COLUMN | The Twelve Days of Christmas 2024: Six Keppel jackups-a-swapping, five W2W newbuilds, four ENI blocks… and a partridge in a pear tree [Offshore Accounts]

On the first day of Christmas my true love gave to me… a partridge in a pear tree, according to the ancient English carol, but at Baird Maritime, that's the cue for a dozen topical features about the offshore industry in the run up to December 25. The first three features appeared last week (here), covering the latest on the Scottish ferry fiasco, two Namibian ministerial jailbirds, and three legacy wells in the Bulgarian Black Sea.

Day zero of Christmas?

Unfortunately, there’s no Day Zero of Christmas in the carol, otherwise we would be running with no bidders-a-bidding for the Mozambican Tuna Bond fishing fleet, which was advertised for sale in Maputo, no-bidders-a bidding in the latest round of the Danish offshore wind farm auctions, no new windfarm projects from Shell, and no intention to bid by Shell in the forthcoming Norwegian floating wind tender process. What a lot of nothing burgers!

We can’t do negative either, as there is no minus two days of Christmas, otherwise we might cover Chevron’s decision to scale back its 2025 capital expenditure plans by US$2 billion compared to this year’s total of US$17 billion, although fortunately for vessel and drillship owners, the cuts will come from its onshore shale oil blocks in the USA, not from its offshore spending.

Anyhow, we now move on through the traditional six geese a-laying, five gold rings and…

Four calling birds new ENI blocks

Lovers of Guy Ritchie action films will enjoy the World War 2 drama The Ministry of Ungentlemanly Warfare, recently released on streaming services, which stars Henry Cavill and Eiza González, amid an ensemble cast, as British agents seeking to destroy the Italian U-boat supply ship Duchessa d'Aosta in the Gulf of Guinea.

Based on the true story of Operation Postmaster, the film introduces Eiza González’ character on a luxury train in occupied Ivory Coast, purloining a briefcase of Nazi secret documents from a German officer.

Eighty years on, the Italians are back in Ivory Coast engaged in deepwater operations of a different kind.

Last month, Italian state oil company Eni announced that it has acquired four new offshore exploration blocks in Ivory Coast, close to the Calao field in Block CI-205, which the company discovered in March of this year in 2,200 metres of water. The new blocks CI-504, CI-526, CI-706 and CI-708 cover around 5,720 square kilometres and lie in water depths between 1,000 and 3,500 metres.

Eni has stated that Calao has potential resources of one to 1.5 billion barrels of oil equivalent, making it the second-biggest hydrocarbon discovery in the country after Baleine field. Baleine was discovered in 2021 by the drillship Saipem 10000, and the field is estimated to hold up to 2.5 billion barrels of oil and 3.3 trillion cubic feet of associated gas reserves.

In Baleine, Eni is now preparing to ramp up production later this month when the Altera Infrastructure-owned floating production storage and offloading (FPSO) vessel Voyageur Spirit is brought online, supported by the shuttle tanker Nordic Brasilia under a 15-year firm contract. This Phase 2 development should bring total production from Baleine up to 60,000 barrels of oil per day (bopd) and 70 million cubic feet (two million cubic metres) per day (MMcfpd) of associated gas.

First oil was achieved last year in Phase 1 through the Saipem-managed FPSO Firenze – video here – which produces around 15,000 bopd from three production wells, plus associated gas. Saipem has a ten-year contract to manage the FPSO, which Eni bought from the Milanese contractor in 2013.

Currently, Eni is using the drillship Deep Value Driller, which Saipem has bareboated, to drill 11 firm wells and six option wells to bring Phase 2 of Baleine to full production.

Phase 3 is already under study, and this is expected to further expand Baleine’s output to 150,000 bopd and 200 MMcfpd of associated gas. Eni already operates around 80,000 bopd of deepwater oil production in neighbouring Ghana in the Offshore Cape Three Points block through the John Agyekum Kufuor FPSO, which provides half the gas used for power generation in Ghana.

With the addition of the four new blocks, Eni holds ten deepwater blocks in Ivory Coast, with the state-oil company Petroci as a partner. First oil from Phase 2 will be the perfect Christmas gift for both the country’s president Alassane Ouattara and Eni CEO Claudio Descalzi.

Five gold rings walk-to-work vessels at Vard

Rather like the disastrous live action remake of Cats in 2019, this was probably the Christmas gift that nobody in the offshore industry needed.

On November 19, shipbuilder Vard announced that its Vietnamese yard in Vung Tau had won “a contract for the design and construction of five Walk-to-work vessels with an international customer.”

The ships are 88 metres long and will be built to the VARD 3 32 design. They will each feature a diesel-electric and battery-hybrid propulsion system, a 3D motion-compensated gangway system, and a 3D motion-compensated crane rated at 15 tonnes SWL at 30 metres. The first four vessels will be delivered to the proud new owner in the second half of 2027, and the final unit early in 2028.

The buyer wasn’t named, maybe because they are embarrassed at how late they have come to the wind party.

There are currently over a hundred such service operation vessels (SOVs) and commissioning SOVs (CSOVs) on order, an orderbook that seems somewhat disproportionate to future demand from offshore wind activities (which have markedly slowed down since the heady days of 2021).

These newbuilds just announced are different in that they have capacity for 190 total passengers and crew, which seems inordinately large for a windfarm role, but the cranes seem undersized for topside maintenance and decommissioning for oil and gas, and cannot work subsea.

At the moment, newbuild SOVs are being delivered straight from the shipyard into contracts – mainly because taking a walk-to-work vessel from a wind owner is much, much cheaper than taking a conventional subsea vessel, where day rates even for ships with 100-tonne subsea cranes are now exceeding US$70,000.

But the recent results from the largest player in the sector are somewhat unimpressive. On November 19, Edda Wind published its third quarter results. Edda is listed on the Oslo stock exchange and is 31 per cent owned by entities associated with shipping magnate John Fredriksen, and 31 per cent owned by the Wilhelmsen New Energy. During the quarter Edda Wind had seven SOVs and CSOVs in operation, and the company took delivery of Vestri Enabler, its eighth vessel, on November 14. If any company could and should be making money in the sector, it is Edda Wind.

In the first half of next year, Edda will take delivery of four more newbuilds, one of which will go immediately into a 12 month firm contract in Taiwan upon delivery from Vard Vung Tau, whilst the company’s last newbuild will be completed in 2026.

However, making money is tough in wind. From its seven vessels in service, Edda Wind made a net profit of just €241,000 (US$255,000) for the 92 days of July to September, and generated free cash flow of only €619,000 (US$654,000) from its operations, being US$1,015 per day per vessel. This compares to the largest offshore support vessel (OSV) player Tidewater, which generated US$3,419 of free cash flow per vessel in the same quarter from its fleet of 213 far less technically sophisticated ships working in oil and gas.

Red is a festive colour, but the huge orderbook of SOVs and CSOVs should be triggering red warning flags, not the joy inspired by the scarlet robes of Santa Claus.

I suspect by the end of this ordering cycle in wind, we’ll be seeing some red ink and losses for SOV owners. Competition is only intensifying as more new ships are delivered, and the orderbook continues to grow.

Six geese-a-laying Keppel rigs in Saudi-a-swapping

In May 2022, Singapore’s leading rig builder, Keppel, announced that it was selling the ten jackup rigs and six floaters rigs in the fleet it inherited when several customers went bust in the offshore downturn and abandoned these in its shipyards.

Unfortunately, Keppel did not receive cash for the assets. Instead, rather like the boy Jack in the fairy tale Jack and the Beanstalk, Keppel handed its rigs over in exchange for a handful of magic beans – or, in this case, various IOUs (“vendor notes”), and 10 per cent shareholding in the company known as Asset Co, to which they had been sold.

When we covered the story at the time we noted the following:

“This deal has a value of close to US$3 billion (with a "b"), but is shrouded in mystery – or rather, it is disclosed by Keppel in a manner that leaves many obvious and important questions unanswered, including who are the ultimate investors in the fund that controls the company that will acquire the rigs, and regarding the terms of the IOUs Keppel has received from Asset Co.”

The spin-off was extremely convenient, because it meant that Keppel never needed to take an impairment on the rigs that Asset Co took off its hands. It was also convenient for Rigco as it could pay back the money it owed on its IOUs with more IOUs, rather than cash (so-called “payment in kind”).

It seemed a very unique and unusual transaction, and one that could have done with a lot more clarity on the terms of the US$3 billion of credit granted by Keppel to Asset Co and on the fees paid. Despite being a publicly listed company, Keppel disclosed no further details. US$3 billion or so of tangible assets was whisked off the Keppel balance sheet and replaced with financial instruments secured on those assets.

Fast forward to the end of 2024, and the imaginatively named Asset Co has been renamed Rigco Holding and now owns thirteen rigs, as per the Singapore stock exchange release put out by Keppel on November 19. Keppel retained its 10 per cent stake in Rigco, even as its shipyard and offshore fabrication business was merged into Seatrium in 2023.

Rigco seemed to have managed to sell the jackups Tivar, Heidrun, and Huldra to Adnoc Drilling (but maybe it only leased them, as these three assets were mentioned in some coverage of the deal), it sold Var to Borr Drilling a few weeks back, and in January, Borr will take delivery of its final newbuilding Vali from Rigco.

Keppel and Rigco had chartered out on bareboat the jackups Admarine 683 and 684 and the Arabdrill 110 and 120 to clients in Saudi Arabia (the ex-Fecon trio and ex-Clearwater 4 unit). During Covid, Keppel had suffered a default by its client Grupo R in Mexico on charters in the Cantarell III and Cantarell IV jackup rigs, which it terminated and re-chartered to ADES in Saudi Arabia as Admarine 685 and 686 and transported them from Mexico to Saudi Arabia under five-year bareboat contracts worth a total of US$112 million. However, ADES may have exercised a purchase option on these rigs.

I am guessing – and I am guessing because Keppel has such appallingly bad disclosure that it doesn’t have the decency to name or value the rigs in Rigco – that leaves just one more jackup, the harsh environment TS Jasper. This jewel was ordered for the price of US$500 million by a company controlled by Dr Xiong Shaohui, who appears to have been the chairman of the Chinese commodity trading company Guangdong Zhenrong, which defaulted on CNY21.5 billion (US$3.3 billion) in loans to more than 20 banks in China in April 2017. Needless to say, the Keppel rig contract was also defaulted upon.

Then there is a tender assist rig abandoned by Sapura, originally Sapura Raiqa, two semi-subs originally ordered by Awilco for US$425 million apiece, named Nordic Spring and Nordic Winter, and the drillship Can Do, which Keppel unwisely built on speculation for its own account.

Mystery surrounds what happened to the nearly finished semi-subs Urca and Frade, which scandal-ridden and now liquidated Brazilian company Sete abandoned in Keppel’s yard there. Because the disclosure is so poor, it is hard to pin down what exactly remains in the Rigco fleet, or what happened to the legacy Sete rigs.

Anyway, guess what? Now Keppel is taking back the eight jackups and five floaters from Rigco and, it is seemingly not paying a penny for the privilege of re-acquiring the rigs. Instead, as we reported, Rigco will carry out a Selective Capital Reduction exercise that will conclude with the shares in the company not held by Keppel being cancelled, and Rigco will become a wholly-owned subsidiary of Keppel. Best of all, Keppel will also have control of SG$843 million (US$628 million) of cash in Asset Co as at end September 2024, which it can utilise to complete the unfinished rigs. Nice.

As usual, the disclosure around the transaction is woefully unclear. Keppel “plans to establish a new and dedicated private fund, the Keppel Offshore Infrastructure Fund, to own and manage the legacy rigs and its 49 per cent stake in Floatel as well as attract third party capital from limited partners and co-investors,”

Presumably, this third-party investor participation will conveniently keep the rigs off its balance sheet once again.

Honestly, the greatest gift investors in Keppel could get this year is transparency around the value of the rigs it is taking back, and the detailed financial arrangements with Rigco that have occurred since the spin-off in 2022. We get it that nobody likes surprises, least of all the Keppel shareholders. But there comes a time when the gift wrapping should come off and the present should be visible for all to see, open and in plain sight.

Background Reading

Note that the Twelve Days of Christmas is a Christian tradition that begins on Christmas Day and concludes on January 6 with Epiphany, the day the Magi were supposed to have visited the baby Jesus in Bethlehem, but many readers are away over the Christmas and New Year period, so we conclude the series before Christmas.

Our original story on the spin off of Keppel’s legacy rigs in 2022 was entitled “Singapore spins hits Cayman secrecy” whilst we covered Keppel’s extravagant claim that it was exiting the rig building business in 2021 with the headline “A tale of restructuring: Keppel (kind of) quits the rig building business (but not really).”

Nearly four years on, Keppel is back holding many of the stacked and incomplete rigs that it pledged it would dispose of. Let’s see who signs up as a co-investor in the latest venture.

In case you missed it, the first part of 2024's Twelve Days of Christmas series is here.