COLUMN | Saipem lives again, Mozambique restart is slated whilst more small island Caribbean corruption emerges [Offshore Accounts]

A year ago we were reporting on the crisis at Saipem. The company’s shares had crashed and the CEO was on his way out as the company racked up over a billion dollars of extraordinary charges on botched projects. Saipem had to beg its Italian government shareholders (ENI and the state investment fund CDP) for a US$2 billion bail-out (here) as it reported a net loss of over US$2 billion.

It is darkest before the dawn. The stock price of Saipem plunged more than 70 per cent from over €3.50 (US$3.55 at the time) on July 12 to just over €1.10 (US$1.12 at the time) at close on July 13, as the surplus shares from the mismanaged equity raise were dumped into the market.

Investors brave enough to have bought in the aftermath of this shambles, however, have been richly rewarded. At close on Friday, March 3, Saipem’s shares had recovered to €1.50 (now US$1.60), a forty per cent return in eight months.

Fortune favours the bold.

Good news from Milan

The company’s preliminary end of year 2022 results and update to its strategic plan were unveiled on February 27. Revenues were up 53 per cent in 2022 compared to 2021, Saipem won nearly twice as much business (more than US$13 billion) year on year, and 95 per cent of the new contracts in 2022 were in offshore oil and gas.

Since Saipem is a diverse entity with activities in windfarm installation and offshore construction – in both shallow and deepwater – besides operating a fleet of drilling rigs covering both jackups and drillships, its recovery can tell us a lot about the direction of the market.

Takeaway number one: Saipem still lost money

The first takeaway that is obvious is that even with oil and gas prices soaring in 2022, orders pouring in, and the company’s fleet winning new business at higher rates, Saipem still lost money both for 2022 as a whole and in the fourth quarter of the year, reporting a net loss of €71 million (US$76 million) for the final three months of 2022, and €207 million (US$220 million) for the year as a whole.

This is consistent with what we saw from Transocean and Diamond Offshore, both of which also reported losses for the fourth quarter. Whereas the major oil companies like Shell, BP, Total, Chevron, ENI, Equinor, and ExxonMobil have all reported record profits totalling hundreds of billions of dollars for 2022, contractors continue to struggle with the legacy of contracts priced at break-even (or worse) during the harsh collapse of activity in 2020. As a result, their profits have lagged the recovery in oil price and in leading edge day rates for rigs and vessels.

Takeaway number two: Deepwater is where the excitement lies

You cannot help but notice Saipem’s focus on deepwater, and that growth remains very expensive because of the high cost of modern deepwater assets. In October 2022, the company sold its onshore drilling business for a cash consideration of approximately €500 million (US$531 million) and the acquisition of 10 per cent shares in the buyer, KCA Deutag. The exit from land operations left the company virtually debt-free on a net basis after the proceeds of the sale and the injection of the US$2 billion in new capital from its shareholders last year. Unfortunately, future success requires reversing the low investment of the lean years of the industry downturn from 2015 to 2021. As a result, Saipem has adopted a leasing model to reduce capex, bareboat chartering in one drillship and three jackup rigs, Pioneer Jindal, Sea Lion 7, and Perro Negro 9.

Despite surging revenues forecast for 2023, however, Saipem expects its free cash flow at break-even, as it will be investing close to another US$500 million in capital expenditure this year. This is needed for the preparation of units like the drillship Deep Value Driller, which the company recently chartered in for a US$400 million drilling campaign for parent company ENI off Ivory Coast. In 2022, Saipem also spent more than US$500 million in capex, including the acquisition of the deepwater drillship Santorini from Samsung Heavy Industries for US$230 million.

New deepwater pipelay vessel

At its analysts meeting the day after the results came out, Saipem’s CEO Alessandro Puliti announced that the company was also leasing a new deepwater pipelay vessel. Upstream has reported that this is JSD 6000, which was originally ordered by Petrofac in 2014, before the scandal-ridden British company withdrew from the marine installation business.

JSD 6000 is a 215-metre-long, DP3 vessel designed in Norway and equipped with a 5,000-tonne revolving main crane. The designer claims that the unit is capable of performing J-lay and S-lay pipelay work in water depths of up to 3,000 metres.

The vessel was built by Zhenhua Heavy Industries (ZPMC) in China. JSD 6000 commenced sea trials in December 2022 after the shipyard restarted construction of the vessel itself after purchasing it from Petrofac for US$190 million in 2018. The designer has the project history, specifications, and photos on its website.

Rather like John Fredriksen buying two more subsea vessels from China, Edda Sphynx and Edda Savannah, as we reported, JSD 6000 is a reminder that there are still some abandoned units available from Chinese shipyards even now, eight years since the onset of the offshore crisis.

Takeaway number three: Total’s Mozambique project is back

The last takeaway from the analysts’ call with Mr Puliti was that Saipem expects to restart its operations in Mozambique on the construction of the Mozambique LNG plant at Afungi in the north of the country, beginning gradually from July onwards. This project was suspended in April 2021 after a devastating attack by Islamist terrorists on the town of Palma, just ten kilometres away from the construction site of TotalEnergies’s US$20 billion LNG plant. This assault in March 2021 killed dozens, including locals and expatriates alike, and compelled Total to suspend all work a few weeks later.

Total declared force majeure on the project and Saipem’s project company CCS left two chartered accommodation barges literally on the beach at the site. James Fisher’s Subtech unit also had to stop work on the jetty it was building there.

Since then, the Afungi camp has been a ghost town, and insurgent attacks continue elsewhere in Cabo del Gado province, as Zitamar News has repeatedly reported. Last month, a staff member from Doctors Without Borders (MSF) was killed by armed men suspected to be members of the Al-Shabaab terror group while travelling on public transport to visit his family in Pemba, the main supply base for drilling operations off Mozambique, MSF reported.

MSF said it was, “alarmed by continued violence in Northern Mozambique and indiscriminate attacks killing and wounding civilians in Cabo Delgado.” But TotalEnergies’s LNG plant site is now safe, it seems, so the work will start again in the second half of the year, according to Mr Puliti. This will act as a major stimulus for vessel demand in east Africa, and will involve the recommencement of coastal construction, offshore drilling, and pipeline installation as well as the importation of vast quantities of labour and material for the plant from overseas.

But let’s be clear – with Al-Shabaab killing 14 Mozambican militiamen in a gunfight only last month in Cabo Delgado (The 14 killed included two who were beheaded on film after being captured alive, according to Zitamar.), the insurgency is by no means over, and TotalEnergies and the Mozambique government cannot let up their vigilance.

Vigilance, however, is also required elsewhere.

And finally… more malfeasance in the British Virgin Islands

Surprise! Everyone’s favourite tax haven and money-laundering paradise of the British Virgin Islands (BVI) has a new scandal.

Readers will be shocked, just shocked, to discover that two damning government audit reports have found that the territory’s government paid out hundreds of thousands of dollars to a consultant who did nothing, and US$2.1 million to the EZ Shipping company for the charter of two barges for border defence, which had been rejected by the police, proved of no value, and were not used for several months. EZ money, clearly.

BVInews.com is reporting that the British-appointed governor has now requested the assistance of local law enforcement agencies. Governor John Rankin said at a press conference on Friday afternoon that the cases, once again, show, “failures in good governance and improper use of public funds”.

The same questions and the same four walls for former Premier Fahie

Again! How can these islands with a population of 31,000 credibly run a vast shipping register and a large offshore financial centre when the government has repeatedly failed to demonstrate probity and integrity, and has shown that corruption reaches to the highest levels?

Former BVI premier Andrew Fahie remains under house arrest in Florida, and his trial on narcotics charges has been delayed until July 2023.  The reason for the delay is that both prosecutors and Mr Fahie’s defence lawyers have struggled to review the large quantities of evidence gathered by the FBI for the case. The evidence includes more than 8,000 minutes of audio tape and wiretap recordings, which allegedly reveal Mr Fahie and his co-defendants plotting drug smuggling, money laundering, and other crimes.

Not the only one, big man crying in St Kitts and Nevis

Another popular Caribbean flag of convenience for shipowners seeking “light touch regulation” and a country that sells its passports to rich foreigners is Saint Kitts and Nevis. Notorious Malaysian embezzler, thief, and mastermind of the 1MDB fraud, Jho Low, who famously gave Kim Kardashian a quarter of a million US dollars, which she took home in a rubbish bag on a commercial flight, became a citizen of Saint Kitts and Nevis in 2011, despite having never actually visited the country.

Readers will be shocked (again) to discover that this tiny, twin island nation (with a population of 55,000) discovered last month that over US$7 million had mysteriously gone astray from the Development Bank of Saint Kitts and Nevis. The prime minister and finance minister, Dr Terrance Drew, told parliament about the anomaly.

“Madam Speaker,” Dr Drew said, “what took place at the Development Bank is enough to make a big man cry. We have stabilised the Development Bank, and the bank is now solid. Lots of work to be done but it is solid… but what has been uncovered is over EC$20 million [that] can’t be accounted for in cash… How does one explain this? After prudent research, the bank had not been subjected to audits since 2018.”

Guess what. If you don’t conduct audits at banks, you can expect money to go missing. Who knew?

Cayman Islands still in the grey zone

Meanwhile, last week, another surprise for readers emerged: the international Financial Action Task Force (FATF) has expressed concerns that the Cayman Islands is still failing to complete its action plan against money laundering. The state (population 70,000) remains on the FATF grey list of non-compliant states because it has, “not demonstrated that it is prosecuting all types of money laundering cases, [and] that such prosecutions are resulting in the application of dissuasive, effective, and proportionate sanctions” against perpetrators.

Sources told the Cayman News Service that there are “problems in relation to prosecutions because the police service and the Anti-Corruption Commission are short of the experts needed to conduct complex financial crime investigations. Criticisms have also been levelled over a tendency for law enforcement officials here to go after the ‘lower hanging fruit’ rather than delving into more complex potential crimes.”

So, basically you are more likely to be busted carrying US$11,000 into the country at the airport in Grand Cayman, than to bank billions of dollars of looted funds through shell companies registered there.

The joke’s on us, and the IMO

How and why the International Maritime Organisation (IMO) permits these tiny and blatantly inept states to run large open registries of international ships is a mystery. If shipping truly wanted to clean up its act, to regulate itself to high standards, and to prevent malfeasance, it would enforce rules that require shipowners to demonstrate a genuine connection between their operations and the flag of registry.

There is not a brass plate in the Caribbean handing our registrations for cash, under a veil of secrecy imposed by sovereign immunity. Nobody would expect a small country town in rural Australia, a kampung in Borneo, or the English county of Rutland (population 40,000) to manage tens of thousands of secretly owned companies and “trusts”, and billions of dollars of financial flows with any degree of competence.

But somehow the IMO grants the governments of BVI, the Cayman Islands, and Saint Kitts and Nevis powers under international law that we would laugh out loud about if the mayor of Albany in Western Australia or the district council of New Plymouth in New Zealand requested for themselves.

Background Reading

The BVI governor’s statement into the territory’s latest procurement issues is here.

We reported the shady goings-on at the highest levels of the BVI under the headline Drug Arrest Shock last year.

Whenever I think of Deep Value Driller, I think of this list of one hit wonders of the 1990s.