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 fourth year in a row, we are running through the Twelve Days of Christmas from an offshore energy perspective.
For Christmas week, and the Feast of St Stephen, we learn how the 12 labours of Hercules are reborn in a Chinese shipyard, 11 Hornbeck offshore support vessels (OSVs) are a-piping overseas and… ten spot ships are a-sitting idle in Norway.
Last week, we celebrated the sale of seven platform supply vessels (PSVs) to Greek all-rounder Evangelos Marinakis and his Capital Offshore. Little did we know that this was also a cue for John Fredriksen's Seatankers Management to dump two of the large PSVs it owns, selling Sea Goldcrest and Sea Gull to Fugro for prices rumoured to be… well, nobody knows for sure. Seatankers still has two former Remoy-owned 5,000DWT units in charter in the North Sea, but selling half its PSV fleet might be considered a toppy signal?
Sea Goldcrest is in Namibia supporting a GALP well, so delivery is some time away. It is the second pair of sister PSVs that Fugro has bought for conversion for geotechnical work. The Dutch contractor acquired two of Britoil's PX121 design ships for an estimated US$25 million apiece earlier this year.
We'll be returning to the Battle of the Subsea Robots between Fugro, Ocean Infinity, X-Ocean, Reach Offshore and now, finally, DOF in the New Year. This big investment from Fugro shows the Dutch are fighting hard across the whole survey, geo-solutions, and hydrographical space.
We observed last week that "the North Sea has been much more vibrant for PSVs in 2023 right through to the end of the year, even though December is typically a dead month of low rates and activity, heralding the start of storm-wracked weather and lower fixing levels for winter."
That was pretty much the kiss of death on the North Sea spot market, as indeed Storm Pia ripped across Northern Europe. The weekend before Christmas saw vessels piling up alongside quays across the North Sea, and day rates plunging as a result. It is precisely for reasons like this that I avoid "prescient" comments on the Gulf of Aden crisis, the Houthis, and Iran.
SSY's very helpful website showed a whopping ten large anchor handlers available prompt in Norway, including four from DOF, twelve AHTS prompt on the UK side, plus Maersk Handler free in Rotterdam, along with fourteen PSVs idle in Aberdeen and three PSVs in Bergen, all from Tidewater. Not surprisingly, such a glut of ships led to a crash in day rates.
On December 21st, REM Server was fixed to CNOOC for £10,000 (US$12,700), then the next day, Skandi Caledonia was chartered by Repsol UK for only £9,000 (US$11,400). Whilst I am sure the crew of the forty available OSVs are enjoying being in port for Christmas, the return of unwelcome seasonality is harsh.
There can't be much comfort and joy for the likes of Capital Offshore. Will a cold midwinter see rates plunge as low as the appalling pound sterling equivalent of just US$4,810 at which Vroon fixed in February?
We'll keep you posted. Fugro taking vessels out of the PSV fleet for conversion can only be positive, but OMV Petrom's announcement that the Transocean harsh environment semi-sub Transocean Barents would move from ENI Cyprus to its Romanian Neptun Deep project in the Black Sea in 2024 is a reminder that the North Sea rig count is just not climbing. Transocean achieved a day rate of US$465,000 per day for the 18 month project, which was very positive for rig rates, and we expect Romania's GSP to provide the PSVs to support the rig – as usual.
To be honest, I was going to run the Ten Principles to Decarbonise the Offshore Support Vessel industry for Day Ten, but it is just so dull – nobody gets excited (I hope) reading that "it is recommended that tender document explicitly address the requirements regarding efficiency of operations and related emissions."
Fortescue's potentially ammonia-powered vessel FFI Green Pioneer (MT 6009 design PSV, ex-MMA Leveque), which arrived at the climate conference in Dubai (ironically under diesel power, and had its back deck cluttered with all manner of ammonia-related paraphernalia), is a ship we hope to investigate soon. This is an exciting face of technological innovation in offshore.
Earlier this month, Hornbeck Offshore Services announced that it was planning to re-list on the New York Stock Exchange and filed a 1,556-page registration statement with the Securities and Exchange Commission. The company disclosed so much that barely anyone has time to digest it, a masterstroke in disclosing without informing, kudos to Todd Hornbeck, the CEO. There could be anything buried there, and nobody got time to read it all.
We last heard from the company in September 2020 when it emerged from Chapter Eleven bankruptcy protection after its balance sheet restructuring was approved by the Honorable David R. Jones. Judge Jones is the same Houston bankruptcy judge who oversaw the restructuring of McDermott, and is now under investigation for his romantic relationship with a plaintiff's attorney.
The former shareholders in Hornbeck Offshore were wiped out and got nothing in the new company, making the horse's head logo perhaps somewhat ominous. The company's bonds and notes were converted to new equity. As a result, Hornbeck is currently majority owned by four distressed debt funds. Ares Partners is the biggest single shareholder and owns 42 per cent. The debt funds now see the rising offshore market as their opportunity to recover their cash. In the interim, the company bought an armada of vessels from troubled compatriot Edison Chouest – ten in 2022 and six in February 2023.
The registration filing gives some valuable background on the company and the size of the opportunity it provides. At the end of September, Hornbeck owned 60 PSVs and 15 multipurpose vessels, being 12 subsea vessels, and one DP floatel, plus two more subsea vessels under construction for delivery in 2025 at Gulf Island Shipyards, and one PSV being converted as a windfarm service operations vessel (SOV).
Of this fleet of 75 ships, 46 of the PSVs and 12 of the multipurpose vessels are Jones Act United States flag tonnage. Another twelve of the PSVs and two of the subsea vessels are Mexican-flagged. All but eleven of the fleet are trading in the Gulf of Mexico or US waters. Historically, Jones Act tonnage has commanded a premium, as shown by the fact that Hornbeck reported an average day rate of just under US$39,000 for its PSV fleet, whereas Tidewater's PSV fleet achieved an average day rate of around US$30,000 per day per vessel for the comparable period.
One of the eleven international vessels is trading in Mauritania on term charter to BP, the others are in Guyana, Trinidad, and Brazil. I anticipate that after the IPO, we will see Hornbeck moving more vessels to work internationally. Growth in the Gulf of Mexico is limited and the wind farm operators have shown a preference for newbuilds from Edison Chouest and from Crest Offshore (the Crowley and Esvagt joint venture).
The opportunity from the IPO lies in how few of the high-capacity modern vessels are actually working. In its third quarter results, Tidewater, a company with barely a presence in American waters, reported PSV utilisation of close to 90 per cent worldwide. Hornbeck had just 32 of its fleet of 54 OSVs active in the first nine months of the year, and reported that 21 of its PSVs were stacked at the date of the registration filing. These were mostly the lower-specification ships.
However, page 19 of Tidewater's Barclays conference presentation back in September showed that Horneck had six PSVs of over 700 square metres of clear deck and younger than twenty years of age, and another eleven of twenty years and older. There is potential here.
The registration filing contains extensive details on how Hornbeck is constrained by its lenders – as with all these restructured companies controlled by creditors where debt as not insufficiently written off – see Bourbon, Solstad, and Edison Chouest. Thus, the company has to put the priorities of its creditors ahead of the needs of the business. Hornbeck owed US$349 million at the end of September, and has material capital expenditure to complete the two newbuilds and convert the SOV. An IPO should enable it to break these shackles and free up cash flow both to reactivate tonnage to generate better returns and to pay down debt. It already paid down US$75 million in the first nine months of this year, and held US$146 million in cash on September 30.
After the IPO, the company should be free to invest to reactivate the laid-up tonnage, and to compete harder in Brazil and Mexico, especially, where Hornbeck has a track record and where new field developments are stimulating demand. I would also expect Hornbeck to ritually scrap some of its smaller, older ships to reduce overhead once collateral covenants are removed, and adjust its fleet to the needs of the modern market.
With the cash from the IPO, we can expect a reinvigorated Hornbeck to be a much stronger competitor internationally, and in offshore wind newbuilds in America. The majority shareholders will sell down and the company will finally be able to use its increasing free cash flow to grow. With net income of US$47 million for the first nine months of the year, and, more importantly, operating cash flow for that period of US$115 million, as well than 20 vessels sitting idle, many of them high-specification, Hornbeck has great potential.
In October, we highlighted that there was finally a newbuilding anchor handler under construction at Saudi-owned Vallianz's Indonesian shipyard. We were widely pilloried on Twitter for pointing out that this was the first sign of a wave of possible new investment in offshore vessels stimulated by high day rates. High day rates always stimulate newbuilds; this is a fact of shipping. The only issue is how many and at what price and how long they take to show up in the market.
Critics yelled that Vallianz's AHTS was irrelevant, the order didn't matter, and that Tidewater had told the market on page 20 of its Barclays presentation that the cost of a newbuilding large PSV was US$65 million, and that the economics for newbuilds were unfavourable. I pondered aloud that, you know, Tidewater might be exaggerating the costs in a self-interested way, and was again chastised.
A few weeks, later a large anchor handling tug of 120 tonnes bollard pull was ordered for the Australian Maritime Safey Authority by Smit Lamnalco, to be built the to RASalvor 6500 design from Robert Allan Ltd. The tug will protect the Great Barrier Reef by providing emergency towing and pollution response capabilities. Again, this seemed a special case, a government contract in a remote market with a very specific design not suited to rig supply.
But last week, a new entry project company, Hercules Supply, announced it had placed an order for a new PSV and for two optional sister vessels, with a price of US$34.4 million for the first ship, plus project costs and supervision. The "as delivered" cost is a mere US$37.5 million with 20 per cent downpayment payment on order, Hercules said, then stage payments of 20 percent and 10 percent, with a final lump sum of 50 per cent on delivery. UK's Fletcher Offshore appears to be a partner in the project and announced it had secured US$21.65 million of project finance equity raised by Clarkson Project Finance.
The PSV is an 88-metre-long vessel, built to Breeze Ship Design Z4423, fitted with battery hybrid propulsion, a moonpool, and accommodations for 60 people with scheduled delivery in the fourth quarter of 2025. This gives the owners the option to upgrade for subsea work by fitting a crane. Hercules has secured options for two additional ships with delivery at three monthly intervals after ship number one. Fletcher will operate the first vessel both commercially and technically. With Capital Offshore buying the seven PSVs it currently manages, this seems a sensible investment in the future of the company.
The first vessel is being built using some equipment originally ordered for an unbuilt sister vessel to Seatankers' Sea Heron, Sea Hornbill, Sea Gull, and Sea Goldcrest, all of which Seatankers has now sold, but the second and third Hercules ships will use completely new equipment. A price of US$40 million "delivered in China" is not unreasonable for the option vessels, some 30 per cent lower than the price Tidewater has given to investors at the Barclays conference in September. This pricing is in line with what we have seen from other yards in Asia.
The Greek hero Hercules has to perform twelve arduous labours, including slaying the many-headed Hydra, rustling the cattle of the giant named Geryon, and stealing three of the golden apples of the Hesperides. Now Hercules has done the whole industry a favour by exposing the actual cost of a newbuild PSV. This leaves egg on the face of both Pareto and Tidewater, whose estimates were rather inaccurate.
The newbuildings should cap second-hand PSV prices and put Tidewater on notice that operating the world's largest fleet of middle-aged vessels might not be a long-term strategy. Who's next to order?
Finally, to get you to Epiphany, Valaris unsurprisingly announced last week, ten days before the option lapsed, what we had expected: it will purchase the long-delayed drillships Valaris DS-13 and Valaris DS-14 from Hanwha Ocean (formerly Daewoo Shipbuilding and Marine Engineering) in Korea. Valaris is paying aggregate purchase price of US$337 million for the two rigs, which were ordered over ten years ago as Atwood Archer and Atwood Admiral, as we reported. The purchase increases the size of the company's deepwater drillship fleet to 13 units.
It won't be long before they are westward leading, still proceeding, as the company has decided to relocate them to the Canary Islands.
Merry Christmas!
Background reading
Paul Kerr's poem "'Twas the night before Christmas (Offshore Version)" may strike a chord with many: "while at their homes, their families might play, crews will be working, on Christmas day." Not so much in the North Sea spot fleet, as we saw above.
Our first three days appeared on December 4 (here) covering the latest on the Scottish ferry fiasco, two Windcat Offshore newbuilding orders, and three Azerbaijani journalists detained. Our second week looked at six money laundering countries, five shipping magnates pontificating on future fuels, and four drilling assets for sale (by Seadrill). Then, we had seven PSVs bought by Evangelos Marinakis, eight billion tons of coal a-burning, and nine Vroon vessels sold to CBED, Golden Energy, Rederij Groen and Horizon Offshore in last week's feature.
Our 2020 Twelve Days of Christmas (here and here) featured some the bleak midwinter of the industry downturn, 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 (the predecessor to S.D. Standard ETC).
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.
Our 2022 Twelve Days of Christmas (here, here, here, and here) featured twelve floaters a-drilling, as Seadrill bought Aquadrill, eleven percent of DOF's shareholders a-revolting, ten wind turbine installation vessels a-building, nine million tonnes of LNG a year maybe a-sailing from Indonesia, eight billion cubic feet of gas a day possibly-a-flowing there, and seven Indonesian presidents completely a-sleeping (on the job), six gratuitously unnecessary lift-boat accidents, five stranded deepwater rigs, four subsea vessel deals, 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.
The University of Reading in England has devoted a history article for each of the twelve days of Christmas here. This features an actual medieval account of ten lords leaping to avoid disaster, as the deck of their transport ship collapsed alongside in Dieppe in 1189, and many fell, breaking limbs. One, Sir William Marshal, "leapt forward to grasp a still intact deck strut. Catching firm hold at the cost of a wound to his leg, he hung by his hands above the heap of wreckage and broken limbs below," writes Dr Elizabeth Matthew.