COLUMN | Quick updates: BW Offshore, Cadeler, MMA Offshore, McDermott, James Fisher, Noble Drilling, Maersk Drilling, Ocean Infinity, Kris Energy and Rubicon [Offshore Accounts]
After announcing in October that it would liquidate the subsidiary that owns the FPSO Umuroa, and hand the idle vessel to the company administrators to maintain, remove from the field, and ultimately sell, BW Offshore has changed its mind.
Umuroa is stranded on location at the Tui Field off New Zealand connected to the shut-in subsea wells, after the charterers and field operator Tamarind Taranaki went bust, as we covered here. Now, BW has reached a deal with the New Zealand authorities to continue to manage the unit. But the Kiwi taxpayer will be writing the cheques to the company for its crew and operations management for many more months, as New Zealand’s Ministry of Business, Innovation, and Employment will cover costs for the continued safe operations of the FPSO until the unit is disconnected next year.
“Subject to prevailing Covid-19 restrictions, the disconnection is expected to be completed before the second half of 2021. As a result, the company has ceased the previously announced voluntary liquidation of BW Umuroa, a subsidiary of BW Offshore and the owner of the FPSO Umuroa,” BW Offshore said in the statement delivering its third quarter results here.
BW Offshore has nearly a billion US dollars of debt, but generated a healthy US$82 million of operating cashflow in the quarter to September 30. The company announced that Vaalco in Gabon has extended the charter for the FPSO Petróleo Nautipa until the third quarter of 2022, which will mark twenty years that the unit has been on the field. Unfortunately, the contract for BW Cidade de São Vicente reached the end of its term in Brazil, and the FPSO was placed in lay-up.
BW Group buys into Cadeler
The Sohmen-Pao family are also buying into Cadeler, the Swire Group’s offshore wind turbine company, ahead of its expected IPO in Oslo shortly. BW Wind Providers, a subsidiary of Andreas Sohmen-Pao’s BW Group, has committed to investing US$33 million into the loss-making owner of the two offshore jack-up wind turbine installation vessels, Pacific Orca and Pacific Osprey, which are currently working in the North Sea.
As we wrote here, Cadeler, previously known as Swire Blue Ocean, is set to list on the Oslo Stock Exchange very soon (probably as you read this very article). BW gains the right to elect a single director to Cadeler’s board and Swire has granted BW a right of first refusal to acquire another 20 per cent shareholding. Cadaler had a valuation of up to US$230 million, before the IPO and the new money comes in.
Rescue Rights issue at MMA Offshore
Also collecting new money from investors is MMA Offshore. Last week, MMA Offshore raised AU$80 million for a recapitalisation that more than tripled the number of its shares on issue. Following the 99 per cent value destruction the company has experienced since the offshore market collapsed, the company was selling new shares at just AU$0.03 each, a 53.1 per cent discount to the last close and a 22.6 per cent discount to the theoretical ex-rights price.
MMA said that the funds raised would be used to repay debt, while its lenders would also give the group a rather paltry AU$15.1 million debt concession (but something is better than nothing…). Prior to the lenders granting the reduction in its borrowings, MMA had AU$120 million and US$101 million of debt, which it needs to pay back or extend, just ten months from now (see here).
MMA Offshore had an AU$59 million market capitalisation prior to the deal. At the same time as it launched the rescue rights issue to raise capital, the company also created a generous retention plan to reward its hardworking CEO and CFO. After the shares have fallen more than 99 per cent, it is not clear why it is essential to pay more than the salaries for the services of the senior leadership, but, as we saw with McDermott (here) there’s nothing like a financial crisis in an offshore company to raise remuneration for the C-suite.
McDermott gets credit, and another law suit
Talking of the excessively remunerated, our favourite offshore construction company McDermott International, alleged purchaser of millions of dollars of sex worker services (here), said it had raised another US$560 million to fund “future growth” after it emerged from Chapter 11 bankruptcy. You can read the press release here.
McDermott said that, “a new letter of credit facility that will replace its existing cash secured letter of credit facility, permitting the release of cash collateral of approximately $390 million. Additionally, McDermott will raise $170 million in gross proceeds from the issuance of common shares to certain of its existing shareholders that has been backstopped by the Investors. The transactions are expected to close by year end.”
This definitely helps the company’s liquidity, but it’s hard to gauge how the company is actually performing now it is private. The evidence from Subsea7’s third quarter results (here) suggests that the entire offshore construction industry faces a major squeeze.
Subsea7 reported operating cashflow of US$122 million, but still ended the quarter with a net loss of US$43 million. Subsea7 is a considerably better managed company than McDermott has been, with a higher quality orderbook. McDermott entered bankruptcy in early 2020 expecting to burn through US$550 million of cash this year in its business plan (as we reported here), even before the Covid crisis crashed the oil price, delayed projects, and caused a rash of contract cancellations. So, I suspect that the new funds are required to fund its ongoing problems projects and their cash needs, rather than “future growth”.
In July, a class action lawsuit against McDermott and its executives was announced in the US (here). The plaintiffs allege that McDermott made announcements to the market about the sale of its Lummus Technologies division that “were materially misleading” in 2019. They claim that, “the disclosures were made as part of a scheme to artificially inflate the market price of McDermott’s common stock, calm the market and allow the company to negotiate a pre-packaged Chapter 11 bankruptcy restructuring plan.”
Looks like these claimants will have to join the queue behind Ecopetrol and the other litigants.
Chickens come home to roost at James Fisher
James Fisher and Sons shares plunged 19 per cent in a single day earlier this month when the company warned that its profits would be hard hit by an impairment on the value of its dive support vessels Subtech Paladin and Subtech Swordfish … an impairment that we had flagged as very likely four months ago (here).
With polite English understatement, Fisher said that, “the carrying value of the asset base is under review,” following the departure of the executive director for the Marine Support division in March, and the departure of the former head of its Subtech division, Paul Whiley, who rejoined Mermaid Offshore Group as COO in August.
Fisher told investors that it now expects underlying operating profit for 2020 to be between GBP35 million and GBP40 million, a 39 to 47 per cent decline from the GBP66 million result in 2019. Fisher said that its Marine Support division had been hit by ongoing project delays and cancellations in subsea projects from clients both the renewables and oil and gas. Honestly, anyone who was surprised by the announcement here should probably have read our concerns about the company here – the shares have halved in value since the “Something Fishy” article was published.
Noble out of bankruptcy
Noble Corporation has won the battle to be the first major drilling company to emerge out of Chapter Eleven bankruptcy protection in this wave of industry restructurings. At the start of November, Noble announced in its fleet status report that had sold five rigs for scrap, continuing the trend of capacity reduction by dismantling cold stacked units for razor blades. The units sold were two drillships – Noble Bully I and Noble Bully II – built in 2011, and three older semi-submersibles – Noble Jim Day, Noble Danny Adkins, and Noble Paul Romano. From March to October 2020, 32 rigs in total, including 20 floaters, were scrapped across the industry.
Noble’s restructuring plan follows the usual format: the old shareholders are wiped out and control of the business is handed to its bondholders. A debt for equity swap cancels more than US$3.4 billion of debt. The company also announced a settlement of litigation over its 2014 spinoff of Paragon Offshore, which also subsequently went bust.
Noble says bondholders have also agreed to provide US$200 million of new capital in the reorganised business, and that it has lined up US$675 million in loans to further fund the business upon its exit from bankruptcy. So Noble is well placed to survive the ongoing misery in offshore drilling. Noble filed for Chapter 11 in July. Its rig owning peers Valaris, Diamond Offshore Drilling and Pacific Drilling have also sought bankruptcy protection, and Seadrill is likely to seek its second restructuring soon as well.
KS Energy’s court room dramas in Singapore
Noble’s good news came as insolvency consultants Alix Partners highlight the dire state of the drilling industry, with a fascinating report that you can download here.
As you would expect with from a bunch of consultants, the report has a number of factual inaccuracies (e.g. KS Energy in Singapore is under judicial management after the chief executive and directors resigned last month. Its founder, CEO and Chairman, Kris Wiluan, also stepped down in August after he was charged with 112 counts of false trading and market-rigging transactions by the Singaporean authorities). But the Alix report is an excellent read, nonetheless, highlighting that rig owners need to, “restructure (debt), retire (rigs) and consolidate”.
This is equally true for the offshore support vessel business.
Kris Energy and Rubicon make friends
Whilst KS Energy has faced its day in court in Singapore, even if its founder hasn’t yet, compatriots Kris Energy and Rubicon have vowed to bury the hatchet after five years of legal disputes and litigation over the termination of the charter for Rubicon’s FSO Rubicon Vantage in Thailand.
They agreed to a settlement, and to all legal cases between them being dropped (here). Now they are friends, Kris will hire Rubicon Vantage as the FSO for its Apsara field development in Cambodia next year, when it begins production in the first offshore field in the country. Assuming its long-suffering lenders provide sufficient capital to get the wells on line.
Jobs for the girls at Maersk Drilling
Maersk Drilling announced a bumper contract win with Total in Suriname here, the next great offshore frontier. Maersk will provide two rigs for appraisal drilling in 2021, for a total duration of 500 days under the US$100 million letter of award from the French oil major.
The company then capped its good business fortune by announcing a quota for female managers and leaders: “Maersk Drilling is pursuing a significant leap forward on gender diversity to increase female representation on all onshore leadership levels through a female leadership target of 30 per cent across leadership levels, 25 per cent for senior leaders, and 20 per cent for the Executive Leadership Team by end-year 2023.” Since the Executive Leadership team currently consists of four white men, this is a pretty clear sign that a woman will be joining them shortly for herring in the executive lunchroom in Lyngby.
If the current crop on Linkedin is any guide to the company’s completely non-discriminatory hiring practices, the new cadre of female managers under the quota will all be thin, white, graduate Danish women (search and see). How can you have an equal opportunities policy that treats every applicant on their merits, and then have a quota for one privileged group? But Scandinavian hypocrisy knows no bounds, as we saw at Orsted here.
Ocean Infinity’s infinite dreams
And finally, the boldest promise ever made in a century of maritime history. Ocean Infinity has announced here it is building the largest ever, greenest and most expensive unmanned, autonomous offshore support vessel ever, at 78 metres long, and not just one, but eight of them!
The modest press release announcing the new building contract at Vard quoted Ocean Infinity’s CEO Oliver Plunkett saying, “The impact and the scale of this robotic fleet will spark the biggest transformation the maritime industry has seen since sail gave way to steam.”
No point in dreaming if you can’t dream big. These are fascinating vessels and they could be a game-changer. Ocean Infinity says that, “the first 78-metre vessel is expected to launch in mid-2022.” Presumably without the ammonia fuel cell mentioned, as none are yet commercially available and the first prototypes will only enter field tests in 2022.
Not actually without crew yet
However, many questions remain unanswered. For a start, the press release states that these eight DP2 Armada vessels might not actually be unmanned and navigated from the company’s remote operations centres when they deliver. Instead, the company admits that they will “initially… utilise a skeleton crew onboard”. Minimum safe manning, is that?
Next front in the battle of the subsea robots
We have already covered the battle of subsea robots that the company is waging with Fugro (here). Unfortunately, since we wrote that piece in April, some of the promises Ocean Infinity made earlier in the year have not yet come to fruition.
In February, managing director Dan Hook declared that the first wave of its Armada fleet of unmanned, remotely managed vessels would be “deployable by the end of 2020”. The new press release pushes that date back to early 2021. Indeed, the diesel electric engine contract on the new ships was not even announced until September by Volvo Penta (here).
In February, Ocean Infinity said that its Armada fleet, “will initially add fifteen bespoke designed marine robots,” but the new release now clarifies that actually it is building nine of its first wave unmanned 21-metre and 36-metre-long hydrographic research vessels.
The battle with Fugro continues, however. Ocean Infinity announced a partnership to search for offshore oil seeps with Shell, a task for which its Armada fleet will be ideally suited. However, Fugro scored some big wins too, announcing its unmanned remotely operated vessels were actually in operation and had won a major hydrographic contract in Australia to autonomously survey the approaches to Port Adelaide (here).
The Dutch survey giant also announced last week (here) that it had signed a deal with NYK in Japan to co-operate on providing geotechnical investigation services to the fast growing Japanese wind farm industry.
So, the early results suggest Ocean Infinity has the bigger dream and the highest ambition, whilst Fugro has the most tangible actual performance with real-life, unmanned survey units navigated by satellite. Game on!