COLUMN | What does the future look like? More private equity deals – Esvagt, Havfram, JP Morgan, Huisman, Nabors, James Fisher and The Metals Company [Offshore Accounts]

An Esvagt SOV (Photo: Cemre Shipyard)
An Esvagt SOV (Photo: Cemre Shipyard)

This week has seen a number of big deals, and a couple of big stumbles. Money is sloshing through the renewables sector like there is no tomorrow. Private equity is enjoying access to cheap capital to expand in both oil and gas and other segments.

And then there was one… at Esvagt

In the Bible we read that "no man shall serve two masters" (Matthew 6:24). This is a problem that Esvagt CEO Peter Lytzen no longer faces, at least for now. We highlighted in August (here) that he was dropping hints that the Danish standby and walk to work player was likely to see an imminent change of ownership.

And so it came to pass, with its existing shareholder 3i of the UK buying out partner AMP Capital. 3i agreed to pay AMP £268 million (US$355 million) so that 3i could own Esvagt outright, netting AMP a profit of US$50 million over the six years in which it has held its half of the company. Of course, with private equity there could well have been other "dividend recaps" to enrich the owners, so this humble three per cent annual return should not be seen as definitive.

You can see dramatic drone footage of Esvagt's newly converted PX121 design vessel Esvagt Leah emerging from Ulsteinvik for sea trials off Norway ahead of its charter with Total in Denmark here.

Private Equity and JP Morgan hit the wind industry

Private equity now owns a good proportion of North Sea oil and gas – from Harbour Energy (here) to Neo Energy, backed by Norway's HitecVision, which scooped up ExxonMobil's non operated assets in February for US$1 billion, to Vår Energi, also backed by HitecVision, and Siccar Point Energy, owner of the controversial Cambo oil project west of Shetland. The Financial Times estimated (here) that 30 per cent of the UK's oil production was owned by private equity in 2020.

So, it should come as no surprise that the private equity houses are now turning their attention to the wind sector, following belatedly behind shipping industry titans Idan Ofer and John Fredriksen (here).

Last month HitecVision's HavVind investment vehicle – part of what used to be known as Ocean Installer, until it was rebranded as Havfram – announced (here) that it was building "a series of next generation, state of the art wind turbine installation vessels (WTIV)."

How many and how much?

Frustratingly, the deal is very slender on the details. Like, how many vessels are there in "a series"? The companies report that the WTIVs will be built at CIMC-Raffle's Yantai yard in China for delivery in 2024.

This puts HavVind head to head with Eneti and Cadeler, which also have newbuilding WTIVs delivering in a similar window, on top of units being built by others for service in North Asia and the United States. Fortunately, Cadeler announced the appointment of a second former McKinsey partner to its board this week, so there should be no shortage of strategizing in Copenhagen to resolve the challenge (here).

HavVind and JP Morgan say their plan is to operate "several vessels in the global offshore wind market with both traditional jackups for turbine installation as well as a cost-effective feeder-solution for the US market in particular." No price tag was given for the order.

Jones Act compliance

It's not clear what the cost-effective feeder solution for the American market will look like, given the obvious difficulties a Norwegian company like HavVind would face in complying with the Jones Act. Huisman, the Dutch lifting equipment specialist and engineering house, claims to have developed a Jones Act-compliant feeder solution, which you can view here.

Huisman has already been contracted by Keppel AmFELS in Brownsville, Texas, to supply a 2,200mt Leg Encircling Crane for the world's first Jones Act compliant WTIV, Charybdis, ordered by Dominion Energy. In May 2020, the first monopile foundations in US federal waters were installed by Jan de Nul's vessel Vole au Vent, using Huisman's  Monopile Gripper. Compatriot Barge Master also says it has developed a feeder solution for American wind that fits onto existing tonnage for the role (here).

The US Customs and Border Protection authority has confirmed that it plans to apply the Jones Act to the offshore wind industry in the same way to how it has been historically applied to the offshore oil and gas sector. This may permit foreign-built and -managed WTIVs to work in US waters as "platforms" provided that the transportation of the foundations, turbines and blades to the site is performed by Jones-Act compliant vessels.

Our view remains that the survivors in the high-growth but crowded wind industry space will be the Big Five from the low countries (Seaway 7, DEME, Jan de Nul, Boskalis and Van Oord), rather than specialist WTIV owners. As margins on wind farm development in Europe are squeezed to low single-digit returns on equity, installation costs are going to be under heavy pressure.

We'll keep you posted on how this plays out.

Nabors goes green too

We have been urging offshore drillers to consider converting their redundant DP drillships into wind turbine installation vessels rather than scrap them. OffshoreTronic has further designs and animation of the concept here.

Now, US onshore driller Nabors shows it understands the spirit of the age. It has raised US$276 million for its subsidiary Nabors Energy Transitions Solutions (NETS) in an initial public offering, and NETS is now trading on the New York Stock Exchange.

There's a lot of logic here. Nabors has a lot of experience in oil and gas drilling and now seeks to apply it to renewable geo-thermal energy through NETS. Nabors says it "has partnered with three leading-edge geothermal companies, Geo-X Energy, SAGE Geosystems and Quaise, to deepen its existing geothermal experience and evaluate new commercial business models."

Nabors says NETS is leveraging its global footprint, extensive knowledge of subsurface conditions and expertise in well construction to accelerate geothermal technologies and new geo-thermal projects globally.

This at least makes a change from the numerous cut-and-paste wind business plans we have seen in Europe. Bravo.

Going Down? Part One – James Fisher

Several companies we previously highlighted (here) as having "issues" with cash flow, governance, and compliance took a battering this week. Are we surprised?

James Fisher's stock has continued to spiral down to levels not seen since 2005 (or 2003 levels if converted to US dollars). On December 3, the company's shares on the London Stock Exchange closed at 318 pence (US$4.20), giving investors and the Cumbrian charitable foundation, which is the largest shareholder, a 65 per cent loss year to date. Fisher now has a market capitalisation of just US$211 million.

When we first asked (here) whether there was something fishy about James Fisher nearly two years ago, the company was worth over a billion dollars. In theory, the company is now trading at levels well below the net value of its assets, but in practice, investors seem concerned that there may be yet more surprises regarding the 2021 earnings, and the quality of the company's balance sheet faces further scrutiny.

Unfortunately for Fisher and its beleaguered directors, US$200 million of the assets on the balance sheet consist of "goodwill." The value of Fisher's debt now seems to exceed the value of its actual, vessels, plant, property and equipment. A similar spiral at UK contracting group Carillion, similarly loaded with goodwill, didn't end well.

In a liquidation, goodwill is worth nothing. CEO Eoghan O'Lionaird has stated he is trying to sell "underperforming assets and businesses" but it is hard to see how anything other than fire sale prices can be achieved. A breakup of the whole Fisher group now looks increasingly possible.

There's a wind angle here

The wind assets such as bubble curtail rental are attractive as a growth story to a trade buyer (Where is Ayman Asfari's new creation Venterra (here) when it is needed, or Ocean Infinity with its ever-open cheque book?), the defence businesses would fit nicely with a private equity company, and perhaps the former owners of Subtech, the diving business, could buy it back for cents on the dollar?

Meanwhile, as the sharks circled, Fisher reaffirmed what really matters: "James Fisher continues to focus on diversity and inclusion. In the first half of 2021, women represented 29 per cent of our Board membership and 33 per cent of our Executive Committee," the company declared.

I am sure that will be a great comfort to Fisher's employees, suppliers, and creditors of all backgrounds in the coming months.

Going Down? Part Two – The Metals Company

The future of the world's transportation may lie with electric vehicles powered by batteries, and the world will likely require massive new sources of copper, nickel, cobalt and manganese in future. However, investors seem to be increasingly sceptical that Gerard Barron's US-listed subsea mining venture The Metals Company will be the vehicle to provide them.

Following the shocking disappearance of an investor who promised to inject funds into the company, but then didn't (see here), The Metals Company has had a rough ride. Shares closed at US$2.27 on Friday December 3, down over 75 per cent in just three months. This comes just ahead of an important meeting of the International Seabed Authority in Jamaica from December 6 to 10.

The ISA is the United Nations body that regulates seabed mining in international waters "on behalf of the whole of humanity," as its Secretary General Michael Lodge never tires of telling us.

Hidden Gem in view

Last month, Allseas threw a press tour in Rotterdam to look around Hidden Gem, the former Brazilian drillship that the company is converting into a polymetallic module collection mothership for The Metals Company (press release here). Strangely, our invite must have gotten lost in the post.

<em>Photo: ABS</em>
Photo: ABS

More details emerged at the end regarding the engineering of this critical piece of infrastructure for the subsea mining industry. Hidden Gem is expected to become the world's first ship classed as a subsea mining vessel by the American Bureau of Shipping (ABS), Allseas claims.

Allseas' engineers have now integrated a launch and recovery system for the twelve-meter-long nodule collector vehicle so that it to be deployed over the side of the vessel and the vessel is undergoing modifications to enable the deployment of a 4.3-kilometre-long riser to bring polymetallic nodules up from the seafloor through its existing moonpool. The Metals Company expects the ship to commence trials in the Pacific Ocean in mid-2022.

The Metals Company also unveiled more information (here) on how it plans to work with Kongsberg AI of Norway to use artificial intelligence and digital mapping to help the company harvest its polymetallic nodules "in clear sight and with full accountability to the regulator and stakeholders."

Kongsberg's involvement should come as no surprise given the rising interest in seabed mining in Norwegian sovereign waters, including by seismic player Seabird Exploration's Green Minerals spin-off (here). Green Minerals is listed in Oslo with a market capitalisation of around US$13 million.

Pressure mounts from Advisory Councils

Unfortunately, pressure from conservationists, ecologists and other scientists continues to mount on the sector. Three EU fishery bodies published a statement calling for a moratorium on deepsea mining last month (here), recommending:

"a prohibition on exploitation by the ISA of marine minerals in the international seabed area before the effects of deep-sea mining on the marine environment, biodiversity and human activities have been sufficiently researched, the risks are understood and the technologies and operational practices are able to demonstrate no serious harm to the environment, no marine biodiversity loss nor degradation of marine ecosystems and for the [European] Commission to cease funding for the development of seabed mining technology in line with a circular economy based on minimising, reusing and recycling minerals and metals in line with the precautionary principle."

So, that's a pretty resounding "no" there.

Public access and press oversight?

Ahead of the ISA meeting this week, the body announced that "media accreditations will not be issued for the meetings of the 26th session. Media resources will be posted on the ISA website daily and virtual press briefings will be held as necessary."

The ISA then put out a presentation re-affirming its commitment to protecting the marine environment and to scientific research in line with the United Nations Sustainable Development goals, which you can read here.

It promises "to facilitate public access to non-confidential information," which raises the issue of who determines what should be confidential in the first place, given that the ISA oversees 54 per cent of the ocean floor, supposedly for the common good of humanity.

We note that has an online petition to Michael Lodge at the ISA to stop deep sea mining. You can view the petition here.

This is a controversial area and one with many unknowns. We'll keep you posted – next week we'll be reviewing what happened to the festive stars of 2020's Twelve Days of Christmas themed pieces here and here. Not a partridge in a pear tree to be seen.

Background Reading

Sky News in the UK purports to be shocked and surprised that private equity owned Siccar Point will pay not tax on its oil and gas profits for many years here. The naivete is touching.

Esgian covered the wind farm order book and drilling rig conversion issue here.

Fisher's 2021 first half results can be found here.

You can read the views of Dr. Douglas McCauley, professor at the University of California Santa Barbara, regarding seabed mining and the electrification of the USA here.

The Deepsea Conservation Coalition has just produced a new documentary on seabed mining entitled In Too Deep. You can view the film here.

Additionally, for information only, details of potential litigation involving The Metals Company can be found from Jakubowitz Law here.

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