COLUMN | Drilling Update: Borr, Vantage/ADES, Stena/Samsung, Adnoc Drilling, Maersk, and Standard not Drilling [Offshore Accounts]

The GPO heavy-lift vessel GPO Sapphire transporting the jackup rigs Borr Galar and Borr Njord from Singapore to Mexico (Photo: GPO Heavy-Lift)

Time for a six pack of updates on the biggest offshore drilling stories of the last few weeks. Whilst three autonomous marine survey companies and one of Australia’s largest iron miners have been holding out their begging bowls for government subsidies (here), the green shoots of recovery have been sprouting for the rig owners.

For some, at least. And for embattled Borr Drilling, there is consolation that things are not getting any worse.

Borr Drilling – extending the runway, again

It’s happening all over again. In December 2020, we covered (here) how beleaguered Borr planned to “extend its runway” by kicking its debt repayments further down the road. Then, Borr proposed on Christmas Eve that it would raise new equity in January 2021 with expected gross proceeds of US$40 million. We wondered whether such a small equity raising would be sufficient for a company with debts that ran to over US$1.9 billion, and that now stand at US$2.1 billion, according to the third quarter 2021 report (here).

In 2020 we observed that, “The new refinancing proposal is centred on the time-honoured Norwegian refinancing traditions of deny, delay and defer, more Scandinavian than a Christmas tree, with all the Borr bank facilities to be extended to maturity in January 2023.” Exactly a year on, Borr has done it again, with another equity raising, this time of US$30 million, conveniently announced in the holiday week between Christmas and New Year, when nobody is paying any attention.

Whilst the world ate, drank, and made merry, Borr founder and Vice Chairman Tor Olav Trøim took 10 per cent of the share offering, putting in US$3 million of his own money into the company, whilst CEO Patrick Schorn and the company’s CFO, Magnus Vaaler, also subscribed.

Keppel and Sembcorp must be patient, so patient

That US$30 million in extra cash will come in quite handy, because on December 27, Borr also revealed (here) that it has reached agreements in principle with its largest creditors, the Singaporean shipyards Keppel FELS and Sembcorp. It will refinance and defer a combined US$1.4 billion of debt maturities and rig delivery installments from 2023 to 2025.

Borr has asked Keppel to defer the delivery of five new jackups, which sit ready for delivery in Singapore, from next year until 2025.

Borr also owes Sembcorp US$800 million for nine rigs that it bought from the yard a few years ago. Borr was supposed to pay back on May 1, 2023, along with the interest that had been outstanding on the debt as well.

Now, Sembcorp has, at Borr’s request, agreed in-principle to defer the maturity date of the US$800 million debt by two years until May 1, 2025.

Cash comes in, cash goes out, Borr debt remains the same

In return for these concessions, Borr has agreed to make cash repayments on the accrued costs and capitalised interest owed to the shipyards during 2022 and 2023, in addition to what was agreed in the January 2021 amendments, when Borr previously renegotiated its deals with the yards.

These additional payments this time around amount to US$22.4 million, including a charge of US$6.5 million as an “amendment fee” for Sembcorp, which Borr expects to pay later this month, and an additional US$28.6 million, which is payable later this year.

Borr also agreed that the payment of the remaining deferred yard costs and capitalised interest originally due in 2023 will be paid out later, during 2023 and 2024, as well. In addition, regular payments of cash interest and capital costs to Keppel for deferring the rig deliveries will commence in 2023.

Yes, that’s the sound of the can being kicked further down the road in the background. Those who were bold enough to invest in Borr in the dark days of 2020 have been rewarded with a double-digit rise in the company’s share price, but the new agreements don’t fundamentally reduce or remove the company’s massive debts. They simply mean it has longer to pay them down, and to find work for the five rigs waiting at Keppel.

Market improving as Thor and Norve win

Maybe time is on Borr’s side, as the jackup market improves.

Teresa Wilkie of Esgian Rig Analytics has observed that in December, utilisation of the global jackup fleet stood at over 75 per cent, up from 67 per cent at the start of last year. Borr announced (here) that it had secured a contract for the premium jackup drilling rig Norve with BW Energy for work in Gabon for four firm wells with an anticipated duration of 240 days, plus options, starting in the second half of 2022, after the rig’s contract with Vaalco Gabon.

Additionally, Borr said it has secured a binding letter of award for the premium jackup drilling rig Thor from an undisclosed operator in Southeast Asia. The company expects Thor’s contract to commence in June 2022 for a duration of one year plus options.

But when you owe over two billion dollars on a pureplay fleet of jackups, there’s not much margin for error. We maintain that Borr is still stuck.

Vantage pivots further, as ADES buys jack up trio

In the Christmas feature (here) we highlighted how Vantage Drilling was pivoting more and more to management rather than asset ownership. We highlighted that the company was subscale and would likely be targeted for acquisition.

Surprise, surprise. In December, Vantage announced (here) that it had agreed to sell three of its jackups to ADES for US$170 million, whilst maintaining management of the units for another three years. This significantly assists Vantage to pay down the company’s US$346 million of long-term debt when it falls due next year. The rigs involved are Emerald Driller, which is already operating in Qatar, and Sapphire Driller and Aquamarine Driller, which are expected to start drilling contracts in Qatar in the first and second quarter of this year.

The valuation of each jackup at less than US$60 million is not exactly supportive to Borr’s valuation for its own fleet, where Borr carries debt of just under US$100 million for each of its newer, but very similar rigs, technically.

However, it is extremely necessary for ADES, which owns one of the oldest fleets of drilling rigs operational in the world, to modernise its fleet. Last year ADES was bought by Saudi Arabia’s sovereign wealth fund, the Public Investment Fund (PIF), in a deal that we characterised as “Egyptian Antiques Roadshow meets billionaire sovereign wealth fund” (here).

How long has Vantage got as an independent company?

It now seems only a matter of time before ADES swallows the rest of Vantage using PIF’s money.

When the deal to sell the three jackups was announced, ADES and Vantage also disclosed that they had entered into an agreement to pursue “a global strategic alliance,” based on the Vantage management agreement and the two companies’ existing joint venture in Egypt. This agreement involves the pair collaborating together to explore “future commercial and operational opportunities.”

What’s the bet that these future opportunities will involve ADES buying Vantage’s final two jackups (which are in Indonesia and Tunisia), and its two deepwater drillships, Tungsten Explorer and Platinum Explorer?

Tungsten Explorer goes back to work with ADES in Egypt

At the same time, Vantage announced that the drillship Tungsten Explorer had won a 150-day contract for an unnamed client in Egypt, a contract that was awarded through the joint venture with ADES.

Platinum Explorer is on a long-term charter in India with ONGC.

PIF’s many controversies

The ADES deal with Vantage seems considerably less controversial than PIF’s US$400 million acquisition of Newcastle United football club in England a few months ago, which raised a furor over the Saudi government’s foreign investment in the UK (here).

PIF’s chairman is Crown Prince Mohammed bin Salman, who has been accused of arresting and extorting cash from his own rich relatives in Riyadh and ordering the murder of Jamal Khashoggi. A government critic and journalist, Khashoggi was killed and dismembered at the Saudi consulate in Istanbul in 2018.

There are also allegations from the Israeli newspaper Yedioth Ahronoth (here) that the Crown Prince ordered the assassination of Prince Mansour bin Muqrin and seven aides, who perished in a “mysterious” helicopter crash in 2017 near the Yemeni border. This unfortunate accident occurred just after the rival prince had apparently sent a letter to over a thousand members of the royal family asking them to not support Mohammed bin Salman’s succession to the throne.

Let’s hope ADES’ CEO Dr Mohamed Farouk and Vantage’s CEO Ihab Toma do not get on the wrong side of the Crown Prince. But maybe they will get some discounted football merchandise from the Premier League club.

Stena starts to clear the backlog at Samsung

We have reported how Saipem took delivery of the seventh-generation drillship Santorini from Samsung Heavy Industries in November. The rig had been abandoned at the yard by Transocean after it completed the purchase of George Economou’s Ocean Rig fleet in 2018 (here).

The same month, the Turkish state energy company TPAO also bought the seventh-generation drillship Cobalt Explorer from Daewoo Shipbuilding and Marine Engineering (DSME) in Korea to join its fleet of three drillships working in national waters. This rig was originally ordered by Vantage Drilling, with delivery scheduled for 2015, but when the market crashed that year, the contract was cancelled and Cobalt Explorer sat idle for six years at the yard until Ankara’s offshore company stepped in.

Then, in December, Stena Drilling confirmed the trend by agreeing to a purchase option on the second abandoned Ocean Rig drillship, formerly named Ocean Crete, from Samsung. These three transactions show the recovery is underway.

According to Stena’s press release (here), the agreement with Samsung gives Stena “the possibility to offer the market a state-of-the-art drilling service with a minimal carbon footprint.”

“Our plan is to fit the drillship according to our specifications with hybrid technologies including the use of batteries,” Stena Drilling CEO Erik Ronsberg said. “If we find a suitable contract, we will use the option to buy the unit.”

Of course, such a green plan will be catnip for investors.

Crete price tag will be US$245 million

Industry sources put the value of the rig under the agreement at US$245 million, less than 40 per cent of the original newbuild price, but supportive to the balance sheets of the major drillers owning deepwater units.

The rig will be delivered to Stena in 2023, if the company exercises the purchase option before the end of October 2022. If Stena does not take the option, then the agreement is void and Samsung keeps US$15 million deposit.

Stena Drilling already has four deepwater drillships and two semi-submersible units in its fleet. Its rigs operate mainly in the Atlantic basic and Mediterranean, including off Guyana, Morocco and Cyprus, at present.

Last week, ExxonMobil announced that the drillship Stena DrillMax had made one of two significant new discoveries in the Stabroek block offshore Guyana, with success on the Fangtooth-1 step-out well in 1,828 metres of water.

Fight in court, then sign purchase option

We have previously covered the many court battles the offshore industry downturn ignited (here) including the fight between Samsung and Pacific Drilling over the cancellation of the rig Pacific Zonda, which Samsung won in 2020.

In March last year, Stena won an arbitration against Samsung in London over the cancellation a harsh environment semi-sub, which Stena had ordered in 2013 but had cancelled in June 2017, due to excessive delays in delivery. The arbitration tribunal ruled that the Korean shipyard had to pay Stena US$411 million.

One wonders whether the purchase option on Ocean Crete represents some kind of quid pro quo?

Adnoc Drilling – the cash keeps gushing

Whilst its international rivals slowly grind their way through the market recovery, the Abu Dhabi state oil company’s captive, in-house drilling company Adnoc Drilling goes from strength to strength.

In November, Adnoc Drilling posted an increase of almost 50 per cent to its third-quarter profit, driven by new rigs and reactivation of others this year, in addition to an increase in oilfield services.

The subsidiary of Abu Dhabi National Oil Company, which listed on the Abu Dhabi stock exchange last year, made a profit of US$178 million in the three months ending September 30, up from US$120 million in the same quarter in 2020.

Adnoc Drilling now has market capitalisation of over US$14 billion, and the shares are up 40 per cent since its parent (and its single largest customer) Adnoc spun off 11 per cent of the stock to the public in October.

By my calculations, it is now the most valuable offshore drilling company in the world. Do please correct me if I am wrong.

Adnoc Drilling buys cancelled rigs from China

To close the year, Adnoc Drilling continued the clear-out of cancelled and abandoned rigs left in Asian yards by buying the jackups Victory BF4 and Fortune BF3 from China Merchants Heavy Industry (CMHI).

Upstream reported speculation that the rigs are two units that had been bareboated from the Chinese yard by Shelf Drilling, but were then cancelled and redelivered in September 2020 (here). The Norwegian publication reported that Shelf paid China Merchants a US$4 million settlement for the termination of the contracts.

The rigs were originally ordered on speculation by Singapore-based Bestford Offshore in 2013 as part of an order of six units in China, but all were later cancelled when the market went into downturn in 2014. Shelf stepped up and chartered them, just before Covid wiped out the market in 2020.

Adnoc already has the former Bestford sister rigs SMS Mariam and SMS Faith on charter through Selective Marine Services of the UAE (here) from the same Chinese yard. Selective also has a jackup ordered but cancelled by Deepwater Drilling of India at Cosco Dalian in China on charter in the UAE, as well. The former Dynamic Momentum has been renamed SMS Essa for its Emirati drilling contract, also with Adnoc.

Thus, the stress of the Chinese yards is Adnoc Drilling’s opportunity.

Maersk Drilling also shouting

If Adnoc is shouting its profits, Maersk Drilling’s CEO has been in the news (here) for shouting of a more literal kind. Jørn Madsen was investigated for ranting at a female colleague, which resulted in him receiving a warning from the board.

It matters not, as Mr Madsen will be departing his CEO position later this year, when the company merges with Noble, and his opposite number at Noble in Houston takes over as boss of the combined group.

What’s ironic is that in Maersk’s 2014 sustainability report, always the best place to find corporate hypocrisy (here), there was a special feature with David MacDonald, a drilling section leader on one of Maersk’s rigs.

“In the past, offshore life was also marked by the rough tone and language between crew members,” commended MacDonald. “And while it is still very much a man’s world – typically only four or five of perhaps 130 people on the rig are women – there has been a definite change in communication. Today, people will walk away from conflicts or ask for a meeting to find out what is wrong. I myself used to shout all the time. I can’t remember the last time I did, though. It is just not efficient – it does not get you the results you want,”

I do feel that perhaps Mr Madsen could be learning from his own drilling crew offshore. Perhaps Mr MacDonald could act as coach and mentor to his erstwhile boss?

He’s right: shouting won’t get you the results you want.

Standard Drilling becomes Standard ETC

Finally, Standard Drilling, which we covered in our last Christmas feature (here), wants to change its name to Standard ETC. The company no longer owns any drilling rigs and has been selling its fleet of supply vessels. Most recently Standard sold the PSV Standard Princess for US$10.3 million, just ahead of a miserable winter in the North Sea, where PSV spot rates have now fallen to just four thousand pounds a day (less than six thousand US dollars).

The change to the ETC name reflects the new investment strategy within energy, transportation and commodities (“ETC”), the announcement to the stock exchange noted (here).

In 2021, Standard bought a one per cent stake in offshore driller Noble Corp and in November, Standard said it would “consider” voting against Noble’s proposed merger with Maersk Drilling. I do hope they don’t shout if they don’t get their way.

When you are asked what do you do, don’t say you work in offshore, or oil and gas, or drilling, or on supply boats. Simply say you’re in ETC.

The future is ETC.

Background Reading

We covered the intertwined fate of Borr and the Singapore yards in September here.

Keppel’s press release on the Borr delivery delays is here, while Sembcorp’s release on the rescheduling of the debts is here.

Eleven months ago, we warned that Keppel would struggle to exit the rig business, despite its claims to the contrary – read more here.

Vantage’s overview presentation from the Clarksons Offshore Drilling Conference is here.

Stena’s press release on its successful arbitration with Samsung is here.

UAE press coverage of Adnoc Drilling’s IPO is here.

China Merchants’ Twitter feed is here.

Hieronymus Bosch

This anonymous commentator is our insider in the world of offshore oil and gas operations. With decades in the business and a raft of contacts, this is the go-to column for the behind-the-scenes wheelings and dealings of the volatile offshore market.