Last week we looked at the ongoing restructurings at DOF, Havila, Siem Offshore and Saipem. With judicious bail outs from shareholders and support from lenders, the oil and gas services business is returning to good health.
But what else is happening? Windfarm woes, subsea mining developments, Dutch billionaires acting on the down-low, and a UAE mega-merger. Read all about it.
More than thirty years ago, British pop duo Go West introduced us to the "The King of Wishful Thinking" on the soundtrack to sex-worker friendly blockbuster Pretty Woman, starring Julia Roberts and Richard Gere (here).
More than thirty million US dollars of bonuses later (a reward for taking over struggling wind farm turbine installation vessel (WTIV) specialist Seajacks last year for a consideration of around US$525 million in shares and debt), Eneti's CEO Emmanuel Lauro and President Robert Bugbee prove that the kings of wishful thinking are still very active in the renewables business.
On Friday, Eneti's shares closed at US$6.41, around half their value when they were issued to Seajacks' shareholders to buy the company. A year ago, the shares were trading at over US$18, and as recently as November the company sold an extra US$175 million of new shares at US$9 per share to assist in funding its new US$650 million, two vessel, new build WTIV programme in Korea. Ouch! Apart from the management enjoying their large bonus, there are a lot of losers here.
Eneti's fourth quarter earnings report is here. Eneti reported an adjusted net loss of US$26.7 million (adjusted to remove the fall in the value of the company's shareholding in Lauro-family controlled Scorpio Tankers), but paid out a dividend of US$0.01 per share, maybe because the shareholders need some cash for their Easter break.
In the third quarter, Eneti had posted a net loss of US$8 million. Rival Cadeler, on the other hand, managed to scrape a profit of US$8 million for 2021, after several years of hefty losses. This is a segment which is looking fragile, as even DEME reported a loss for 2021.
Bugbee and Lauro are also on the management team of Scorpio Tankers, and briefly tried to resuscitate PSV-owned Hermitage Offshore before it plunged into bankruptcy and its assets (ten lovely Ulstein PSVs) were repossessed by the banks (here and here). The PX121 PSVs were finally sold to Esvagt and Aurora Offshore.
The decision to sell all of predecessor company Scorpio Bulk's dry bulk carriers to focus entirely on offshore wind under the new Eneti name has proved dreadful in terms of timing, as dry bulk has surged through 2021 and the wind business has struggled to gain traction. Eneti's latest investor presentation shows that it expects demand for WTIVs to lag supply until 2025, and only one of its five in-service units has work booked for 2023.
Eneti admitted that it still needs to raise close to US$400 million in 2024 and 2025 to pay for its two newbuild wind turbine installation vessels in Korea. With Maersk entering the WTIV business, as we reported last week, competition is hotting up. Eneti has forecast compounded annual growth in offshore turbines of 18 per cent between 2021 and 2025, so there is a race between the delivery of new WTIVs, and the need for extra capacity to service the booming market.
In the meantime, Eneti's stock is hostage to its operating performance. If it can generate net cash between now and 2024 when the bulk of its new building payments need to be made, shareholders may emerge intact, and see a recovery in the stock price. But if Eneti bleeds cash or suffers operational misfortunes, and heaven knows there have been enough of those in the wind industry, there may need to be yet another dilutive capital raising.
The fact that Bugbee is slowly spending some of the US$30 million management team bonus he received, buying Eneti's beaten down stock is cold comfort. That bonus should never have been paid, not until the success of the Seajacks takeover had been proven by Eneti (it hasn't been yet).
Also on the soundtrack to Pretty Woman is Roxette's bittersweet ballad "It must have been love" (here). I suspect many of Eneti's long suffering shareholders feel the same about the company and its executives.
It must have been love, but it's over now.
On March 29, rig-owner Transocean announced that it was entering the subsea mining space. With a market capitalisation of over US$3 billion, Transocean is valued at more than five times as much as subsea mining leader, The Metals Company.
Transocean's press release was deliberately vague. It announced that the company has purchased a minority interest in Ocean Minerals, but did not say how much of the business it had purchased, or at what cost. So, the press release is basically useless in trying to understand the significance of the move. Ocean Minerals is remarkably tight-lipped on its website over who exactly owns the company, as well. When we complain about the secrecy of Caribbean tax havens, we forget that the USA has many secretive and private means in which to register a business as well.
Ocean Minerals, through its affiliate, Moana Minerals, was awarded a license by the Cook Islands Seabed Minerals Authority in March for exploration of polymetallic nodules within the Cook Islands' exclusive economic zone. The Cook Islands thus join Naura, Tonga and Fiji in a race to harvest the metals needed for future electrification. Transocean was quick to point out that the cobalt, nickel, copper, manganese, and rare earth metals found in the nodules are, "essential for the production of high-capacity batteries."
Transocean says that it is working with Ocean Minerals on the technology and services that will be required to collect nodules from the seabed upon receipt of a production license. This implies that it would follow in the footsteps of Dutch/Swiss offshore contractor Allseas, which converted a Brazilian deepwater drillship into a nodule harvesting vessel known as Hidden Gem. Transocean's February fleet status report showed at least nine drillships stacked, any of which could be suitable for conversion.
With its total fleet of 37 deepwater and harsh drilling units, Transocean looks well placed to provide the hardware for the nodule collection, if environmentalists' efforts to suspend all deepwater mining activities at the International Seabed Authority can be thwarted. The battles there have only just begun.
Without more information on the numbers, it is hard to gauge the seriousness of the commitment, the future capital expenditure, the rig selected for conversion, or its impact on Transocean's balance sheet and prospects. Nor about the resources Ocean Minerals brings to the party. Tell us more, please!
In some ways this takes the company full circle. Transocean eventually owned the incredible, submarine salvaging, and arguably the world's first nodule-gathering, seabed mining test vessel Hughes Glomar Explorer (then renamed GSF Explorer) through its acquisition of Global Sante Fe for US$17 billion in 2007. The unit had been converted by mad millionaire Howard Hughes and the CIA in the early 1970s to collect the pieces of a Soviet submarine which had sunk in deepwater in the Pacific, using subsea mining as a cover.
Later, that cover story became a reality as, in September 1978, the Ocean Minerals Company announced it had leased Hughes Glomar Explorer and that in November would begin testing a prototype deep-sea mining system in the Pacific Ocean. The consortium included subsidiaries of the Standard Oil Company of Indiana, Royal Dutch Shell, and Boskalis Westminster Group of the Netherlands. The consortium's prime contractor was the Lockheed Missiles and Space Company. Lockheed is today one of the major holders of polymetallic nodules licences in the Pacific.
That project failed, despite gathering 800 tons of nodules, but at least one of the engineers involved now serves as an adviser to Ocean Minerals. In the 1990s Hughes Glomar Explorer was converted to deepwater oil and gas drilling.
Seabed mining has been a vision for more than forty years. When commodity prices are high the temptation of scooping up nodules from the Pacific is just too great, despite the technical and environmental challenges.
Transocean scrapped GSF Explorer in 2015. Perhaps just a little prematurely.
Whilst Transocean was making its first and tentative steps to enter the seabed mining business, Allseas was busy proving the functionality of its converted drillship Hidden Gem. The company announced last Thursday that it had successfully launched the polymetallic nodule collector in open seas from Hidden Gem, and had driven the unit on the seabed of the North Sea.
This followed hot on the heels of Allseas announcing a test of the equipment in Rotterdam harbour. This is interesting, but this test in maybe fifty or sixty metres of water, and actually driving the robot nodule collector three or four thousand metres down on the seabed and hoovering up tonnes and tonnes of nodules every minute are completely different.
Rather like Ocean Infinity launching an ROV remotely from the back of a barge three hundred metres away from its remote command centre in Southampton's Silicon Wharf, it is not yet proof of that the technology works in real world, open ocean conditions, merely a step towards that proof.
The actual seabed tests in the Pacific, slated for later this year, will be the real test for Allseas. The Metals Company and Allseas are already talking about converting a second drillship to nodule collection duties. If Hidden Gem succeeds, and the International Seabed Authority confirms that commercial mining can proceed, that would make sense, However, now that the rig scrapping cycle is over and the offshore drilling market is recovering, a second unit might come at lot higher price tag than Hidden Gem.
And the objections of scientists and environmentalists have to be successfully overcome.
On March 10, HAL Trust, the largest shareholder of Dutch marine powerhouse Boskalis, issued a press release stating their intention to make an unsolicited voluntary public offer for all outstanding shares in Boskalis. Since then, HAL has been increasing their shareholder position through a separate Dutch foundation called Stichting Hyacinth. HAL publishes daily updates of their current combined shareholding position on their website, and last Friday, Hyacinth owned six per cent of Boskalis, in addition to the 46 per cent owned by HAL. So, HAL already controls Boskalis.
But who owns HAL, and what is going on? If I told you HAL was once an acronym of Holland Amerika Line, this might be a clue. HAL's history dates back to 1873 when the Nederlandsch-Amerikaansche Stoomvaartmaatschappij (a catchy title if ever there was one) was founded in Rotterdam.
It was later renamed Holland Amerika Line (HAL) and the last shipping activities were sold in 1989, leaving the Van der Vorm family with a pile of cash and an aversion to publicity. With these proceeds from the cruise business' sale, HAL Investments began its successful investment activities, of which Boskalis is just one of many holdings. Everything is very low key, with HAL and the family connected through secretive trusts in the Caribbean and Monaco, if I read their filings correctly.
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?
Boskalis is a well-run company, with an impressive fleet, and the news of HAL's interest tells us that the cycle is turning again. The worst is over. The Van der Vorms are savvy investors and Boskalis' shareholder have to be careful not to be squeezed out gradually and cheaply, as Hyacinth slowly nibbles away at Boskalis' independence.
When HAL chooses to return Boskalis to the public markets in a few years at a much higher valuation, as it inevitably will, that will be a sign that the market has peaked again, however.
Spring is coming to offshore again, as the Hyacinth blossoms at Boskalis.
As the father of one of the UAE's most successful professional wrestlers, Stanford Marine CEO Elias Nassif knows a few things about the rough and tumble of life in the ring, as well as the rough and tumble of life in business. Stanford has been through all sorts of tussles through the years since it was purchased by high-flying UAE private equity group Abraaj Capital in 2007. Abraaj bought the company in conjunction with Abu Dhabi's Waha Capital, after the previous Lebanese-Armenian owner of Stanford had passed away.
By 2013, as the OSV market sizzled, Stanford was on the look-out for a lucrative listing in London, advised by Goldman Sachs, but this failed. The company grew its fleet rapidly, accumulating over US$300 million of debt following the acquisition of Minnow Marine Projects and its fleet of high capacity, Chinese-built platform supply vessels, as well as expanding its shipbuilding facilities at Grandweld in the UAE.
Unfortunately, the industry downturn saw Stanford hard hit as day rates collapsed. Then, its main shareholder collapsed, too. In 2018. Abraaj entered provisional liquidation after investors (including the Bill and Melinda Gates Foundation) discovered the CEO had been fraudulently mis-using their investment funds to pay for his own extravagant lifestyle. Abraaj wasn't run by geniuses, it was run by crooks!
The liquidators tried to auction off Stanford, but in the depressed OSV market, no buyers came forward, and so Stanford became a ward of its banks. But then Mr Nassif found a tag team partner to enter the ring. In 2021, the UAE government fund SHUAA stepped in to buy out the bank debt for a discount, and save the UAE-based company. Mr Nassif had survived the headlock of his creditors, and the Stanford business was rescued under 100 per cent SHUAA ownership.
Now, SHUAA has taken the bold step of buying Abu Dhabi's Allianz Marine (not the Dubai branch of Allianz, which will continue to operate separately under the leadership of executive director Murali Krishna). Allianz has been in these pages before – most notably in its efforts to buy Pacific Radiance in Singapore, and in its bargain basement acquisition of Swire Pacific Offshore's accommodation barges, part of the Sale of the Century.
Allianz operates around 117 owned and chartered offshore support vessels mainly in the UAE and neighbouring Gulf countries, it claims, although this includes a motley fleet of crew boats and landing craft and an unspecified number of third-party vessels it has time chartered.
The combined Stanford-Allianz will boast a fleet of 152 offshore supply vessels in the region, SHUAA says, which makes it the fourth largest OSV fleet in the world.
This highlights the continued dominance of the state in the offshore industry in the region – a trend we observed here. There is barely a private sector operator of any scale or scope left in the Middle East, as governments move to control more and more rigs, vessels and support services.
In the UAE, the SHUAA acquisition of Allianz means that the three biggest OSV operators (P&O Marine Logistics, ADNOC Logistics and Services, and now Stanford-Allianz) are owned by government entities. Indeed, when we first reported the trend last year, it was rumoured that ADNOC would be the buyer of Allianz, not SHUAA. Only lift boat players Zakher Marine and GMS, and OSV and salvage player Mubarak Marine remain independent, and of any meaningful size.
State run companies in the Middle East are bywords for corruption and vested interests. They stifle competition, are slow to adopt new technology, and often have lower safety standards than their international competitors, which are usually more accountable and more transparent.
The fact that P&O Ferries, owned by DP World of Dubai, and a sister company to P&O Marine Logistics was able to fire all its sea staff in the UK with no notice, and its CEO then brazenly admitted that it had broken the law, shows the contempt with which many Middle Eastern companies treat their workforces. The numerous fatalities in Qatar amongst the labourers working on the Fifa World Cup stadiums reinforce this point.
For a healthy and successful marine market to develop in the Gulf, the region needs more private companies, and more access for international players, not dominance by a cartel of state-owned enterprises.
No surprises, DOF managed to roll-over the standstill with its lenders at the end of March, until the end of April. The extensions of the standstill periods will facilitate the DOF group's continued dialogue with its secured lenders and the bondholders regarding a long-term financial restructuring of the DOF group.
Just get on with it, please!
Background reading
Australia's AFR had a great piece in the Van der Vorm family's problem of how to spend the US$4 billion they raked in from the sale of their eyewear business here.
A quick history of Stanford Marine is here, courtesy of The National.
