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Caspian Services Inc  (CSSV)
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    Sector  Transportation    Industry Marine Transportation


Caspian Services Inc

Business Description

We provide a range of oilfield services in Kazakhstan and the Caspian Sea region. Our business focuses in three principal areas – Vessel Operations, Geophysical Services and Marine Base Services. We manage our business through our subsidiary companies. Through Caspian Services Group LLP, a Kazakhstan LLP, (“Caspian LLP”) we manage the vessel operations business provided by our vessel fleet. Through Tat-Arka LLP, a Kazakhstan LLP (“TatArka”) we manage our geophysical services operations. Through Balykshi LLP, a Kazakhstan LLP, (“Balykshi”) we oversee the operations of the marine base.

Our vessel fleet customers employ our vessels to provide services to support their oil and gas exploration activities in the Caspian Sea, particularly in connection with seismic work and in the construction of necessary infrastructure to pursue development and production of successful exploration and production projects. This industry employs various types of vessels, referred to broadly as offshore support vessels that are used to transport materials, supplies and personnel.

The offshore marine services industry is directly impacted by the level of activity in offshore oil and natural gas exploration, development and production, which, in turn, is impacted by trends in oil and natural gas prices. Oil and natural gas prices are affected by a host of geopolitical and economic forces, including the fundamental principles of supply and demand. Each of the major offshore oil and gas production regions has unique characteristics that influence the economics of exploration and production and consequently the market for vessels in support of these activities. While there is some vessel interchangeability between geographic regions, barriers such as mobilization costs, environmental sensitivity, seasonality and vessel design suitability tend to restrict migration of vessels between regions. The effect of these restrictions on vessel migration has segmented various regions into separate markets.

In addition to the factors that impact the offshore marine services industry set forth above, our operations are also directly and indirectly affected by exploration and development activities in the north Caspian Sea, in particular, development of the Kashagan oil field. At the time of its discovery in 2000, the Kashagan oil field was one of the largest discoveries in the last 30 years. Initially, the field was scheduled to start commercial production in 2005. Development of the field, however, has been much slower and more difficult than anticipated. As a result, development and construction at the Kashagan field has been postponed several times. Development of the second phase of the Kashagan field is currently anticipated to be delayed until 2019.

Subcontractors of North Caspian Operating Company BV (“NCOC”), an operator of the Kashagan field, are the largest customers for our vessel fleet and anticipated marine base customers. Our operations are significantly impacted by development of the Kashagan field and the decisions of NCOC.

Vessel Fleet

Currently our fleet includes eight specialized shallow draft vessels designed for use in the shallow waters of the north Caspian Sea. During fiscal 2015 we sold one of our vessels to a non-related party. Out of the eight vessels in our fleet, we own six. During fiscal 2015 we operated one vessel pursuant to agreement with Acta Marine B.V., a Dutch shipping company and two vessels (one of them for a short one-month project) pursuant to agreement with Veritas Marine, a Kazakh company that owns these vessels.

Our fleet was time chartered to the subcontractors of the oil and natural gas exploration and production companies working in the Kazakhstan and Turkmenistan sectors of the Caspian Sea. Demand for our fleet is primarily related to offshore oil and natural gas exploration, development and production activities in the Caspian Sea. Such activity is influenced by a number of factors, including the actual and forecasted price of oil and natural gas, the level of drilling permit and development activity, capital budgets of offshore exploration and production companies and repair and maintenance needs.

Our customers charter our vessels and hire us to provide all necessary staffing and support for safe and efficient operation. Vessel operating expenses are typically our responsibility except that the customer generally provides for port fees and consumables such as water, fuel, lubricants and anti-freeze. In return for providing time-chartered services, in most instances we are paid a daily rate of hire. We also provide additional support services for our accommodations vessels where we are able to charge fees for accommodating and catering to the client’s personnel.

Generally we charter our vessels under time charter contracts or on a “spot” basis. Time charter contracts generally cover a specific term, typically one work season or longer. The base rate of hire under such a term contract is generally a fixed rate, though some charter arrangements may include escalation clauses to recover specific additional costs. In contrast, vessels chartered on a “spot” basis are typically chartered for a short-term basis ranging anywhere from one day to several weeks or months. There are no material differences in the cost structure of our contracts based on whether the contracts are spot or time charters because our fixed operating costs, including but not limited to, payroll, insurance and maintenance costs, are generally the same without regard to the length of the contract. Our charters are typically the product of either direct negotiation or a competitive proposal process, which evaluates vessel capability, availability and price in determining whether to award us a contract.

Listed below are the six vessel classes we operate along with a description of the type of vessels categorized in each class, the services the respective vessels perform and the number of vessels in each class we operate.

Supply Vessels. Included in this class are towing supply vessels and supply vessels. This vessel class is chartered to customers for use in transporting supplies and equipment from shore bases to offshore projects. Supply vessels have large cargo handling capabilities and are used to serve drilling and production facilities and support offshore construction and maintenance work. We own one supply vessel.

Survey/Utility Vessels. Survey/utility vessels are chartered to customers for use in performing offshore geological and seismic studies. These vessels may also have accommodations and multiple day endurance. We currently lease one survey vessel.

Anchor Handling Multicats and Support Vessel Tugs. These vessels are used to tow floating drilling rigs; assist in the docking of tankers; assist pipe laying, cable laying and construction barges; setting anchors for positioning and mooring drilling rigs and are used in a variety of other commercial towing operations, including towing barges, carrying a variety of bulk cargoes and containerized cargo. We currently own two of this class of vessel.

Cable Laying Barges. These vessels are used to lay down communications infrastructure between offshore drilling islands. These vessels typically do not have their own power source as the cable could be damaged by any propulsion mechanism. Therefore, these vessels are normally assisted by utility vessels, such as anchor handling tugs. We currently own one six-point anchoring cable laying barge.

Accommodations Vessels. We currently own one accommodations vessel. We also lease one accommodation jack-up barge suitable for stable ultra-shallow deployments. These vessels are chartered to customers to provide offshore living quarters to personnel. These vessels also offer food services, laundry and related services. Our accommodations vessels have combined capacity to house up to 105 client personnel and 32 crew members.

Crewboats. Crewboats are chartered to customers for use in transporting personnel and small quantities of supplies from shore bases to offshore drilling rigs, platforms and other installations more quickly than other vessels. We currently own one crewboat.


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