COLUMN | Dreams can come true – and so can predictions: Mexican woes, cable wars and private equity exits [Offshore Accounts]

Last week, we published some predictions for 2025.

No sooner had we published than Justin Trudeau resigned later on the same day, thus immediately fulfilling one of our conjectures. There are no more beautiful words to be heard than, “You were right.”

Mexican mess highlights Pemex cash crunch

A few days later, sources reported that Pemex had cancelled the contract for the suspended CICSA jackup Independencia I and that Norwegian-listed rig owner Paratus Energy Services, the owner of five jackups contracted to Pemex in Mexico, had unpaid bills (receivables) of US$283 million outstanding from the Mexican state oil company at the end of September, the most recent date for which a financial statement exists.

We foresaw that 2025 would be rocky for rig and boat owners working in Mexico. Actually, we were naïve to how bad the situation was already when we wrote that forecast. It is now getting worse.

When we now review Paratus’ third quarter results more closely, we see the following ominous warning had already been issued in November:

“No payments have been received since the start of the third quarter, consistent with trends amongst other similar service companies in Mexico, causing receivables to rise with billed and accrued revenues. Additionally, US$29 million was invoiced for previously unbilled services, further increasing the receivables balance… the company is also actively exploring alternative opportunities to potentially monetize part of its receivables balance of US$283 million and will update the market accordingly if it enters any such transactions.”

It's a pity that former British prime minister David Cameron and his watermelon farming buddy Lex Greensill are no long around to factor dodgy confirmed invoices and provide cash-strapped businesses with discounted cash payments against overdue receivables.

In 2024, Mr Greensill was accused by the UK Insolvency Service of misconduct in dealings that led to US$440 million of losses for a Credit Suisse investment fund and of making “misrepresentations” in relation to his failed finance firm Greensill Capital’s insurance contracts. So, I guess Paratus will have to look elsewhere other than Queensland’s finest for its Mexican factoring needs.

Be Courageous!

In the meantime, the fate of Paratus’ jackup rig West Courageous is not clear – Paratus had received a notice of suspension on the rig’s contract with Pemex at the end of November, and informed investors that the rig would be on a zero charter rate for 45 days due to operational issues with Pemex’s well planning, a standard clause in Pemex’s one-sided contract with rig owners.

Borr bills climb, unpaid by Pemex

Borr Drilling also has five rigs on term charter in Mexico with Pemex under integrated services contracts, and a quick look at its third quarter receivables showed that these, too, had leapt from US$56 million on December 31st, 2023 to US$152 million at the end of September last year, the most recent date for which figures are available.

Borr’s fourth quarter results will be released at the end of February, so watch for the change in receivables and for the cash generated from the business. I suspect it will be ugly, and the Independencia I cancellation may not be the last, as debt-squeezed Pemex tries to reduce its operating costs.

Billions lost by Pemex

Pemex has 29 jackups on hire and reported a net loss of MXN430.1 billion (US$21.3 billion) in the third quarter, its largest quarterly loss in the past 13 years, excluding the Covid-19 pandemic. It also lost US$14 billion in the second quarter and produced a record low level of oil at just under 1.5 million barrels of oil per day.

Pemex is a basket case, and it is unlikely to improve in 2025.

Look to Repsol and the private sector

More and more, Mexico is going to be reliant on the private sector for offshore investment and production growth. The oil is there; it just needs competent extraction.

Last month, “troubled” construction player McDermott International announced it had been awarded a front-end engineering and design contract by Repsol for the Polok and Chinwol oilfields in the Mexican Gulf of Mexico. BW Offshore is also studying the relocation of its existing OSX-1 floating production storage and offloading (FPSO) vessel to the field when Repsol makes its final investment decision to proceed with the Polok-Chonwol project later this year, as per Blake Wright in JPT.

Cable protection and subsea newbuilds

Another prediction that has seen a lot more activity in a short space of time has been on the threat to subsea cable assets, threats made real when the Chinese vessel Yi Peng 3 appears to have cut two data cables with its anchor in the Baltic in November.

In late December, the Cook Islands registered tanker Eagle S was detained by the Finnish authorities under suspicion that it too had deliberately dragged its anchor and damaged both power and telecoms cables between Finland and Estonia on Christmas Day. Last week, Finnish investigators recovered the anchor from the seabed and eight crewmembers are under a travel ban from the country whilst the investigation continues.

In October 2023, the Hong Kong-flagged containership Newnew Polar Bear was suspected of damaging a Baltic Sea gas pipeline between Finland and Estonia, as well as several fibre-optic links by dragging its anchor, and the Finnish police once again retrieved it. In the middle of last year, the Chinese government actually admitted in a report that the vessel owned by Chinese ship owner NewNew Shipping Line had damaged the Baltic gas pipeline but "by accident," as per the South China Morning Post.

As the Finnish investigators meticulously build their case on the Christmas Day incident, we look forward to seeing the next statement from Finnish lawyer Herman Ljungberg, who represents Eagle S' owner, United Arab Emirates-based Caravella. Mr Ljungberg has been vociferous in his attempts to block all investigation of the vessel’s activities, despite the significant damage involved in the case.

Cut off near Keelung

Last week, Taiwan claimed that it too had suffered damage to an undersea cable off the northern port of Keelung, as we reported. The authorities in Taipei blamed the Chinese-crewed Shunxin 39, seemingly registered in Cameroon.

It is said to be owned by a single vessel company in Hong Kong called Jie Yang Trading, which has one listed director, a mainland Chinese national named Guo Wenjie. He denied that the ship had caused the accident when contacted by Reuters.

Tanzanian sham

The Taiwan Coast Guard Administration requested the vessel to return to port in Taiwan for investigation, but they could not board due to heavy weather, and the vessel departed, allegedly for Korea. The plot thickened when it became apparent that the 19-year-old tramp vessel ship of 3,300 DWT is also known as Xing Shun 39, with registration in Tanzania, a well-known flag of disrepute open registry. The ship had previously been registered in China until 2023.

Photos suggested that Alang might be a more suitable final destination for the vessel than Busan.

Zig-a-zig sabotage?

The Financial Times then released AIS data showing the erratic course of Xing Shun 39, which criss-crossed and zig-zagged over multiple subsea cable routes off northern Taiwan in the weeks preceding the severing of the Chunghwa telecom data cable. This was not exactly a commercial routing.

It is well worth reading the deep dive by maritime intelligence specialist Windward into the case. Windward looked at AIS transmissions from the scene of the alleged sabotage. After investigating the signals from the main Tanzanian-flagged vessel and what its analysts believe are its additional three false identities, its investigators concluded as follows:

“Three out of the four MMSIs transmit different variations of the same name (Shunxing39, Xingshun39, and Xing Shun 39). The fourth vessel (Baolong36) [no space in between], is seemingly unrelated, until we deep dive with the help of the Windward Maritime AI™ platform. It seems that Baolong36 stopped transmitting in July 2023, the same date that Xing Shu 39 changed its call sign. Eight months later, Xing Shun 39 changed to its current name from Baolong36 – which has not been operational since July 2023.

"While all four identities transmit various sizes throughout their operational lives, two vessels are the same size (101 metres), while the other two are a different size (59 metres). Two of the four vessels share the same commercial manager, a Vietnam-based company with just one vessel in its fleet. Only two vessels share an IMO [number], but all four call signs are different. All four MMSIs lost transmissions at different times, but they displayed the same movement pattern in the same area. Interestingly, when one transmits, the other does not.”

Windward documents what TankerTrackers.com and journalists across the maritime industry have been documenting for years – that AIS tracking is open to spoofing and abuse and that fake registrations, ship swapping between registries, and even faking names and identities have become all too common amongst the Dark Fleet and other unregulated players in the industry.

As with all successful law enforcement operations, there will be two elements to containing this problem. Firstly, don’t expect the International Maritime Organisation (IMO) to do anything. Action against substandard ships, substandard flag states, and vessels that damage or attack subsea cables will need to be driven by the countries threatened, not by the IMO and not by financially self-interested open registries.

New measures to criminalise vessel masters who knowingly broadcast fake AIS data, and whose vessels are involved in cases of suspicious damage to subsea infrastructure, will become increasingly prevalent, I believe.

Will this mean that innocent seafarers are criminalised in cases where genuine accidents have occurred? Probably, but in a situation where a ship like Shunxing 39/Xingshun 39/Xing Shun 39 can loiter and sail in circles over vital subsea infrastructure apparently dragging its anchor for days on end, whilst seemingly spoofing AIS data, this is not surprising.

New enforcement will also be matched by increased deterrence and an increased response capability from states, which we highlighted in 2023:

 “Japan, Australia, France, Canada, and most especially the United States are incredibly vulnerable to the disruption of their data cables. The modern world economy depends completely and utterly on a fragile network of submarine fibre-optic cables, which are vulnerable to sabotage and attack.

If you can read this piece, it is due only to these data carriers. I am no fan of [then UK Prime Minister Rishi] Sunak, but he nailed the case for creating the naval resources to defend the internet in his paper of 2017. It is bad enough that Russia and China censor content for their own citizens. Even worse is that the governments of these two countries are able to cut the sinews of the digital economy on the seabed for the rest of the world.

So, whilst banks are selling subsea assets with short-sighted, bean-counting zeal, expect western governments from Tokyo to Canberra to Ottawa, Washington, and Paris to be buying.”

No surprise then to find France ordering a new maritime surveillance patrol vessel only last week. Coastguard patrols are going to need to be stepped up, cable repair capabilities boosted, and subsea intervention equipment increased by governments across the world.

America too is likely to boost its naval capabilities and its shipbuilding industry in the coming years. It has to. The gap with China is just too large and the strategic vulnerability is obvious.

Finland has drawn a clear line in the sand that it will not tolerate sabotage of its subsea infrastructure. Expect others to follow. Herman Ljungberg might object on behalf of his client and its Cook Islands-registered ship, but modern economies depend on the security of subsea electricity and data cables.

Those who damage vital infrastructure can expect more than just a slap on the wrist.

Dark Fleet tie-in

At the end of last week, in an effort to boost compliance with sanctions in Russia, the Office of Foreign Assets Control (OFAC) of the US Department of the Treasury blacklisted 183 tankers associated with the G7 price cap violation on Russian oil exports. This is a record number of tankers in a single sanctions update, and individual vessels have been named, not just their owning companies and managers, thus making avoidance through reflagging or renaming harder.

Based on TankerTrackers.com tracking, these vessels account for one third of Russia's seaborne crude oil exports.

The UK joined OFAC in also sanctioning two major Russian oil producers on the same day, Gazprom Neft and Surgutneftegas, making companies that transport their cargoes liable to asset freezing in the UK and the US, and to have dollar payments blocked.

As we predicted, 2025 will see further pressure on the Dark Fleet from the United States and its allies, especially if there is further involvement by these ships in subsea sabotage, or if the internationally operating vessels are involved in oil spills of the sort that have recently plagued the domestic Russian tanker fleet.

Meanwhile we have to hope that somehow a major oil spill involving the usually un-insured or underinsured, and often aged and substandard Dark Fleet vessels is avoided.

I for one was relieved that it was a specialised Russian cargo ship, Ursa Major, which sank in the Mediterranean between Spain and Algeria after an explosion in the engine room just before Christmas, with the tragic loss of the life of two seafarers. Much better that this was a specialised vessel only carrying cranes and hatchcovers for icebreakers to Vladivostok, rather than being a tanker laden with hundreds of thousands of barrels of crude oil.

And now, we move on to a sinking of a different kind.

V.Group – Advent exit shows private equity pain

When we covered the great exits of 2024, there was one big omission. It was not a high-value deal, because it was a deal where the buyer paid nothing for the acquisition. The company was literally given away by the sellers. The deal was certainly a high-profile one.

We refer of course to the sale of Monaco-based ship management powerhouse company the V.Group, which was sold by private equity player Advent International to Star Capital and a consortium of investors in June of last year. The V.Group, seemingly with a straight face, declares itself as a “Committed Partner of Progress for Everything at Sea” (its capitalisation, not mine).

In December, eagle-eyed reporters in Denmark discovered that after seven years of ownership, Advent had given the business away for nothing and had seen its equity wiped out. This perhaps explains why, in his fulsome praise for the potential of the business Advent’s partner, Aditya Bindal made no actual mention of the returns or profitability:

“We have been impressed by the team, their track record and vision for the company, and look forward to supporting them as they continue to deliver value for the company’s customers consistently and over time.”

Clearly for Advent, the customers came out a lot better than the private equity geniuses behind the investment. Find me the world’s smallest violin whilst I lament Advent’s losses, and let me try to keep a straight face whilst I admire Mr Bindal’s optimism that this time it will be different for his consortium as owner.

Background reading

The Paratus Energy Services fleet status report is here. Four of its five rigs in Mexico are on “market indexed” day rates.

Former UK Prime Minister Rishi Sunak wrote a surprisingly serious and actually quite well-researched paper on the need for the UK to have the naval capability to protects its subsea cables, when he was a backbench MP in 2017. The paper can be read here. Unlike much of his premiership, this report has aged well.

It is not just Russian oil trade that is under increasing pressure from sanctions. This excellent report from Reuters on January 7 shows how tanker owner manager Sahara Thunder moved “cargoes from vessel to vessel, forged documents, painted ships with new identities, faked tracking signals to disguise their locations, and took painstaking measures to avoid any trace of Iran.” Great work by Paul Carsten and Prasanta Kumar Dutta.