Norway's Offshore Shipping Sector Faces Bleak Year As Oil Price Pain Deepen
LONDON/OSLO, Dec 1 (Reuters) - Norwegian companies that provide supply ships and drilling rigs to the global oil industry face a bleak year ahead as contracts disappear and financing options dwindle in the face of weak global crude prices.
They could increasingly be forced to sell or write down the value of assets, cut jobs and tap shareholders for cash to weather the downturn, according to industry experts.
This would herald more pain for Norway, where the overall oil sector accounts for about a fifth of the economy and unemployment is rising, especially in the oil capital Stavanger and its environs on the west coast.
Oil firms like Statoil, which offshore shipping companies rely on for business, have slashed costs and projects to cope with a 60-percent plunge in crude prices since June last year.
The offshore shipping sector provides complex services and equipment for oil and gas companies such as platform supply vessels and anchor-handling tug supply craft which tow oil rigs and assist in their positioning. It employs around 17,000 people, according to the Norwegian Shipowners' Association.
The Norwegian oil services sector stock index has lost more than half its value since Brent reached its peak in June 2014. (Graphic: http://reut.rs/1lUcSH9)
The effects of the oil price drop have been underlined by supply ship owners in recent weeks. Last month Deep Sea Supply said it had taken 10 platform supply vessels out of service - out of its total fleet of 39 ships. Days later, World Wide Supply had said it would not be able to make a scheduled debt interest payment.
And the industry's predicament could deepen next year, when oil investments in Norway are expected to fall even further . Several supply ship companies also have bond debt maturing in 2016, with more cash-raising options limited.
"We expect rougher weather in the oil and gas sector, especially in OSV (offshore support vessels) and rigs, and we will see the (asset) impairments increasing in 2016," said Terje Turnes, chief risk officer with Norway's top bank DNB.
"For OSV in 2016, we believe this will be the most challenging year - we see many companies that need to go through restructuring," he said, adding that rig firms would face their toughest times in 2017.
Hans Kjelsrud, head of shipping with rival bank Nordea , said it also expected turbulence ahead. "If oil prices remain at this level a few years ahead, there will be some companies who encounter problems," he said.
At 4.6 percent, unemployment in Norway is still low by international standards. But any further job cuts are likely to further hit Stavanger and its region, which account for 72 percent of the country's rise in unemployment over the past year as oil firms and their suppliers have cut costs.
"Unless there is a political event to disrupt supplies, at least 2016 will be bad for oil and the offshore industry, which will impact negatively the offshore (supply shipping) market," said Basil Karatzas, head of New York ship finance consultancy and brokerage Karatzas Marine Advisors & Co.
Sturla Henriksen, head of the Norwegian Shipowners' Association, said 100 offshore vessels - out of a total of 630 - had been taken out of service this year, including 10 rigs. He said an additional 10 rigs could be laid up by next summer.
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