My thoughts on the deepwater OSV fleet renewal in the US Gulf of Mexico are evolving, if even in a nuanced way. This comes from several meetings and conversations following the recent International Workboat Show. I continue to believe that new vessels will be built against specific, long-term contractual requirements. However, both the number of vessels to be built and the timing of their construction will likely vary from what I had anticipated.

I now believe that new vessels will not be contracted to be built beyond at least another 18 months (more likely three years or more). It is not uncommon for OSVs to work beyond 20 years of age, but it is has been very uncommon for vessels greater than 15 years of age to continue to work for some of the most demanding clients in the region. Though our clients have expressed preferences, and at times have limited long-term charter vessel age, solutions to extend life of the fleet to 20 years (or more) are now being considered. Given the relative cost of new construction compared to cost to extend the life of existing vessels, it makes great sense.

The cost to build a new deepwater OSV today is approximately $90 million. Even with a very long-term charter contract, the charter rate will eclipse $75,000 per day, at a minimum. This represents a roughly 100% increase from the current long-term charter rates today. In comparison, a quality vessel of 10 years of age, can have its useful life extended to 20 or more years with investments in critical ship systems to maintain its efficiency and reliability. During the 10th through 15th years of its life, $15 or even $20 million dollars must be invested to preserve efficiency. These costs will result in relatively small increases in the vessel’s charter rate when compared to a new, $90 million vessel.

Jackson Offshore retains some of the youngest vessels in the USGOM and we will continue to invest in the most valuable and viable life extensions.