Category description

Emergency Response and Recovery Vessels (EERVs) form part of offshore operator Emergency Response Plan ensuring effective arrangements are in place to recover and rescue individuals who have evacuated or escaped from an offshore installation and take them to safety. Such may include:

  • Rescuing/recovering people from the water and providing medical aid,
  • Providing a “safe place”,

ERRV's typically feature accommodation to temporary support recovered/recued individuals, fast recue crafts (FRC) - small, agile, fast boats capable of quick rescue and recovery from the water, firefighting and oil recovery facilities.  

Where tanker operations occur in the field higher specification ERRV's may be required where they are also capable of anchor handling and towing, heading control and emergency towing in addition to the other ERRV responsibilities detailed above.

Often EERV's will be converted/upgraded from PSV's and AHTS vessels.

Risks & Opportunities

Value opportunities and risk are features or requirements that may add or detract from the overall value offered. 

To ensure value is maximized attention should be given to the following areas;

  • Technology - Advances continue to be made in ERRV's allowing an extended list of duties the vessel is capable of performing. In all circumstances it is not imperative to have access to the latest technology and a balance must be struck between the higher cost of new technology and the operating environment of the ERRV, particularly being able to meet the companies Emergency Response Plan, 
  • Crew Experience - Even with the latest technology, without an experienced and well trained crew the capabilities of the vessel may not be utilized to ensure the safe performance of its duties.

Supply & Demand Dynamics

Global Supply and Demand

The demand for ERRVs, 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.

Another important factor is the price of oil which strongly affects the CAPEX and OPEX spending patterns of E&P companies. As of June 2015 the decline in oil prices has significantly slowed global E&P spending. Analysts remain bullish on the Middle East where growth is expected driven largely by the large Nationals such as ADNOC and Saudi Aramco.  

As of 2014 OSV count was estimated at 3,100. It is also estimated that of these 20-25% are 25 years of age or older the majority of which are out of service already. With 2015 and 2016 growth OSV growth expected to be marginal across the globe increases in global fleet size is likely to place downward pressure on prices.


Regional Supply and Demand

The calm benign waters of the Arabian/Persian Gulf do not demand large high specification ERRV's. As well given the maturity of the region ERRV growth is unlikely to be witnessed. With offshore rig count relatively stable in region and the nature of the vessel - used for emergency response - prices are likely to face limited downward pressure. Vessel owners have indicated no more than a 5-10% reduction in prices as a result of the oil price.


At current it is estimated that 90-100 ERRV's within the Persian Gulf. Looking forward to 2018 this is estimated to rise no more that 10% given the limited field growth opportunities.

The dominance of the large NOC's, such as ADNOC, QP, and Saudi Aramco ensures the prices are some of the lowest around the globe.

Key Players

The ERRV market within the Persian Gulf is highly fragmented. A small number of vessel owners control circa 31% of the market whilst the remainder is distributed across 100+ vessel management companies. 

The main regional vessel owners are: Tidewater, Zamil Offshore, Halul Offshore, Bourbon Offshore and Topaz Marine.



External Scanning

The market place is strongly favored towards buyers within the region. The market is characterized by a large buyer and supplier imbalance, high standardization in vessel specifications resulting in relative ease in switching to alternatives.

 
Supplier Power is low
  • Lots of alternative vessels and suppliers,
  • Easy to switch vessel and supplier,
  • Suppliers are almost exclusively reliant on oiland gas industry,
  • High utilization is required to cover cost


 
Potential of new entry is high
  • Market has high degree of standardization
  • Chartering practices make it relatively easy forcompanies to manage vessel with bareboat charters
  • Vessels can move across regions easily


Competitive Rivalry is high
  • No one dominant company within region due tosimilar specifications and number of suppliers
  • High fixed costs


Threat of Substitution is low
  • No further substitution options are available,


 
Buyer Power is high
  • Few buyers in region all of which tend to belarge NOC's or IOC's
  • Cost of switching is low,
  • Lots of alternative and options of similar specification available


 


Portfolio Positioning

Portfolio positioning is essential in guiding strategy within the category. The category is positioned based upon three factors; 1) supply risk, 2) profit/value risk, and 3) power structure.

Based upon a detailed analysis the ERRV sub-category is positioned as a LEVERAGE category (ie. low supply risk, medium to high profit/value risk).

  • Low supply risk is supported by; 1) the large selection of suppliers and vessels, 2) the ease of switching, 3) the standardization of fleets across suppliers, 4) low competitive demand with regional buyers.
  • Medium to High Profit/Value is determined by; 1) the relative high levels of expenditure (the sub-category should also be considered with sub-categories such as Platform Supply Vessels (PSV's) and AHTS vessels given the commonality of suppliers and similar sub-category characteristics),
  • Power is strongly favored towards the Buyer (See External Scanning section)

Total Cost of Ownership

It is common practise to procure the services of ERRV vessels, both short and long-term, using a standard time charter. Additional costs will be assumed by the Buyer, other than the hire rate, based on standard time charter practises. These shall include:

  • The cost of mobilization and demobilization (to/from home port to work location port).
  • Structural alterations as required for the operation and the re-instatement of the vessel back to its delivered condition at the end of the hire
  • Accommodation and meals are charged at an agreed rate as stated in the contract (on a per night and per meal basis) for the Buyer's personnel on board
  • Maintenance Days are accrued by the supplier at a rate of 24 hours per 1 month of operational service. Should the supplier wish to leave the field to carry out maintenance, subject to having accrued enough days, the buyer would be required to pay the hire rate during this period. As well at the end of the charter the Buyer is responsible for paying the hire rate for each unused maintenance day
  • Fuel - The Buyer is responsible for the provision of fuel oil that will be consumed throughout the vessel operation. The fuel efficiency of the vessel can have a significant effect on the overall cost of ownership. In calculating the fuel consumption consideration must be given to the typical operating conditions, vessel specific fuel consumption during those conditions and the cost of fuel.
  • Other items - All lubricants, water, port charges, expenses related to cargo are for the Charterer's account and may need to be factored into the TCO.

Strategy

he sub-category analysis carried out presents a strong case for a strategy that maintains or further maximizes the power of the buyer. 

There are a number of ways in achieving this however the items should be considered;

  • Vessel Specifications - Specifications should be “generic” - it should apply to as many possible vessels whilst remaining fit for purpose - to ensure competition amongst suppliers and the ability to switch,
  •  Aggregate Spend - Buyer's should look to leverage regional spend across the sub-categories of vessels given the commonality of suppliers in the category,
  • Competitive Tender - Tenders should be conducted to ensure maximum competition and followed with negotiations,
  • Negotiation Style - Supplier should be approached with direct and hard (slightly aggressive) negotiations. The buyer should capitalize on market intelligence and seek to target prices based upon their understanding of costs and market conditions. Buyer's should target profit margins,
  • Hire Periods - Maintain relatively short commitments (1-3 years) with full flexibility to terminate for convenience at no cost on 90 to 120 days,

In general the sub-category strategy is focused upon a traditional arm length relationship with the suppliers.