Offshore projects to boost workboat market in Gulf

A bright future awaits the workboat market in the Gulf, driven by the current investments in mega offshore projects, according to Captain Gary Dockerty, Business Development Manager for Lamnlaco Group. In an interview with Emirates Business, he said while this trend excites the workboat industry, it might be a cause for worry among financing companies.

You seem buoyant about a bright future for the workboat market in the Middle East. From where do you draw this confidence?

There is definitely a cause for the buoyancy. The GCC is investing heavily in a number of offshore oil and gas exploration projects to the tune of $60 billion (Dh220bn) in the next three to four years. The new projects are meant to add oil and gas production capacity. This investment in more offshore projects is causing an unprecedented demand for workboats, ranging from diving support vessels to well intervention vessels.

A further $20bn is being invested in offshore infrastructural and reclamation projects. This, too, is creating demand for construction related vessels. Besides this, the price and demand for oil continues to rise worldwide. This points to more offshore oil and gas exploration projects that will keep the demand for workboats up for sometime. We are seeing more supply companies looking at the GCC as a lucrative market for workboats.

How will the new projects in the GCC influence the type and quality of workboats in demand?

The primary clients for workboats are in the oil and gas industry and workboats supplied to them have previously been specially designed to meet their needs. However, with explorations going deeper into more remote locations and the positioning of LNG terminals in more exposed locations, clients are now looking for a more multi-functional approach to work in order to save time and money. Rather than have a workboat designed for a single job in the middle of numerous jobs to be accomplished, clients are now looking for a turnkey solution, a single unit that can accomplish a myriad of tasks. This, in fact, is a trend not only specific to the Gulf but also on a global basis. We are seeing more specialist boats being reserved for spot markets and not for long-term contract jobs.

Are you seeing more construction vessels coming into the Gulf as a result of the current port and reclamation projects?

Previously, this has not been a major market for construction vessels to be stationed permanently – it was more of a spot market. But as new offshore infrastructural developments take shape, we are seeing civil construction and dredging companies willing to build and supply their vessels within the region. I believe this is what we will see happening in future.

How are companies such as yours involved in the supply of workboats, ready to meet the unprecedented demand you talked about?

Supply companies had anticipated this situation more than three years ago and they began placing orders for construction of new vessels to boost their fleet. Our company (Lamnalco Group), for example, has for the past seven years been ordering new vessels at costs of $400 million. Last year we took delivery of 11 vessels. By the end of this year, we will take delivery of another 13 vessels and next year the number of deliveries will be 20 per cent more. Both local and foreign companies operating in the region are taking deliveries now. We see this ordering process continuing for the next three to four years since we do not anticipate a drop in demand so soon. Companies that were formerly involved in only vessel repair are now doing building as well to meet the rising demand. Older vessels are getting displaced as projects become more complex.

How certain can the industry be of better returns in the market?

Previously, this industry was cyclical – you had upturns and downturns. Equipment providers and shipyards, for example, were reluctant to increase their capacity with uncertainties of what the future would hold and what would happen to their spare capacity in case of a downturn in the market. They would always prefer to consolidate what they had.

This has changed. With the increase in oil prices and production, and the Gulf being the principal source of it, the industry does not see a slowdown soon. Forecasters are seeing an increasing demand, which continues to give confidence to the workboat industry and companies feel that it will be a long way before a slump happens. Although a slowdown in the orderbook is anticipated next year, some forecasters see the trend of things continuing for the next 10 years.

Also the fact that oil and gas companies, such as Saudi Aramco and Qatar Gas, are giving workboat providers long-term contracts has boosted the confidence of local companies, who now see a long-term market for themselves in the region.

What percentage does the Middle East region form in the global workboat market?

The Middle East forms between 15 to 20 per cent of the global workboat market. The biggest providers of the offshore industry are in more mature markets, such as the Gulf of Mexico. West Africa currently has the highest demand for workboats, followed by the Middle East. Future demand is expected in the Arctic waters in Northern Russia because its known that the main bulk of unexplored reserves exist there.

Are the existing repair facilities in the region ready to handle the big volume of vessels?

Repair facilities are currently struggling with the high demand for repairs, general routine maintenance, conversions, modifications and upgrades. Repair facilities are a definite gap in the market and they are inadequate in number. Facilities are being booked two years in advance just to make sure people can get their scheduled requirements into the yards of their choices.

Clients are now asking for newly-built vessels because old ones can cause losses in case of a breakdown since they cannot be quickly repaired. There is demand to increase the capacities of repair facilities to cope with the high number of vessels expected. It is also a lucrative investment opportunity as more vessels and engines will require repair. But existing repair facilities are still reluctant to increase capacity and are waiting to be certain about the future.

Where do most of the local providers for workboats draw their financing from?

In the GCC, Islamic finance is the big push for the workboat market, unlike in Europe where IPOs are the main source. However, both Islamic and conventional banks are likely to be more cautious starting next year. There is a lot of growth in the market and newcomers are jumping on the bandwagon of success.

Usually after a boom, there is always a slump and this might get banks worried and hence tighten their finances. Banks will get used to the fact that this is a structural change and probably this will help boost their confidence, especially when they continue to see visible earnings driven by long-term contracts being provided by offshore companies.

What challenges do you expect along the way?

The biggest challenge for the industry now is to develop skilled manpower to run the latest technologies.

Companies are also spending on safety and environment protection.

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