Whilst the first big consolidator of this offshore upcycle was Tidewater, rapidly followed by ADNOC and AD Ports of Abu Dhabi, Europe is also experiencing a quiet wave of consolidation.
Driving this is the biggest of the "Big Four" lowlands dredging and offshore companies, Boskalis. But whereas the gains in Tidewater have been open to all, through the public markets, the gains in Boskalis have largely been pocketed by an already super-rich and highly secretive Dutch family.
In 2022, after more than 51 years as a public listed company, Boskalis was taken private by HAL Investments, controlled by the reclusive Van der Vorm family. The family made their fortune selling the Holland America Line cruise business in the 1980s. The HAL offer valued Boskalis' equity at €4.2 billion (US$4.59 billion).
When we covered the transaction, we commented "What's significant with the plan to take Boskalis private is it suggests that the controlling family see the company as undervalued. Why share the profits with the independent shareholders, when they can buy them out in 2022 and reap the benefits from the rise of Boskalis' main dredging, and wind and offshore contracting operations?"
And so, it has come to pass.
In Boskalis' final full year as a listed company, its net profit up to December 31, 2021 was €151 million (US$165 million at today's exchange rate), which had been preceded by a net loss in 2020. Last week, Boskalis made two big announcements. Firstly, that the company it had made a net profit for 2023 of €601 million (US$658 million), up from €241 million (US$264 million), in 2022. Profits tripled in just two years.
Indeed, Boskalis made six times more profit than Tidewater on four times as much revenue, and generated over a billion dollars in free cash flow, whereas Tidewater managed only US$1 billion in revenue in 2023 and less than US$120 million in free cash flow.
Boskalis has also been expanding relentlessly, having previously subsumed Smit Salvage in 2009, before being rebuffed by Dutch survey compatriot Fugro in 2015. The company used the downturn to invest in high-end construction support vessels, acquiring North Ocean, now Boka Northern Ocean in 2022, having bought the sister vessel Boka Southern Ocean in 2021. Also in 2021, Boskalis acquired the 400 tonnes bollard pull Lewek Fulmar (now Boka Fulmar) in 2021, having previously bought the sister vessel Lewek (now Boka) Falcon in 2019.
Boskalis sees value in integration and sophistication, offering clients turnkey packages, which the company risk manages through disciplined project management and by keeping key services in-house. Tidewater charters commodity vessels on a day rate. Both are prospering in the current market but both service different segments, highlighting that successful strategies don't have to be imitative.
The Boskalis fleet includes heavy lift vessels, cable-laying vessels, heavy transport vessels, multipurpose/cable-laying vessels, fall pipe vessels, semi-submersible heavy lift vessels, diving support vessels, offshore construction support vessels, anchor handling tugs, floating sheerleg cranes, and survey vessels. In 2023 the company performed workscopes as diverse as transporting the leaky ExxonMobil Floating Production Storage and Offloading (FPSO) vessel Zafiro Producer from Equatorial Guinea for scrap, decanting oil from the stricken Yemeni floating storage vessel Safer, just before the Houthis went on the offensive in the Red Sea, numerous windfarm installation projects, using its dedicated foundation installation and cable lay vessels, and, of course, the global dredging activities that have underpinned its rapid expansion and made the company's name.
Boskalis also has specialised mission equipment such as trenching equipment including ploughs, jetting and mechanical trenchers, subsea pre-piling frames, remotely operated vehicles (ROVs), and various subsea cable tools. Also last month, Boskalis commissioned its new cable-laying vessel Boka Ocean following a major conversion program of the unit it acquired from Technip last year when it was the pipelay vessel Apache II. The ship was built in 2009, is 138 metres long, and is a sister to Boka Northern Ocean and Boka Southern Ocean.
HAL also owns the Dutch shipyard IHC, the largest builder of dredgers, which it rescued in 2023, and then supported with a US$200 million order for a new dredger from Boskalis, as per the Dutch press.
Now, the Dutch powerhouse is adding the eight large anchor handling tugs (AHTs) of the ALP Maritime Services fleet to the fleet. ALP owns four Japanese-built DP2 AHTs of 300 tonnes bollard pull with X-bows that were delivered between 2016 and 2018, and four older AHTs of over 200 tons bollard pull.
The ALP fleet had been hard hit by the downturn as its main business was the long-distance towing of FPSOs, mainly from Korea and Singapore, and FPSO installations collapsed between 2017 and 2021, leading to ALP losing money. Whilst Altera Infrastructure owned FPSOs itself, and floating storage units, in-house demand could never justify any synergies between ALP and its other activities. Altera continued to make most of its money from its 18-strong shuttle tanker fleet centred on Brazil and the North Sea.
Altera is owned by the global private equity company Brookfield Business Partners, and its shuttle tanker fleet is the former Teekay Shuttle Tankers fleet, which Altera acquired in 2020.
For Boskalis, this deal makes strategic sense – the AHTs can complement its existing heavy lift vessels in the long-distance transport market, they are ideal for salvage operations for Boskalis' famous Smit division, and they will be well-suited for future growth in the nascent floating wind farm market, which would complement Boskalis' existing fixed wind turbine installation business. No other buyer could benefit from the same fit as Boskalis, and given the highly specialised nature of the fleet, few buyers were interested.
With a cash position of €769 million (US$841 million) and only €246 million (US$269 million) in debt, Boskalis is well-placed to snap up further assets. However, its next acquisition will probably be an off-market deal.
Thirteen months ago, Spanish towage operator Boluda announced the acquisition of Boskalis' joint offshore terminal towage company Smit-Lamnalco, held 50 per cent by Boskalis and 50 per cent by the Saudi Arabian Rezayat Group, where the second-generation family owners were looking to exit. Smit Lamnalco is the world's fifth largest towage operator and employs around 1,600 people and owns 111 vessels. Boluda is the number one towage operator worldwide with over 600 tugs working in 148 ports, it claims.
Today, that deal has still not closed. Sources report that there have been delays in the disposal of Smit Lamnalco's remaining tugs in Russia, not the easiest transaction to accomplish but still a condition precedent for Boluda's financing. So, the deal is stalled, and insiders suggest that Boskalis may simply buy out the Reyazat Group and bring Smit Lamnalco on board as a wholly-owned subsidiary.
So, it appears that Boluda has made a consolation purchase. On March 1, French private equity group the Econocon Group announced it had completed the sale of French salvage and towage operator Les Abeilles to Boluda. Econocon had bought the company from Bourbon in 2020 as part of Bourbon's incomplete restructuring.
Les Abeilles' prize assets are the 2010-built, 280 tons bollard pull anchor handlers Abeille Méditerranée and Abeille Normandie, which it had acquired from Siem Offshore in 2021 as Siem Ruby and Siem Garnet. The two ships underwent a €60 million (US$64 million) modification program in Germany (which we covered here) ahead of a long-term charter to the French Navy to serve primarily as emergency towing vessels in the English Channel and the Mediterranean.
Les Abeilles had also acquired the aging 1998-built anchor handler Abeille Horizon, the former Sea Lynx from the Deep Sea Supply fleet, a vessel with a rich heritage of ownership by Sanko, Tidewater, and then John Fredriksen's speculative venture (which was eventually merged with Solstad in 2017). It also owns two other emergency towage vessels working in France.
Boluda is a serial acquirer, like Boskalis. In 2017, the company acquired the German towage companies Unterweser Reederei and Lutgens & Reimers. Then in 2019, it purchased Kotug Smit Towage; in February 2021, it closed the purchase of the harbour and offshore activities of Iskes Towage and Salvage and in December 2021, Boluda bought the Scottish towage company Caledonian.
For Les Abeilles, the sale to Boluda reunites the business with the French harbour towage division from which it had been spun off seventeen year ago. Then, in December 2007, Bourbon had sold Les Abeilles' harbour towage fleet, consisting of seventy tugs, and one thousand employees to Boluda for €270 million (now US$295 million). The deal increased Boluda's workforce and turnover by 30 per cent and catapulted the company into the front ranks of global towage operators.
So, buying the remaining Les Abeilles business reunites two parts after nearly two decades.
For an offshore journalist, offshore construction company McDermott is the gift that just keeps on giving.
The year 2023 was a terrible one for the company, what with a US$1 billion defeat in an arbitration case against the Colombian state oil company, the cancellation of three big contract awards by Saudi Aramco due to McDermott's inability to provide a performance guarantee, and a big contract dispute with BP over the alleged poor performance of the McDermott pipelay barge Amazon on the Greater Tortue Ahmeyim (GTA) project.
Amazon left the project off Senegal with the final 20 kilometres of the pipeline it was supposed to lay, not laid. We covered this festering mess in August and concluded that for McDermott, "the picture is not pretty at all."
Shareholders might have hoped that the New Year would bring some respite. Er, no.
Last month, project partner Kosmos Energy revealed that BP has filed an arbitration claim in London worth up to US$534 million against McDermott for the untimely failure of Amazon to complete the GTA pipeline. In its earning report, Kosmos let slip that it was a participant in the claim against McDermott through its 26.8 per cent share in the GTA project.
The line was eventually laid by Allseas, which mobilised its vessel Pioneering Spirit to Senegal at the end of last year. The work was completed and Pioneering Spirit is now en route to Holland, according to AIS data.
Upstream magazine reported that McDermott had offered to return to complete the pipeline at a later date once it had reached an agreement with BP over the commercial issues. Unfortunately, BP hired Allseas instead and now BP has gone legal, so it seems only a matter of time before McDermott and its current shareholders and lenders have tough hard conversations on how it will fund both the payout to the Colombians, and the arbitration with yet another aggrieved client.
With its offshore peers performing significantly better, and seemingly more competently managed (I tempt fate by saying this), an obvious solution would be for a competitor to acquire McDermott. The main challenge now, with so much litigation flying around, is how to unpick the profitable ongoing Middle Eastern business from the toxic dumpster fire of the company's legacy issues.
The exquisite irony of the situation is that McDermott only acquired the source of its Colombian problems, Chicago Bridge and Iron Company (CB&I), in 2018. It made the acquisition because McDermott was afraid that it might be bought by a larger predator like Technip or Subsea 7, precisely because it was small and successful. So, advised by Goldman Sachs, the company's management decided to make a bid for CB&I, which specialised in the onshore construction of refineries, LNG plants, and petrochemical facilities. McDermott became big and monumentally unsuccessful.
Subsea 7 actually made a last-minute bid, valuing McDermott at US$2 billion in April 2018, just before McDermott shareholders voted to acquire CB&I. But it was too late, the CB&I deal was confirmed, and Subsea7 walked away in May 2018.
Today, Subsea 7 has a market capitalisation of over US$4 billion. It made a net profit of over US$100 million in 2023 and expects net income of over US$350 million in 2024. We believe the value of McDermott's equity must be substantially impaired now. Subsea 7, like Boskalis, may achieve US$1 billion in free cash in 2024. Kristian Siem holds 23 per cent of the company and has openly spoken of his desire for consolidation in the current upcycle.
We saw with Boluda and the 17-year wait to reunite the two parts of Les Abeilles that sometimes deals are just meant to happen in the offshore circle of life. Will Subsea 7 acquire McDermott? We don't know, but as Sir Elton John sings in The Circle of Life, "It's the wheel of fortune, it's the leap of faith, it's the band of hope."
McDermott is clearly drowning, not waving, at the moment, and the one way creditors can extract value is to sell off some of the assets. Unpicking the mess will take a while, but I would expect some difficult decisions in Houston in 2024 and some circling by opportunistic predators.
Background reading
More, in Dutch, on the Van der Vorm family wealth and its convoluted trusts and investments can be read here. This SEC Filing contains more background on the subject.
If you only read one story on McDermott, our US$16 million hooker story on the corruption claims made against CB&I in the Colombian arbitration from 2019 remains a salacious starter.
Click to see Sir Elton John singing The Circle of Life.