![COLUMN | Too sweet: Tidewater; Hayfin Capital; Taiwan CSOVs; Island Offshore [Offshore Accounts]](http://media.assettype.com/bairdmaritime%2Fimport%2Fwp-content%2Fuploads%2F240513-Offshore-Accounts.jpg?w=480&auto=format%2Ccompress&fit=max)
.png)
Irish singer-songwriter Hozier recently managed to top the singles charts in Ireland, New Zealand, and the United Kingdom with the indie hit "Too Sweet", which also peaked at number two on the Billboard Hot 100 in the US.
The memorable chorus, "I take my whiskey neat, my coffee black and my bed at three; You're too sweet for me, you're too sweet for me," seems to fit with the lifestyle of many of the offshore characters we have met.
It's been a sweet week for many shipowners, as we look at the big bucks coursing through the veins of an industry that is firing on all cylinders at last.
One person who can take their whiskey neat, and also buy the entire distillery and half the Western Isles, is Tidewater CEO Quintin Kneen. Mr Kneen announced the sale of another US$16 million of Tidewater shares last week at US$109 per share, on top of the over US$25 million that he sold in March, according to filings with the SEC. On Friday, the stock was back trading just over US$102.
To be fair, he had been holding some of the shares from his Gulfmark Offshore employee compensation scheme since 2014, but the surge in the value of the company's shares to over US$110 on May 7 has probably made Mr Kneen the richest manager and highest paid executive in the entire offshore industry. Curb your envy, peasants!
This is deserved, since the company is throwing out cash and jacking up rates across the board.
Given that a quarter of Mr Kneen's wealth came from the acquisition of the 50 vessels of the Swire Pacific Offshore fleet for less than US$200 million in 2022 (vessels that now appear to be worth over US$1.2 billion) perhaps he should share the largesse with the fearful Swire managers who created so much value for him personally, along with the craven Nordic bankers who forced Solstad Offshore to sell Tidewater 37 high-value, high specification platform supply vessels (PSVs for US$577 million in 2023. Those ex-Solstad vessels are probably now worth over US$750 million.
Perhaps Mr Kneen should send a few bottles of Blue Label to Hong Kong and Oslo to remind them of their folly?
If Swire and Solstad bought high and sold low, Mr Kneen cannot be accused of that. His timing in both corporate acquisitions and personal stock sales has been impeccable. He has now sold a tranche of Tidewater shares just a shade off the all-time record share price since the company emerged from Chapter Eleven bankruptcy protection seven years ago, in 2017.
Mr Kneen selling to enjoy the fruits of his success after a decade of bankruptcies and pain might not be a red flag for the future of Tidewater. Unfortunately, his sale was also accompanied by a US$75 million disposal from Robert Robotti, a director and the company's largest shareholder, a US$2.7 million sale by the company's COO David Darling, a US$2 million sale by CFO Samuel Rubio, and a US$2 million sale by the company secretary Daniel Hudson. David Darling had earlier made a US$1.4 million sale in March.
I get it that individuals with stock options and employee compensation schemes often have to sell shares to meet tax obligations (although the company reported that its "share count was further reduced by 320,859 shares in exchange for paying US$28.5 million of employee taxes on the vesting of equity compensation at an average price of US$88.95 per share").
But even so, so many shares being sold by so many insiders all the same time is a concern. It is very sweet for the members of the management involved, but shareholders should be asking what they can see to which perhaps other investors are blind.
The company's quarterly results up to March 31, 2024 showed all indicators improving from good to great. Revenue was US$321 million, an increase of US$18.5 million, or six per cent, from the fourth quarter of 2023.
Tidewater's average vessel day rate increased to US$19,563 per day, up US$1,497, or seven per cent, compared to the fourth quarter of 2023. Tidewater reported net income of US$47.0 million, an increase of US$9.4 million from the fourth quarter of 2023, and over four times the amount the company made in the first quarter of 2023.
Tidewater generated net cash of US$54.8 million from its operating activities in the quarter, an increase of US$7.5 million from the fourth quarter of 2023, and saw its cash balance increase to US$289 million, giving the company incredible firepower to make acquisitions, if the competition regulators would permit.
This is a business firing on all cylinders, with day rate momentum likely to continue through 2024 as legacy contracts end and vessels are fixed at much higher current market rates. Mr Kneen and the management might prefer for Tidewater to keep buying back its own shares to ensure that their remaining stock options are heavily in the money when they vest.
Unfortunately, with an average fleet age of over 12 years, Tidewater will have to bite the newbuild bullet at some point.
Once again West Africa was the star, producing nearly half of the company's vessel operating profit, closely followed by an impressive performance in South-East Asia, which generated the highest gross profit per ship in the whole fleet, and average day rates of over US$30,000 for each of the 21 vessels working there.
Unfortunately, once again, the 43 ships working in the Middle East region were the complete laggards, generating less than two per cent of the operating profit, and another loss when corporate overhead and interest is applied. The recent suspension of 22 jackup rigs by Saudi Aramco is likely to slow down efforts to increase rates and turnaround the business in the Gulf.
Tidewater told analysts that none of its own vessels were yet suspended, but its Dubai-based team had counted over thirty of their competitor's vessels that would be redelivered to owners by Saudi Aramco. Competitor POSH promptly put two UT755 design PSVs up for sale upon completion of their Aramco charter.
The suspensions in the Middle East lead us to reiterate our earlier comment from November that, "When you think of Tidewater's Gulf operations, think of a fifth of the company's fleet as locked into an abusive relationship with a cruel and powerful Arab sheikh who has metaphorically chained the company (and its competitors) to a drainpipe in a dark, dank, and very unprofitable basement."
Despite this, worldwide, and even in the Gulf, all categories of PSV and anchor handlers of under 16,000bhp (11,931kW) achieved utilisation of over 80 per cent. Fleet-wide, Tidewater achieved 81.5 per cent utilisation across its 219 vessels, the same as in the preceding quarter. Only two ships remain for sale in lay-up now.
Expect year on year utilisation comparisons to get harder for the company. The upside in 2025 is likely to come from rate increases alone, unless Tidewater can achieve a fleet acquisition, which will be hard given its obvious market dominance in the PSV segment.
The other glaring problem (or opportunity, depending on your perspective) in addition to the Middle East, was Tidewater's fleet of 11 large anchor handlers, vessels with more than 16,000bhp main engines. These 200 tonnes bollard pull or larger ships achieved only 60 per cent utilisation, down from 75 per cent a year ago. These are the most technically complex and highest newbuild price ships in the whole Tidewater fleet.
The good news was that the company drove up day rates for the segment from US$21,000 to over US$30,000, the highest in the whole fleet. However, the drop in utilisation offset a lot of the benefits, despite average rates of US$53,000 for the North Sea pair of large anchor handlers Pacific Dispatch and Pacific Discovery.
The North Sea is traditionally quiet in the winter and is a major market for this type of vessel, but seasonality does not explain the problem as Tidewater's fleet works globally. Yes, the company's two North Sea anchor handlers only achieved 34 per cent utilisation, but this was higher than the utilisation of Tidewater's two large AHTS in the Americas, and Asia-Pacific achieved only 53 per cent utilisation on its three units in the category.
Only West Africa achieved good utilisation for the full quarter.
Tidewater has tried and failed to operate large anchor handlers in the past, following the acquisition of the Sanko fleet of KMAR 404 design AHTS, which it promptly sold to John Fredriksen's Deep Sea Supply in 2005 for US$202 million and made a one off profit of US$80 million.
Looking at the high market value of the vessels and their low returns, will Mr Kneen be tempted to emulate his predecessor Dean Taylor in 2005, and simply flog the ships and pocket the gain to return to shareholders?
With Siem Offshore being split between Cristen Sveaas and Kristian Siem, either Norwegian magnate might be interested in the vessels we shall call the "Tidewater Eleven". Mr Sveaas soon takes control of Siem Offshore after a deal with its eponymous founder, as we reported last month, and he also has control of Viking Supply Ships, which owns six large AHTS. Viking recently sold out of the PSV segment by selling Cooper Viking and Coey Viking to Borealis and other investors.
For his part in the settlement for exiting Siem Offshore, Kristian Siem received nine vessels from the company, including three large AHTS, as well as four PSVs and the subsea vessels Siem Barracuda and Siem Stingray. Mr Siem has long expressed a desire to consolidate the offshore supply vessel segment and must surely be a candidate to acquire the Tidewater Eleven.
When we commented on the problems in the large anchor handling segment in 2023, we observed that we expected Hayfin Capital to soon complete the sale of its twelve 200-tonne bollard pull AHTS in the United Offshore Services (UOS) fleet, which it had bought for pennies on the dollars from the smoldering remains of German entrepreneur Doctor Nils Hartmann's offshore company in 2018.
Unfortunately, UOS remains stubbornly unsold after Hayfin rejected the offers it received, and decided to hold course in what it perceived to be a rising market for 200-tonners. Tidewater's results suggest that the large AHTS sector remains a rare weak spot in offshore, and that Hayfin may have been overly optimistic on pricing its assets.
Now, Hayfin itself is now up for sale, at a reported price of around US$1.3 billion, so it is likely that the future of UOS will remain undecided for many more months until its parent is sold. Eldridge Industries, which is owned by US financier Todd Boehly, is among the shortlisted bidders to acquire Hayfin. Game on!
What is remarkably conspicuous from the entire PSV segment is that despite the surging day rates and obviously high returns for owners, the PSV order books remains small, with only Hercules Offshore and the future winners of a Brazilian newbuild tender for Petrobras committed to adding new capacity.
Some vessels will continue emerge from China as the gap between domestic rates and international rates widens. Go Offshore, Britoil, Rawabi and Blue Ridge of Singapore have benefited from the Chinese yards rushing to complete or reactivate laid-up tonnage, but for today, the order book remains subdued. Mr Kneen can rest easy that his dominant market position is not going to be swamped by new orders this year or next, or even the year after.
This is surprising given that investors are piling cash into other categories of offshore vessels. The orderbook for windfarm service operation vessels (SOVs) and commissioning service operation vessels (CSOVs) is starting to get ridiculous. We have already reported on Bibby's electrical SOV order in Spain last week and on Edda Wind's large orderbook of uncommitted ships.
Then, on Friday, Vard announced yet another pair of new build orders for windfarm SOVs from an "unnamed Taiwanese owner." Given that there is one leading player in the Taiwanese market, we can probably all guess who that might be, but we don't gossip or rumour-monger, so we will leave you to dfo the investigative work yourselves.
These new 102-metre long CSOVs will be constructed to the new 4 39 design, which is a new design from Vard and includes the "future integration of a modular power and fiber optic cable lay and repair spread." Thus, when the wind crash does eventually occur (and it will) the owner can at least work in the subsea data cable market, although only 700 square metres of clear deck is not exactly going to have Alcatel Submarine Networks or Orange Marine much concerned.
The battery-hybrid, diesel-electric vessels have total accommodation for 120 passengers and crew, Vard reported. Around 90 of the crew will be allocated in large single cabins, reflecting the famously precious tastes of sensitive windfarm workers.
The ships will be delivered in late 2026 and early 2027 and feature an electric-controlled, motion-compensated (ECMC) 30-metre walk-to-work gangway with a three-tonne, 3D-compensated crane and personnel elevator. For cargo handling, they also have one Seaonics ECMC 7-ton 3D-compensated crane.
Following the sale of its smallest ship, the UT717 design PSV Island Dragon, a few weeks back, Island Offshore has returned to the market with the largest subsea vessel order in a decade, a ship priced around US$110 million, excluding a future gangway, with two option vessels.
The DP2, 120-metre-long vessel will be built at Vard with a beam of 25 metres. The ship is designed to be a multi-purpose "Ocean Construction" workhorse, the owners claim, undertaking both oil and gas subsea operations, including IMR (inspection, maintenance, and repair), pipe laying, subsea infrastructure construction and installation, diving support, and equipment for remotely operated underwater inspection, and for renewables work.
For the latter, the vessel will be equipped for walk-to-work, commissioning, cable laying and repairs, trenching and survey scopes. The Island newbuild is also prepared for installation of a gangway system and has a heave-compensated offshore subsea crane of 250 tonnes lifting capacity. Of course, it is battery-hybrid, diesel electric with an engine set "prepared for alternative low emission fuel," whatever that may mean.
This Island order really throws down the gauntlet to DOF and Solstad in the subsea space, and suggests that the Ocean Infinity challenge to disrupt the business is still not seen as serious by the biggest players in the sector.
Capital is coming back. It will soon find its way into the PSV sector, inevitably. Mr Kneen has done a great job at Tidewater and cashed out with seemingly perfect timing. His successor is going to have a much harder time.
One challenge will be how Tidewater responds to the fleet renewal issue, which is going to be critical in two or three years. A second is how a CEO earning tens of millions can motivate Tidewater's workforce, which has seen seafarers' wages actually cut in some of the acquisition companies, a loss of experienced talent, and a failure to invest in the training of new offshore officers and crew. The market leader in offshore should also be a market leader in training and building a pipeline of skilled crew, something Tidewater has historically never done well.
Mr Kneen has stated many times that the company's people are its most valuable assets. With his own bumper payout, he certainly is.
Today, Tidewater is in a good place: "Bright as the morning, as soft as the rain, pretty as a vine, as sweet as a grape," as Hozier might put it.
Background reading
The Tidewater 2005 annual report shows the impact sale of the company's Sanko AHTS fleet to Deep Sea Supply. In the financial year to end March 2005, Tidewater made US$101 million of net profit, excluding the gain on the sale of the six ships to Deep Sea Supply, which was booked in the next financial year. In full year 2023 Tidewater reported a net income of US$97 million.
One smart reader wrote in to remind us that inflation has devalued the real returns of offshore support vessel operators and rigs in this cycle compared to past cycles. A 2024 dollar is worth much less than a 2005 dollar. It is indeed a sober reminder that Tidewater made less money last year than at the beginning of the last upcycle nearly twenty years ago. That suggests that there could be a lot more upside to be had, as there was after 2005.
This unfortunately timed Master's thesis from 2013 asks "What is the value of Deep Sea Supply?". Cruel fortune showed that within three years of its publication the value of Deep Sea Supply was exactly zero.
Our 2021 survey of the cablelay sector still has much of relevance.
One area of offshore with a healthy orderbook is emergency towage, which is vitally important for safety at sea, as our founder Dr Neil Baird makes clear in his recent piece on the shocking problems facing the New Zealand maritime industry.
