“With a pedigree that dates back over 30 years, Hornbeck Offshore has built a strategy based on in-depth understanding in our industry. To be sure, nobody can control the cyclical forces that impact the oilfield service market, but we can control how we position ourselves to respond to them.”
Our Investment Thesis
The following is a summary of the underlying macroeconomic trends that we believe are impacting our industry worldwide and that have always served as our investment thesis for our business strategy:
- Oil and natural gas are the predominant fuel sources of our energy-driven economy
- World oil consumption will continue to increase, especially driven by China and India
- Alternate fuels are not likely to displace oil and natural gas for the foreseeable future
- The oil and natural gas production decline curve is real
- The only viable way to replace existing reserves is through the drill bit
- Oil companies are increasingly searching for large deposits of hydrocarbons offshore
- The steady trend in offshore drilling is toward deeper waters and deeper well depths
- Exploratory success drives a commensurate increase in subsea production infrastructure
- Deeper waters tend to be farther removed from the shore-based logistics chain
- Deeper wells require more drill pipe and exponentially greater liquid volumes
- Subsea infrastructure needs to be inspected, repaired, and maintained at least annually
- New generation OSVs and MPSVs are ideally suited to meet all of these demand drivers
With our large and growing multi-class fleet of increasingly larger, more versatile vessels, we are well positioned to take advantage of these macro-trends.
Apply Existing and Develop New Technologies to Meet our Customers’ Vessel Needs.
Our new generation OSVs and MPSVs are designed to meet the higher capacity and performance needs of our clients’ increasingly more complex drilling and production programs. We are committed to applying existing and developing new technologies to maintain a technologically advanced fleet that will enable us to continue to provide a high level of customer service and meet the developing needs of our customers. For example, in the immediate aftermath of the recent Deepwater Horizon incident at the Macondo well, we were able to showcase the versatility of our diversified fleet through our involvement in every major category of marine spill response and relief effort. In fact, our vessels were eventually used to “kill” the subsea blow-out. This led to our two 370 class MPSVs recently being designated as dual-service spill response vessels for the GoM by the Marine Spill Response Corporation, or MSRC, which has assisted our customers in obtaining drilling permits.
Expand Fleet Through Newbuilds and Strategic Acquisitions.
We plan to expand our fleet, as market conditions warrant, through construction of new vessels, retrofitting of certain vessels and strategic acquisitions. The 300 class HOSMAX vessels that we are building as part of our fifth OSV newbuild program, will complement our multi-class fleet offering by adding vessels on the high-end of the equipment spectrum. These high-spec vessels are well-suited to service the substantial number of deep and ultra-deepwater drilling rigs that are currently under construction and expected to deliver over the next several years. In addition, we believe that acquisition opportunities are likely to arise in the Upstream segment. We intend to use our expertise and experience to evaluate and execute strategic acquisitions where the opportunity exists to expand our service offerings in our core markets and create or enhance long-term client relationships.
Pursue Optimal Mix of Long-Term and Short-Term Contracts.
We seek to balance our portfolio of customer contracts by entering into both long-term and short-term charters. Long-term charters, which contribute to higher utilization rates, provide us with more predictable cash flow. Most of our long-term charters contain annual dayrate escalation provisions designed to allow us to keep pace with cost inflation. Short-term charters provide the opportunity to benefit from increasing dayrates in favorable market cycles. We plan our mix of long-term and spot market contracts with respect to our OSVs based on anticipated market conditions in our core markets. We typically seek to maintain sufficient long-term contract coverage to meet our debt service and other fixed obligations, such as recertification related drydocking charges.
Leverage Our Geographic Presence in Our Three Core Markets.
We have strategically chosen to focus our efforts in three core geographic markets, the GoM, Brazil, and Mexico. While the GoM has and will continue to be a priority for us, we have recently expanded our presence in each of Brazil and Mexico as we anticipate long term growth in those markets. We have maintained our Jones Act coastwise trade endorsements for over 70% of our vessels operating abroad. Given the relatively close proximity of these markets, we are able to readily move such vessels among them. We believe this will allow us to conduct a more thorough on-going alternative analysis for vessel deployments within such markets and, thus, better manage our portfolio of contracts to enhance dayrates and utilization over time as contracting opportunities arise. Currently, we have roughly 30% of our active OSV fleet located in Brazil and Mexico. In addition, we are licensed in Mexico as a naviera and in Brazil as a navigation company (EBN), which allows us to bid directly to Pemex and Petrobras, respectively, and will allow us to streamline our operations and reduce costs in the future. In order to enhance our competitiveness in Mexico, we have re-flagged, or placed under Mexican registry, five of our older new generation U.S.-flagged vessels. We may re-flag additional vessels for use in our Mexican and Brazilian operations as market conditions warrant. Practically all of our remaining fleet is still in the GoM, which will allow us to benefit from our substantial operating leverage in the next up-cycle, which we believe has recently commenced.
Maintain Diversified Service-Offering.
In addition to expanding our geographic footprint, our market strategy has been to diversify our revenue mix by adding many oilfield and non-oilfield specialty niche services. Our vessels have been adapted to operate in a host of oilfield specialty configurations, such as flotel services, extended-reach well testing, seismic, deepwater well stimulation, other enhanced oil recovery activities, high pressure pumping, deep-well mooring, ROV subsea construction, installation, IRM work and decommissioning services. We have also ventured into diverse non-oilfield specialty services such as military applications, fiberoptic cable-lay, and oceanographic research.