COLUMN | DOF your hat to Maersk’s US$1.12 billion offshore exit – Danish Cinderella finds Prince Charming in Oslo [Offshore Accounts]

COLUMN | DOF your hat to Maersk’s US$1.12 billion offshore exit – Danish Cinderella finds Prince Charming in Oslo [Offshore Accounts]

For years Maersk Supply Service was an unloved child within the Maersk Group. In 2016, the Danish shipping giant, with rather poor timing, decided that it would exit oil and gas operations.

The company quickly sold Maersk Oil to TotalEnergies in August 2017 for US$7.45 billion, whilst Maersk Drilling and its fleet of offshore rigs were spun out as a separate publicly listed company in 2019. These were eventually bought by Noble Corporation in 2021.

Left in the scullery with the rats

Maersk Maker Maersk Supply Service
The Maersk Supply Service AHTS Maersk MakerMaersk Supply Service

However, efforts to sell Maersk Supply Service and its shrinking fleet of mainly large anchor handlers and subsea vessels failed several times. Instead, the business went through rounds of restructurings, redundancies, and strategic flip-flops: laying up, selling and scrapping ships, opening and closing an integrated services business for decommissioning, and ordering a wind turbine installation vessel (WTIV) for US$350 million at Seatrium in Singapore.

Eventually, Maersk Supply Service was taken private only a year ago in March 2023, by A.P. Moller Holding, the unlisted holding company set up by the Maersk family and owned by the A.P. Møller Foundation. A. P. Møller Holding paid US$685 million to take the business out of the hands of its publicly listed container, logistics and terminal operations company, in which it controls 51 per cent of the votes. At the time, we said “We believe Maersk is one of the best run companies in the whole shipping industry, and this move is logical for both sides of the family-controlled equation.”

Shrinking back to profitability

The year 2023 saw Maersk Supply shed six vessels, including a number of laid up anchor handlers in the North Sea. The company also laid off 130 staff, mainly in the UK and Australia, with CEO Christian Ingerslev telling staff "Maersk Supply Service has been on a transformational journey since 2016.”

The company struggled back to profitability last year, achieving operating profit (EBITDA) of US$37 million from revenue of US$423 million. Denmark’s Shipping Watch reported that Maersk Supply made a net profit of US$43 million last year, up from US$3.7 million in 2022.

The shipping company made a one-off gain of US$51 million on the sale of the six anchor handlers (Maersk Tracer became SPM Neel Pratap 180, the 2006-built Maersk Dispatcher become Aquaman II, and Maersk Detector became plain and simple Detector for JD-Contractor, amongst others) and Maersk Supply paid out a big dividend to its parent company ahead of the sale. Now, the transformational journey has come to an end.

The subsea slipper fits – perfect synergies

DOF Group
A DOF vesselDOF

Just 15 months after buying the business, the controlling family and the foundation have flipped Maersk Supply Services in a US$1.12 billion deal with Norway’s DOF. Notably, Maersk has not just doubled its money, it has kept Maersk Supply’s wind turbine installation vessel (WTIV) business – with delivery of the ship scheduled for 2025, and a contract already in place to install offshore turbines for the Empire Offshore Wind farm on the east coast of the United States. Our view is that Maersk will eventually acquire Denmark’s largest WTIV operator, heavily indebted Cadeler, probably when that business hits a cash crunch a few years from now.

And Maersk has also kept the eight Maersk Supply Service vessels working in Brazil (six AHTS and the aged 2006-built, Brazilian flag Platform Supply Vessels (PSVs) Maersk Vega and Maersk Ventura, which were not included in the deal, either). Maersk retained these, presumably on account of anti-trust considerations, as DOF already operates 22 vessels in Brazil, and has been disposing of its own aged PSVs. We remain interested to see who picks them up, and the Maersk fleet would be a nice fit for Brazil’s rising star Compagnie Maritime Monégasque (CMM) or for Rio-listed Oceanpact.

You shall go to the ball at the Oslo Stock Market

The unloved stepchild has proved herself to be Cinderella with the US$1.1 billion sale. The DOF announcement highlights that it is acquiring Maersk Supply Service’s fleet of 22 vessels in total, including 13 anchor handling tug supply vessels (AHTS), eight subsea construction vessels, and the US$95 million cable-layer Maersk Connector.

DOF said in its detailed presentation that it values the four I-class subsea vessels and 2008-built Maersk Forza at US$582 million, close to US$118 million per vessel, and the five M-class AHTS at US$363 million, US$72 million a ship, before a 21 per cent fleet discount.

The deal catapults DOF ahead of its nearest rival, recently restructured Solstad, which operates just 24 subsea vessels and 16 anchor handlers. The combined Maersk Supply and DOF will now own and manage a fleet of 65 vessels, including 25 anchor handlers and 33 subsea vessels. Sea1 Offshore owns only two subsea vessels and six anchor handlers, whilst Bourbon Subsea has ten subsea vessels in service, mostly smaller than the combined DOF – Maersk fleet.

This is an impressive consolidation that should give the combined company vastly improved pricing power. It is a leaf straight out of the Tidewater book – consolidate the global fleet in an offshore segment, and jack up the prices before the clock strikes midnight.

Fairy Godmother smiled on the DOF shares

DOF relisted in only June 2023 after a painful and bitterly contested restructuring, which saw the previous shareholders wiped out and creditors seize control of the company amid lawsuits, challenges to the board, and angry public meetings. The company's financial creditors ended up converting approximately NOK6 billion (then worth US$572 million) of debt into equity. Even before the company listed, Subsea 7 had launched, then aborted, a takeover bid for DOF.

The company raised NOK392 million (US$37 million at today’s exchange rate) in the initial public offering last year at an opening the share price was NOK28 (US$2.65), and just a year ago, the company’s market capitalisation was only NOK4.9 billion (US$464 million). At close Friday last week, the company was valued at NOK18.87 billion (US$1.79 billion) and the shares stood at NOK100.70 apiece (US$9.54) each. Remarkably, platform supply standout Tidewater’s shares are up 73 per cent year on year to Friday, but in the last year, DOF shares are up 178 per cent. The shares in many drilling companies have actually gone down in the same period; without question, DOF has been a star.

Lessons learned from 2014?

Notably, the deal is paid for with a mix of cash and shares, so DOF is avoiding the high debt and high leverage that led the company into distress after the crash of 2014. A.P. Møller Holding will receive US$577 million in cash, paid for by a new bank loan of US$500 million by DOF and the proceeds of a private placement held on Friday, which raised NOK1.06 billion (US$100.4 million) by issuing around 10.75 million shares at NOK99 per share.

A.P. Møller Holding will also receive new shares in DOF and two board seats. These 58.88 million newly issued DOF shares mean that A. P. Møller Holding will own 25 per cent of the combined company, and will be the biggest single shareholder in DOF.

DOF now has a shareholder register that resembles a veritable who’s who in shipping, with seasoned veterans Arne Blystad, Kristian Siem, and John Fredriksen also holding large minority stakes. This strong shareholder base should be an asset for future investment, provided that the myriad egos can avoid fighting, as happened at Siem Offshore, which ended up being split in two by feuding billionaires.

Well, like an unsuspecting ugly stepsister, I never saw that coming. Everyone knew that DOF would be part of a consolidation play, but few saw the Maersk deal as likely before it was announced – we were expecting DOF shareholder Kristian Siem to make a move after his abortive effort with Subsea7 last year. He recently separated off nine high-specification ships from what was his eponymous offshore company (now Sea1 Offshore) and has been vocal on the need for consolidation in the subsea space.

Future path to happily ever after?

So, will Maersk Supply and DOF live happily ever after? In the short term, yes, as DOF shares were up 10 per cent immediately after the Maersk deal was announced. The new company has an unparalleled ability to raise charter rates given its dominant position in an otherwise fragmented subsea market.

DOF has been slow to the recovery party. Despite its large market capitalisation, the company made only US$6 million in net profit in the first quarter. Its 2023 full year results were flattered by a one-off writeback of US$181 million on the impairments it had made on its vessel values.

The acquisition of Maersk Supply Service gives DOF the ability to price its subsea fleet I reckon to 75 per cent gross profit margins (with over US$120,000 per light construction vessel charter rate per day with ROVs). The company says that six Maersk Supply subsea vessels will be coming off charter before or in 2026, giving the opportunity for massive upward rate resets.

There is only a small new building orderbook – most notably, the four Salt Ship-designed subsea vessels ordered by Seatankers at Wuchang. However, the prospect of juicy margins as DOF raises prices will likely attract other players to invest in newbuilds, as REM and Agalas have already done.

How old is the combined fleet?

One of the stranger features of the presentation of the deal is the way that DOF tip-toes around the fleet age. DOF states that the combined Maersk Supply and DOF anchor handling and subsea fleet has a combined age of only 10.6 years “value weighted basis”. Obviously older ships are worth less than new ships, so this is obfuscatory nonsense.

Please don’t make me go on the internet and go through each ship and work out the age one by one, but apparently, this is what DOF wants investors and readers to do. And it is not even easy to do as the Maersk Supply specifications sheet curiously omits the year of build of the company’s vessels (a piece of information most charterers would be interested to know).

The key fact is that the four Maersk Installer class subsea vessels were delivered in Dalian in 2017 and 2018 and the five Maersk Mover class anchor handlers were delivered in Norway in 2016 and 2017. Additionally, Maersk Cutter and Maersk Clipper, anchor handlers working in Canada, were built in 2014 and 2015.

Unfortunately, having some expensive new vessels doesn’t miraculously rejuvenate the other older vessels like Maersk Lancer and sister AHTSs built in 2009 and 2010, and the Maersk Trader and sister AHTS vessels built in 2008 and 2009, nor Maersk Handler built in 2002. That is not how average fleet ages work. It is disappointing to see DOF resort to dodgy arithmetic to justify what is actually a good deal.

Using the recognised methodology for calculating fleet age (add up the ages and divide by the number of vessels (hint to DOF CFO: if this is difficult, you can use a calculator), the Maersk ships DOF is acquiring are around eleven years of age on average (full fleet ages and specifications are given on page 32 of the deal presentation). There will be a need to consider fleet renewal in the next five years, but not on the same pressing scale as at Tidewater.

Skin the game

Another cause for optimism is that both DOF’s longstanding CEO Mons Aase and its chairman Svein Harald Øygard participated in the private placement on Friday and increased their shareholdings in DOF. Mr Aase bought 31,243 shares in the placement, paying NOK3.1 million (US$294,000) to take his total stake in DOF up to 716,026 shares. This stands in a stark contrast to Tidewater where CEO Quintin Kneen has dumped tens of millions of dollars of shares in the last six months.

Sadly, one group of people who will not have skin in the game going forward are many of the shore staff of Maersk Supply. Having survived round after round of previous retrenchments, the overlap of Maersk Supply’s eight shore offices with DOF’s 18 offices means that, just as with the sale of Maersk Drilling to Noble Corporation, there will be large shore-side redundancies amongst the Maersk Supply team not working in wind or in Brazil, especially at the company’s headquarters in Lyngby.

"Unfortunately, we will see redundancies," Christian Ingerslev, Maersk Supply CEO, has already warned. "We will probably see most of the redundancies here in Denmark, as [the] DOF Group is headquartered in Bergen." He himself will also step down after the transaction closes.

Technology is the wicked stepmother?

Armada 7805 Ocean Infinity Vard Vard Vung Tau
Ocean Infinity's robotic vessel Armada 7805Ocean Infinity

We have said it before and we will say it again: far more than the bog-standard PSV segment and the anchor handling market, technology is changing quickest in the subsea space. There are two big changes – the arrival of uncrewed surface vessels (USVs) to perform basic geophysical and hydrographic survey work, and the use of autonomous underwater vessels (AUVs) to conduct pipeline survey and geotechnical surveys, a trend that has been brewing since the outbreak of the Subsea Survey War in 2020 (and here).

So far, the revolution promised by Ocean Infinity in the subsea space has largely failed to materialise. Ocean Infinity’s first eight 78-metre-long Armada series survey vessels remain resolutely fully crewed, even if the company claims they are “lean-crewed”. Another six bigger Armada 86 class survey vessels are on order from Vard and these will likely also be fully crewed as Ocean Infinity struggles to deliver the huge cost savings it initially promised.

But all across the sector, players like Reach Subsea are investing millions to try to make the core subsea and light construction fleet of DOF redundant, except for the most complex and challenging jobs. Last month, Kongsberg Maritime announced that it had received Approval in Principle from classification society DNV to enable the role of Chief Engineer on a ship to be located in a remote operations centre, rather than onboard the vessel. DNV now approves that engine room duties can be carried out from a desk-based workstation, instead of on a ship.

Despite its fleet of over sixty ships, the combined DOF-Maersk Supply entity will only own two AUVs and no USVs. The bumper short-term profits DOF is going to generate over the next few years will provide the cash with which the company can set about addressing the AUV revolution that threatens to make its fleet of subsea vessels redundant. DOF's extended restructuring drama and high debt loads starved the company of new investment, whilst rivals have poured resources into autonomous subsea robotics.

The acquisition of Maersk Supply sets the scene for huge synergies, cost savings, and price increases. DOF is going to have a right royal ball in the subsea space and in the North Sea anchor handling spot market. Unfortunately, the acquisition does nothing to help DOF recover its lost strategic ground.

Technology is transforming subsea vessel operations. Being the biggest and the most legacy asset-heavy may not help DOF to address those challenges.

Background reading

We have covered the travails of DOF’s extended and painful restructuring. Click here for the full history.

Wikipedia has a great history of the Cinderella fairy story. Be forewarned, though, that it omits the latest Scandinavian offshore iteration of this age-old tale.

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