Matthew Rigdon, Executive VP and COO

Deepwater OSV charters, particularly those of Super Major oil companies, have long had a strong age limit preference (if not strict rule) to cap the age of vessels in their term-charter fleet. These limitations are now being reconsidered as charterers recognize that the current fleet is aging, yet there are no new vessels in construction or even contracted to be built. While the life of the current fleet is looking to be extended, there will come a time in the not-too-distant future when new vessels will absolutely need to replace the oldest. The challenges in building new vessels are primarily the cost of construction, the availability of financing, and the charter rates and contract durations needed to justify the costs, while also securing debt financing from a lender. However, something that is often missed in in these calculations is the fuel cost that will be used to power new vessels. 

There has been a lot of discussion among these Super Major charterers about what will fuel then next generation of OSVs. While there have been vessels built with alternative fuel solutions like fully powered electric batteries, LNG, methanol, and hydrogen, the adoption of such fuels in the OSV space has been very limited. In the US GOM, one major challenge is the logistics for transport and storage of these alternative fuels to and from Port Fourchon. Until there can be consensus  on the future of fuel for OSVs, it is more likely that a meaningful number of new vessels will not be built. To the extent that any news vessels are built, they will be conventional diesel fueled vessels possibly with battery hybrid systems. 

The inherent risk in building new vessels that are diesel fueled is that charterers may move away from diesel during the useful life of the new vessel. For this reason, any new build vessel will require that the charter duration, charter rate, and financing align to result in zero net debt at the end of the contract term. That I can recall, no new vessel charter contract for an OSV has ever met this at the end of their original contract. 

These dynamics certainly place greater importance on the newer and more efficient OSVs which results in greater value for JOO, as our fleet that is among the youngest in the industry.