PETRONAS Boss Warns of Falling OSV Charter Rates

Putting a damper on the rash of exuberant news in the service support side of the Malaysian oil and gas industry, Petronas president and CEO Shamsul Azhar Abbas said that there are indications that charter rates will fall in the future, according to local media reports.

“There is an oversupply of OSVs in Peninsular Malaysia for Petronas’ demand. So, these companies have to expand regionally,” he was quoted as saying, referring to recent reports of rapid expansion by local offshore support vessel (OSV) providers. Shamsul warned that it could be tough going for companies involved in these businesses and they should be more cautious in the coming year.

Shamsul noted that for example at a recent tender exercise, the OSV charter rates quoted were 15% below current market rates. This was due to an increasing number of OSVs, barges and drilling rigs coming onstream, he added.

Shamsul pointed out that what was happening was that regionally, there were too many upstream projects were taking place simultaneously while there was a shortage of good sub-contractors.

This “project bunching,” as he described it, leads to oil companies sometimes having to use second-tier or untested contractors and poor performance by these less experienced players has actually adversely affected some of Petronas' projects. "This is why we are always concerned about giving contracts to untested players," he said.

Furthermore, Shamsul added that he foresaw tighter exploration expenditure by oil majors, including Petronas. “All oil majors are presently undertaking a review of projects, and Petronas itself has aborted some of its projects. It is sometimes better to wait for the contracting market to get better. When the market is not too tight, then we can embark on those projects,” he said.

He also revealed that while Petronas plans to announce another two risk service contracts soon, there seems to be less interest in the remaining marginal oil fields, because of the smaller deposits involved and less data available. As such, Petronas' unit set up to work on such projects, Vestigo Petroleum, will work on the remaining fields.