King Julien, the Lemur leader in the cartoon franchise Madagascar, would be delighted. The ring-tailed primate famously liked to “move it, move it” (here). At last, offshore supply vessels are moving, moving, as sales and purchases have stepped up a gear in the midst of the pandemic.
Long idle ships, often laid up for years, finally started to move off the quay into new ownership these last few months. The crisis has forced owners of both anchor handlers and platform supply vessels to take further write-downs and get non-productive, cash-destructive vessels off their books. As prices have fallen, bottom-feeding newcomers have stepped forward to pick up second-hand assets from the big boys often at 90 per cent discounts to newbuild price. Hakuna Matata as they said in The Lion King!
Fragmentation, not consolidation
One of the key themes of the offshore supply boat market has been that it is excessively fragmented. Whilst seven drillers control 80 per cent of the offshore drilling market (and still lose money hand over fist), the top seven supply vessel owners have less than 40 per cent of the OSV market (and lose even more).
For many years experts had considered that consolidation would be enable the industry to raise standards and maintain capital discipline. But now, as the big players sell more and more ships in the face of five years of recession, the fragmentation only continues and gets worse. New players are emerging with scale in various markets, based on acquiring cheap tonnage from established players at fire-sale prices.
Market leader Tidewater has the biggest shrinkage
Tidewater’s shrinkage reflects this. In March 2015, as a stand-alone entity, Tidewater operated 279 vessels, of which 99 were deepwater PSVs or deepwater AHTS, and another 117 ships were shallow water, smaller PSVs and AHTS vessels, mainly serving the jackup drilling market. The company also operated 63 “other” diverse vessels, including crewboats and offshore tugs. At the time, GulfMark also operated 71 ships as an independent company, mainly PSVs in the North Sea.
Both companies sought to sell and scrap tonnage through the downturn, including the time Tidewater loaded five UT755 PSVs and three anchor handlers onto the Chinese heavy lift ship Xiang Yun Kou in New Orleans to take them to India for demolition (iconic photo here). In November 2018, GulfMark and Tidewater merged after both had swapped their debt for fresh equity and restructured.
Today the total Tidewater fleet (including the legacy GulfMark assets) stands as follows:
|Type||Active||Stacked||Held for Sale||Total|
Source: Tidewater here
Two thirds of the ships have gone… along with 90% of the value
From 350 vessels owned by the two companies in the first half of 2015, the merged Tidewater/Gulfmark now has an active fleet of just a third of that level in mid-2020. Around 65 per cent of the fleet has been sold or scrapped, or is stacked or held for sale, more than two hundred and twenty ships.
In the 2015 annual report (here), the company’s then CEO Jeff Platt boasted that the company had “the largest modern fleet of shelf-oriented and deepwater vessels of any company in the offshore industry. We have invested more than US$5 billion in this effort while retaining our solid financial foundation.”
By 2018 that supposedly solid financial foundation had dissolved, Tidewater went in chapter 11 bankruptcy protection, and it now has a market capitalisation of just US$285 million, and a total enterprise value of around US$600 million, including just US$270 million in long-term debt. Nearly 90 per cent of the value of the company has simply disappeared over the last five years.
Chinese buyer takes a six-pack of AHTS
And the shrinkage continues. In August brokers announced that the Chinese operator Sino Shipping (hitherto unknown in the offshore sector) had acquired a package of six sister AHTS vessels of 8,000 kW, complete with DP2 and Fifi1 and around 140 tonnes bollard pull, from Tidewater. Sea Apache, Sea Cherokee, Sea Cheyenne, Sea Choctaw, Sea Commanche and Sea Kiowa were built in 2007 to 2009 and were once the mainstay of the Gulfmark fleet in South East Asia.
Brokers reported that the four-engine vessels sold en bloc for US$9.5 million, valuing each anchor handler at just over US$1.5 million apiece. In 2014 they would have been worth US$20 million each; such is the value destruction of the offshore industry.
In June three laid-up Tidewater 2,150DWT PSVs in the Gulf of Mexico were reported to have changed hands to unknown buyers as well, whilst the 3,728kW AHTS Hanks Tide (built in 2009) was sold to the UAE-based company Baltic Marine Services, and renamed Green Hill. Then, a few weeks ago, brokers reported that the 2010-built Dulaca Tide, a 3,840kW AHTS, had been sold by Tidewater to an India-based company called Hudson Offshore Services. The shrinkage continues.
Bourbon goes all e-Bay
And it is not just Tidewater. Now that Bourbon is under the control of a consortium of its banks (here), the board has been equally aggressive in shifting its old tonnage for prices at which the former owner Jacques de Chateauvieux would have blanched.
In June, the market was abuzz that a company called Star Matrix of India had purchased five vessels from Bourbon out of lay up in Limbe, Cameroon, namely the two large AHTS Bourbon Crown (a DP2, UT722 design anchor handler with 193 tonnes bollard pull, built in 2001) and Ulysse (a DP2 UT 721 design with 170 tonnes bollard pull, built in 1998), and the three PSVs N’Zinga, Luiana and Bourbon Viking, which were built between 2001 and 2003.
Clearly, there is only so long you can wait for a recovery when vessels are approaching twenty years of age and have been laid up for years. Bourbons’ banks couldn’t wait.
Then, in August, Bourbon announced an online auction of six of its laid up smaller Liberty 100-class PSVs, built in 2008 in China, each fitted with DP2 and FiFi1 and with 360 square metres of clear deck space (specifications here). The concept was straight out of e-Bay, with the Guangzhou Shipping Exchange holding an online bidding process with a starting price of US$800,000 per vessel.
The vessels were sold in pairs as is, where is in the UAE, the Caribbean, and Indonesia. Again, all six Liberty 100 ships were long term lay-up vessels.
The final bids closed on September 1 and the lucky buyers should be taking delivery by the end of the month. We’ll keep you posted.
Hermitage also under the hammer
When we last looked at Hermitage Offshore in July (here), the company was about to begin the shortest ever forbearance agreement with its angry lenders. The banks didn’t let the company breach its covenants for long, and on August 12, Hermitage announced it was headed into Chapter 11 bankruptcy.
Days before its bankruptcy filing, Hermitage had sold its two DP2, Fifi1, 150-tonne bollard pull, 8,900kW AHTS Hermit Brilliance and Hermit Baron (both built in Japan in 2009 for Sanko Steamship), apparently to the Petro-Services group of Monaco/Netherlands/Congo/wherever. The sale released the Scorpio Group-backed company from a US$9 million loan from DVB Bank on the vessels, but it immediately booked a US$4 million loss on the sale. Clearly, DVB just wanted out, even though both vessels were on charter in Africa.
The other lenders to Hermitage have been even more aggressive. None of the debt for equity swaps we have seen in other Chapter 11 reorganisations like McDermott’s, Hornbeck’s (here), and Tidewater’s.
Instead, Hermitage’s lenders have set a target date of October 22 to finalise the sale of its 10 PSVs and 11 small crewboats through an auction process supervised by the company’s bankruptcy judge in Manhattan. It is Toisa all over again. Rumoured buyers include private equity-backed UOS of Germany, which has a fleet of anchor handlers but no PSVs, and perpetual bidder for anything that floats and is cheap, Seacor Marine.
The fact that Scorpio has chosen to walk away from its investment in Hermitage and that the lenders are willing to take potential losses on their loans simply to cut their losses on the company suggests that sentiment has reached rock-bottom in the offshore market. Former industry titans are laid low and whole companies are being liquidated and vessels auctioned off at massive discounts.
But the hammer doesn’t always fall – Terasea pair back on the block
Such is the dire state of the industry, however, that even auctions in the OSV market fail today. The sister long distance anchor handling tow tugs Terasea Eagle and Terasea Osprey from the ill-fated joint venture between Ezion and POSH were put through a judicial auction process through Singapore Admiralty Courts a few weeks back. These were recognised as high-quality ships, built in Japan with 12,000kW main engines, and 200 tonnes bollard pull, so ideal for towing and mooring FPSOs, moving semi-subs, or even installing floating wind farms. They were valued at over US$30 million apiece when POSH listed in 2014.
However, the sales failed because the bids received did not meet the reserve price set by the court-approved appraisal panel. So, now, the bank which arrested the ships and holds the mortgage on them, SMBC of Japan, must incur more costs and try to put them through a second auction with a more realistic reserve price. As we reported here, the SMBC bank has been holding the assets for over nine months now since the arrest, incurring operating costs, and watching the market deteriorate whilst it dithered.
King Julien’s comment in Madagascar seems equally applicable to these banks which are rushing to the exit offshore at the very bottom of the market: “They are just a bunch of pansies.”
Next, in Part Two we’ll see other once great companies shrinking, we’ll look at the winners emerging from some unlikely places in the industry, and we’ll study one big player proving that selling low and buying high is actually a Blue Ocean strategy.
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.