How much will an offshore energy company pay for maritime VSAT?
Many years back, I read at article in the Economist explaining the viability of drilling and producing oil in the offshore energy market. In summary, below $70, it was not economically worth doing so, due to a number of factors. Above this level, it’s very lucrative.
While interviewing an industry connectivity expert recently; they highlighted the extreme switch in circumstances and mentioned in some cases companies were storing oil in docked tankers as the price, then, made it almost worthless. The bounce-back in 2021 has been significant compared to 2020; not as great as the passenger market but still very noteworthy. We will definitely see a strong uptick in the energy sector this year, however, it won’t be all the champagne flutes and lobster dinners of yesteryear.
Many people assume offshore energy commands a very high average revenue per unit (ARPU) compared to other commercial maritime segments. In some cases, this is true. Survey, research, subsea, and seismic vessel types require high bandwidth and also undertake many IoT protocols. In general, it is also true that sophistication of operations is higher than merchant or fishing, and use of live streaming is typically much greater and widely deployed in offshore energy.
The Art of the Deal
However, the brokers of deals at these companies are also hyper-aware of how valuable their business is to connectivity service providers. Gone are the days when each vessel is worth a minimum of $10,000 per month for airtime. Offshore energy pushes very hard on deals, compounded with this are tight leasing agreements for VSAT antennas and multiple types of connectivity solutions. Airtime monthly ARPUs are not as fruitful as one would think.
Cellular, Fibre Optic and …then VSAT
Late last year, Solstad Offshore announced that the portion of its fleet using Inmarsat FX would also include Inmarsat’s relatively new Fleet LTE service (leveraging Tampnet’s 4G coverage in the North Sea). Cellular connectivity provides an improved service with high-speed bandwidth and better latency when compared to VSAT, when in range.
Additionally, the majority of fixed energy platforms tend to utilise subsea fibre-optic connections as the primary mode of connectivity rather than satellite connectivity.
Another point, contributing to the increased leverage of energy companies in deal negotiations, has been the number of take-overs and amalgamations of businesses. With frequent boom and bust periods, mergers and consolidations are common place in the market. As such, each company has multiple suppliers of connectivity on an array of legacy vessels. Talk about hedging your bets. This allows the energy company brokers significant leverage in really understanding the difference between the service providers’ offerings and the ability to push prices down where they believe to be excess margin, or no margin in most cases.
Looking at my final point, with the cyclical nature of energy prices, negotiators factor in much more wiggle room for down time of vessels. I have heard of exploration energy companies not having to pay connectivity SLA fees for 12 months if the vessel is drydocked. This is also bad for their business if they have an asset, probably an expensive one, that is not being used for an entire year. Nevertheless, it does highlight how well the energy companies perform at insulating themselves from unnecessary costs.
That said, the demands for satellite connectivity from energy companies can be significant. Vessel ARPU can vary from $1,800 to $20,000 per month, with demand speeds sometimes upwards of 30 Mbps downlink and similar uplink capabilities. This wide range of ARPU can distort the most common ARPU but it also highlights how lucrative the market is. Valour Consultancy estimates ARPU airtime per offshore energy vessel was around $7,000 in 2021.
Source: Valour Consultancy