![COLUMN | Quick updates: Maersk Supply Service sold; The Metals Company borrows from Allseas as seabed mining negotiations get tense; Cadeler and Eneti report; Scottish Ferries report reveals ̶g̶r̶o̶s̶s̶ ̶n̶e̶g̶l̶i̶g̶e̶n̶c̶e̶ significant failings [Offshore Accounts]](http://media.assettype.com/bairdmaritime%2Fimport%2Fwp-content%2Fuploads%2F230327-Offshore-Accounts1.jpg?w=480&auto=format%2Ccompress&fit=max)
It has been nearly six months since we whacked out one of our quick updates (last one here), so it is time to whip through the latest developments in our favourite companies in offshore.
One of the big trends of the last eight years has been the decline of the family-controlled supply vessel operators. Everywhere, family ownership in offshore has lost ground.
The Swire family sold Swire Pacific Offshore and its fleet of fifty anchor handlers and platform supply vessels (PSVs) to Tidewater in March 2022 for the pitiful price of US$190 million, the Chateauvieux family were unceremoniously kicked out of Bourbon when the banks seized control of that company in early 2020, and the Vroon family lost control of Vroon Offshore earlier this year. That company's fleet of 39 offshore vessels is now up for sale by its creditors.
In Norway, Helge Møgster faces massive dilution (at best) and complete wipeout (at worst) when DOF eventually completes its complex restructuring, a fate already meted out to the Solstad family in Solstad's restructuring. After being wiped out in the offshore supply business following its company's shotgun merger with Solstad, the Farstad family has exited offshore oil and gas, and reinvented itself as a founder of Norwind Offshore, focused on building five windfarm service operation vessels (SOVs).
In Asia, the Lee family's Emas Offshore is being liquidated by nTan and DBS Bank (very slowly) and the Pang family have sold Pacific Radiance to their Mexican partners, keeping only a ship management role. Even Edison Chouest, long the bastion of Louisiana's most powerful family, has been shrinking, as its lenders have "encouraged" it to sell 16 of its fleet to Hornbeck Offshore in January last year, and last month (here and here).
So, the news last week that Maersk Supply Service was being taken private for the US$685 million by A. P. Møller Holding, the holding company set up by the Maersk family and owned by the A.P. Møller Foundation, bucked the trend. The seller, A. P. Møller – Maersk, is the publicly listed container and terminal operations company, in which A. P. Møller Holding controls 51 per cent of the votes.
However, A.P. Møller – Maersk has committed to exiting oil and gas, first with the sale of Maersk Oil to Total in 2018, then with the divestment of Maersk Drilling in 2019. Thus, Maersk Supply Service and its fleet of 25 high-horsepower anchor handlers, nine subsea support vessels, and two PSVs was something of an orphan, despite its decision to enter the wind industry and build a wind turbine installation vessel (WTIV) in 2022. Maersk Supply Service and Stiesdal also announced that they had entered into a strategic partnership to jointly serve customers in the floating wind industry last year.
A.P. Møller – Maersk says that it is aiming to reach net zero emissions by 2040, across the entire business with new technologies, massive investment in methanol powered new vessels, and green fuels. So it is no surprise then that it has kept ownership of Stillstrom, the electrical vessel charging company, which was retained.
The year 2023 will be a critical one for Stillstrom. It will work with Ørsted to test a pilot buoy offshore later this year. The trial will take place at one of Ørsted's wind farms in the North Sea, with the Stillstrom prototype buoy supplying power to SOVs and crewboats operating at the farm. Stillstrom has also announced a collaboration with Port of Aberdeen on a project to assess the feasibility of using one of its charging buoys outside the port to reduce emissions from vessels on standby there.
We think the container industry will face a very rocky couple of years, so taking Maersk Supply Service private allows the family holding company to inject funds into its container and logistics group subsidiary at an arm's length at a time when freight rates are collapsing in the face of falling demand and a huge influx of newbuilding container vessels. Who wouldn't want US$685 million? It also enables the logistics company to draw a line under its oil and gas businesses, whilst Maersk Supply Service positions itself for the best couple of years in a decade and the holding company reaps the upside.
We believe Maersk is one of the best run companies in the whole shipping industry, and this move is logical for both sides of the family-controlled equation. Bravo.
Whilst Maersk has worked closely with The Metals Company using its anchor handlers as testing vessels to gain shares in the subsea mining company, it was conspicuous by its absence in the latest round of funding by The Metals Company.
Regular readers won't be surprised that, yet again, The Metals Company announced an ugly set of results last Thursday, reporting a net loss of US$109.6 million for the quarter ended December 31, 2022, and a net loss of US$171 million for the full year.
Following the successful conclusion of the integrated pilot nodule collection system trial in November 2022 using Allseas' mothership Hidden Gem, the company recorded it had granted Allseas 10 million warrants (rights to buy its shares), and US$8.7 million related to another 10.85 million shares issued to Allseas as a completion payment for the trials.
The Metals Company finished 2022 with total cash on hand of approximately US$47 million at December 31, 2022, but, having handed Allseas a chunk of equity, it then reached an agreement with Allseas for a US$25 million Unsecured Credit Facility this month, whereby the miner borrows up to US$25 million from its largest shareholders at approximately nine per cent interest, being the six-month Secured Overnight Funding Rate (SOFR), 180-day average plus four per cent per annum. The loan is payable in cash semi-annually. This effectively positions Allseas as The Metals Company's only financial creditor as well as its largest shareholder.
The company also announced that it had not yet used its right to sell shares under a US$30 million "At The Market" programme announced last year.
"[The Metals Company] believes that existing cash and liquidity will be sufficient to fund operations for at least the next twelve months," the results release re-affirmed.
For the first time, The Metals Company stated it was looking to deliver "on our capital-light approach to developing the NORI-D Nodule Project."
This is just as well, as the head of the International Seabed Authority (ISA), the United Nations body tasked with approving The Metals Company's application to hoover up the deep Pacific Ocean seabed for polymetallic nodules, has faced some serious criticism, which might stall the licensing the company needs to proceed.
The Guardian and The New York Times both ran stories (here and here) last week stating that Germany, Costa Rica, and other states had criticised ISA secretary-general Michael Lodge for openly supporting seabed mining at a meeting of the ISA council, overriding their objections and demands for a precautionary pause until the environmental implications have been thoroughly studied. Mr Lodge responded with a shirty (That's with an "r", people.) letter to the German federal ministry for economic affairs and climate action (here).
To be honest, we were surprised that anyone was surprised.
Mr Lodge, a former British immigration judge (Yes, you read that correctly.) has appeared in The Metals Company's promotional videos. In 2020, he apparently threatened a New Zealand radio station with defamation for claiming that he was a "cheerleader" for seabed mining, according to a report in the Los Angeles Times, but did not follow through. "Turtles with straws up their noses and dolphins are very, very easy to get public sympathy," he said in a 2021 interview with The New York Times.
The ISA has created colouring pages for children about deep sea mining so they can "learn about the deep sea, its incredible creatures, its environment, and the work of ISA to explore and protect it," according to Mining Weekly.
The challenge for the ISA is that it stands to benefit financially from royalties if and when commercial subsea mining goes ahead. So, it has a big financial incentive to push through the rules to permit The Metals Company to commence operations quickly, even though the data on the ecological impact is sketchy.
And Mr Lodge's perceived closeness to The Metals Company's leadership doesn't help. The New York Times reported last year that the ISA "shared internal data with a Metals Company executive that helped the company pick one of the most valuable locations in the Pacific to start its mining efforts."
Mr. Lodge's defence of this was a statement through his lawyers stating that no rules were broken through any data sharing. Whilst the ISA is fine about the historic sharing of data with The Metals Company's executives, a report in Mining Weekly said it was much less eager for data on its own activities to be shared. Multiple accredited ISA observers said the ISA Secretariat threatened them with expulsion from the council discussions last week for taking photos and videos of the conference proceedings, which its staff ordered them to delete from their phones.
For an organisation that claims to be acting in the interests of all of humanity as a custodian of the ocean, this reluctance to face scrutiny seems unfortunate. Obviously, The Metals Company wants a hasty decision to allow it to proceed – as we have seen, it is burning through cash fast. But allowing thousands of hectares of seabed in the Clarion-Clipperton Zone to be torn up by machines for private gain is not a decision to be taken lightly.
There is now a clear division between a handful of small Pacific Islands, particularly Nauru, which want the financial benefits of sponsoring The Metals Company's mining as soon as possible, and many larger nations, including Germany, France, Spain and New Zealand, which want a careful environmental impact study to be made before dozens of robotic mining machines are unleashed into a pristine, low-energy environment 4,000 metres below the surface.
This is a problem with no quick or easy answer. The ISA faces a hard job trying to balance the demands of the different stakeholders.
We'll keep you posted.
The two publicly listed WTIV players Cadeler and Eneti faced a tough week. In early March 20, news broke that a dispute between Danish utility Ørsted and the UK government over the 2.8GW Hornsea Three offshore wind farm might lead to the project being cancelled or delayed. Reuters reported that Ørsted needed "more support from the government such as tax breaks to proceed with the project after costs soared."
Hornsea Three was the launch project for Cadeler's first US$345 million new building F-class WTIV unit, which was specifically built for the transportation and installation of foundations. The company believed the vessel was a perfect fit for the Hornsea Three project, for which it was contracted to work in 2026.
Of course, there was no mention of the problem on Cadeler's investor relations website, but the company's 2022 Annual Report and full year results are to be announced this Tuesday, March 28, accompanied by a presentation for the investment community, so perhaps there will be more visibility then. Norwegian contractor Havfram is also potentially hard hit by the uncertainty, as it had been awarded the turbine installation contract by Ørsted (here).
We have already highlighted that the wind turbine installation space is getting pretty crowded with multiple newbuilds in addition to the four firm orders placed in 2022 by Cadeler (here); there are currently double orders of WTIVs from both Eneti and Seaway 7, and individual orders from Maersk Supply Service (here), and Van Oord with Boreas (here). Jan De Nul's newbuild Voltaire sailed from its yard in China in December, whilst Shimizu's US$345 million Japanese WTIV Blue Wind has now completed sea trials off Japan (here). Havfram Wind also has one firm WTIV on order, and three option vessels at CIMC Raffles shipyard in China, and there is also Charybdis, the Jones Act-compliant WTIV from Dominion Energy, under construction in the United States.
Eneti reported its results last month and showed a healthy fourth quarter operating income of US$9 million, and US$11 million net income, boosted by exchange gains on the pound and some interest income on its cash as it waits to make the next installment payment to the Korean shipyard on its newbuild WTIVs. This quarter was important, as it was one of the first where there weren't distracting one-off gains on the sale of Scorpio Tankers stock, or asset impairments, or large equity payments to management (that we know of). With US$520 million in WTIV assets on its books, that gives Eneti a seven per cent annualised return on assets. While not particularly exciting, it is a positive return nonetheless. It will be interesting to see how Cadeler compares.
Eneti raised US$175 million in 2021 at a share price of US$9 per share, and the stock has recovered this year. On Thursday last week, Eneti announced, that Scorpio Holdings had purchased one million shares in Eneti at an average price of US$8.90 per share from the Marubeni Corporation via a private placement. Marubeni received the shares as part payment for its Seajacks fleet of WTIVs in 2021. Scorpio Holdings also recently purchased 150,250 common shares in Eneti at an average price of US$9.78 per share in the open market.
For the avoidance of doubt, Scorpio Holdings owns 28.77 per cent of Eneti, and, when we last checked (here), Annalisa Lolli-Ghetti was the majority shareholder in Scorpio Holdings. She's the mother of Eneti CEO, Emanuele Lauro.
Nepo babies in shipping – who would have guessed?
One of the most popular pieces we have written in recent months was on the Scottish Ferry Fiasco, a disastrous piece of public procurement for two newbuild ferries that has cost Scotland's taxpayers hundreds of millions of pounds. Eight years later, the vessels have still not been delivered.
Last week, the Scottish Parliament's Public Audit Committee released an audit report into the whole sorry affair.
I make no apologies for quoting the findings at length, because this is what public scrutiny of procurement should look like, and because a maritime project this badly managed should never be repeated. The report highlighted "significant failings" in the procurement process:
"Both vessels are now millions of pounds over budget and years behind schedule. Scotland's taxpayers and island communities have been badly let down by many of those involved in the project… There has been a significant lack of transparency and accountability throughout the project. [Shipbuilder Ferguson Marine] was not open about its inability to provide a full builder's refund guarantee (BRG). Ferguson instead chose to regard a letter from the former Minister for Transport and Islands to a constituency Member of the Scottish Parliament as the 'green light' that it would not need to provide a full BRG. This was wholly inappropriate. We also consider that the former Minister showed poor judgement in responding to the constituency member during a live procurement process and it remains unclear why he told us he had no knowledge of the preferred bidder before going on annual leave when evidence suggests he was aware of the outcome…
"We believe that the serious allegations raised about the procurement procedure for vessels 801 and 802 highlighted during the BBC Disclosure programme in September 2022 must now be thoroughly and urgently investigated by Caledonian Maritime Assets (CMAL) [the Scottish state-owned company that ordered the ferries and that has now appointed a barrister to lead an enquiry]. As a matter of transparency, we expect an update of progress from both CMAL and the Auditor General of Scotland, whom we urge to undertake a comprehensive audit of the entire procurement procedure for the vessels at the earliest opportunity…
"The role of Scottish Ministers comes into question in our report. Given that it was clear that considerable negotiations were still required, we question the First Minister [Nicola Sturgeon]'s decision to publicly announce the preferred bidder… Indeed, uncertainty remains over which minister had the final sign-off on the contract. The lack of co-operation we experienced from the former Cabinet Secretary for Investment, Infrastructure, and Cities is also a matter of serious concern.
"The committee was also disappointed by the lack of engagement by some key stakeholders in our scrutiny work. For example, delays occurred in securing the attendance of some civil service officials and in receiving evidence from Transport Scotland, with little or no explanation provided. We question the level of respect and regard shown for accountability and parliamentary scrutiny.
"The role of Transport Scotland throughout the vessel project is also a matter of serious concern. For example, the Programme Steering Group which it led, was weak and toothless…
"There is clear evidence at various points in the project of interventions by Scottish Ministers. However, record and note keeping of these meetings was weak and fell well short of the standards of transparency and accountability we would expect. It is particularly concerning that there does not appear to be a full record of the meeting held between the former director of FMEL and the First Minister in May 2017. A permanent civil servant should have attended and produced a record of that meeting in line with established protocols in the Scottish Ministerial Code…"
There is finally a chance for a clean sweep in Scotland. On February 15, 2023, Nicola Sturgeon announced her intention to resign the leadership of the governing Scottish National Party (SNP), and as First Minister. Three days later, her husband Peter Murrell also resigned as chief executive of the SNP, a role he had held for more than twenty years, after the party was forced to admit it had 30,000 fewer members than it had claimed. Whoops!
With Ms Sturgeon leaving as national leader as soon as her party's members can elect a successor, and her husband gone too, perhaps those responsible can be held accountable for this financial shambles.
Everyone makes mistakes, but the Scottish taxpayers can ill afford another one like the Ferries Fiasco. In late November 2022, just after our piece went to press, Ferguson admitted it could not trace where £128.25 million (US$156 million) in public money meant to be used to build the two ferries went, nor how the £30 million (US$37 million) rescue loan from the Scottish government had been spent. Scotland's Auditor General Stephen Boyle said he could not uncover what happened to the money because records relating to transactions were "not organised or categorised".
Words fail me.
Background Reading
Our favourite Emas Offshore video is here. If you only watch one Youtube video this week, this tale of a "gutsy young leader working to modernise the vessel chartering business" on CNBC Asia with Christine Tan is worth seeing. It's blurry and out of focus, but then so were the company's financials.
For the background to A. P. Moller Holdings and its investments, read this (slightly outdated) brochure.
You may also opt to visit the Stillstrom homepage.
More information on SOFR interest rates can be found here.
You can view all our previous coverage of The Metals Company in the Baird Maritime archive here.
