Merry Christmas! On the twelfth day of Christmas my true love gave to me… twelve drummers drumming, eleven pipers piping, ten lords a-leaping and so on, all the way back to that partridge in a pear tree from day one of the old festive carol.
But not here, as, for the third year in a row, we are running through the Twelve Days of Christmas from an offshore energy perspective.
Last week's edition (here) included an Indonesian country survey incongruously shoe-horned into a Christmas Carol setting, with nine million tonness of LNG a year maybe a-sailing (somewhen), eight billion cubic feet of gas a day possibly-a-flowing (or not), and seven Indonesian presidents completely a-sleeping (on the job). That came on the back of six gratuitously unnecessary liftboat accidents, five stranded deepwater rigs, and four subsea vessel deals (here). Our first week (here) opened with three LNG projects moving forward in Asia and East Africa, two hydrogen-powered windfarm support vessels for the Saverys family, and one arrest warrant in a pear tree for unlucky Angolan heiress Isabel dos Santos.
What do we find happening to close the series as we head to Epiphany? It's Christmas Time, so Mistletoe and Wine all around in Monaco, to paraphrase Cliff Richard. Probably champagne. What does the principality's leading wind company have to celebrate? But first hold the canapes, the civil servants of Ottawa are getting into offshore wind.
Havfram has been busy – busy raising money for wind turbine installation vessels (WTIVs). On November 7, the company announced (here) that it would be separating out its offshore wind business, which will be led by current CEO Ingrid Due-Gundersen, from its subsea business, which will be led by Kevin Murphy, who was previously Havfram's Deputy CEO.
The wind business, which will retain the Havfram name, was capitalised with a new equity commitment of US$250 million by specialised climate infrastructure investment firm Sandbrook Capital on top of the shareholder's equity from existing owner HitecVision, a Norwegian private equity fund. Sandbrook brings together top talent with experience in Goldman Sachs, Morgan Stanley, BP, Siemens Gamesa and Enron.
The oil and gas business will continue to be fully owned and supported by private equity house HitecVision. HitecVision is a major player in the North Sea oil and has space, with investments in Neo Energy and in its joint venture with ENI, Vår Energi. HitecVision also owns offshore tender rig company Energy Drilling in Singapore (here).
Then in the middle of December, Havfram announced that yet more capital was gushing through its doors. It secured an additional US$250 million in equity funding through a partnership between its primary sponsor, Sandbrook Capital, and Canada's PSP Investments. PSP is Canada's Public Sector Pension fund, investing the savings of the nation's civil servants.
So Havfram has a cool half a billion dollars of other people's money to play with. Librarians of Ontario and planning officers of Alberta, be very alarmed!
The substantial equity funding, in addition to credit financing from commercial banks and export credit agencies, will be used to build a fleet of state-of-the-art offshore wind vessels, Havfram confirms without saying exactly how many vessels it plans to order. Each will cost around US$330 million, Offshore Accounts estimates.
In the same release on December 12, Havfram confirmed that its first WTIV is now under construction following execution of a shipbuilding contract with CIMC Raffles in China. The NG20000X vessel is equipped with a 3,250-tonne crane and the latest battery hybrid drive train technology designed to reduce carbon emissions per MW installed by over 70 per cent compared to previous (unnamed) vessel models. The Havfram WTIV is capable of installing turbines reaching over 300 metres in tip height, and foundations of up to 3,000 tonnes at water depths of up to 70 metres, according to its owners.
There are currently double orders of WTIVs from both Eneti and Seaway 7 (from its OHT merger), a quadruple order from Cadeler (here) and individual orders from Maersk Supply Services (here) and Van Oord with Boreas (here), which makes ten WTIVs on order. Jan De Nul's newbuild Voltaire just sailed from its yard in China, following delivery this month (here), whilst Shimizu's US$345 million Japanese WTIV Blue Wind is out on sea trials off Japan (here).
With Havfram's new order(s), plus the order by OIM in Norway in 2020, of which nothing has been heard pretty much since it was announced (here) in late 2020, and plus the Jones Act-compliant WTIV from Dominion Energy, Charybdis, there's quite a crowded field.
Without a contract in place, banks and export agencies might be willing to accept 50 per cent debt to equity, so a total of three newbuilds looks plausible today for Havfram, more if it can lock in contracts ahead of delivery.
Singapore's Cyan Renewables says it will also be investing up to US$1 billion in a portfolio of windfarm marine assets, without specifying what vessels it will build or buy, as we reported here. So far, it has invested precisely zero.
As Havfram cashes up and Cadeler reaches over US$1.3 billion of capex on WTIVs, Cyan is starting to look a little late to the party. Perhaps it is time for Cyan CEO Lee Keng Lin to call mysterious OIM, or windfarm vessel leader Dong Fang in Taiwan? Or to have a chat with Sean Lee of Marco Polo Marine, which was just awarded a long-term service operation vessel (SOV) contract by Vestas in Taiwan (here)?
Opportunities are like mulled wine; they soon get cold and unpalatable.
Clarksons, the renewables brokerage famed for its hockey-stick shaped graphs of continued offshore wind turbine growth for the rest of the decade, remains intensely bullish on the sector (here). This optimism is despite the fact that Clarksons admits in 2022 to the end of November that only US$17 billion has been committed to new offshore wind projects, down 44 per cent year-on-year on an annualised basis.
To put this into context, the entire committed new investment in offshore wind in 2022 is less than the capital budget of ExxonMobil for 2023. You can view this as an incredible opportunity – the sector has plenty more opportunity to grow since its capex as a whole is less than Exxon's.
Or you might wonder whether there will be a bloodbath to come when all these newbuilds deliver and are fighting over the available work as WTIV supply exceeds demand if capex continues to lag, or if it is primarily directed at floating wind.
There's more than ten WTIVs a-building, and just before Christmas, Eneti finally announced a contract for their first new build WTIV, Nessie (here)! SeekingAlpha analyst Gary Bourgeault was almost as excited as a child opening the biggest and shiniest present underneath the Christmas tree (here).
"Based upon the assumed tightness of vessel supply in the second half of the decade," Bourgeault advises, "for longer term investors that already have a position in the company, I would buy on dips because of the high percentage chance NETI will perform well through the end of the decade."
"Buy on the dips?" Where have we heard that before?
Sing Hallelujah, Robert Bugbee and Emanuele Lauro. The contract itself is with an unnamed customer, with the company saying that, "inclusive of mobilisation beginning early in the first quarter of 2025, the engagement is expected to be between 226 and 276 days and generate approximately €60 million to €73 million (US$63.7 million to US$74.3 million) of net revenue after forecasted project costs."
That's a day rate of around €260,000 (US$276,180) per day, according to my back of the envelope calculations. Not shabby, but the short duration is a concern for the lenders who will have to stump up most of the remainder of the build costs for the new unit, as we highlighted here.
Eneti faces newbuild milestone payments to South Korea's Daewoo of US$98 million in 2023, US$263 million in 2024, and US$195 million in the second quarter of 2025.
Clarksons analysts say that the offshore wind investment outlook for 2023 appears positive, with several notable investment decisions currently expected, including Hornsea Three, East Anglia 3 and Inch Cape off the UK.
They point out that global active offshore wind capacity stood at 57 GW as of start-December 2022, and that over the remainder of the decade to 2030, installed offshore wind capacity should grow at a compounded annual growth rate of ~22 per cent, with over 240 GW of capacity projected to be online by 2030.
Also this month, Taiwan's Ministry of Economic Affairs (MOEA) announced it had selected ten offshore wind projects, totalling 8.7 GW of potential capacity, in the first auction of the Round 3 Zonal Development Phase, as per OffshoreWIND.biz (here)
Six developers were chosen to develop these ten projects: Northland Power and Copenhagen Infrastructure Partners took the greatest share of the capacity, with ~1.8 GW each, but notable by its absence was wind pioneer Ørsted, which boycotted the round.
"As the largest and most experienced offshore wind developer in Taiwan, we had to take stock of the limitations set by the current regulation, which in combination with high inflation and increasing interest rates led us to conclude, after exhausting all efforts, that we cannot make the projects investable at this stage", said Per Mejnert Kristensen, Head of Region Asia-Pacific at Ørsted, quoted in Recharge.
Also absent were any of the major European oil and gas majors, like BP, TotalEnergies, ENI and Shell, which have driven up prices for wind farm contracts through aggressive bidding in auctions in both Europe and North America.
With the big oil companies absent and with Ørsted missing, perhaps the winning companies might be anxious. Are they going to achieve the returns they hoped? What do the big boys know that Northland Power and Copenhagen Infrastructure Partners don't?
The long and tangled saga of DOF's efforts to restructure (here) took an unexpected turn this month when Bjarte Brønmo and Georg Wilhelm Bjørnestad, who hold around 11 per cent of shares in the beleaguered company, led a revolt against an agreed restructuring plan that would see the existing shareholders reduced to holding just one per cent of the company as long suffering lenders and bondholders take over the other 99 per cent.
Brønmo and Bjørnestad seized control of the company in December in a surprising vote to replace the DOF board of directors. The rebels claim that the restructuring with creditors to tackle the company's near US$2 billion debt load is unfair on them (Boo hoo!). They have now appointed four directors of their own, including new chairman Leif Salomonsen.
I didn't see that coming. However, the rebels still face an uphill struggle. The creditors promptly wrote the new board a public letter politely telling them to take a hike and informing them that under the enforced restructuring, the recalcritrant board can run DOF but the creditors will control all the assets, and DOF will simply be a shell:
"To the extent there are any adverse effects of the restructuring, these should only affect DOF, which, following DOF's recent reorganisation, is merely a holding company with no operations and with no creditors other than DOF's financial creditors…"
Ouch!
I had originally pencilled in "Valaris DS-12 drillers a-drilling off Egypt" as the final day of Christmas. I was going to cite the award of a four-well contract worth US$136 million to Valaris' deepwater drillship by BP for drilling off Egypt. Valaris' press release is here.
But rather like the unexpected arrival of the shepherds at the stable of the Nativity on Christmas Eve, news big broke just before Christmas. Driller Seadrill was buying Aquadrill in an all-stock deal that values Aquadrill's equity at approximately US$958 million. Aquadrill's unitholders will end up owning 32 per cent of Seadrill after the deal.
The enlarged Seadrill/Aquadrill entity will own 12 floaters – including seven seventh-generation drillships. Aquadrill brings four DP drillships, one semi-sub in lay-up in Las Palmas, and three tender-assisted rigs to the expanded Seadrill fleet. Only one of the Aquadrill tender rigs is on contract to Seadrill. The Aquadrill fleet status report from December 20 is here.
All the Aquadrill rigs were formerly managed by Seadrill, as Aquadrill was originally Seadrill Partners, a vehicle spun out of Seadrill in 2012 as separate legal entity to juice up returns for John Fredriksen. However, after Seadrill Partners restructured following a Chapter Eleven bankruptcy filing in late 2020 due to US$2.8 billion in debt, it was taken over by its creditors and renamed Aquadrill. Aquadrill then split the management of the rigs to third-party drillers, including Vantage, Diamond, and Energy Drilling, and took the rigs away from Seadrill.
"Seadrill and Aquadrill have a long and rich strategic and operational management history," Seadrill CEO Simon Johnson said in the obligatory press release." Our shared heritage will promote efficient integration of the two companies. I look forward to welcoming the Aquadrill fleet back into the Seadrill family."
I don't want to blow my own trumpet like the herald angels, but we foresaw this might happen (here).
Seadrill sold seven jackups to ADES of Saudi Arabia in the last few months for US$628 million, as we reported here. Seadrill had only emerged from Chapter Eleven bankruptcy in February of this year, with its creditors holding the new shares in the company. It relisted on the New York Stock Exchange in June.
Selling assets to the Saudis gave the new Seadrill shareholders/old debtholders peace of mind, but it threatened to leave Seadrill subscale and vulnerable. The jackup sales to ADES triggered a mandatory payment of US$204 million (inclusive of principal, accrued interest, and exit fee) under Seadrill's second lien debt facility, and on November 14, Seadrill made a voluntary payment of US$269 million against the same debt facility, clearing US$473 million of debt in total.
Acquiring Aquadrill is a great fit, costs Seadrill no cash, apart from professional fees, and provides room to squeeze overheads through "synergy".
Seadrill needed Aquadrill because it has been losing other rigs, as well as those it sold to ADES.
At the same time that Seadrill welcomed the Aquadrill rigs into its fleet, it said goodbye to harsh environment semisub rig Hercules, which it had been bareboating from John Fredriksen's SFL Corporation. Odjfell has secured a contract for the rig with ExxonMobil Canada for the 2008-built Hercules, and took over the bareboat for the unit from Seadrill last week. The Hercules contract is expected to start in the second quarter of 2023 for around 135 days, with an optional extension by Exxon for 60 days. As West Hercules, the rig had previously been on contract drilling with Equinor in Canada earlier this year under Seadrill management.
Odjfell has also taken over the management of the management for the semi-subs Deepsea Mira and Deepsea Bollsta from Seadrill, again at the behest of a John Fredriksen-controlled entity, the owner of the rigs, Northern Ocean. Deepsea Mira (ex-West Mira) has just won a contract for work with TotalEnergies commencing in Namibia in the second quarter of 2023, with a firm duration of 300 days plus two options of 180 days and 90 days, respectively.
That's going to be a lot of yellow paint needed by Odjfell as the Seadrill orange is painted over by its new manager on the rigs.
SFL also owns the 2014-built jackup rig Linus, currently on charter under Seadrill management with ConocoPhillips in Norway. Additionally, Seadrill manages two seventh-generation drillships built in 2019 in Korea for Angola's state oil company Sonangol, which are working in Angola, according to its most recent fleet status report here.
The Seadrill/Aquadrill merger comes after the Noble/Maersk Drilling and the Noble/Pacific Drilling mergers announced last year (here), as well as the amalgamation of Rowan, Ensco, and Atwood Oceonics into Valaris in 2019.
Diamond, Vantage, Japan Drilling and Dolphin also appear ripe for consolidation. They are all subscale and have recently all restructured. They all have financial owners with limited desire to hold for long. Deep Value Driller is only an asset flip, as we have mentioned before.
So, as the pool of available new, abandoned rigs runs dry in Korea (here), we can expect 2023 to bring more consolidation in the drilling sector.
It's not just the three Magi who turn up bearing gold (or stock certificates) in the New Year, trust me.
Background Reading
If you invested in Eneti at the start of the year, you made a double-digit return in 2022. If you invested in Tesla 12 months ago, you would have lost 60 per cent of your investment. If you had invested in Scorpio Tankers you would have nearly quadrupled your money (here). You can imagine the force of will required to avoid using "dirty" in the headline. Scorpio Tankers' strength is Eneti's opportunity. Expect something to happen in 2023 between the two.
The US Department of Energy's 2022 Offshore Wind Market Report is here. It's a great read.
Our 2020 Twelve Days of Christmas featured some classics, which have stood the test of time nicely (here and here) covering Cairn Energy (as was), Esvagt, Vantage Drilling, Shearwater, Swire Pacific Offshore and Seacor, followed by the oil price, floating wind, ammonia fuel cells, Myanmar, Bourbon and Standard Drilling (as was).
Our 2021 Twelve Days of Christmas (here, here and here) featured Cairn Energy becoming Capricorn Energy, Vantage Drilling, North Star and Vard, Shearwater and Shell, Windcat Workboats, Swire Pacific Offshore, ammonia fuel cells, the oil price, Myanmar, Floating Wind, Bourbon's revival and Standard Drilling (as was).