Can offshore companies expect an earnings recovery soon?

Vessel supply glut still badgers the market.

While the improved sentiment in oil prices has seen a lift in Offshore Support Vessel (OSV) stock prices, oil majors are likely to keep capital expenditures at the flatline, leading to no uptick in earnings until 2018.

According to UOB Kay Hian analyst Foo Zhiwei, 2017 capex is expected to be flat, inching up slightly by 2.5% at best.

"While oil prices at above US$53/bbl will put oil majors at break even, it is not likely to spur a capex recovery," he stressed.

With this, earnings for offshore firms are likely to remain muted.

Foo noted that the OSV market still remains severely oversupplied, as 58% of Anchor Handling Tug Supply (AHTS) and Platform Supply Vessels (PSV) continue to be underutilised.

As of September, 383 AHTS and PSVs remain on orderbook, with another 758 cold stacked worldwide.

"With 2017 capex likely to remain flat, activity is not expected to see a significant uptick. A highly-fragmented Southeast Asian market, coupled with the high supply of idle vessels will see continued low dayrate bids," Foo said.

He added, "At current levels, OSV owners are at cash breakeven. An earnings recovery, if any, is still far away."