Flexible charters are route for Reach to stay nimble

Small contractor has been keeping up exceptionally high utilisation in a sector littered with the wreckage of competitors

Reach Subsea has remained lean, agile and flexible to maintain 83% vessel utilisation compared with the industry average of 43%, while other entrants have been dropping like flies.

Given this high utilisation, the Oslo-listed, Haugesund-based company is on track to add two vessels to its five-strong fleet by 2020, chief executive Jostein Alendal tells TradeWinds.

“This is absolutely a spot market and visibility is very low,” Alendal said this week.

“To maintain our high utilisation, it has been a question of being small, quick and flexible, but also we managed to restructure our charter commitments so we are not that exposed to financial troubles.”

He says heavy charter commitments are among the main causes behind the disappearance of many competitors recently.

In January, Reach raised NOK 85m ($9.9m) in new equity, which will be used to push further into inspection, maintenance and repair (IMR).

Arctic Securities, which initiated coverage of Reach this week with a “buy” rating, says IMR and brownfield work should be more resilient in subsea than greenfield developments. Alendal agrees.

Founded by Alendal in 2008 as an engineering outfit, Reach listed in 2012 and entered subsea operations in earnest in 2013. It started by using its first two owned work-class remotely operated vehicles (WROVs) as a single “spread” on a vessel chartered in from Bourbon.

Today, it is fielding five ROV spreads on five offshore construction vessels from Norwegian owners Solstad Offshore, Ostensjo Rederi, Eidesvik Offshore and Simon Mokster Shipping. Havila Shipping was added to that list in January.

These spreads have held up fairly well, earning about NOK 16m each in 2014, NOK 9m in 2015 and NOK 6m in 2016, says Arctic. The goal is seven spreads.

Before the downturn, previously high margins in the subsea sector attracted a rush of new entrants, several backed by private equity. Many, such as Ceona, Harkand and Reef Subsea, have either gone into administration or are fighting for survival.

Several of these competitors were set up with commitments signed in the previous peak for hugely expensive newbuildings or costly long-term charters.

As a pure charterer, Reach has not been saddled with high newbuilding debt and also has been able to negotiate flexible charters. Some are “pay as you go”, which spreads the risk to shipowners.

Under co-operation agreements are Eidesvik’s 146-metre Viking Neptun (built 2015) to 2018, Mokster’s 76-metre Stril Explorer (built 2010) to 2018 and Havila’s 98-metre Havila Subsea (built 2011) until 2020. Havila’s vessel is under the “pay as you go” system.

Long-term charters are on Solstad’s 121-metre Normand Reach (built 2014) until 2019 and Ostensjo’s 85-metre Edda Fonn (built 2003) until December this year. Alendal calls these “flexible charters”, with vessel days limited to five or six months per year.

Reach’s in-house engineering as a contractor means it is able to market its ships directly to end clients, unlike subsea tonnage providers. Only about 25% of the global IMR fleet of 270 ships is owned by companies with in-house engineering, according to Arctic.

About 25% of Reach’s 2016 revenue came from renewables pro-jects. This will soon be split evenly between offshore renewables and hydrocarbons, says Alendal.

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