MPV Everest and DSV business models….

So it appears the Russians have paid equity and have fully taken delivery of the MPV Everest. Well done Keppel on getting paid the full contract value for such specialised tonnage in this market. I was wrong to cast aspersions on the soundness of the contract. And well done MCS for following through and taking full asset risk on this. I am not sure anyone esle can claim such a credit across most offshore asset classes?

The vessel looks close to signing some short-term work in Asia and will have the dive system commissioned as part of this. But…

The problem is the day rate… particularly as this is a vessel that looks set to operate at not that much more than cash breakeven on the first job and it has an empty schedule beyond that. The fact is the entirely speculative strategy of building high-quality DSV assets and thinking they would get a premium day rate, while displacing older tonnage, is having an extremely expensive initial experiment and proving its instigators both wrong and right…

Right in the fact there is a premium, but wrong in total economic terms because it is nowhere near enough for people to cover their cost of capital or hope to recover the builkd cost. The Everest was always a rescue job, having been built for a terminated contract, but others are not. UDS is rumoured to be getting USD 50k a day from McDermott for the Qatar job, but sitting in Singapore waiting for someone else’s boat to break is a high-risk strategy and unlikely to be profitable in the long run. The Everest looks like commanding a 10-15% premium to competitor vessels in the spot market but would need a ~400% premium to have any hope of recovering the build cost. This reflects the overspecification of the vessel, the fact it cannot command ice/polar rates, and the oversupply in the DSV market.

My only point on this has been that when a wall of oversupply meets a very weak market then economic returns will be substantially below economic costs. Continuing to deliver high quality tonnage to undercapitalised operators and chartering parties will just prolong any downturn for the existing fleet owners. But if initial indications are anything to go by MCS are in this for the long run, they have been burning c.10-15k per day Opex with Fox since delivery and purchased some second hand ROVs (from M2 I understand); and having put USD 200m into the vessel are unlikely to walk away quickly. Unfortunately the most logical, and likely, reaction from competing owners is simply to drop prices even more.

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