Hornbeck Offshore Services (NYSE:HOS) owns a large fleet of offshore vessels and represents a play on the continued trend towards more global deepwater drilling activity by oil and gas operators. Although this fleet is currently underutilized, the company may see rising demand for its services if exploration and development spending continues to increase as predicted over the next few years.
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Oil and Gas Spending Survey
A recent survey from Barclay's Capital found that global exploration and production spending to find oil and natural gas will increase to $529 billion in 2011, up 16% from last year. The Gulf of Mexico is an important market for Hornbeck Offshore Services and the survey found that deepwater drilling rigs working in the Gulf of Mexico may increase from the eight currently working to approximately 25 in 2012.

Fleet Details
Hornbeck Offshore Services owns a fleet of 55 offshore vessels that provide various services in support of offshore drilling activities. The company also owns nine tank barges and nine tug boats. This count doesn't include seven vessels that are currently stacked and not being actively marketed by the company.

Offshore Supply Vessels (OSV) are used to serve offshore drilling rigs and production facilities and support offshore and subsea construction by operators, as well as repair and maintenance activities.

OSV's are also involved with the transport of various materials and supplies between offshore facilities and onshore supply areas, including fuel, cement, drilling mud, water and personnel. The vessels are also used to enable the decommissioning of offshore platforms and other facilities. Multi Purpose Support Vessels (MPSV) are larger and more robust versions of OSV's with additional specialized capabilities to support more complex offshore drilling activity.

Gulf of Mexico
Hornbeck Offshore Services is dependent on business generated from activity in the Gulf of Mexico. Although the moratorium on new drilling permits in this region has been lifted, only a limited number of new permits have been issued since then. It is not clear when the industry will resume activity at previous levels as they review and adjust to the new regulations in effect.

Utilization
Hornbeck Offshore Services reported an average of 14.4 OSV's stacked and not working during the first quarter of 2011. Utilization of the company's marketed fleet of vessels averaged 82.2% during the quarter, but only 59% if the stacked vessels are included. This was a sequential decline from the fourth quarter of 2011, as oil spill response activity that the company received after the BP (NYSE:BP) accident ended in late 2010.

Financials
Hornbeck Offshore Services generated 92% of its EBITDA in 2010 from the company's upstream fleet of OSV's and MPSV's, with the balance from the downstream tugboat and barge operation.

Competitors
Hornbeck Offshore Services competes with a number of other public and private companies in many of its markets. These include Tidewater (NYSE:TDW), GulfMark Offshore (NYSE:GLF) and SEACOR Holdings (NYSE:CKH).

The Bottom Line
Hornbeck Offshore Services owns and operates a large offshore fleet of vessels that serve various functions in support of offshore oil and gas drilling. his underutilized fleet might eventually find rising demand as exploration and production spending increases in the long term. (For more, see A Primer On Offshore Drilling.)

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