This week we look at consequences: judicial consequences, legal consequences, the consequences of bad strategy and bad execution, and the inevitable consequences of high day rates.
Ladies and gentlemen, there is a newbuilding anchor handler out there, being built as you read this. Adjust your forecasts accordingly.
But first, we look at other consequences.
"You go, girl!" was one of TV host Oprah Winfrey's most motivating catchphrases, celebrating female empowerment. Now, Raymond Kim Goh, the former chairman of failed Singapore-based construction company Swiber Holdings, is going to court to face charges for consenting to making false statements in a misleading announcement the company made in 2014, and for "conniving in reckless disclosure" (which, I have to say, has a wonderfully Victorian ring to it). If he is found guilty, who knows where else he might be going?
Mr Goh and four other directors have been charged with consenting to an allegedly false statement made in December 2014, just as the oilfield services market was sliding and Swiber was beginning a corporate death spiral. The company filed for judicial protection in 2016, its shares ceased trading, and it finally faced liquidation and delisting from the stock exchange earlier this year. The shareholders lost everything. The judicial management came as Mr Goh, who owned 16 per cent of the shares in the company, and several other directors resigned in June 2016 after creditors made an application to wind up the company.
Seven pointless years were spent trying to restructure and sell Swiber, which was once worth close to US$400 million in its heyday. Its ships and barges were sold off one by one to the benefit of DBS Bank, its main lender, which was owed over US$540 million. We have condemned the protracted judicial management of the company before (twice actually), as it seems to have benefited the administrators and advisors more than the company's shareholders or creditors.
Flashback to December 15, 2014, when Swiber made an announcement entitled, "Swiber Breaks Into the West African Market with US$710 Million Field Development Award".
This stated that Swiber had secured a US$710 million project award from a Houston-based oil and gas company to provide engineering, procurement, construction, installation and commissioning (EPCIC) services for an offshore field development project in West Africa. The company said that it would commence work on the project from the first quarter of 2015 and completion was expected to take place in the middle of 2017.
This would have been very exciting news, coming as it did at a time of market turmoil in offshore as the oil price slid towards US$60 per barrel from highs of over US$100 per barrel only a few months before. Swiber shares were sliding too, and such a large contract award seemed great for the company's prospects.
Unfortunately, it wasn't true.
The company had a letter of intent (LOI) from a company called Royalgate to work on the engineering for the development of a gas field named Gardenia off Equatorial Guinea, but the LOI had a spending cap of US$2 million, 99 per cent less than the sum which Swiber mentioned in its announcement as the contract value.
Thus, Mr Goh, who was the founder of Swiber, its former executive director and chief executive Francis Wong Chin Sing, its then executive director and chief financial officer Leonard Tay Gim Sin, its former executive director Nitish Gupta and its then non-executive director Yeo Chee Neng all face charges of reckless disclosure and neglect under the Securities and Futures Act. The Straits Times reported that three more former Swibers directors – namely, Jean Pers, Oon Thian Seng and Chia Fook Eng – have also been charged with neglect. One of the directors was also charged with insider trading, having allegedly advised his wife to sell her shares and bonds in the company.
What's strange in this case is that the Singapore Stock Exchange (SGX) actually reprimanded Swiber in 2016, nearly seven years ago. It was there in public that the regulator had reviewed the Royalgate LOI and determined that "the [Swiber] announcement failed to provide investors, including shareholders and bondholders, with sufficient information to enable them to have a proper understanding of the impact of a major project award on the group."
The exchange found that Swiber was in breach of the listing rules with the announcement, as the relevant listing rules require a company's announcements to be balanced and fair.
I love Singapore and I don't want to sound negative, but seriously? It took the Commercial Affairs Department of the Singapore Police Force and the Monetary Authority of Singapore almost seven years to place charges after the SGX had reviewed the case and found that Swiber was in breach of the rules with the announcement. Why?
This seems disappointing, but maybe it means that some of the other high flyers of Singapore's offshore boom might still be held to account if further investigations are going on slowly in the background. We have no idea.
However, we do believe that corporate governance in some Singaporean listed companies that went bust during the crisis was weaker than it should have been. Mak Yuen Teen has already published an excellent five part blog on the corporate governance issues that afflicted Ezra Holdings, Emas Offshore, and Triyards, three listed companies with intertwined shareholdings, dealings, and directors. He dubbed this fiasco the "Tri-Tanic".
So far, there have been only a few cases related to governance issues in oilfield services firms going to court in the Lion City. Indonesian tycoon Kris Wiluan, the founder, former chief executive, and former chairman of drilling company KS Energy (now under liquidation), was fined SG$480,000 (US$350,000) by the State Courts in Singapore in 2021 on three counts of market rigging involving the company's shares. He escaped prison.
The Business Times reported that the offences were committed on various occasions between December 2014 and September 2016, and were designed to support KS Energy's share price as the oilfield services market crash depressed their value. Mr Wiluan's defence was that "he believed in the value of those shares."
In 2017 Keppel (now part of Seatrium) was convicted of bribery for its part in the Petrobras Lava Jato scandal and paid out US$422 million in fines to the authorities in Brazil, the US, and Singapore. It also wrote off SG$476 million (US$358 million) in losses on the partially completed rigs it had started to build under the corrupt contracts.
The individuals working for Keppel who were involved in the bribe-paying actually received no criminal sanction in Singapore. Instead, six senior managers in Keppel Offshore and Marine were issued with what was described as "stern warnings" by the Corrupt Practices Investigation Bureau. The unlucky American citizen Jeffrey Chow, Keppel's in-house lawyer, was sentenced in the US to time served by an American court.
Brazil's Federal Public Ministry filed charges against Martin Cheah Kok Choon, the former president of SembCorp's Brazilian subsidiary Estaleiro Jurong Aracruz for corruption, but his employer in Singapore, now part of Seatrium, filed only suspicious transaction reports and was never charged itself, nor were any other employees charged. Mr Chia's whereabouts are not known, and he has not stood trial for the money laundering and corruption charges in Brazil, which relate to alleged bribery to win drilling rig construction contracts from the rig-owner Sete Brasil.
Mr Goh and his former Swiber colleagues can only reflect on why they face criminal charges for a corporate announcement, when those who were complicit in Keppel for alleged bribe payments of US$55 million to officials of Brazilian state-owned oil giant Petrobras received only a warning.
The wheels of justice grind mighty slow, and sometimes they grind imperceptibly.
Honestly, does everything that McDermott touches prove to be a crock of the proverbial?
The Houston-based engineering and construction company has had a rough couple of months. It had three huge Saudi Arabian contracts worth US$1.8 billion cancelled because it couldn't provide the requisite bank guarantee to Saudi Aramco, it lost an arbitration claims against a customer in Colombia and its subsidiary was found liable for over US$1 billion in costs and damages, and it had an unfortunately dispute with BP in Mauritania, which led to it suspending working on a deepwater gas pipeline job there, and then withdrawing its pipelay vessel Amazon from the contract.
As an aside, Allseas will now be stepping up to complete that BP contract, sending the world's largest construction vessel, Pioneering Spirit, to complete the work, supported by Allseas' 129-metre LOA Oceanic.
These problems forced McDermott's shareholders to inject an additional US$250 million in new capital to prop up the company. Now, however, there's a new lawsuit involving the company's law firm along with the judge who handled McDermott's bankruptcy filing in 2020.
We should stress that no wrongdoing or knowledge of the situation on the part of McDermott is implied, and that the case is not finalised yet.
Last week, David R. Jones, the judge who handled McDermott's bankruptcy protection and restructuring, was asked to recuse himself from certain cases after a McDermott creditor sued him for conflict of interest for failing to disclose that the judge was in a romantic relationship, and was indeed co-habiting, with Elizabeth Freeman. Ms Freeman was then a bankruptcy partner at the Houston firm of Jackson Walker, which she has subsequently left. At the time, Jackson Walker was representing McDermott.
Judge Jones has confirmed his personal relationship with Ms Freeman to The Wall Street Journal, but told the paper that because Ms Freeman never personally appeared in his court, he believed that that he did not need to disclose their relationship.
The relationship came to light when Michael Van Deelen sued the judge, delivering his complaint in person in the Houston courthouse as Judge Jones ate a sandwich. The full complaint is here, and involves an anonymous letter, some salacious details, and allegations of emotional distress and financial loss.
Mr Van Deelen had filed a shareholder suit in Texas state court against McDermott employees, alleging fraud and a breach of duty. He says he and his wife lost their entire investment because of the McDermott bankruptcy, and that when his case was ultimately placed in Judge Jones' bankruptcy court, the judge should have recused himself because of what the complaint describes as his "trysts" with Ms Freeman.
Mr Van Deelen claims there was a conflict of interest between a judge delivering impartial justice and having relations with a lawyer involved in the case.
When we covered the rapid resignation of former BP CEO Bernard Looney last month, we observed that sleeping in the same bed as your colleague was never a good idea whether you run a major oil company or you are the master of a ship. Now we can add that judges having relations with lawyers working for companies or claimants in their courts is probably also a bad idea.
And let's spare a thought for McDermott in all this. The company didn't pick the judge for its Chapter Eleven, and probably doesn't appreciate its good name being caught up in yet more litigation.
Well, that one didn't take long.
In August, we were lamenting the on-going decline of Global Marine Systems. Once the world's most modern and technologically advanced cable lying company, it has now been stripped by decades of private equity mismanagement and financial engineering to a husk of its former brilliance.
At the end of July, further contraction occurred when Global Marine sold its stake in its Taiwanese windfarm crewboat subsidiary CWind Taiwan to its local Taiwanese partner, the International Ocean Group. CWind Taiwan owned six crewboats, which are working at Taiwanese wind farms, as well as four inshore survey boats.
Now Global Marine has sold the rest of CWind, which owned and operated 13 crewboats trading in the North Sea. CWind was bought by Global Marine in 2017, but has now been sold to Inspirit Capital, a UK-based investment firm. CWind says this sale heralds a new chapter in the company's history. Let's hope it is not Chapter Eleven!
And no, we have no idea who the people behind Inspirit Capital are, either.
Global Marine has been owned by J.F. Lehman and Company since early 2020 (here) when it changed hands for around US$250 million. Now that only a sad rump of aged cable-layers exists in the Global Marine fleet whilst all its competitors embark on high value investments in vessel newbuilding projects, the end seems nigh.
Either J.F. Lehman and Company must front up hundreds of millions of dollars to take the moribund company to the next level with its own newbuildings, or they sell it. I think they will sell it, given its decades of experience and the fact that human capital has value in a market hungry for cables, but what a sad end that would be for a once great company.
One company that is investing is Reach Subsea. Last week, Reach announced it is buying Guardian – no, not the left-leaning British newspaper, nor the Singaporean/Malaysian pharmacy.
The Norwegian subsea operator announced it had purchased the Australian survey company Guardian Geomatics, in which Ocean Infinity had taken a 25 per cent stake in 2019. Reach is offering approximately 16 million new shares in Reach Subsea, worth around US$6.7 million at the time of writing, plus AU$5.5 million (currently US$3.5 million) in cash, to be paid one year after the closing date.
Guardian Geomatics operates three small catamaran survey vessels and the 55-metre monohull Offshore Solution, all of which are owned by sister company Guardian Offshore AU, which seems not to have been included in the transaction. In 2018, Guardian acted as the local partner for Ocean Infinity in its first remote pipeline pre-engineering route survey for Woodside using autonomous underwater vehicles (AUVs).
Reach had historically been very close to Swedish survey company MMT, and they had a frame agreement stretching until April 2022 for the subsea vessel Havila Subsea, and a joint venture operating two remotely operated vehicles (ROVs). Suddenly, in 2021, Ocean Infinity purchased MMT. Reach was left scrambling for a reliable survey partner, as MMT ended the long cooperation. Reach continued to charter the Havila ship, and it announced in August of this year that the charter had been extended until the end of 2024.
With the Australian acquisition, Reach gains both geographic reach and hydrographical and geophysical assets at a time when Australia's large offshore projects are starting to ramp up again. This coincides with Reach's efforts to invest in new AUVs coming to fruition. In 2024, Reach will launch its first two autonomous subsea support vessels under the Reach Remote program. The construction of the hulls is completed, and the outfitting, development of subsystems, and remote operations centres for the uncrewed vessels are progressing. This pushes the company into direct competition with Ocean Infinity, Guardian's former partner.
"An essential part of our approach to growing our business is to build deep relationships with like-minded, dynamic. and entrepreneurial partners," Oliver Plunkett, Ocean Infinity's CEO, said at the time of the Guardian deal in 2019. "During the time we have been working with the Guardian team, they have surpassed expectations on every criteria. This new partnership will cement our relationship."
Now, that same relationship seems to have just been un-cemented. This seems consistent with what we highlighted last week, when we commented that Ocean Infinity seemed to be flip-flopping in its strategy, when it switched from a taxpayer-assisted ammonia fuel system for its Armada 78 series of survey vessels to a new taxpayer-assisted methanol fuel system.
Now, with the sale of its Guardian interest, Ocean Infinity has unwound its third acquisition, having previously bought then almost immediately returned offshore security company Ambrey Risk to its former owners in the UK, and bought then sold offshore crane manufacturer Red Rock in less than a year, with Red Rock seeming to imply that the business had been run down under Ocean Infinity's management.
To cap another week of mystery in its labyrinthine structure of holdings, Ocean Infinity just incorporated another subsidiary in the UK, a company named IAGG with its usual single director governance and one hundred pounds of paid up capital, according to a filing at Companies House on October 9.
What is its purpose? I guess we will have to just wait and see.
Tidewater said in September at the Barclays investor conference that it wouldn't happen. But now in October, steel has been cut on the first anchor handling tug supply (AHTS) vessel of the new offshore cycle.
That didn't take long, either. There is a new, newbuilding offshore vessel being built right now. Not an abandoned unit in China from 2014, not a laid-up ship being refurbished. but a genuine newbuild AHTS. High rates have created the first investment of the new cycle. Who would have guessed?
Vallianz, Swiber's former offshore support vessel company now owned by the Rawabi Group of Saudi Arabia, announced that it had started construction of the 70m long AHTS on October 6. The DP2 vessel will feature a bollard pull of 120 tonnes and a propulsion system with an output of 10,000 hp (7,456 kW). It will also be equipped with a SMART function system in compliance with the American Bureau of Shipping rules (more on SMART function here). The AHTS is being built at Vallianz's own United Sindo Perkasa shipyard in the Kabil Industry Zone in Batam, Indonesia.
One swallow doesn't make a summer, but it's nice to be right.
All those highly paid Norwegian investment bankers who said that shipyards can't build offshore vessels, that the rates don't support newbuildings, and that a new platform supply vessel will cost at least US$65 million would appear to have egg on their collective face. To those individuals, I would advise never to underestimate the capabilities of Indonesian shipyards.
Maybe this will be a "one off," or maybe not. Instead, I would ask, "Who's next?"
Background reading
Yes, yes, yes, we know we have used the "Chickens Come Home to Roost" headline before, in a two-part story from late 2019. This dealt with an Italian police raid on the home of the CEO of Eni, the sale of a discounted drillship by Petrobras, and the tragic loss of the anchor handling tug Bourbon Rhode in Part One. Part Two covered the financial difficulties of Swiber's now liquidated compatriots, liftboat owner Ezion and OSV operator Ezra Holdings (Have mercy. I have been writing this column for over eight years now.).