COLUMN | The last four of the twelve days of Christmas: Myanmar’s misery, floating wind’s progress, Bourbon’s revival, P&O Maritime’s hubris, and Standard Drilling’s transformation [Offshore Accounts]

Hope you had a very Merry Christmas – unless, of course, you are of the Orthodox faith, in which case you have to wait until January 7 for Christmas. This week, we close our Twelve Days of Christmas for 2021. If you missed the first eight days, from Capricorn Energy’s juicy partridge in the pear tree, to the eight maids-a-milking ammonia fuel cells, you can read them here and here.

So, who is dancing and which lords are a-leaping, as we revisit the festive heroes of our 2020 Twelve Days carol (here) and (here)?

Nine Ladies Dancing, many women killed, one lady in prison: Myanmar

A year ago (here) we were celebrating nine months of work on Block M9 in Myanmar with PTTEP for Japan Drilling Company’s Hakuryu-5 semi-sub and the contract for Transocean’s semi-sub Deepwater Nautilus. The country was riding a wave of exploration success offshore and an influx of foreign investment and tourism since the transition to civilian rule and multi-party democracy in 2015. A relaxation of Covid rules meant that drilling could restart in the country.

Then, everything went horribly wrong.

Myanmar was plunged into chaos when the military launched a coup on February 1 and overthrew the democratically elected government of Nobel peace laureate Aung San Suu Kyi and her party, the National League for Democracy (NLD). Tanks massed on the streets, Ms Suu Kyi was detained, and the internet was shut down in the country. Our coverage was here.

In the months after the coup, there were mass demonstrations against the military, which were brutally supressed, there was a general strike, and the banking system in Myanmar almost collapsed. The president and ministers from the civilian government were arrested and held in undisclosed locations. Myanmar’s economy contracted by an estimated 18 per cent in the twelve months up to September 30., according to Foreign Policy (here).

Bad to worse: Christmas massacre

Since the coup, hundreds of civilians have been shot and killed by the Myanmar military, as protestors demanded an end to military rule. Hundreds of others have joined an armed uprising against five-star general, and now prime minister, Min Aung Hlaing and his State Administration Council.

A BBC investigation found evidence of mass killings by the junta in July (here), and on Christmas Day, the aid agency Save the Children issued a statement confirming that two of its staff were missing and their vehicle has been found burnt out in an attack by the Myanmar military on a village in the east of the country. The attack left 38 men, women, and children confirmed dead (here).

Suu Kyi jailed, President and Mayor imprisoned, too

In early December, a special court in the capital Naypyitaw sentenced Aung San Suu Kyi and the former president U Win Myint, who was also arrested during the coup, to four years in prison. They were found guilty of charges of incitement and breaking Covid-19 regulations, according to Myanmar Now (here). Each received two years in prison for inciting public unrest under Section 505b of the Penal Code, a charge relating to two statements denouncing the junta released by the NLD after the February coup.

They received another two years under Section 25 of the Natural Disaster Management Law, based on the charge they violated Covid-19 restrictions during the 2020 election campaign, which the NLD won by a landslide. The judge then reduced the total terms from four years to two.

The former mayor of Naypyitaw, Myo Aung, who was also imprisoned by the military junta after the take-over, also received a two-year sentence for incitement for the two NLD statements.

Since the coup, the junta has arrested almost 11,000 people and killed more than 1,300, including children, the Financial Times reported this month, citing the Assistance Association of Political Prisoners, a human rights group (here).

TotalEnergies and Woodside suspend

When Burma was last under military rule, the country’s investors quickly divided into two categories. Western investors like Chevron, Total, and Premier Oil faced strong criticism and scaled back their activities in the country, as activists picketed their offices and shareholder meetings, and western lawyers targeted their complicity in the abuses of the junta.

Asian investors, including Korea’s Daewoo, PTTEP of Thailand, and Petronas Carigali of Malaysia ignored the sanctions, faced down any criticism, and stepped up their operations.

The same pattern seems to be playing out today. TotalEnergies and Woodside were quick to announce that they had suspended the development of their deepwater gas project in Block A-6 offshore Myanmar until human rights conditions in the country improved. They quickly demobilised the Transocean drillship Dhirubhai Deepwater KG2 and suspended all operations. In October, Japan’s Mitsui Oil Exploration sold its 20 per cent stake in Block Three to its 80 per cent partner, block operator PTTEP.

The other Asian oil and gas companies in Myanmar have been less phased by the blood on the street and the massacres. Posco, which owns and operates the Shwe gas field after acquiring Daewoo’s oil and gas business in 2010 and rebranding it in 2019, has continued drilling in Myanmar, although you would be hard pressed to know.

Transocean’s very coy

Posco’s contractor Transocean has been very coy in its drilling fleet status reports (here), simply stating that Deepwater Nautilus is on a month by month contract on a day rate of US$135,000 in a “not disclosed” country with Posco. Since Posco’s only current offshore activities are in, er, Myanmar, this is not very subtle.

The rig is due to move to a “not disclosed” customer in a “not disclosed” country in February, so it seems likely (possible?) the unit is remaining in Myanmar and that Transocean has decided to use commercial confidentiality to conceal this fact from pesky activists and its own investors. The company has 31 rigs on hire and discloses the country of operations of all but Deepwater Nautilus.

Diamond Offshore has its semi-sub Ocean Monarch also on-hire to Posco in Myanmar until March 2022, according to its most recent fleet status report (here). Japan Drilling Company continues to lease the semi-sub Hakuryu-5 to PTTEP in Myanmar, according to AIS data.

Federal and Utama clean up

In June, Upstream reported (here) that Singapore’s Federal International and its partner Gunanusa Utama Fabricators in Indonesia had won a US$300 million contract related to PTTEP’s Zawtika phase 1D field expansion offshore Myanmar.

The companies announced that they had secured an engineering, procurement, construction, and installation (EPCI) contract for four offshore wellhead platforms, associated pipelines and tie-in for commissioning in 2023.

Coup is easy; ruling is hard

The situation in Myanmar is a tragedy that is being largely ignored internationally. Hundreds of people have been killed by the junta and thousands imprisoned. The last time the military seized power, it took more than a quarter-century for democracy to be restored. During that time, the people of Myanmar were the losers, as their country stagnated, a small clique of generals prospered through corruption, and tens of thousands of lives were ruined.

Then, Ms Suu Kyi was also arrested and detained for more than 14 years by the previous military rulers under the ominously named State Law and Order Restoration Council. Now she is 76 years old, and general Min Aung Hlaing must be hoping he can outlast her.

The oil and gas industry is divided on how to respond to the brutal junta in the country. There is no quick or easy answer to Myanmar’s problems, which arguably stem back to the shattering of the state by Japanese invasion in the 1940s. However, ending military rule and restoring the NLD government that was elected in 2020 would have to be a good start.

Like their fellow generals in Sudan and Algeria, Myanmar’s generals are quickly discovering that seizing power is easy, but building a stable government and a prosperous society is much, much harder.

Day Ten: Floating Wind

Last Christmas, ten MB turbines for Italy’s first floating wind farm, the US$800 million, 250MW, 7 Seas Med project, featured in place of ten lords-a-leaping.

The last year has seen relentless progress in the roll-out of floating wind as developers seek to install more powerful turbines further offshore, and to drive down unit costs, in the same way that the costs per Megawatt hour have fallen for fixed foundation turbines both onshore and offshore. Wind turbine maker Vestas has a useful graph illustrating this in its recent Capital Markets Day presentation here:

We have covered the huge growth and the large challenges facing floating wind here – projects are coming online in Asia and in Europe, but development is taking longer than owners of anchor handlers might hope.

France supports floating wind

Wind Europe, the wind industry’s lobbying group, reported here that in July France closed the world’s first-ever auction for a commercial-sized floating offshore wind farm, to be built in the Atlantic Ocean south of Brittany with a capacity of 250MW. Note that 7 Seas Med was not awarded by competitive auction. France is also planning to put to auction two other floating projects of a similar size in 2022 for deployment in the Mediterranean.

Wind Europe reported that the French auction “is a big step in the upscaling and commercialisation of floating wind technology. Commercialisation will bring down costs for floating wind as it has done for other technologies. The auction has a cap price of €120 (US$135.81) per MWh and the winning price is expected to be under €100 (US$113.17) per MWh – much lower than previous test projects for floating offshore wind.”

This is comparable to the cost of power from the UK’s Hinckley Point C nuclear power station.

BW Ideol struggles, Vestas and Siemens Gamesa fall

Unfortunately, the path to riches from floating wind is proving arduous. Floating turbine pioneer BW Ideol listed on the Euronext Growth Oslo exchange in May at NOK46 (US$5.20) per share. Seven months later the shares have lost nearly half their value and languished at NOK26 (US$2.94) per share when markets closed last Thursday.

It could have been worse. Subsea mining pioneer The Metals Company has lost 80 per cent of its value since listing in September (here).

Both Vestas and Siemens Gamesa have seen their stock prices slump by over 33 per cent in 2021.

Turbine makers in denial on Chinese capability

The western wind turbine manufacturers remain willfully blind to the threat that their Chinese rivals now pose. At its recent Capital Markets Day, Vestas was boasting that it held the number one market share for leading wind turbine manufacturers outside China, and that it has increased its share in this non-Chinese group, based on total onshore and offshore commissioned capacity, from 20 per cent in 2010 to 35 per cent in 2020.

I am sure Danish sprinters are world class too, if you exclude all the North American and Caribbean runners (here), but such a comparison is meaningless.

Seven of the top ten are Chinese

We noted in our Dragon Rises piece here that Chinese manufacturers now make up seven of the top ten turbine fabricators in the world, and that China deployed its first floating wind turbine unit this year in the South China Sea off Guangdong. Its floating base measures 91 metres by 32 metres, and China Three Gorges claims that the 5.5MW floating unit with a blade diameter of 158 metres is typhoon-proof. Additionally, China’s MingYang Smart Energy is in the process of building the world’s largest offshore wind turbine, the 16MW MySE 16.0-242, for fixed base installation.

You don’t need Three Wise Men to see that unless Vestas, GE, and Siemens Gamesa focus on the competitive threat from China, there will be little for them to celebrate from the successful roll-out of floating wind worldwide.

It won’t be ten lords-a-leaping; it will be three western turbine manufacturers-a-crashing. Just like their solar panel peers did.

Eleven Pipers-a-piping Bourbon’s revival

Last year we were looking at the one-year anniversary of Bourbon’s plunge into bankruptcy, and its revival under a new parent company, Sociéte Phocéenne de Participations (SPP), owned by its banks, and managed by a venerable Who’s Who of the French finance and energy industries.

Conspicuous by his absence was much-lamented founder and former chairman of Bourbon, Jacques de Chateauvieux, who lost control in the restructuring and has now resurfaced with a plan to invest in very large ammonia carriers being built in China (here).

Finally, in October we got some much-awaited transparency into the performance of the restructured Bourbon, when SPP published its audited accounts here. We apologise for not spotting the accounts on the Le Figaro database earlier, but in our defence, none of the industry press seemed to have noticed either.

Bourbon’s profits are back?

The 2020 results showed a miraculous turnaround in the company’s fortunes! From teetering on the edge of bankruptcy, SPP’s accounts now showed that in the year to December 31, 2020, the company was now profitable to the tune of €200 million (US$226 million)! Not bad for a company that purchased the whole of Bourbon for a symbolic €73 (US$82.60) on January 2, 2020. No, we don’t know why they chose that number, either.

If something looks too good to be true, it probably is. SPP’s blurry, non-searchable, PDF format accounts show that the company made a net loss of just over US$30 million from operations, but was flattered by various revaluations of assets, a large benefit from rewriting the bareboat lease contracts on forty vessels with Chinese lender ICBC, and the write-off of debts in the order of US$300 million (“autres charges et produits financiers”). So, changes in balance sheet items made the difference between a small operational loss and a large accounting profit.

The owners now talk of the company having a fleet of 350 vessels in 2023, focused on Africa, Asia and the western coast of the Atlantic (presumably Brazil, Trinidad, Guyana and Suriname), down from over 400 when SPP acquired all of Bourbon’s assets.

Ambition to build forty new surfers

Given the fragile state of SPP’s accounts, we were surprised to see that Bourbon announced the delivery of two new crewboats here. These are 19-metre-long, 30-passenger, new crewboats with a cruising speed of 30 knots. The first pair of the Surfer-200X series will operate off Gabon for TotalEnergies, Bourbon reported. And then the company dropped the bombshell that its plans to “accelerate its fleet transformation within the next three years and plans to build 40 new units in total.”

This is a smaller ambition than Jacques de Chateauvieux’s visions for Bourbon, which saw the company race to build over five hundred vessels in just over a decade. But it is a powerful symbol of Bourbon’s revival under SPP’s ownership.

Integrated future

Bourbon also unveiled a new “integrated” business model here after winning what is described as “a fully integrated logistics package” for Shell in West Africa, comprising international freight forwarding, integrated logistics services and PSV service to support two deepwater offshore exploration campaigns by Shell off Namibia and Sao Tomé.

Under the contract, Bourbon will arrange the international shipment and clearance of Shell and its subcontractors’ equipment from Houston to Walvis Bay, the management of the logistics base and associated services (including handling and lifting, material management, storage and warehousing, waste management, and tank cleaning) in both Walvis Bay and Sao Tomé, and the charter of three DP2 Ulstein design PSVs of around 4,700 DWT for the project, including Bourbon Ruby.

Bourbon says it will be in charge of the whole logistics operation, including the planning and the execution under Bourbon’s own Safety Management System, supported by its digital data management system the “Bourbon Logistics Suite”, which the company says allows it to plan, execute, and monitor the whole logistics supply chain for Shell from end to end.

Bourbon has won previous integrated logistics contracts for Shell in Bulgaria out of Varna, and for Total in Lebanon, and in both cases the drilling campaigns produced non-commercial wells or dry holes. Let’s hope Namibia breaks this trend.

P&O Maritime puts out best press release of 2021

This move puts Bourbon head-to-head with P&O Maritime, which also has ambitions to be an integrated service provider. One of the most (please, insert your own adjective) press releases of the year came from P&O’s CEO Martin Helweg here:

“Now is the time to change the course of maritime history,” Mr Helweg declared in his white paper on the topic, sounding more like Isambard Kingdom Brunel, rather than the boss of a Dubai-based logistics provider, which we spotted had a balance sheet from Hell when he was COO of its predecessor company (here).

When something looks too good to be true, it probably is.

Integrated solutions are interesting, and we commend Bourbon and P&O for attempting to make them work. However, let’s not kid ourselves that we are changing the course of maritime history, would-be Lord Nelson of Jumeirah.

We understand that everything from love-making to industrial action by unions takes longer in France, but we would ask SPP to try to post its 2021 results less than ten months from the end of this year. Please.

Twelve drummers-a-drumming

We closed last year with a glimpse inside the black box of another marine operator, Standard Drilling, which, despite its name, doesn’t actually do any drilling. At the end of 2020, Standard owned four large PSVs, a share in a very large crude carrier, and a minority stake in eight medium-sized UT755 LN design PSVs of 3,300 DWT owned by Northern Supply, in which Standard holds 28 per cent equity.

A year on, Standard has performed more strategic zig-zags than Lewis Hamilton trying to pass Max Verstappen. Northern Offshore’s fleet has now shrunk to just four PSVs: FS Abergeldie, FS Braemar, FS Balmoral, and FS Crathes. Standard also announced it was selling its share in the oil tanker for a small loss. The third quarter results are here.

In the course of the year the company also sold two of its wholly owned DP2 PSVs, the 2014-built Standard Olympus (for US$7.5 million in July) and the 2008-built Standard Princess for US$10.3 million in November).

Standard is clearly now becoming a pure-play “casino stock”. Sorry, I mean “investment company”. We read:

“During the nine months of the year 2021, the company invested US$33 million for the acquisition of shares listed on the Oslo and US Stock Exchanges, some of which were disposed realising a gain of US$2.2 million. As of September 30, 2021, the company held shares in various listed entities with a fair value of US$22.2 million, including 750,000 shares in Weatherford International.”

With North Sea spot rates for PSVs back down to less than US$10,000 per day, could there be a more powerful metaphor for the offshore industry as a whole? Moving from ship owning to pure speculation, Standard Drilling is surely a symbol of the changes in the industry.

The Twelve Days of Christmas are over. Time for some New Year’s resolutions! We have some ideas we will share next week.

Background Reading (and Listening)

Reminder: Parts One and Two of our Twelve Days of Christmas 2021 are here and here.

For a truly spectacular choral and orchestral version of The Twelve Days of Christmas, turn up your speakers and listen to The King’s Singers and the Tabernacle Choir here.

The Daily Mash’s take on The Twelve Days of Christmas is here. The conclusion? “Ask for vouchers next year.”

BBC coverage of the latest trial of Aung San Suu Kyi is here.

Coverage of Algeria and Sudan’s crises can be found here and here.

Specifications of Hakuryu-5 are here.

For the economics of Hinckley Point C nuclear power station, click here.

Specifications of Bourbon Ruby and its P105 sisters are here.