COLUMN | Good news, bad news and gross news: Saipem; UK North Sea; Transocean and Seadrill; TPAO; MAG Offshore [Offshore Accounts]

From a geopolitical situation that just seems to get worse, with Israel bombing Iran (but not its oil facilities), over the weekend, let’s start the week with some good news, some bad news, some rumours, and some stuff we just didn’t know before, and find out who is probably the grossest man in offshore, too.

No need to send in nominations.

We are just ahead of earnings season, with Transocean kicking off its third quarter reporting on Wednesday, October 30, Valaris following on Thursday the 31st, then Tidewater next Monday, November 4, and Noble Corporation the day after. In Europe, the ones to watch are DOF reporting on November 7, and Subsea7, which is due to report on November 21.

The first earnings are in, however, and Saipem reported very good news last week, so much so that the shares closed eight per cent higher over the week, and the company is now valued by the market at close to US$5 billion. Forza Italia!

Good news from Milano

Saipem’s results showed how far the company has come since the dark days of February 2022, when it faced what we described as “a Natalie Imbruglia moment” because nothing was right, and the company’s balance sheet was torn. Then, Saipem suffered losses of more than US$1 billion, required an emergency equity raising of around US$1.5 billion, and fired its luckless CEO.

Fast forward to today, and the picture is transformed. The company’s shares have tripled since the July 2022 equity raising. Saipem sits on over US$500 million of net cash and reported an incredible US$7 billion of new contract awards in the three months to September driven by big contract awards from Saudi Aramco and from QatarEnergy. In Qatar, the company will fabricate and install of six platforms under an EPCI contract, and lay 350 kilometres of subsea pipelines, cables and fibre optic cables in the North Field.

Saipem generated over US$125 million in operating cash flow in the last quarter and confirmed that it would initiate a dividend to its long-suffering shareholders in 2025, which includes the Italian state oil company Eni and Italy’s state-backed investment fund CDP Industria.

Castorone completes Scarborough pipeline

Operationally, Saipem also reported it was back on track. In Australia its deepwater pipelay barge Castorone completed the 433-kilometre-long, 36 inch trunk pipeline between Woodside’s Scarborough Field and the Pluto LNG plant (another part of the global “dash for gas” we covered last week), assisted by the shallow water barge Endeavour for the final section to shore.

This was amongst the five longest offshore pipelines laid by Saipem in its history, and an impressive 400,000 tonnes of pipe were installed. Endeavour was bought by Saipem in March 2020 from Solstad in Norway.

Extension in Norway and farm-out to Namibia

Its deepwater rig fleet is also firing on all cylinders. The semi-sub Scarabeo 8 was extended by Aker BP in Norway by a further year until the end of 2026 on an improved day rate, whilst the drillship Santorini has been farmed-out by Eni to Galp Energia.

Santorini will drill the four appraisal wells on the Portuguese oil company’s ten billion-barrel Mopane field offshore Namibia. Mopane lies in over 2,200 metres of water and is the biggest exploration discovery of the year, after Odfjell’s semi-sub Hercules made the first find in January.

There are rumours that Eni might acquire a stake in the field from Galp, so sending the rig to Walvis Bay this month could have a strategic element for Saipem’s parent company. Petrobras is also reported to be interested in the 40 per cent stake in the field that Galp has advertised for sale. Galp currently holds 80 per cent of the block with Namibian state oil company Namcor holding 10 per cent and minnow Custos Energy the balance.

In December 2022, Saipem had exercised its option to acquire the newbuild seventh-generation, ultra-deepwater drillship for US$230 million from the Samsung Heavy Industries shipyard in Korea, where the rig had been cancelled before delivery by Transocean. Saipem also owns the Saipem 10000 and Saipem 12000 drillships.

Even the Aramco suspension doesn’t hurt too much

The Italian company also threw some light on the impact of the suspension of two of its jackup rigs by Saudi Aramco, part of the 27-rig suspension programme initiated by the Kingdom’s state oil company earlier this year after Riyadh reduced the company’s requirement to hold an extra million barrels of spare oil production capacity.

Saipem announced that the temporary suspension of its jackup Perro Negro 7 had been postponed to 2025, and will coincide with the rig’s schedule maintenance period, conveniently. Perro Negro 9 has also been temporarily suspended by Aramco from the middle of this year, but Saipem is only leasing the rig from its Chinese owner SinoOcean, and intimated that it will return the rig to when the bareboat charter expires in the next few months before year-end.

Meanwhile, Perro Negro 10 is suspended from Aramco but will likely move to Mexico to work for Eni from April 2025 onwards. We understand that the other jackup Perro Negro 8 remains onhire in Saudi Arabia, along with Perro Negro 12 and Perro Negro 13, which Saipem bareboated from CIMC Raffles in China in 2023 for five years firm plus two optional years.

Bad news from the North Sea

If sunny Milan has been the centre of good news, stormy and grey Aberdeen has been at the epicentre of bad news. The North Sea spot market for platform supply vessels (PSVs) has plunged to lows not seen since the winter of 2023 – and it is only October.

On Friday, Tidewater fixed the 4,800DWT PSV North Promise for £4,000 (US$5,200), according to brokers SSY, just five pounds a day higher than the fixture Vroon made of its PX121 design PSV VOS Patriot twenty months ago, which we pilloried as a sign of the desperation of its owners, a consortium of banks.

In both cases, the lucky charterer of the bargain basement ships was UK operator Enquest.

Kesha and Pitbull call the spot market

PSV rates have steadily deteriorated in the North Sea through this month, as work has just dried up, with Springer Tide being fixed at £4,750 (US$6,150) to Apache on October 24 and Falcon Tide to Eni at £5,000 (US$6,500) last Tuesday. The preceding fixture of Skandi Caledonia to Shell UK earlier on the same day had been at £5,500 (US$7,100).

At the time of writing, there were 17 PSVs available prompt in Aberdeen, including three Tidewater and three Seacor vessels, and another five in Norway, including the speculatively purchased DP2, 985-square-metre clear deck HM Monsoon, the former Bourbon Monsoon, which was sold for US$20 million earlier in the year. It now looks set for a loss-making year for its new consortium of Norwegian owners.

Fans of Pitbull and Kesha will recall the lyrics to their 2012 hit Timber: "It's going down, I'm yelling timber." That seems an appropriate anthem for the North Sea spot market this winter.

Tidewater, Seacor, and DOF can pull their vessels out to international markets, but Norwegian speculators don’t have the commercial networks, or the operational know-how for that.

Ouch.

Macro-picture in UK North Sea is actually worse

On Wednesday, the UK Chancellor (finance minister) Rachel Reeves will deliver the new Labour government’s first budget amid growing pressure to raise revenue from higher taxes and boost growth with infrastructure spending.

North Sea oil producers are already facing a so-called windfall tax, known as the energy profits levy, which was imposed when the oil price was above US$100 per barrel after the Russian invasion of Ukraine in 2022. This has curiously not been removed now that the oil price is in the mid-US$70s.

Indeed, after winning a landslide victory in parliamentary elections in July, Labour ministers promised to increase the rate of the levy to 38 per cent from its original rate of 35 per cent, starting on November 1. This would raise the headline total rate of tax on upstream oil and gas activities in the UK to 78 per cent.

The UK government also plans to extend the period over which the levy applies up until March 2030, and just to give a further kick to the oil and gas producers, it has said that it intends to remove some of the investment allowances that the previous Conservative government originally introduced alongside the windfall tax to make it more palatable, saying that they were “unjustifiably generous.” Now the UK tax regime for offshore oil and gas potentially becomes all stick and no carrot – you can read the full announcement by the government here.

UK imports 800,000 barrels a day of oil

There have also been threats by the Labour government to suspend all new offshore drilling permits in UK waters as part of its campaign for green energy and Net Zero in 2025. This is even though the UK imports over 800,000 barrels per day of crude oil and runs a total current account trade deficit of US$12 billion a month as per CEIC data.

To put that in perspective, the UK pays US$1.8 billion to other oil producers (mainly Norway and the USA) for their crude oil every month, 15 per cent of its total trade deficit.

In response to the uncertainty, oil and gas producers have started to do more than just express frustration – they are deferring investment due to the uncertain tax environment and hostile environmental regime, and in some cases are even selling up to de-risk their exposure to the country.

Harbour Energy has put its stakes in the Armada, Everest, Lomond, Catcher, and Tolmount fields up for sale to cut its exposure.

That’s the bad news.

Seadrill and Transocean: I heard a rumour

Shares in offshore driller Seadrill jumped 10 per cent last Wednesday after reports in Bloomberg cited anonymous people close to the matter that Transocean was in talks to merge with/take over Seadrill.

Seadrill has a fleet of ten owned deepwater drillships, plus two it manages for a fee through a joint venture with their owner, the Angolan state oil company Sonangol. It also owns one cylindrical semi-sub, Sevan Louisiana, working in the Gulf of Mexico, one harsh environment semi-sub working in Norway, West Phoenix, and one harsh environment CJ70-design jack up working in Norway, West Ellara.

The company also has three laid up rigs, namely West Aquarius, a 2008-built harsh environment semi-sub stacked in Norway, West Eclipse, a 2011-built semi-sub stacked in Namibia, and its sole remaining benign water jackup West Prospero, which sits idle off Labuan, Malaysia, as per the company’s August fleet status report.

Seadrill would make a good fit with Transocean. which is focused entirely on deepwater and harsh environment units. Transocean owns 34 rigs, consisting of 26 ultra-deepwater floaters (of which eight are stacked, with at least six rafted together off Greece) and eight harsh environment semi-subs, of which one, Henry Goodrich, is stacked, as per its fleet status update earlier this month.

After going through two Chapter 11 bankruptcy restructurings, which saw Norwegian shipping magnate John Fredriksen lose control of the company, in 2022, Seadrill now has net cash, not net debt, after selling off three jackup rigs to its Qatari partner for US$338 million in May.

What would the consequences of TransDrill / SeaOcean be?

A merger/takeover would likely be paid for mostly with Transocean stock, not cash, as Transocean had long-term debt of US$6.7 billion at the end of June, more than its market capitalisation. The company has been focused on trying to pay that debt down as the drilling market has risen. A deal with Seadrill would allow Transocean to further consolidate the sector and raise day rates, and would probably justify the scrapping of some of the long-term laid-up rigs in its own fleet to further tighten supply.

There would be a lot of uncertainty for Seadrill employees as the “synergy” from the deal would likely come from large lay-offs in the target company, as it did when Noble Corporation bought Maersk Drilling and now Diamond Offshore Drilling.

It is unusual for Bloomberg to report takeover discussions before an announcement, but whether the deal goes through will depend on the Seadrill board and CEO Simon Johnson.

No smoke without fire.

Three things I didn’t know

I promised to close with three things I didn’t know (and maybe you didn’t either).

1.      Turkish State Oil Company to Explore off Somalia

Firstly, the Turkish state oil company TPAO has announced that it will begin exploration activities off the coast of Somalia, an area abandoned by international oil and gas companies since the calamitous civil war broke out in the troubled country on the horn of Africa in 1991. That was followed by regional secession, clan fighting and Islamist violence, along with piracy. Black Hawk Down and Captain Phillips are probably the only media representations of Somalia most people are familiar with.

TPAO says it will be using its own Turkish-flagged seismic ships for the offshore surveys, presumably supported by the Turkish Navy, given the ongoing instability in the area. Shell had high hopes for offshore Somalia and was due to begin a drilling programme just before the country went to Hell in a handcart in 1991.

No risk, no reward, but conducting seismic surveys offshore Somalia strikes me as pretty much the highest-risk activity you could do in oil and gas right now.

But presumably, the Somali government is more welcoming of offshore drilling by TPAO than the British government.

2.      MAG Offshore unmasked

Secondly, we now know who owns MAG Offshore, the Marshall Islands venture which purchased Atlantic Navigation and its fleet of twenty predominantly small anchor handlers in the Arabian Gulf.

MAG is owned by three players as per its announcement that the Atlantic deal had closed. They are the Greek tanker and bulker operator John Dragnis through his Athens-headquartered Goldenport. Then there is private equity player EnTrust Global via its shipping finance wing Maas Capital. The third owner in this triumvirate is UAE offshore owner Allianz Marine Services of Dubai, which has a fleet of over twenty offshore support vessels (OSVs) of its own already.

Athens-headquartered Goldenport operates a fleet of thirty vessels as per its website in the dry bulk and the container market sectors. Mr Dragnis was reported as commenting in the industry media that he considered the Atlantic deal as a “milestone in MAG’s journey” as the company intended to become “a premier OSV owner with vessels operating across the Middle East, Southeast Asia, and Africa.”

3.      Gross Mr Marinakis banned for spitting

When we noted that Greek shipowner Evangelos Marinakis was buying first PSVs from Standard Supply at the end of last year as part of a seven vessel, US$100 million transaction, we observed that, “according to his carefully edited Wikipedia entry, Evangelos Marinakis "is a Greek media mogul, shipowner, lyricist, and member of the Piraeus city council. He is the founder and owner of Capital Maritime and Trading Corporation and also the owner of the football clubs Olympiacos in Greece and Nottingham Forest in England."

Now, Mr Marinakis can add another accolade to his accomplishments –being punished for public spitting. The BBC reported how a football disciplinary committee gave him a five-match stadium ban for spitting on the floor just as the referee and another game official walked past in the tunnel after an English Premier League game where his Nottingham Forest team had lost 1-0 to Fulham last month.

If he does that when he loses a football match, imagine how much he is going to be spitting when he sees North Sea spot rates!

Background reading

Wikipedia has an excellent history of Türkiye Petrolleri Anonim Ortaklığı (TPAO) and coverage of its fleet of four drillships named after Ottoman sultans, and its seismic vessels.

More information on the purchase of Atlantic Navigation by MAG Offshore is here, highlighting the interest of both adjacent shipping players and private equity in offshore.