COLUMN | Quick updates on McDermott, Valaris, Noble, Diamond, MMA, Pacific Radiance, Bourbon and Sembmarine [Offshore Accounts]

On the same day that a jury in New York convicted disgraced Hollywood mogul Harvey Weinstein of two counts of criminal sexual acts, all eyes in offshore were on Houston, where bankruptcy judge David. R. Jones approved McDermott’s plan to pay out bonuses of up to $106.2 million for the company’s senior executives and other supposedly “key” employees. Clearly, our appeal to Nancy Reagan’s advice on drugs (here) was insufficient to sway Judge Jones’ mind.

McDermott CEO and president David Dickson can now potentially receive a bonus of up to $12.6 million this year on top of his base salary, and on top of the much-needed retention bonuses he trousered over the last four months as the business careered into Chapter Eleven.

The court also approved the bidding procedures for the auction of the Lummus Technology division, which is expected to raise in excess of $2.5 billion for McDermott creditors. The next hearing on the McDermott bankruptcy plan is scheduled for March 12. The mind boggles as to what the next plot twist will be in this bankruptcy heist caper. Less Ocean’s Eleven, more Dickson’s Chapter Eleven.

Drillers take another hit

The end-of-year results from the major offshore drillers were not pretty. Basically, three of the leading players in the sector are now reliant on their credit facilities to see them through the continuing downturn.

Valaris (the new name for the merged Ensco-Rowan companies) reported a loss of US$216 million and the company finished 2019 with just US$97.2 million of cash in hand, and US$1.6 billion available under the credit facility.

Analysts foresee that the credit facility will likely be used this year. Valaris reported in its filing, “While our diverse, high-quality modern rig fleet and technical expertise position us well to continue adding future backlog, we expect to report losses and have negative cash flows during 2020, despite gradual improvement in utilisation and average day rates for Valaris’ fleet.”

The one drillship Valaris DS-8 generates most of the company’s free cash flow, as it is still fixed on a lovely legacy contract from the boom years, with a day rate of a mind boggling US$634,000. Unfortunately for Valaris, this unit will come off hire in November. Current spot rates for the unit are around US$200,000 today.

The same story came from Noble Corp. and Diamond Offshore (here). Noble has already drawn down on its credit facility, it reported in its fourth quarter results, and now has just $660 million left available.

On February 19, Noble received a formal notice of non-compliance with the NYSE as its average closing price had fallen below an average of a dollar for thirty consecutive days. Diamond’s net loss for the year 2019 was US$357 million, nearly double the US$180 million loss the company saw in 2018, and fleet utilisation slumped to 59 per cent. The company’s CFO, Scott Kornblau, told analysts that Diamond would again face negative cash flow this year.

“We finished 2019 with US$156 million of cash and nothing drawn on our revolver,” he said at the earnings conference call. “We expect to be cash flow negative during 2020 and to end the year with a drawn revolver balance.” Five years into the slump the fact that three major drillers are still not expecting to be generating positive operating cash flow in 2020, is a warning to everyone that the pain isn’t over. The revolvers are drawn, but this isn’t Reservoir Dogs.

MMA Offshore makes smaller loss

Embattled Aussie offshore player MMA Offshore reported its results (here) for the six months to December 31 with some good news, or, rather, less bad news than usual.

The Fremantle-based company’s loss after tax narrowed to only AU$9.7 million (US$6.4 million), its least bad result since 2016. The company managed to generate net cash from operations of AU$8.2 million.

And just in time too, since MMA’s debt holiday ends on June 30 this year, when it has to make a symbolic payment of AU$5 million against its AU$275 million debt pile. Whilst touting its expertise in high value subsea services, its complex and sophisticated fleet of modern vessels, a note in the presentation also highlighted that MMA is now in the decidedly unglamorous business of chartering in landing craft for spot work in East Africa. Perhaps the company plans a remake of African Queen?

Pacific Radiance looking tarnished

Lovers of disaster movies need not pine for a remake of Titanic, when they can just read through Singapore’s Pacific Radiance’s full year 2019 results here, which were truly ghastly.

The company had revenues for the fourth quarter of US$20 million but reported a loss of US$58 million for those ninety two days, driven by impairments of US$39 million and doubtful debts from related companies of another US$9 million, generating a total loss for the year of US$83 million.

There was no update on whether its long awaited White Knight Allianz Marine would be closing the mysterious merger/take over/combination which we covered here. The company’s balance sheet showed that it had total liabilities of US$630 million and assets of only US$387 million on December 31.

You might think that Pacific Radiance was a complete dog, until you read that in 2019 the company actually generated US$1.5 million in cash flow from operations. So, whilst its debt pile is indisputably too large, and whilst its balance sheet has massive negative equity, the company can essentially stagger along, and has a cash cushion of $15 million to sustain it in the short term, until its White Knight rocks up to save the company, Sleeping Beauty style. Otherwise, it will be a horror story.

Bourbon: Justice delayed… again

Another courtroom drama, meanwhile, failed to play out in Marseille on Monday, February 10. The trial of the Bourbon oil group and eight of its senior managers for corruption for allegedly paying bribes to tax officials in West Africa was once again postponed in the Marseille Criminal Court due to procedural flaws.

The former tax manager whose suitcase full of cash started the investigation into the bribery complained to La Croix newspaper, here, “The longer I wait, the more complicated it becomes. Bourbon organised massive fraud. I have a responsibility, I was a bonded employee and I wanted to serve my company, which is now discharging on me.”

The Bourbon bribery case makes Waiting for Godot look short and concise…

Esteves de Jesus goes down

But in Brazil, there was finally a conviction for the shady consultant to Sembmarine of Singapore’s local yard, who was found guilty in a bribery and money laundering case, which involved the shipyard’s Brazilian rig-building and its contracts with Sete Brasil and Petrobras, as we reported here.

Guilherme Esteves de Jesus was jailed for over nineteen years last week, and will also face fines, as well as potentially further charges from Brazilian prosecutors. One former Sembmarine employee also faces charges, but the company itself is at pains to remind everyone that it has not been accused of wrong doing, and that it quickly fired the staff member who was accused of involvement in the scandal.

The Justice League in Rio delivers results.