COLUMN | What goes around comes around: Mermaid Maritime grows, Ultra Deep Solutions shrinks, whilst ADES and Tidewater close purchases [Offshore Accounts]
Ultra Deep Solutions (UDS), the Singapore based commercial diving company, formerly boasted of operating five of the shiniest and most prestigious dive support vessels (DSVs) in the world. All five are named after painters – Van Gogh, Picasso, Lichtenstein, Andy Warhol and Matisse. These were among the most modern and highest specification dive vessels built in the last decade.
Ausana becomes Lichtenstein
UDS’ first vessel, Lichtenstein, was the former Mermaid Ausana, designed by Norway’s Marin Teknikk. Mermaid Maritime of Thailand had ordered the ship in China in 2014 along with an 18-man dive bell and two self-powered hyperbaric lifeboats. The company then abandoned the nearly finished hull at China Merchants Heavy Industry shipyard in 2016, after the collapse in the oil price.
When it cancelled the order, Mermaid forfeited the pre-delivery installments of US$20.4 million to the yard, but avoided paying China Merchants the balance of US$124.8 million, which would have been due when the ship was delivered. Given the protracted weak market through to the start of 2022, this proved to be a blessing for the Thai company, which is listed in Singapore and is 58 per cent owned by Thoresen Thai Agencies.
But Mermaid’s misfortunes provided an opportunity for UDS. When Mermaid cancelled, UDS promptly stepped in and started to operate the vessel, which has been renamed Lichtenstein. UDS then quickly took over operations of three more newbuild DSVs from Chinese yards, with the fifth ship, Ultra Deep Matisse, seemingly waiting to deliver from the China Merchants, as per AIS data.
Founded by a diver since 1979
UDS was founded in Singapore in 2014 by gregarious entrepreneur Shel Hutton, who boasted of being a “diver since 1979” in his sign-offs on social media, and was previously senior at Kreuz Subsea. Mr Hutton claims that “Big dreamers never sleep,” and his Linkedin posts (here) are a stream of positive messages about his life and the company’s ships.
F-35 rescue was impressive
There have been genuine achievements by UDS, for example, on March 2, the company recovered a downed F-35 Lightning II American fighter jet for the US Navy from water depths of over 3,700 metres in the South China Sea using the DSV Picasso.
This impressive deepwater recovery prevented the Chinese Navy from grabbing the wreckage of the plane and seizing its secrets. It was covered by the The South China Morning Post here.
The pivot – Mermaid rises, Van Gogh gone
However, if Mermaid Maritime’s problems had been UDS’ advantage in 2016, suddenly UDS’s fleet became Mermaid’s opportunity this year. In February, Mermaid announced that it would be chartering the DSV Van Gogh from its owning company in the Caribbean for two years.
You can read the full press release here. Van Gogh is fitted with built-in saturation diving and air diving systems, 120 berths for passengers and crew, and a 150-tonne active heave compensated crane. Mermaid said that it already had a contract in hand for the ship until the end of June.
This was the third new asset to join Mermaid’s fleet in just six months. Whereas UDS is now shrinking, Mermaid is on a growth spurt.
Millennium 3 and Resiliant already added
In October, Mermaid announced it had entered into a memorandum of understanding with a subsidiary of Mubarak Maritime in the UAE to buy 50 per cent ownership share in the DP2 construction support vessel Millennium 3. This is a 126.5-metre-long work barge classified by Bureau Veritas, and flagged under the Comoros registry (specifications here). The barge has a 300-tonne crane and accommodations for 239 people, and can be eight-point moored, as well as operated in DP. Mermaid said that the unit would be targeting cable lay operations in the Gulf in conjunction with Mubarak.
In January, Mermaid took delivery of a second work barge, the pipelayer Resiliant, previously known as Swiber Conquest, which is operating under the Panama flag in South East Asia. This is a 102-metre-long barge, also equipped with a 300-tonne crane, but also fitted with a 120-tonne pipelay tension system. The 2005-built barge was purchased from troubled offshore construction contractor Swiber Holdings, which has long been under judicial management in Singapore (here). Resiliant can accommodate a total of 284 people on board, and Mermaid has said that it will use the unit to target decommissioning projects in Asia.
Stronger numbers as market recovers
Mermaid’s fleet expansion came on the back of improved revenues in 2021 when it reported its annual results earlier this month (here). The company’s total revenues in 2021 were up to US$112 million, from US$84 million in 2020. Consequently, Mermaid’s net loss from operations in 2021 was much reduced at US$17 million, a considerable improvement from the previous year’s recorded loss from operations of US$32 million. Cash flow was just below break even (at minus US$3 million for 2021).
The company’s stock is up 40 per cent since the low of October 2020, and Mermaid remains very under-geared, with cash and cash equivalents of US$19 million, and total debt of only US$52 million at year end. Not buying Mermaid Ausana in 2016 spared the company the burden of taking on massive debts to pay for the ship, and effectively saved the company considerable stress.
Baby come back!
Mermaid has also brought back a trio of former employers, who left in the downturn. Paul Whiley was appointed to the Mermaid Board on November 20 last year. He was a co-founder of Mermaid’s business unit in the Middle East, but had resigned at the end of 2016 due to family reasons, the company said. He re-joined Mermaid as the Chief Operating Officer.
The company also reported that Simon Wilde had re-joined the company in 2020 and took up the role of Commercial Director based in Dubai, whilst Hans Huijskens recently came back to Mermaid with responsibility for the submarine flexible product installation aspect of the business as Country Manager of the UAE.
The return of so many former staff to Mermaid suggests a confidence in the business. Mermaid is looking resurgent.
Indian lawsuit for UDS
Whilst Mermaid has been growing and re-hiring, UDS has been in litigation with one of its customers, Hindustan Oil Exploration Company (HOEC) in India. UDS is seeking to claim US$6.2 million of unpaid invoices for work performed by the company for a thirty-day contract performed in 2021. After UDS had completed the work under the charter party, HOEC refused to pay the diving company, and instead alleged that UDS’ services were deficient, that the vessel was sub-standard, and that there were discrepancies in the invoices, which HOEC had previously accepted.
UDS won a judgement in India in December that the oil company should make payment of funds to the court, or provide a bank guarantee for the sum requested by UDS in support of UDS’ foreign arbitration claim. The judgement of the arbitration petition in the High Court in Mumbai can be viewed online here, and Zarir Barucha’s legal analysis of the judgement is here.
The next step of the case is not clear. The public court records show that UDS is not only fighting the customer in court in India, but also going to arbitration in London.
Good luck with that.
Other growers (1) – Tidewater
Mermaid is not alone in growing and snatching up new assets from competitors at the cusp of what is perceived to be an offshore market recovery. Last Friday, Tidewater closed on its bargain basement deal to buy the Swire Pacific Offshore fleet of fifty anchor handlers and platform supply vessels (PSVs). The press release is here.
Our opinion that the leadership of Swire sold the company far too cheaply (set out here) has been vindicated by the performance of Tidewater’s shares, which are up over 20 per cent since the deal was announced in early March. The acquisition cements Tidewater’s leadership as the largest operator of OSVs in the world, well ahead of Bourbon and Edison Chouest.
Chouest reported that it was selling ten vessels to rival Hornbeck in January, so, like UDS, it appears to be on a trajectory of fleet reduction.
Other growers (2) – ADES buys another seven units?
The other big buyer of recent weeks has been ADES, the jack-up drilling company which was taken private by Saudi Arabia’s Public Investment Fund and the Zamil Group in a US$516 million deal a year ago. We reported how this reflected a trend for the governments of the Gulf to invest in their own oilfield services companies, owning rigs, boats and lift-boats (here).
The immediate benefits of receiving a large chunk of investment from the Saudi Arabian state quickly became apparent for ADES. In November, American driller Noble Corporation announced that it had completed the sale of four jackup rigs to ADES, and that its drilling contracts with Saudi Aramco for the rigs had been novated to ADES.
ADES paid Noble more than US$285 million for ownership of Noble Roger Lewis, Noble Scott Marks, Noble Joe Knight, and Noble Johnny Whitstine, and also took over the employment of the rigs’ crews.
Then, in December, Vantage Drilling announced (here) that it had agreed to sell three of its jack ups to ADES for US$170 million. ADES bought Emerald Driller, which was already operating in Qatar, and Sapphire Driller and Aquamarine Driller, which have also both won contracts in Qatar.
Now, over the last few days, ADES launched a blitz of more jackup acquisitions to boost its presence in the Gulf.
From the ashes of Oro Negro
Last Tuesday, ship broker Braemar ACM reported that ADES had acquired the laid-up, cold-stacked jackups Argent 4 and Argent 5 in the Bahamas, and had placed the units on a heavy lift vessel bound for Bahrain. No price was given for the transaction.
The rigs are nearly new and have been subject to years of fierce litigation. The pair were built for Oro Negro (“Black Gold”) of Mexico in the boom, a company founded 2012 with capital from Mexican private equity company Axis, Ares Management of the USA, and Singapore’s sovereign wealth fund, Temasek.
Drama on the high seas, in the press and in the courts
Oro Negro quickly placed orders for eight newbuild high-specification rigs on speculation at Singapore yards in 2012 and 2013, and won a string of five contracts with the Mexican state oil company Pemex. Unfortunately, Pemex cancelled all five contracts in the downturn, and Oro Negro took the surprising step of taking out full-page adverts in American business publications denouncing Pemex for corruption, allegations that Pemex strenuously denied.
In 2017, Oro Negro sought bankruptcy protection in Mexico – see here. A year later, the Wall Street Journal reported (here) that attorneys for the company’s creditors, escorted by Mexican federal police officers, flew in helicopters to Oro Negro’s five drilling rigs in the Gulf of Mexico and attempted to seize control of them, after the company had defaulted on over US$900 million of bonds.
Argent 4 was last seen being offered unsuccessfully by a Brazilian agent for a Petrobras tender in Brazil in 2021. The ADES purchase closes a bitter and expensive episode for Oro Negro’s creditors, and provides ADES with new rigs for its Saudi Arabian customer, Saudi Aramco.
But the Argent purchases were not the only ones ADES has made in recent weeks. The company is striving to modernise its fleet, and turning away from operating aged rigs in its legacy Egyptian market to focus on Saudi Arabia and Qatar, where standards are much higher than in Egypt.
Aban abandons four rigs to ADES
On April 13, Indian rig owners Aban Offshore announced that it had also entered into an agreement with ADES to sell its rigs (here) to pay down some of Aban’s. ADES is buying four Singapore-built rigs from cash-strapped Aban, namely, 2006-built Deep Driller 2 for US$26 million, the 2007-built Deep Driller 4 for US$26 million, the 2007-built Deep Driller 5 for US$27 million, and the 2008-built Deep Driller 6 for US$27 million.
Utilisation problems and “going concern” warning
Aban’s most recent fleet status report (here) showed that the company had only six of its fleet of seventeen rigs working, and told the Indian stock market that between them, the four rigs had generated less than US$10 million of revenue in total in the preceding financial year. Rig analytics company Esgian reported here in its weekly report that Deep Driller 2 and Deep Driller 6 “are both currently working off UAE, for Dana Gas and ADNOC respectively, while Deep Driller 4 and Deep Driller 5 are both stacked off Singapore.”
Aban’s auditors had issued a “going concern” warning about the company in its last set of quarterly results, after many quarters of losses (here). Efforts to sell other rigs including the ancient drillship Aban Abraham (built 1976 and laid up) and two other jackups are also under way, with closing twice delayed, and now expected at the end of this month (here).
Clearly, the company is not in a good position.
With both the Argent rigs and the Aban acquisitions, as well as the Vantage purchases, ADES looks to have been using its newly acquired financial heft to buy assets from indebted owners keen to raise cash.
Its final purchase, however, was at a much higher price from a much stronger player: Maersk Drilling.
Maersk sells Convincer
Last Wednesday, April 20, Maersk Drilling announced here that it was also selling a rig to ADES. Maersk will offload the benign environment jackup rig Maersk Convincer to ADES for US$42.5 million in cash following the completion of the rig’s current drilling programme with Brunei Shell Petroleum Company offshore Brunei, expected in the third quarter.
The rig was built in 2008 in Singapore, and was Maersk’s last benign water jackup. After the sale, Maersk Drilling’s rig fleet will total ten jackup rigs, all of which are suited for operations in harsh environments, and eight deepwater floaters.
Maersk is in the in the process of merging with Noble, and the British competition regulator has expressed concerns about the market power the company will exercise in the North Sea, potentially slowing down the closing of the deal and demanding that the company divests rigs there.
Again, ADES looks to be using the financial power of its Saudi Arabian state backers to grow its fleet just as the market turns. Indeed, the published value of its Vantage, Noble, Maersk and Aban acquisitions is actually close to the entire value of ADES as a whole, when it was taken private just last year.
If big dreamers never sleep, as Mr Hutton claims, then the management of Tidewater, Mermaid and ADES must be insomniacs.
The UDS fleet list and specifications are here.
Mermaid’s fleet list is here.
Baird Maritime‘s review of Van Gogh from 2018 is here.
Ultra Deep Solutions’ own Linkedin page with nearly fifty thousand followers is here.
Last week’s piece on the failure of flag states and the International Maritime Organisation to make sure that vessel ownership is transparent and accessible chimed with a subsequent piece in The Guardian on superyachts, intriguingly entitled Secrecy, sex and sun.
More background on the bitter Oro Negro bankruptcy battle is here.
More on Oro Negro’s financing is here.