GulfMark seeing signs of balance in the marketCompany News // July 29, 2016
GulfMark Offshore says the offshore vessel market is beginning to show signs of balance, thanks to the large number of vessels that have been laid up.
Announcing the company's most recent results, Quintin Kneen, the company's president and CEO, said the company was "continually improving" its perfomance. "We improved the balance sheet through debt repurchases that averaged less than half of par value. We continue to improve the average fleet age and capability through the delivery of a new vessel in the Americas, the sale of an older vessel in the North Sea and the sale of two of our older vessels in Southeast Asia in July. Through our persistent cost focus, we reduced direct operating expenses for each of the last seven quarters," said Mr Kneen.
"Importantly we reduced these costs during the second quarter while increasing utilisation, and we anticipate this trend to continue. In the broader market, we are seeing signs that the industry is withdrawing capacity to such a degree that certain geographic markets are beginning to show signs of balance.
“In particular,” said Mr Kneen, “the North Sea platform supply vessel market has seen the average spot day rate for the second quarter increase by more than 150 per cent over the same period last year. Also, for the first time since the second quarter of 2014, we sequentially increased our consolidated average quarterly utilisation. That increase was 3 percentage points. Overall we are seeing early signs of encouragement, however leading edge day rates and utilisation are still well below sustainable levels for the industry.”
Mr Kneen said that during the second quarter, GulfMark accomplished milestones that will help the company when the upturn arrives. “We repurchased US$49 million of debt in the open market for approximately US$24 million. By repurchasing our debt at a substantial discount, we created a gain in the current quarter and reduced the amount of ongoing interest expense and debt that the company will ultimately have to repay. We were able to sell an 18 year-old vessel that had been in lay-up for over a year. This sale provided some immediate cash and removed a non-contributing vessel from our fleet. Additionally, we took delivery of our first 300-class Jones Act vessel near the end of the second quarter.
“The North Sea region is beginning to show some signs of incremental day rate improvement,” he explained. “Average leading edge day rates in the spot market increased to an amount that was above operating cash costs for most of the quarter. We view this improvement as a result of vessel owners withholding supply rather than an increase in demand. While we know the climb in day rates will not be steady, we are optimistic that prospective rates will be more supportive of profitable operations in this region. Our Southeast Asia operations also experienced operational improvement, achieving increased day rates and utilisation compared to the prior quarter. We believe this Southeast Asia improvement has more to do with individual successes by our management rather than an improvement in the overall market.”
Mr Kneen said the company continues to steadfastly maintain a strategy of reducing debt, selling vessels, lowering operating costs and maintaining capital discipline, which allows it to maximise operating cashflow, maintain liquidity and improve long-term operational efficiencies. He said GulfMark expects to have adequate liquidity and to be in compliance with debt covenants and maintain access to its revolving credit facilities for the foreseeable future.