Good things come to those who wait, even DOF shareholders. Indeed, Kate Bush boasts the longest-ever gap between Number One singles in Official UK Chart history, with 44 years between her 1978 chart topper Wuthering Heights, and her 2022 number one, Running Up That Hill (here).
Ms Bush's success comes on the back of the song being used in the hit Netflix series Stranger Things (here). Stranger things have certainly been happening in the offshore industry of late, with two major restructurings announced and two more players making efforts to enter the wind farm industry, backed by designs from Norwegian offshore powerhouse Ulstein.
A month ago we highlighted the slowest moving restructuring in offshore, that of Norway's DOF (here), a company burdened with US$1.88 billion of debt. Literally, for years, DOF has been engaged in glacial negotiations with its banks and bondholders, who rolled over their consent to a standstill every month since before Covid. However, the parties could never reach an agreement on the size of the "haircut" the lenders needed to take on their loans. DOF has been "Running Up That Hill" for years. Now the inevitable has happened.
The lenders have agreed that NOK5.7 billion (US$572 million) of DOF's debt will be turned into equity, new shares in the company. This will leave DOF with "only" NOK13 billion of debts on its books (US$1.3 billion). The existing shareholders, headed by Helge Møgster's Møgster Offshore, which formerly controlled 31.6 per cent of the company, will see their ownership shrink. The former shareholders will now own just four per cent of the shares in the company after the restructuring. Mr Møgster's 31.6 per cent of the company becomes just 1.26 per cent in the new capital structure. But one per cent of something with value is a lot better than thirty per cent of a company worth nothing.
The bondholders whose bonds have magically become new shares will hold 53.3 per cent of the shares in DOF, after the restructuring, while the holders of all other converted debt would represent 42.7 per cent of the shares in the company.
This should enable DOF to service and pay down the company's debt and to invest in the future. The new shareholders have tradeable shares in a company that will remain publicly listed. The market is booming, especially the North Sea spot market. On June 23, broker Westshore was reporting that DOF had fixed the 360-tonne bollard pull anchor handler Skandi Skansen for NOK2.3 million (US$231,000) per day to ConocoPhillips Norway for the prelaid moorings and rig move of the semi-sub Transocean Norge.
The DOF fleet will likely continue to shrink, however. The announcement to shareholders (here) states that the Norwegian flag vessels of vessels of its DOF Rederi subsidiary shall be categorised into twelve "core vessels" and three non-core vessels. The company has decided that the non-core vessels, "shall be sold subject to agreed terms and conditions and with net sale proceeds to be used as separate payments in addition to the outstanding principal of the reinstated debt."
At least DOF's staff and seafarers can breathe easier now – the company will survive, the old shareholders have suffered but retain a vestige of interest in the company, and the debt load is more sustainable.
Now, DOF needs to think hard about investment in autonomous underwater vehicles (AUVs) and uncrewed surface vessels (USVs). The world has moved on since DOF's fleet of very expensive and very large subsea vessels were seen as cutting edge. The subsea survey war is raging (here) and DOF's financial travails means it is a late starter to invest in the newer, cheaper robotics that have come to dominate a lot of the survey market. So far, XOcean and Fugro have stolen a lead in this high technology segment, with early innovator Ocean Infinity dropping behind, whilst Reach Subsea, now backed by Wilhelmsen as a strategic investor, with a 21 per cent stake in the company, is also working hard to catch up in the North Sea.
Freed of endless bickering with its banks and bondholders, and forever watching its pennies under the thumb of its creditors, DOF needs to invest and innovate to make up for lost time. Let's see what the company can do. There's definitely more running up that hill required for DOF in this area.
Constellation Oil Services in Brazil — the rig owner formerly known as Queiroz Galvão Óleo e Gás — has also finally concluded the judicial recovery process that began in 2018. The company reduced its debt down to US$918 million from US$1.84 billion, just as it reduced its name to something more easily pronounced by anglophones.
The former controlling shareholder, The Sunstar e Capital private equity fund, had its stake reduced to 27 per cent, doing much better than Møgster Offshore at DOF. Constellation's bondholders became the new largest shareholders, holding 47 per cent of the shares. The remaining 26 per cent of the company is now in the hands of the creditor banks. All eight of Constellation's rigs are working, with seven in Brazil and one on hire in India.
The restructuring puts Constellation on a level playing field with the big North American players, which have all restructured through the Chapter Eleven process, except Transocean. Constellation announced in January that Petrobras had awarded three-year contracts to its two semi-submersible rigs Gold Star and Lone Star, on day rates just below US$200,000, with operations now underway.
Now the Brazilian market is improving sharply as Petrobras returns to the market for additional drilling rigs and supply vessels, as Petrobras works to meet its target of two million barrels per day of production from Buzios field by 2030. The Santos basin pre-salt reservoir is currently believed to be the world's largest offshore field. Petrobras claims that Buzios has recoverable reserves of over eleven billion barrels of oil equivalent, which the company plans to produce from a dozen FPSO units, all of which will require dozens of production wells to be drilled.
Constellation looks well placed to benefit as Brazil's largest domestic rig owner, now that it has wiped away half its debt and stabilised its financial position.
Everyone wants to be in wind. Now Singapore's Vallianz Holdings is applying some wind-pixie dust in an effort to transform itself from a supplier of Chinese-built anchor handlers to Saudi Aramco into an industry leading renewables player.
On May 30, the company announced distinctly lack-lustre losses of US$3 million for its financial year to March 31, having racked up accumulated losses of US$318 million, according to its balance sheet (here). Its market capitalisation is around US$50 million and Vallianz held less than US$7 million of cash on its books-
So, it was with some surprise that we read earlier this week that the company was announcing (here) a collaboration with Ulstein "for the development of their new, hybrid heavy transport vessel (HTV)." The companies claim that "the new vessel, a customised Ulstein HX120 design, will be unique as it will feature dual-fuel engines and a battery energy storage system.
The press release continues that the HTV, "will serve the growing transport demand in the offshore wind industry as well as for LNG modules and offshore structures. Her dimensions are optimised to support Vallianz's business case for not only transporting wind structures like monopiles, jackets, transition pieces and turbine blades, but also to carry out floatover operations of offshore structures."
Looking at the specifications of a DP2 ship with an LOA of 173.6 metres, a beam of 42 metres, and a deck area of greater than 6,000 square metres, with a strength of 25 tonnes per square metre, I was struck with one thought: how the hell is Vallianz going to pay for this?
Not even Kate Bush could run up a hill that big.
Answers on a post card, please.
Background reading
Installing wind farms is hard. Seaway 7 joined Saipem and Sapura in forecasting increased losses due to operational problems, when it issued a trading update (here) on June 13. Seaway7 warned that, "the company has encountered reduced progress on the Hollandse Kust Zuid project relating primarily to adverse weather conditions and mechanical breakdowns. The cost increases associated with these challenges will result in a contract loss provision of approximately US$30 million to be recognised in the second quarter 2022."
It won't be the last.