COLUMN | A trio of miracles: New DOF, Sapura and PSV Havila Crusader [Offshore Accounts]

“Are you too cynical to believe in a miracle?” Ellie Goulding asks in her new, top three single with Calvin Harris (here). Well, Miss Goulding would be delighted to read of three miracles in the offshore world as we move into Easter week.

Miracle Number One: DOF restructures at last – New DOF is born

Finally, the seemingly endless saga of Norwegian operator DOF’s restructuring is over. The futile efforts of the rebel shareholders channelling the spirit of Cher to block the creditors taking control of the company have failed. On February 2, the Hordaland district court in Norway resolved to begin bankruptcy proceedings against DOF, which had debts of around US$2.4 billion.

On March 24, the company notified the Norwegian stock exchange that creditors had taken control of all its assets and operations. “Old” DOF is now a shell, owning precisely nothing. Rather than winning a bigger share for themselves, the rebel shareholders appear to have lost their game of chicken with the lenders. The existing shareholders get no stake in the new company, imaginatively named “New DOF”.

“The financial creditors of the DOF Group have thereby acquired 100 per cent of the ownership in New DOF (renamed from DOF Services and in the process of being converted to a public limited liability company), which is the new holding company in the DOF Group,” DOF announced.

The entities that now control the company and its fleet of 11 platform supply vessels (PSVs), 15 anchor handlers, and 29 subsea vessels, as well as 73 remotely operated vehicles (ROVs) and two autonomous underwater vehicles (AUVs) have declined press interviews on their plans for the company. “Banks silent on future of US$1 billionn DOF fleet after bankruptcy restructuring completed,” lamented Tradewinds.

However, our sources tell us that – guess what – efforts will be made to dispose of parts of the fleet to raise cash. This is exactly what happened at Solstad, where the lenders who seized control of that company promptly sold 37 PSVs to Tidewater for US$577 million last month.

Further details of the DOF restructuring are set out on the company’s website. At the centre of the deal lie a debt reduction and a new board of directors. The company’s financial creditors have converted approximately NOK6 billion (US$572 million) of debt into equity in New DOF.

The new board consists of Svein Harald Øygard (as chair), Harald Thorstein, Christine Morris, Daniela Ribeiro Davila and Harry Knox. New DOF will apply for listing on Oslo Børs in the near future.

Who are the New DOF board exactly, you may ask?

Mr Øygard is a former McKinsey consultant and is also chairman of budget carrier Norwegian Airlines. He also holds directorships and acts as an independent advisor to various international companies, including TGS-NOPEC, Seadrill, DBO Energy, AGR Petroleum Services, Holu, Nettbil, Labrida, and Akershus University Hospital (as per his Norwegian Airlines board biography). In the global financial crisis in 2009, he was also acting governor of the Central Bank of Iceland.

Mr Thorstein is a veteran Norwegian director who first joined the board of DOF Subsea in the dark days of 2020. According to his DOF biography, he used to work for John Fredriksen at Sea Tankers and is currently Chairman of the board of B2 Holding, Altus Intervention, Jacktel, and Aquaship, and is a director of Odfjell Drilling, the only company in that list with which we are familiar. His previous board experience includes Aktiv Kapital, Axactor, SFL Corp, Seadrill, Frontline 2012, Golden Ocean, Deep Sea Supply, and Solstad Offshore.

You might rightly wonder how this pair find the time to supervise the large number of companies of which they are directors, but that’s a problem for DOF’s owners, not for me. Indeed, I find writing a weekly column extremely difficult, let alone taking on a large number of highly paid directorships.

It is great news for Christine Morris that she has found work on the board of New DOF, as in early 2021, she was appointed as CFO of Maersk Drilling, moving across from BJ Services, only to lose the Maersk job the next year when Noble bought Maersk Drilling. It is always heartening to see the jobless find new employment. Daniela Ribeiro Davila is a Brazilian advogado (lawyer).

Harry Knox says on his Linkedin page that, besides being a director of New DOF, he runs “a boutique consultancy firm that solves complex and expensive problems for shipowners and banks in the offshore support vessel sector.” So, that would be a good fit. He was briefly managing director of V.Ships, and also sits on the board of Montrose Port Authority.

It is not that simple…

Firstly, keen-eyed observers will note that New DOF has conspicuously not published a new balance sheet, and that wiping out NOK6 billion of debt is nice, but “old DOF” had over NOK20 billion (US$1.9 billion) of liabilities, so even if we know that NOK3 billion (US$290 million) of bond have been rolled over to the new entity, it is not clear what has happened to the remaining NOK10 billion (US$960 million) or more of claims. There’s over US$1.5 billion or more of debt still lingering around the new entity, easily US$30 million per vessel, likely to be financed at nine or ten per cent interest rates, if Tidewater’s financing for the Solstad PSVs is representative.

“The completion of the restructuring creates a stable and viable platform for the restructured Group through a substantial conversion of debt into equity and reinstated debt terms supporting liquidity and providing significant maturity runway,” CEO Mons Aase commented.

Note that he didn’t say that the New DOF would be debt-free, only that it had less debt than before. This is not a Chapter Eleven style wiping of debt from the corporate balance. Secondly, his reference to a “significant maturity runway” is finance-speak for having longer to pay down the debts or refinance.

Floating offshore wind is the future?

“The restructuring therefore leaves the group well positioned to support its operations, secure new contracts and continue to deliver on the group’s strategy,” Mr Aase concluded. This strategy was defined as “building DOF as a leading global player within both offshore floating wind and oil services.”

This same illusion that floating wind will imminently transform the offshore sector is a claim that Solstad made when it sold its PSVs, and is one that Bourbon makes when it sets out its future strategy. Yes, offshore floating wind will likely be transformative to the anchor handling market in the late 2020s, according to data from shipbrokers Fearnley, but it is naïve to expect a major impact in the next couple of years.

Indeed, when it comes at scale, floating offshore wind will likely require massive new anchor handlers built to completely new designs such as those by Oceanic in Norway or Damen in the Netherlands.

The technology gap in subsea remains for New DOF

But the restructuring is a milestone for DOF’s revival and now, maybe, the company can set about addressing the AUV revolution which threatens to make its fleet of subsea vessels redundant. DOF’s extended restructuring drama has starved the company of new investment, whilst rivals including Ocean Infinity, Fugro, and Reach have poured resources into autonomous subsea robotics.

A fleet sale to pay down debt will do nothing to help DOF recover its lost strategic ground. The New DOF board needs a vision for the future in which technology is transforming vessel operations, rather than penny-pinching and vessel sales.

Miracle Number Two: Sapura Energy lives

Sapura Energy is the biggest offshore construction company in Asia, the biggest rig owner in Asia outside of China, and a significant domestic producer of oil and gas in Malaysia via a joint venture with Austria’s OMV. Last year, it lost US$2 billion and was in bankruptcy protection in Malaysia, prompting us to make facile Celine Dion comparisons (here).

Unlike DOF, Sapura is not yet out of its financial bind, but higher oil prices and higher levels of offshore activity have stabilised its perilous situation.

Sapura is no longer burning cash. It reported in its annual results for the year up to January 31, published last week. Instead, there was a healthy free cash flow of MYR667 million (US$151 million) and a net operating profit, unlike in 2022 when the company reported an operating loss of US$525 million, plus a US$780 million provision for the impairment on goodwill and a US$550 million provision for impairment on property, plant and equipment, taking its total loss to over US$2 billion. All 11 of Sapura’s drilling rigs are now on-hire and day rates are rising.

There was a large impairment of US$589 million from the joint venture with OMV, which dragged the company into a net loss (again) of US$703 million for the year ended in January.

Is there a White Knight in Kuala Lumpur?

The directors can at least dry their eyes now. In early March, the High Court in Malaysia granted Sapura Energy and its wholly owned subsidiaries an extension of the protection from their creditors. Excitingly, Sapura Energy also informed the court that it had obtained a letter of support from a supposed “White Knight”, whose investment, the company claimed, will help Sapura implement its Reset plan.

Readers with long memories of Asian restructurings will recall that the White Knight is an often mythical saviour. Indeed, Emas Offshore (now in liquidation) managed to find and lose two such White Knights; Udenna Corporation of the Philippines, which had been planning to invest US$73 million to recapitalise the troubled Singaporean company in 2019, and Baker Tech, which had walked away in 2018, as we reported.

Similarly, FPSO owner Yinson of Malaysia was touted as a White Knight for ailing lift-boat operator Ezion Holdings (now liquidated) in 2019, whilst the “Popiah King” Sam Goi was supposed to have acted as a White Knight to Singapore’s Pacific Radiance with a US$90 million investment in 2018. All four of those deals failed, so we wish Sapura better luck in finding a White Knight to rescue it.

What does the Reset entail?

As part of its Reset Plan, Sapura is looking to divest its interest in its SapuraOMV Upstream oil and gas production joint venture to pare down debts. In September 2022, the company launched negotiations with creditors holding over US$2 billion of debt through the Corporate Debt Restructuring Committee (CDRC).

There is now a standstill period for Sapura Energy up to September 9, 2023. During the period, Sapura’s financiers will withhold all legal proceedings or recovery actions under the CDRC regime.

Sapura still has a mountain of debt to negotiate into shares into the restructured company, as at DOF and Solstad and Bourbon and Tidewater and all the other offshore companies that have been through this process, but we are confident that Malaysia won’t let the company fail.

The fact that well-known restructuring expert Cosimo Borrelli ceased to be a court-nominated director of Sapura on March 10, 2023, upon the expiry of the original restraining order, might a very positive sign for the company, suggesting that, perhaps, the worst has passed.

The shareholders are unlikely to get much in the restructuring, but hopefully, the company’s employees will see their jobs protected and the company’s revival should continue on a more sustainable basis.

Miracle Number Three: Havila Crusader is rescued from a very rich person!

In November 2021, the high-specification, VS 485 CD design PSV Havila Crusader was sold for a reported US$11.5 million. The ship was cold-stacked and laid-up in Norway, requiring a docking to put her out to work again.

Havila Shipping said at the time that it had sold the vessel to a foreign owner, believed to be Laskaridis of Greece, “who will use the vessel outside the offshore industry.” The ship was built in 2010 at Hellesøy Verft shipyard in Norway, and is DP2 with a deck area of 1,005 square metres. Rumours suggested that it was destined for conversion as a yacht, an offshore workhorse set to be the plaything of the rich.

Havila reported that the sale was completed, “at the requirement of a lender in accordance with the clauses of the restructuring agreement.” The company also sold three large anchor handlers out of lay-up to MCT of Greece around the same time, again at the behest of its impatient lenders.

How foolish do the lenders look now, a mere 16 months later? It transpires that the original buyers have flipped the ship in lay-up in Spain for over US$19 million for return to service in offshore, where PSVs are now in hot demand? Havila’s management was opposed to the sale, and their opposition has been vindicated by this news. But it is cold comfort for Havila Shipping CEO Njaal Saevik.

Remoy Shipping will now manage the vessel and has contributed 15 per cent of the equity in the new investment company to own and reactivate the ship in time to trade the North Sea spot market in May. The venture has been set up by Pareto Securities, never an organisation to miss out on a quick buck or a sizzling offshore market.

Pareto, Remoy, and the new investors in Havila Crusader are certainly hoping that Ellie Goulding’s upbeat message of change in her chorus is true for the offshore industry:

“Can you forgive it all, to believe in a miracle? Yeah, I put you through hell, but I’m askin’ you to believe, to believe in a miracle.”

It is soon going to be Easter. DOF, Sapura, and Pareto show us that miracles can happen.

Background Reading

Our archive of coverage on DOF’s restructuring is here.

Last week we mentioned that Cadeler would be announcing its 2022 full year results, which you can read here. It achieved a nine per cent return on its operational wind turbine installation vessel assets. Meanwhile, Danish shipping investor J. Lauritzen has taken an unspecified stake in Cadeler’s competitor Eneti, as well as owning shares in Cadeler itself, offshore accommodation owner Prosafe and its competitor, the accommodation company owning Dan Swift.