COLUMN | The Twelve Days of Christmas 2024: Twelve newbuilds ...

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23 Dec 2024, 2:39 am

On the first day of Christmas my true love gave to me… a partridge in a pear tree, according to the ancient English carol, but at Baird Maritime, we ditch the Twelve drummers drumming, eleven pipers piping, and ten lords a-leaping, and, instead, we run a dozen festive features on the offshore industry in the run up to Christmas.

Last week, we looked at how shipping magnate John Fredriksen has built nine per cent ownership stakes in both driller Valaris and subsea powerhouse DOF, we saw Seacor exiting the anchor handling segment with the sale of two ships to Britoil, whilst doubling down on Platform Supply Vessels (PSVs) by ordering two new ships in China, and we highlighted the US$720,000 fine imposed on floating production player Altera Infrastructure in Norway for selling a pair of shuttle tankers that the buyer illegally scrapped in Gadani beach in India in 2018.

Now it’s our final column before Christmas, so what do we find to close our festive dozen? A fallen Danish angel?

John Kemp has reported how China’s coal production was 83 million tonnes higher in the first eleven months of this year compared to 2023, and India’s was 66 million tonnes higher. At the same time, new offshore wind capacity has been slower to come online, and more expensive than expected.

As a result, Ørsted has been hammered, cancelling the development of its American projects Ocean Wind 1 and Ocean Wind 2 in the Atlantic in 2023, which resulted in impairment losses of DKK28.4 billion (then US$4.08 billion). Since Christmas Eve in 2020, the company’s shares are down over 70 per cent, and if you had bought in December 2017 and had gone into hibernation until today, you would have woken up to discover the price was materially unchanged over those seven years.

Equinor produced 677 GWh from renewable assets in the third quarter of this year, up 82 per cent from the same quarter last year. The increase was driven by the addition of onshore power plants in 2024 along with contributions from the offshore wind parks at Dudgeon, Sheringham Shoal and Arkona… but the bulk of Equinor’s profits came from oil and gas, and from offshore Norway and Norwegian researchers have attacked the low returns from the company’s offshore wind projects.

In October, the Norwegian company struck on a better scheme to grow its exposure to renewables. Rather than investing in yet another wind farm of its own, Equinor bought 9.8 per cent of Ørsted (we’ll call it ten for the purposes of our festive lyrics), valued at around US$2.5 billion. Equinor is now the second largest shareholder, after the Danish government.

This is a great hedging strategy for Equinor. If oil and gas booms, then it prospers and what happens at Ørsted is irrelevant. The US$2.5 billion is barely three months of profit for the Norwegian state player. If oil and gas stumbles, then Ørsted is likely to be a major beneficiary, being the world’s largest offshore wind company at the forefront of renewables, and Equinor’s investment will likely rise.

Ørsted’s stock has fallen sharply since 2020 and Equinor’s entry price is low. Regardless of what you think about the long-term growth and profitability of offshore wind, this looks like a smart and a very cheap hedge. Tidings of comfort and joy to both parties.

Then on December 18, Shelf Drilling, which owns 35 jackups with an average age of 30 years old, announced that it was selling the Main Pass I for a total consideration of US$11 million. This sale came on the back of the sale of the rig Baltic by Shelf for US$60 million in July to T7 Global's Malaysian subsidiary Tanjung Offshore for a 53-well plug and abandonment program with Petronas Carigali.

Main Pass I rig will be permanently retired from drilling operations, with the major drilling equipment and inventory removed for use across the rest of the Shelf fleet. Shelf reported that the sale is expected to close by February 2025 and said that it has now given the finger served notice to Aramco to terminate the drilling contract for the rig that Aramco had suspended.

This is good news for Shelf and for the industry as a whole. Main Pass I was built in 1982. Baltic was built in 1983. Whilst there are only 12 rigs remaining in the newbuild orderbook (just three per cent of the total fleet), a record low for the last 20 years, only four of those newbuilds are likely to be delivered in the next 12 to 18 months.

But there is a long tail of rigs of over one hundred jackups dating back to the 1980s and 1990s. Selling older tonnage out of the industry when rates are high benefits everyone, as opposed to the forced sales and scrapping of the last downturn, when embattled (and now liquidated) Singaporean rig owner Ezion announced that it had sold three of its jackup drilling rigs that were laid up in Mexico for one US dollar apiece in 2019.

We commend Shelf both for selling the rigs and for reminding Aramco that even owners of older rigs have options. Happy Christmas!

The 12 new vessels will all be built in Brazil over the next four years and then chartered to the Brazilian state energy giant under long-term contracts with a total combined value of US$2.8 billion. Both owners have their own shipyards in Brazil. All twelve ships will have diesel-electric, battery hybrid power systems, DP2 and around 5,000 DWT.

When we first covered the Petrobras PSVs in May, we observed that the implausibly named Compagnie Maritime Monegasque (CMM) had secured US$94 million in financing from the private equity firm Summit Ridge Capital Partners, which it said would help the company construct an ethanol-powered fleet of PSVs to be built in Brazil, exactly in line with Petrobras specifications.

We had expected CMM to win the Petrobras PSV contracts. It didn’t, but it has been shortlisted for the award of six of the newbuild oil spill response vessels that Petronas is expected to award with twelve-year contracts in January or February.

Last week, CMM announced it would be proceeding with a project for six ethanol-fuel compliant, battery hybrid PSVs built with oil spill recovery capacity and designed by Kongsberg Maritime to the UT7420 design. Kongsberg announced that it would be supplying the equipment package for the vessels, but was thin on the details of exactly what equipment it would be selling CMM.

Unlike Bram and Starnav, however, CMM does not have its own yard, which raises the question of where these complicated and high tech 92-metre-long vessels will be built. After a decade of downturn, the Brazilian shipbuilding industry faces the challenge of ramping up to higher levels of demand. The last upcycle saw a cost spiral as the national currency surged against the US dollar and high demand created cost inflation in yards as they faced a shortage of skilled workers. Even a standard UT755 ended up costing in excess of US$60 million.

This time around, the boom begins with the Brazilian currency standing at almost record lows against the US dollar. Many foreign vessels have left the market leaving heavily indebted Bram, CBO, Starnav and Oceanpact as the dominant players alongside a shrunken Solstad, DOF and Maersk Supply Service. Bourbon and Tidewater have effectively left the market.

A year ago, one US dollar bought 4.8 Brazilian reis, now it buys over six reis. The Brazilian currency is down almost a fifth against the dollar and is the third worst-performing major currency on a total return basis this year, the Financial Times noted.

This should mitigate cost concerns now, but vessels built in Brazil typically only trade in Brazil. Neither Starnav nor CMM have operations outside Brazil, and the newbuilds will typically take three years or so to be completed and will then work for Petrobras long term. International owners worried about overcapacity in PSVs and fretting investment analysts do not have to worry about these ships – the newbuilds will all be contracted to Petrobras and are unlikely to displace foreign tonnage.

So, these contracts are win/win for the industry as a whole. Petrobras gets newbuilds to modernise its fleet with ethanol as a potential fuel and battery hybrid vessels for fuel efficiency and reduced emissions, Brazil’s shipbuilding industry is kickstarted back into life after years of neglect, and European equipment manufacturers are able to sell state of the art packages for the ships, encouraging further innovation and economies of scale.  

Nobody said building ships in Brazil will be easy, but with Petrobras back in the market, and oil priced solidly in the US$70s per barrel, this Christmas I can offer the words of the carol "God Rest Ye Merry, Gentlemen": "O tidings of comfort and joy. Comfort and joy!”

Happy Christmas, stay safe, and enjoy a peaceful and relaxing holiday.

Background reading

Read here for parts one, two, and three of this year's Twelve Days of Christmas series.

Our 2020 Twelve Days of Christmas (here and here) featured some of the bleak midwinter of the industry downturn, covering Cairn Energy (as was), Esvagt, Vantage Drilling, Shearwater, Swire Pacific Offshore and Seacor, followed by the oil price, floating wind, ammonia fuel cells, Myanmar, Bourbon and Standard Drilling (the predecessor to SD Standard ETC).

Our 2021 Twelve Days of Christmas (here, here, and here) featured Cairn Energy becoming Capricorn Energy, Vantage Drilling, North Star and Vard, Shearwater and Shell, Windcat Workboats, Swire Pacific Offshore, ammonia fuel cells, the oil price, Myanmar, Floating Wind, Bourbon's revival and Standard Drilling.

By Christmas 2022, the industry was firing on all cylinders and our Twelve Days of Christmas (here, here, here, and here) featured twelve floaters a-drilling, as Seadrill bought Aquadrill, eleven per cent of DOF's shareholders a-revolting, ten wind turbine installation vessels a-building, nine million tonnes of LNG a year maybe a-sailing from Indonesia, eight billion cubic feet of gas a day possibly-a-flowing there, and seven Indonesian presidents completely a-sleeping (on the job), six gratuitously unnecessary lift-boat accidents, five stranded deepwater rigs, four subsea vessel deals, three LNG projects moving forward in Asia and East Africa, two hydrogen-powered windfarm support vessels for the Saverys family, and one arrest warrant in a pear tree for "unlucky" Angolan heiress Isabel dos Santos.

For the Twelve Days of Christmas 2023, we covered the Scottish ferry fiasco (again), two Windcat Offshore newbuilding orders, and three Azerbaijani journalists detained (here). Our second week looked at six money laundering countries, five shipping magnates pontificating on future fuels, and four drilling assets for sale (by Seadrill). Then, we had seven PSVs bought by Evangelos Marinakis, eight billion tons of coal a-burning, and nine Vroon vessels sold to CBED, Golden Energy, Rederij Groen and Horizon Offshore here.

We closed with Hercules Supply’s twelve labours, eleven Hornbeck ships working internationally and ten anchor handlers available prompt in Aberdeen, plus a bonus thirteenth day of Christmas for Valaris’ purchase of the drillships Valaris DS-13 and Valaris DS-14 from Hanwha Ocean (formerly Daewoo Shipbuilding and Marine Engineering) in Korea for the princely sum of US$337 million.