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Last week, we saw how Greek shipowner Evangelos Marinakis rocked the platform supply vessel (PSV) market by placing the single biggest order in the entire segment in the last decade. Tidewater, the dominant player in the sector, was quick to fight back with a verbal volley designed to reassure investors that this move from the Greek entrepreneur was economically irrational and unlikely to be repeated. Well, Tidewater would say that, wouldn’t it?
We have already observed how Tidewater CEO Quintin Kneen has a handy knack of timing his over US$70 million of company share sales just when the company’s stock hits all-time highs. Last week, the multi-millionaire was back in New York at the Marine Money conference telling would-be investors that newbuilding PSVs were not economic, even though Mr Marinakis was speaking at the same conference discussing his four firm PSV order plus four option vessels at Fujian Mawei Shipbuilding.
Mr Kneen made the very clear statement to the audience, saying that it’s "not economic to order a boat today." This is counterfactual, as Hercules Supply has already ordered some, Mr Marinakis has ordered eight, and Petrobras is offering twelve five-year charters for newbuild PSVs in Brazil. Indeed, the very same week saw John Fredriksen’s Sea Tankers exercise its options to add another two Salt 0494 design subsea vessels to its existing two firm vessels at Wuchang Shipbuilding Industry in Qingdao, China.
The Tidewater boss then hauled out the same erroneous justifications, the reality of which we have debunked several times in the past. He claimed again that what he described as “a baseline vessel favoured in most segments” would cost US$65 million to construct.
Clearly, it doesn’t, and the new caveat about “baseline vessels” just sounds petulant. Middle Eastern, South East Asian, Mediterranean, Latin American and West African customers have been chartering Chinese-built ships for years, even if Norway remains mostly reluctant to use ships from PRC yards, and Taiwan outlaws them outright.
Since the newbuilds ordered by Mr Marinakis’ Capital Offshore and Hercules appear to cost US$40 million (or less) apiece, and are designed for the North Sea and other markets, or it is not clear where this oft repeated US$65 million comes from. Perhaps Tidewater includes the cost of its executive compensation in the price of each order to reach a price over 50 per cent higher than everyone else is paying?
"That means you are going to need a substantially higher day rate today. From my perspective," Mr Kneen continued. "I don’t see any reason to build."
I guess if you are running a fleet of nearly 200 vessels already halfway through their economic lives at super high rates, you would be reluctant to renew your fleet, but as we have said, this is not sustainable in the medium term. Without new ships, Tidewater will cease to exist as a business in the next seven to twelve years.
Readers are free to run a US$40 million newbuilding model through a spreadsheet and use the US$34,877 per day leading edge day rates that Tidewater reported for the mid-size PSV segment at the Raymond Jones Energy conference in March. And rest assured, you can achieve a nice internal rate of return.
Indeed, why else would Capital Offshore be building? Mr Marinakis also spoke at the same event in New York and said that he saw “light” in the offshore market. He advised that he was still positive on the offshore sector and commented that “we will go on a larger scale.”
Mr Kneen then introduced a new and interesting angle to throw shade on further newbuildings, but like most of his pronouncements on the subject, it actually reflects even more badly on Tidewater’s future prospects if it is correct. He highlighted the impact of moves away from fossil fuels on the life of any newbuild assets, asking, “What’s the life of that boat? Is it really 30 years? 20 years?”
He then went on to state, again without any supporting evidence, that today’s engine technology would have to be refitted over the service life of the vessel to adapt to new fuels, which he claimed would add “potentially” another US$15 million or US$20 million to the cost of the newbuilds. That “potentially” is doing a lot of heavy lifting. He concluded by saying it "just throws more capex into the equation and destroys the economics based on prevailing rates."
Hold on. Let’s stop and consider this a minute. If we assume that these radical and expensive engine refits (which Mr Kneen foresees will be necessary) have to be made in the next ten years, then what accrual is Tidewater making in the next decade to cover the cost for its own 195 offshore vessels? There is no reference to the company making a provision or planning for such a refit in its financial reporting, even though its own CEO says he believes they may well be needed. Hmm...
This would potentially be a worst-case liability of (checks calculator) of just under US$4 billion for Tidewater, which is nearly the entire market value of the company. If such changes occur within ten years, then Tidewater has an enormous capital spending requirement. If the changes come in after ten years and such changes make the existing global offshore support fleet uneconomical and technically obsolete, then Tidewater will have not a single serviceable vessel in its entire fleet.
Basically, Mr Kneen is admitting that in a decade without newbuildings, Tidewater either ceases to exist, or that it is going to divert all its free cash flow to keeping its aged fleet in service to meet future regulatory requirements. Neither outcome is particularly palatable for Tidewater’s investors.
I hesitate to say that Mr Kneen is talking nonsense, but this really is grasping at straws. Nobody knows what engine and emissions requirements will be around in the mid-2040s when Capital’s current newbuildings will be approaching twenty years of age.
Petrobras is already specifying that its twelve newbuildings have to be able to run on both marine gas oil and ethanol, so that its newbuild ships are “future-proof”. If Capital’s diesel-electric, battery hybrid ships are going to have a short service life due to some regulatory changes with regards to fuels, then the entire existing Tidewater fleet will likely already have been scrapped long before.
Carried to its logical conclusion, no airline should be ordering a plane today under Mr Kneen’s flawed logic, because maybe by the 2040s, today’s new A350s and B787s may be technically obsolete due to changes in fuels and engines. Indeed, no ships whatsoever should be ordered in any segment anywhere in the world, because by definition the future fuels are not properly defined and not widely available, and future regulations are unknown.
Mr Kneen is desperate to talk down the viability of offshore newbuilds. He exaggerates the capital cost (it is not US$65 million per new PSV); he exaggerates the lead time (it is not three years build time, as he has often claimed); now he is exaggerating the impact of the energy transition – new engines are unlikely to be needed this side of 2040.
Doing so makes him look disingenuous. Clearly, his intention is to dissuade others from ordering new PSVs to maintain tight supply, high rates for Tidewater’s fleet, and a high stock price for a company where he has another US$30 million of stock options still to exercise after cashing out over US$70 million so far this year. Talk up your own book by all means, but please don’t take the entire industry for fools.
We love the weekly Esgian rig market report, published every Friday. The most recent issue reminded us that whilst Brazil, Guyana, and Namibia have discovered billions of barrels of deepwater oil in the last few years, the race to discover fresh reserves in the Atlantic Ocean in new frontier basins is by no means over, even as the success stories get more successful.
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Northern Ocean has announced that its harsh environment semisub Deepsea Bollsta, which is managed by Odfjell Drilling, has just been awarded a one-well contract offshore Namibia starting at the end of the year, believed to be with Chevron. ExxonMobil now has five rigs working off Guyana, four of them chartered from Noble Corporation.
Upstream reported last month how TotalEnergies has secured a hull for its floating production storage and offloading (FPSO) facility in deepwater newcomer Suriname. The French major and its partners are expected to approve the final investment in the US$9 billion Sapakara South-Krabdagu oilfield development on Block 58 shortly.
First oil from the FPSO is expected in 2028, with peak production of 200,000 barrels targeted per day from the unit, which is expected to be fabricated in China. This will be Suriname’s first FPSO and we can expect a major development drilling campaign kicking off in 2026. Neighbouring Guyana has three FPSOs in production, three more approved and under construction, and a seventh scheduled to be confirmed for ExxonMobil’s Hammerhead discovery later this year.
Another contender is Argentina, where offshore oil and gas production is limited to the harsh southern waters off Tierra del Fuego. Unfortunately, Valaris’ drillship DS-17 has just completed the drilling of the Argerich-1 well on block CAN-100 for Equinor…. And the Norwegian operator has announced that it was a dry hole. The Valaris rig will now return to Brazil to continue further drilling for Equinor there.
Meanwhile, Esgian also reported that Petrobras is currently drilling its Uchuca-2 appraisal well on the Tayrona Block offshore Colombia, using the deepwater semi-sub Noble Developer. Like Argentina, Colombia has very limited shallow-water offshore production, but high hopes of confirming viable deepwater reserves.
Petrobras wants to evaluate the Uchuva-1 natural gas discovery, which it made in 2022. The rig is on-hire to Petrobras until the middle of next year and the Brazilian operator also has an additional 390-day option to extend.
Coal supplied seven per cent of Colombia's electricity in 2021. A domestic gas development could allow the country to phase out its coal generation capacity completely.
The emphasis on the Atlantic as the driver for exploration growth was reinforced by TotalEnergies, which has been selling down mature production assets and snapping up high potential exploration acreage. Last month, the French major announced it was selling its wholly-owned subsidiary in Brunei to Malaysian independent Hibiscus Petroleum for a consideration of US$259 million. The transaction is scheduled to close in the fourth quarter of 2024.
TotalEnergies' assets in Block B, located 85 kilometres off the coast of Brunei, represented a net production for the company of approximately 9,000 barrels of oil equivalent per day in 2023. Block B contains the Maharaja Lela-Jamalulam field, which started production in 1999. TotalEnergies also sold its interests West of Shetland, in the UK last month, to the PRAX Energy Group as well as stakes in mature fields in Congo-Brazzaville to Trident Energy. Further sales are expected.
But it is not all divestment announcements from Paris. TotalEnergies has just signed an agreement to acquire a 60 per cent interest and operatorship in Block STP02, offshore Sao Tome and Principe. Block STP02 cover 4,969 square kilometres off the coast of the island of Principe, and is adjacent to Block STP01, where TotalEnergies holds a 55 per cent interest and is the operator. Will Sao Tome et Principe follow Senegal, Suriname, Namibia and Guyana in making major deepwater discoveries this decade?
Two weeks ago, we highlighted the initial public offering of Ventura Offshore in Oslo and predicted that the Brazilian based owner of two deepwater rigs and manager of two others would likely be using its listing to acquire additional rigs. It did not take long for this prediction to come true.
On Thursday last week, Ventura announced that it was buying the deepwater semi-sub SSV Catarina for a gross price of US$105 million. The next day, the company successfully closed a US$50 million private placement of shares to partially fund the deal.
Ventura was already the manager of the 2013-built rig. It had been acquired in 2022 by Harald Moraeus-Hanssen, former boss of Fearnley Securities and current owner of some secondhand PSVs, along with co-investor Oystein Stray Spetalen (the largest shareholder in SD Standard ETC, which owns a big chunk of Dolphin Drilling, and which sold its PSV fleet to Mr Mariniakis last year).
As we reported, SSV Catarina has had a chequered operational career after being built at Daewoo in Korea for PetroServ Marine in Brazil, and working first in Angola for scandal-ridden Cobalt Energy in 2013. It returned to Asia work for ENI in Indonesia through the now liquidated Singaporean contractor KS Drilling in 2019.
The Norwegian investors paid US$55 million for the rig two years ago, but then also had to pay for its reactivation and Special Survey. Ouch. Ventura is paying US$100 million in cash to them and US$5 million in its shares. The rig currently has a one well charter with ENI in Vietnam, but then goes to ENI Indonesia for a one year long contract, and Ventura will receive a US$7 million mobilisation fee from ENI Indonesia.
Mr Moraeus-Hanssen has managed to keep some upside for himself and the sellers. They will also be entitled to 17.5 per cent of the free cash flow generated by the semi-sub over the next five years, which Ventura says potentially brings the final sale value above US$130 million, implying that the rig is generating around US$80,000 per day above its operating costs.
The sale of the semi-sub brings Ventura closer to the Norwegian speculators behind Eldorado Drilling. Eldorado bought three stranded drillships from Samsung Heavy Industries in Korea for around US$200 million apiece, now Zonda (which is preparing for a contract in Brazil in 2025, where it will be managed by Ventura), Dorado, which has delivered from the yard earlier this year, and Draco, which will be delivered in the next few weeks as per the Eldorado Drilling website.
Mr Moraeus-Hanssen is a director of Eldorado Drilling. He is also a shareholder in Deep Value Driller, which owns a single deepwater drillship on bareboat to Saipem in Ivory Coast.
Ventura also announced that it would be marketing the former West Libra in Brazil. The suspended drillship is owned by Hanwha Drilling, which controls the DSME yard where the rig was abandoned by Seadrill during the latter’s bankruptcy.
With the rig now renamed Tidal Action (surely a worse name for a rig cannot exist apart from Keppel’s Can-Do?), Ventura will be trying to place the deepwater floater in the current three-rig tender issued by Petrobras to perform the development drilling on the Atapu and Sepia pre-salt fields in Brazil’s Santos basin. Do not be surprised if Ventura and Eldorado become further entwined and interconnected, nor if Ventura buys Tidal Action if that rig wins one of the Petrobras contracts.
There’s plenty more asset trading to happen on the rig front. Everyone is seeking Eldorado in offshore.
Background Reading
You should view Tidewater’s presentation at the Raymond Jones Energy conference in March. The slideshow is very similar to the deck presented at Barclays CEO Energy-Power Conference last year, save that the overall Tidewater fleet has shrunk by two vessels to 195, but grew by one mid-size sized PSV. That takes its fleet of PSVs in the 700-square-metre to 900-square-metre clear deck category to 50 ships.
Our estimate is that the Tidewater fleet now has an average age of around 13 years in the PSV and anchor handling segments. There is a massive fleet investment programme required by the company as its vessels age en masse, but so doing will jeopardise the profitability of the existing Tidewater fleet.
For more news about Colombia, from Colombia, in English, we recommend The City Paper Bogota.
