COLUMN | Farewell to 2024: Seadrill and jackups; Shell and the Nigerian Delta; Dyna-Mac, Petrofac, Edda Wind and BP Renewables [Offshore Accounts]

It’s customary at the end of the year to look back at those we have lost. However, this year we won’t be writing obituaries for OJ Simpson, Shannen Doherty and Liam Payne, nor even German football legend Franz Beckenbauer, nor Russian opposition leader Alexei Navalny. Instead, there were some important exits in the offshore that may have passed you by over the frenzy of the festive season.

To whom or what should we be saying Bye Bye Bye as we approach the year-end – and the quarter-century mark for the release of *NSYNC’s pop hit?

Seadrill and standard jackups

We love companies that put out news releases over the holiday season, as normally it is a way of burying bad news.

Not so in the case of Seadrill. On December 26, St Stephen’s Day, a public holiday in many major markets, the company had glad tidings of an exit to announce.

CEO Simon Johnson got to play modern day Good King Wenceslas for its shareholders. Seadrill announced that it has completed the sale of the jackup rig West Prospero for cash proceeds of US$45 million.

What’s amazing about this is that the rig had been stacked since 2016 in Malaysia. So, for more than eight years, it has sat idle, and it was built in 2007. Tens of millions of dollars and many, many months will be required to reactivate the rig. This transaction is very supportive of jackup valuations, despite a drop in charter rates since Saudi Aramco axed suspended the contracts of 27 jackup rigs in the kingdom.

“With the sale of the West Prospero, we have monetised a non-core asset that has been stacked since 2016 and successfully executed on our strategy to exit the benign jack-up market,” said Mr Johnson.

The company still owns one jackup, the harsh environment West Elara, which is working until 2028 for ConocoPhillips in Norway. The sale of West Prospero followed the sale of Seadrill’s other three benign water jackups to Gulf Drilling International in Qatar earlier this year for US$338 million.

Seadrill has been on a roll in 2024, with rumours of a take-over by Transocean spiking the shares in October, and just before Christmas, it announced three-year contracts in Brazil with Petrobras for the drillships West Tellus and West Jupiter starting in the first quarter of 2026. The day rates are in the region of US$455,000 per day, including some ancillary services, compared to the current Brazilian charter for West Tellus, which has a day rate of around US$240,000 under a contract awarded in 2022.

Bye, bye, bye to legacy contracts at low rates, and to benign water jackups.

Shell in Nigeria – an SPDC exit at last, and a new investment

Exactly one week before Christmas, European oil major Shell finally received approval from Nigeria’s petroleum ministry to sell US$1.3 billion of troubled onshore oil assets in the Niger Delta to Renaissance Africa Energy, a local company, 11 months after the sale was first announced. Shell will finally be allowed to sell its shareholding in onshore Shell Petroleum Development Company of Nigeria (SPDC) production company to Renaissance.

The onshore Delta assets have been a major source of criticism and legal claims for Shell, with rampant oil theft, pipeline leaks and environmental issues from the ensuing spills. The tense situation has pitted the company against local community activists, rapacious government officials, mafias allegedly connected to the armed forces, and kidnappers. Shell staff have faced years of violence, and its lawyers have had to manage years of lawsuits regarding its responsibilities in an area where the company has operated since 1956.

The approval from the oil ministry marks an important milestone in an exit from the onshore business by Shell and allows the company to draw a line under what was once its most profitable operation, but which has since become a stain on its reputation, and a distraction for management.

It is an exit many felt would never happen, as the deal with Renaissance was rejected by Nigerian regulators in August. They questioned who was responsible for the environmental damage in the Delta, the accounting of the pollution liabilities, and whether the buyers had the expertise and resources to manage the fields, which are believed to continue to hold significant volumes of hydrocarbons. Those points now appear to have been assuaged.

But there was a quid pro quo. The Financial Times reported that Shell made its final investment decision on Bonga North, a deep-water project offshore Nigeria, contingent on the SPDC sale to Renaissance being approved by the Nigerian government. If Abuja wanted the new investment, it had to permit Shell to sell the legacy asset.

On December 16, Shell confirmed it was proceeding with the Bonga North project, which will be a subsea tie-back to the Shell-operated Bonga Floating Production Storage and Offloading (FPSO) facility. Nigeria’s oil production has slumped since 2014. The Bonga North project involves drilling, completing, and starting up 16 wells (eight production and eight water injection wells), modifications to the existing Bonga Main FPSO and the installation of new subsea hardware tied back to the FPSO.

The US$5 billion project will sustain oil and gas production at the Bonga FPSO. Bonga North currently has an estimated recoverable resource volume of more than 300 million barrels of oil equivalent, Shell says, and will reach a peak production of 110,000 barrels of oil a day, with first oil anticipated by the end of the decade, a suitably vague date given we are still in 2024.

Shell’s shareholders can only welcome this Bye bye bye to its onshore business. We suspect that Renaissance may be a little firmer on the law and order issues than a European public listed company could be, and that many of the problems of the onshore fields may perhaps be solved with means that were unavailable to the Anglo-Dutch oil giant and its governance and compliance systems.

Good luck to Renaissance and congratulations to Shell for effecting an exit and moving ahead with a long-awaited new deepwater project in Africa’s worst governed oil producer.

Buried but not forgotten – leadership changes in wind

That’s the good news. Now, one of the staples of the offshore festive season is the unexpected resignation or retirement of a senior leader. Rarely does this bode well for the company involved.

In 2015 we saw Bumi Armada lose its CEO “for family reasons” just before Christmas, and just after he made an unfortunate series of share sales in the company, driven by margin calls. In 2020, Borr Drilling lost its second CFO in two months on the Sunday after Christmas, after losing more than US$250 million in the first nine months of that year.

This year, there were four such cases.

Dyna-Mac CEO shown the door in Singapore

Following a bitter take-over battle that saw press releases flying and offers rejected, Singapore-based offshore fabrication Dyna-Mac was finally bought by South Korea’s shipbuilding conglomerate Hanwha Ocean in November. The South Korean group had to increase its takeover offer to SG$790.6 million (then US$599 million) in order to win over the estate of founder Desmond Lim, Dyna-Mac's single largest shareholder in the topside and module producer, who owned over 30 per cent of the company.

No sooner was the deal done than the new Korean owners were ringing in the personnel changes. Dyna-Mac made the requisite announcement on December 16:

“Following a review of the business… with a view to identifying areas in which the strategic direction and operations of the group can be enhanced, the Board of Directors has made a strategic decision to give notice of termination to Mr. Lim Ah Cheng of his appointment as Chairman of the Board and CEO with effect from December 16, 2024, in accordance with the terms of Mr. Lim's service contract.”

You have to admire the Korean bluntness there. The press release basically says, “We looked at how the business could be enhanced and decided to fire the CEO.”

Ouch. And you thought that the Dutch could be hard.

Petro-slightly-less-fac-ed? Chairman out as creditors drive restructuring deal

Way back in March we looked at the dire state of Petrofac, the London-listed oilfield maintenance and construction player that had been bleeding cash, and where the bonds were priced for default months ago.

In its first half results for this year, published on September 30, Petrofac declared a loss of US$166 million and that its net debt had hit US$622 million. Coming on top of corruption charges against several former managers, and years of loss making, it was clear the fat lady would soon be singing.

And she did. On December 23, Petrofac gave notice that it had entered into a Lock-Up Agreement with the majority of its secured debtholders, a restructuring to deliver at least US$325 million of new funding to the troubled company.

The committed new funding of US$325 million includes US$131 million of new debt, and US$38 million committed by a new equity and debt investor (currently unnamed, but likely to possess big brass ones to invest in this business), plus US$194 million of new equity committed by the group of debtholders, the mysterious new investor again, and certain other new and existing shareholders, including the management and directors who committed to invest US$1 million in new shares.

Petrofac said that it intends to undertake a retail offering to the general public of approximately US$8 million in 2025. I think I’ll pass, thanks, as time after time these engineering procurement and construction (EPC) businesses implode for predictable reasons of bad contracts, working capital issues, and cost increases. McDermott is a salutary warning to all.

At the heart of the Petrofac restructuring is the conversion of approximately US$772 million of existing debt into equity, which will significantly deleverage and strengthen the group’s balance sheet. Post-restructuring, Petrofac estimated that its total gross debt (including new funding) will be approximately US$250 million. This debt reduction and new finance is indeed a game changer.

The release concluded with a bullet point that there would be “changes to the board and an enhanced corporate governance framework aligned with the aims of the restructuring.”

So, who’s part of the changes?

"The financial restructuring will mark a new beginning for Petrofac," said René Médori, the company's Chairman. "I look forward to overseeing the conclusion of this process with a view to transitioning my board duties to a new Chairperson in 2025."

Bye bye bye, Mr Médori. I feel you inherited a poisoned chalice from the former CEO, the company's founder and largest shareholder, Ayman Afsari. The sooner Petrofac is free of his legacy, the better.

But this this year it wasn’t only oil and gas bosses biting the dust. December 2024 saw the turn of two renewables bosses to fall on their swords reconsider their work/life balance just before Christmas.

BP says Bye bye bye to its offshore wind business and its 50 GW target

First up was BP’s head of offshore wind, Matthias Bausenwein, whose resignation was announced by a thoughtful BP spokesperson to a Reuters reporter, a story we covered three weeks ago. This came just after BP announced it was spinning off its offshore wind operations into a 50:50 joint venture with Japanese power firm JERA, and slashing its investment budget for offshore renewables.

The new entity, which will imaginatively be named JERA Nex bp, will pool together its parent company’s offshore wind operating assets together with development projects with a potential generation capacity of 13 GW.

Creating the joint venture conveniently removes the assets from the BP balance sheet, and means that any future borrowing against the new and expensive development projects will also be off balance sheet.

It marks a drastic scaling down of the company’s ambitions in offshore wind. In 2021, BP set itself “a self-imposed target to increase renewable power generation to 50 GW by 2030” from its then 3.3 GW capacity.

Walland walks from Edda Wind 

On December 17, Edda Wind announced an “organisational update” (a very seasonal euphemism) that its CEO Kenneth Walland “will step down from his role, effective January 1, 2025, as he transitions into retirement.”

Mr Walland had served as CEO for Edda Wind since 2021 and managed the company through both its initial public offering that year, and its fleet expansion programme, which has made it the largest owner of service operations vessels in the world, with a fleet of 13 ships in service and under construction.

With public holidays and accrued leave, the announcement effectively meant that the retirement was almost immediate, which suggests that perhaps the timing was not of Mr Walland’s choosing. Edda has not found a permanent successor but said, reassuringly, that it was initiating a search.

“To ensure a seamless transition, CFO Hermann H. Øverlie will act as interim CEO until a permanent CEO is appointed,” the release stated. “Mr Walland will continue to support the company as a specialist advisor until the summer of 2025, providing continuity and the benefit of his significant experience during this period.”

As Justin Timberlake and *NSYNC would say: Bye bye bye. I suspect that this will not be the last unexpected resignation or sudden retirement in the wind sector. There are other companies in the segment with far more egotistical CEOs, far weaker shareholder bases, and far worse balance sheets compared to Edda Wind.

I suspect that none of them believe “It’s gonna be me” next out that door – the *NSYNC follow up to "Bye bye bye". The year 2025 will tell if the Christmas changes are just the beginning of a management shake-up across wind. Recall that in the oil and gas crisis of 2020, four of the five largest listed offshore drillers changed their respective CEOs.

Happy New Year and let’s see what predictions, forecasts, and resolutions we can make next week for 2025!

Background reading

Our coverage of BP’s bold investment into offshore wind in 2021 is here. We commented that BP appeared to be in a hurry to buy new offshore wind projects at any cost. We observed that “BP negotiates hard over every penny on even profitable oil and gas developments, but the same company was willing to overpay its rivals by 65 per cent in this UK windfarm auction. This suggests that perhaps BP's leaders are not very good at doing their sums, or at estimating their competitors' capabilities.”

Reuters has a summary of the Hanwha/Dyna-Mac battle here. In June, Hanwha also completed the US$100 million acquisition of Philly Shipyard in Philadelphia in the USA.

The lyrics to "Good King Wenceslas" remind us in the era of Elon Musk and billionaire tech barons how far western cultural values have changed since the carol was written, with its appeal that “Ye who now will bless the poor, shall yourselves find blessing.”

Hold that thought for 2025.