UDS and Tiger Subsea…

So one, and maybe two (vessel specs), of the UDS vessels is clearly going to Tiger Subsea Services, a start-up based in Louisiana that appears to be made up of ex-Oceaneering staff. I wish the guys luck, starting a business is hard, and bringing a North Sea class DSV to the US hasn’t worked for Bibby (Sapphire), DOF Subsea (Achiever), and Oceaneering (Nor Da Vinci). Having said that of course those companies were seeking to make a return on the capital cost and maintenance of running such a vessel, and there is simply no way that this “charter” is done on a similar economic basis. And if someone offers you a brand new $150m vessel for a one way option I guess you take it? TSS will have taken these vessels on based on some sort of risk/utilisation based charter as they simply don’t have the capital to take on a traditional BIMCO Supplytime Agreement, and in this market no one needs to anyway.

The DSVs above  that have moved to the Gulf for other contractors have really only worked subsatantially as SAT DSVs in the tidal regions of Trinidad, and only really for BHP and BP, because no one in the Gulf of Mexico needs such a sophisticated vessel and is therefore prepared to pay for it. SAT diving in the Gulf is arguable the most price sensitive market in the world and handled by a lot of 4 point mooring vessels of questionable quality run by Mom and Pop contractors (with a couple of mid-sized players). There is no evidence that any of the major E&P companies want such sophisticated vessels and plenty of evidence that they will not pay for one.

UDS and TSS are essentially taking  a huge gamble, one that has been tried many times before and failed without exception, that if you put an asset in the market at well above the quality of local tonnage you will get work. The problem is in the Gulf of Mexico no one wants the Malmaison they just want to stay at the Travelodge, and pay accordingly. Building a Malmaison and only being able to sell at Travelodge rates is rarely a winning strategy. Maybe the strategy is to take the vessels to the US and sit it out and wait for a market recovery in other regions which could maximise the later value of the vessels, but I have my doubts.

The Chinese yards behind this, and there is no evidence of any take-out financing from the yards at all, are merely doing what the German yards and banks did in traditional freight shipping that caused over €100bn in losses: namely getting work for yards without caring about counterparty risk. Eventually, and it can take a very long time given delivery cycles and how these yards are funded, someone will put a stop to this, but it clearly has some way to go. But eventually, as the Germans found, reality catches up with you, and at least the yards had farmed the risk out to the banks (and therefore ultimately the taxpayer)

From an economic perspective this is all bad for industry profitability and residual asset values. Don’t get me wrong, again I admire the sheer audacity of UDS, the scale of their ambitions, and their ability to deliver vessels without actually paying for them in a traditional sense. Maybe they have soft deal with the Chinese where in exchange for teaching them how to build a DSV they don’t expect any money? I don’t know, it seems a long-shot, and the Lictenstein was clearly an opportune deal. But it is just not possible to believe that in this market, with established payers fighting for anything that moves, that UDS and TSS have discovered a well of work, above market rates, that no one else has managed to find, that would pay for these vessels in any objective economic sense. To be clear these vessels need to work at c. 270 days per annum at ~$120-130k per day in order for that to be the case. A lot of work in the Gulf goes out at ~$40-60k at the moment.

After a laborious process the investors in the Nor DSVs gave up in December 2017 and sold their (similar) vessels to a well capitalised industrial player en bloc for $60m for one vessel, and USD 4500 per day for the second, roughly averaging out at $45m per vessel. These vessels offer little more operationally (and indeed I would argue a DSV is at its most valuable ~5 years old after its first major dry dock), so Boskalis set up a similar business for c.1/3 of the cost with considerably less risk because of their backlog. Sooner or later that sort of finanical advantage will be important.

No one, even UDS, on any reasonable assumptions, or even speculation, should be building another North Sea class DSV and all these vessels are doing, by adding supply to a market trading at below cash break even in many cases, is destroying what residual equity DSV owners have in their vessels (unless you brought at the right time like Boskalis). You can lose money for a long time building market share, look at Netflix, but normally you need a large cache of diversified shareholders making a bet on a market that will grow exponentially,  not something you can make the argument for here. You can make a countercyclical bet, like John Paulson, but he did it with an asset that was highly leveraged with essentially no holding cost.

The delivery of these assets will arguably delay any sort of fleet upgrade that may have been going to happen. No one wants to build a $150m vessel when one for a near substitute in operational capability could appear on the market at a fire sale price. Having said that I don’t believe another North Sea class DSV beyond a Kestrel replica will be built for a very long time and only the Vard 801 needs a home (at Technip).

Everyone finds this fascinating because everyone involved in DSVs knows how hard it is to win work at the moment, and that it is even harder to do so at a cash flow positive margin. Although the amount of work is picking up a little oversupply remains chronic and new deliveries (e.g. Kruez Challenger and the Said Aletheia) continue to arrive.

Prior to 2014 everyone used to say that SAT diving had very high barriers to entry, and therefore would be profitable, and that was a reasonable assumption. But it is simply not the case now as there are a vast number of high-end SAT vessels that could cover any realistic short-term upswing in the market, and while setting up diving systems might be time consuming, a large number of people are doing it. That is going to mean structurally lower profits for SAT diving companies for a very long time and in all likelihood even poorer returns from owning DSVs as assets and shipowners/yards help dive contractors win work. This is a complete reversal of market dynamics and fortunes that drove the market post 2003.

I wish everyone luck, but the only realistic outcome is that this will ensure low profitability, and likely losses, for the industry as a whole, the longer this continues.

Hat-tip: GR.

22 thoughts on “UDS and Tiger Subsea…

  1. Maybe TSS and UDS are going to come at the right time into the Gulf of Mexico with a proper DSV or two instead of the “mom and pop” companies vessels that you have alluded to. As someone that has worked in the gulf and dove older DSV’s, back before SPHL’s and even HRC’s were a thing, I can say with certainty that the time has come for proper vessels to do the projects in the gulf. The clients in the diving industry, a lot of them ex-divers, if offered the choice between a vessel, like say the Lichtenstein, versus something like the old Global Sea Lion or Pioneer, for similar cost, yet 10 times the vessel, will take the Lichtenstein, and wouldn’t you? You have no idea the pricing on these vessels, maybe they will be competitive?
    What else is known about TSS then, as you seem to be negative about their chances. Ex-Oceaneering staff? I did check out their website, and looks like a fairly large project was completed in Iraq a few years back, with no Oceaneering ties. http://www.tigersubsea.com
    I wish them luck, the Gulf of Mexico needs to be dragged (if screaming and kicking, then so be it) into the 21st century, and with luck, these vessels may accomplish that.

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  2. Anyone who has actually worked in the GOM would consider your opinions “uneducated”. The GOM is a much different market than the UK and North Sea. You probably should stick to that region. GOM clients do in fact want these vessels and are willing to contract them for reasonable rates. As we know, day rates got way out of control for many years. The markets have corrected this. I think the timing for UDS offering these vessels to the market is perfect. I also think the timing for a diving contractor to offer these vessels to GOM clients is perfect as long as they can keep the day rates reasonable. Your view of day rates at $60k a day for a Sat DSV is way off BTW. I know this first hand. In all reality, it doesn’t matter what your opinion or mine is. Time will ultimately tell. But I can tell you from a diver’s perspective that I am grateful for a diving contractor willing to risk it all to get us GOM divers the equipment we should have had decades ago. I’ll take state of the art vessels and an HRF over the mom and pop “dive bell rescue package” any day. And TSS is willing to bet the house that the clients will be onboard also. Thank you TSS for actually putting your money where your mouth is when preaching safety. BTW if you need an experienced (28 years) American Diving Supt please look at my CV-Resume already sent.

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  3. I’m not confused at all. Unlike your theory, a company can have “Good assets” and “Good Economics”. I don’t believe they need to convince you of anything. Obviously they convinced a bank or investor to believe in their business model. You aren’t their investor or bank so how do you know what their financial position is? And of course they are risking money. Just starting a business is risking money. Charter a vessel is risking money. I understand you have to create drama to have people come to your blog but seriously get a grip.

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  4. Jason C, “a diving contractor willing to risk it all to get us GOM divers the equipment we should have had decades ago” Well put. Here’s hoping the clients feel the same way. Two DSV’s with twin SPHL’s and a 24 man HRF located on the beach, versus an old boat with a HRC and a life support package on an anchor handler. C’mon…. No brainer.

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    • Agreed 100%. I just can’t stand people like this blogger that know nothing about the companies involved or their financials running his gums. Negative on every blog about diving contractors and DSV’s. Sounds like a sour grape. Not sure who even gave this guy the publicity by putting this trashy site on LinkedIn. I never heard of it until today. Deep sea diver out!

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      • Who said anything about comfort? My comment was about safety. I dont know your background, but that comment makes me question your take on the whole topic at hand. Comfort? A HRF with a SPHL versus floating HRC and a AHT with a LSP. Safety issue. Comfort?

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      • Oh, economics for sure play a role, like anywhere else. If TSS can offer a UDS vessel with a comparable day rate, and yet still be years ahead in safety, you don’t think they will be viable? The Lichtenstein and Picasso have a fuel burn rate of 10 MT/24 hrs on DP. This is significantly lower (thus more economical) than the previous generation of DSV’s, is it not? Will this not translate into savings for the client? I guess I am not as cynical as you vis a vis the role safety plays in the decision making process of the clients if the Gulf of Mexico when choosing a contractor. If TSS can draw on the existing (and shrinking) pool of GOM divers, brought up through the tender system and trained in the mud to perform all tasks required before becoming sat divers, I think these vessels with the right team, will shine.

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  5. I think TSS jumping into the GoM market today with the UDS vessels was a brilliant idea.
    Sure TSS will be taking a risk economically and any business has to except it. To bring in 2 state of the art vessels It’s easy to say with certainty its time again for proper vessels to do the projects in the gulf and I believe TSS will be successful.

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  6. TSS was engaged as the sole subsea service provider, technical consultant and labour supplier of ICOEEP Phase 1. Our work scope included the following on a full engineering, procurement, construction and commissioning basis:

    Project owner Leighton Offshore have no idea about SO called SOLE SUBSEA PROVIDER. So it leaves us thinking whether it is actually a company who are capable enough to run a organization or they are just bunch of people, who thinks that they are better than other but HEY Best of Luck, as the boats on its way after a pit stop on the wrong side of the world. Let the best company win; bring it on;

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    • As you are aware, TSS was not the Sole Subsea Provider because they weren’t even in business yet. The company that was the Sole Subsea Provider and executed the project for LO as well as assisted LO in forming a diving division was acquired by TSS. A majority of the management team from the company are now with TSS. So through acquisition TSS now owns the track record. The owners of TSS ran the ICOEEP subsea phase of the project so to deny that is ludicrous. I worked on the ICOEEP project so know first hand what happened. We are better off leaving the Iraq project alone though because that is a can that some people don’t want to open up for various reasons.

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  7. And which company would it be that TSS acquired. I am not a big fan of negativity but stealing the work experience is not a good thing. LO worked hard for it and any failure or success is for them to keep not just taken away by any sort of acquisition, if it ever happened. But Hey time will tell if TSS can actually work under pressure and keep the clock ticking.

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  8. “because that is a can that some people don’t want to open up for various reasons.”

    because it is the CAN that should be open for sure, if TSS, who has no phone number to call just an email address on their website and is ready to make a name in GOM with these high classed DSV’s.

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  9. ICOEEP ? I love it when people comment on social media or blogs yet make up screen names to hide behind. What’s with the negativity? You have a dog in the hunt? Maybe you work for one of these dive companies that still use old tonnage and are worried TSS will be a competitor? I don’t see a downside to TSS bringing vessels like these to the GOM. If they succeed, good for them and their clients. If they fail, the UDS vessels go elsewhere after exposing a lot of GOM offshore types to a whole new level of Diving they maybe haven’t experienced before. No down side. Best of luck Tiger Subsea Services.

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  10. Well if you’re asking what diving company completed phase 1 of the project and you don’t know the basics of the contracts that were involved in the ICOEEP then there is no point in going any further with you. I was involved in phase 1 as were dozens of divers who worked for the same diving contractor as I did. So I’m not sure where you’re getting your information but it’s flawed and on the brink of slander by accusing TSS of “stealing work experience”. LO hired the diving contractor to manage all aspects of phase 1, they did not “work hard” and do it themselves. After phase 1 was complete LO with assistance from the diving contractor then opened their diving division and completed further works to which I won’t claim to know much about as I worked for the diving contractor and completed the contract. I do know who ran the diving division and conducted the IRM contract though. If you want to know about the “can” that I’m not going to open just google (LO Australia) and the snakes will be revealed. I won’t continue tit for tat with you on this anti-diver blog as this is exactly the kind of drama he wants. Good luck in your endeavors Mr. Anonymous.

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  11. well lets see what pans out. SERS didn’t complete Phase I, instead it went horrible wrong causing both the project owner and the contractor huge amount of losses and if I am not mistaken finally the job were completed by some really old tonnage as you described in your post. Still no reply on the boat being on the other side of the world, unless you plan to take a scenic route. so I presume it would be hard for TSS to compete with these functional OLD tonnage in GOM. Like I said It is for LO to have that experience Bad or Good, at least they still have a functional office.

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  12. ICOEEP – yes your exactly correct the job was finished with old tonnage and very successfully as well, however had the SERS / LO Diving Managers been allowed to get a better vessel than the Oranda 1 then the old tonnage would not have been required. Correct me if I am incorrect. I suppose having a huge shear leg barge that was chartered to only work 12 hours per day whilst offshore and then sat there for weeks at about 500k per day had nothing at all to do with cost over runs?? But hey I am just a diver what would I know..

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