Consolidation Not Seen In Offshore Services Sector – Yet

When prices and demand is low, people naturally look to cut costs and better position themselves for better days ahead. The trend was realized among big oil and the result was recent record profits and spending budgets.

Today, the domestic energy industry is seeing significantly decreased rig counts both onshore and offshore, uncertain commodity prices and falling utilization rates. Of course, the cyclical nature of the business is nothing new. But some analysts say the $5.5 billion Baker Hughes deal this week means top executives feel the downward trend has reached the bottom and the industry is poised for recovery and resurging oil and gas prices.

Ken Wells, president of the Offshore Marine Service Association, said these times are when major players look for deals.

“But we haven’t seen that happen in the workboat sector yet,” Wells said. “When or if that might happen I can’t speculate.”

However, the Gulf of Mexico continues to boast the lowest utilization rate of any major offshore market at 45.5 percent. One year ago, utilization was almost double that at more than 81 percent. Worldwide, utilization stands at a little above 90 percent – with most regions boasting 100 percent, 98 percent and 95 percent in Asia, West Africa and Europe. Which begs the question are the major players being scared away by uncertain policy initiatives in Washington, D.C.?

Certainly, last month’s government auction for offshore leases in the western Gulf showed very weak confidence in the region. Energy companies bid just $115 million for 162 tracts, compared to $483 million for about half of that number a year ago. And in March, a central Gulf sale attracted $703 million in bids, compared to $3.67 billion for the same region in 2008 when oil prices were above $100 per barrel.

None of these predicators bode particularly well for marine service industries operating solely in the Gulf of Mexico.