Qatari OSV charters hanging by thread for offshore owners

The 'Qatarisation' of offshore ships in Qatar’s national waters appears to be looming large and painful for shipowners

International owners with nearly 30 offshore support vessels (OSVs) in Qatar are thought to be in imminent danger of losing their hard-won charters in the area, market sources tell TradeWinds.

Vessel fixtures as long as five years and some signed in just 2016 “could go up in smoke really any day now”, according to a source with direct knowledge of the matter. About 15 charters are said to be the most vulnerable.

These Qatari charter cancellations are one potential result of the fallout after Bahrain, Egypt, Saudi Arabia and the United Arab Emirates (UAE) cut diplomatic ties and started a boycott of Qatar on 5 June.

Several letters of agreement (LOAs) for charters have already been cancelled, some contract options are not expected to be declared but, so far, no existing long-term charters have been terminated.

The Middle Eastern offshore market has been rife with talk of the charters in Qatar. TradeWinds spoke with six independent sources but not one of the affected shipowners agreed to comment on the record for fear of the obvious commercial consequences.

“The owners are still actually holding the contracts in Qatar, so there is just no way they can speak out openly but, on the other hand, they want the market to know,” one shipbroker said. “It was a hard fight in the Qatari tenders to start with and, last year, there were about 160 bids for just five vessel positions in one. Several of the winners spent $500,000 or $1m on their ships to meet requirements and they expected to pay that back over the five years of the charter.

“Cancellations would leave them in a tough spot for finding new work and rates would be lower. It would turn a large number of ships back into the terrible market and make the global market smaller. This is just bad for competition but it clearly sends the wrong signal about the risk of making future investments in Qatar.”

Last week, Qatar’s government revealed measures meant to help its private sector, such as reduced rent in logistics zones and some postponed loan instalments to Qatar Development Bank. At the same time, the government urged all ministries and departments to increase local-content procurement to 100% from the previous 30%, according to state media.

However, sources say the move to replace non-Qatari OSVs predates this announcement by at least two months because stated-owned Qatar Petroleum or its related OSV entities have been in the market looking to purchase vessels since then.

Domestic Qatari shipowners are likely to be awarded the work seized from any owners who are perceived by Qatar Petroleum as either non-Qatari or with insufficient national ties, although there is little concrete information on the criteria.

However, most owners at risk have either local Qatari partners or local stand-alone companies holding the charters. Many of them are said to have little to no connection with the boycotting countries and their vessels flagged all over the world.

Halul Offshore — which has Qatar Petroleum as a shareholder and is by far the nation’s largest offshore owner with about 40 vessels — is set to be one of the main beneficiaries of the reallocation of these contracts, all the sources believe.

Halul chief executive Vivek Seth was unable to take a call from TradeWinds this week and did not respond to market comments that his company would be taking over some or all of the contracts.

Brokers say the owner with the most exposure is Indian and Singaporean-backed Allianz Marine with 10 ships, eight of which are on five-year charters.

Also in Qatar are Bourbon with seven ships, Pacific Radiance with four, Standford Marine with three and Smit Lamnalco with two. Global Marine Services, PACC Offshore Services Holdings, Zakher Marine and Petroserv are connected to charters for one ship each.

Miclyn Express Offshore, Eastern Navigation and Allianz are understood to have lost LOAs.

“We are a global owner with no connection to any diplomatic trouble,” one source said.

“It is fair for any country to have its cabotage restrictions but we met all the requirements of the tender, we bid against all the others and we won our contract fair and square.

“Everything we hear tells us that we are going to lose this contract and, if we lose this contract, it is just not fair business. Finding new work will be very hard. This is a big deal for us, especially in this market.”

If any charters do go up in smoke, OSV owners have no hope of termination fees. Unlike the rig market, where stronger contract clauses mean termination fees usually pay a sizeable portion of lost revenue, today’s standard OSV contracts normally contain only 30 to 90 days of notice for a cancellation by the client.

“Offshore owners have never been really good about getting termination fees into their contracts," one shipbroker said. "This is even more the case now because owners have almost zero bargaining power."