addition, even where one engine fails power can still be transmitted to both shaft lines.
Whilst awarding a contract to the right supplier is important measuring, analysing and managing performance ensures the expectation set at the outset are achieved. Below is a snapshot of where both suppliers and buyers need to focus to ensure success as well as some indicators that help identify if you are on the right path.