Since he took over the reins as president and CEO in September, Quintin Kneen has been aggressively reshaping the Houston-based OSV owner’s fleet, management structure and IT infrastructure in preparation for the long-anticipated market recovery
Tidewater CEO Quintin Kneen intends to create a nimble and better equipped organisation to respond to market opportunities and challenges.
Having served as president, CEO and director at GulfMark Offshore prior to its merger with Tidewater in 2018, and more recently as Tidewater’s executive vice president and chief financial officer, Mr Kneen is a familiar figure to readers of Offshore Support Journal.
Just weeks after settling into his new role Mr Kneen announced a management shakeup that resulted in the departures of executive vice president and chief operating officer Jeffrey A Gorski and executive vice president, general counsel and corporate secretary Bruce D Lundstrom. Tidewater also eliminated the position of COO and appointed Daniel A Hudson to succeed Mr Lundstrom as general counsel. Mr Gorski and Mr Lundstrom both agreed to provide “transition services” on an as-needed consulting basis.
Both long-time executives of Tidewater, Mr Gorski and Mr Lundstrom were part of the management team involved in Tidewater’s Chapter 11 reorganisation and its subsequent merger with GulfMark Offshore.
Mr Kneen said the organisational changes were “part of a renewed focus on improving decision-making efficiency.”
In November, OSV industry veteran Larry T Rigdon was named Tidewater’s chairman of the board, replacing Dr Thomas R Bates Jr, who resigned from the board. Upon being named chairman, Mr Rigdon, said he was “thrilled to be taking over the leadership of the Tidewater board at this important time in the company’s history.” Added Mr Rigdon: “[Mr Kneen] is already doing a fantastic job in leading Tidewater with improved capital discipline and accountability, more efficient operations and expanding strategic opportunities.”
In a move to be more “cost-efficient” and “responsive,” Tidewater is also paring down its board from 10 members to seven at its next annual stockholders meeting. The board had expanded to 10 members when it merged with Gulfmark Offshore in November 2018.
Speaking at the International Workboat Show in December, Mr Kneen said a turnaround in the OSV industry was strongly dependent on consolidation.
For its part, Tidewater has been busy scrapping its older tonnage, acquiring newer vessels at reasonable prices and making key investments in the fleet to attract charterers, such as the battery-hybrid upgrade to the platform supply vessel Bailey Tide. Mr Kneen emphasised that any consolidation undertaken by Tidewater would have to make financial sense. It would not make sense for the company to merge with a company with a high debt level, he said.
Tidewater has emerged as one of four suitors for Bourbon during the French OSV owner’s reorganisation court proceedings. A merger of two of the world’s largest OSV owners would make for a formidable combination.
“Tidewater is determined to lead the offshore industry through the remainder of the recovery,” said Mr Kneen in discussing Tidewater’s Q3 results ending 30 September. “We have the industry’s leading balance sheet, which we are taking steps to enhance even further. We have led the industry thus far in consolidation and we are preparing our infrastructure [and] capital structure to consolidate the industry even further. We will use the improving industry fundamentals to get day rates back to where they need to be to properly compensate our capital providers and we will continue to lead the industry in recycling and capital discipline.”
Also central to the company’s transformation will be cutting “bureaucracy” to speed the decision-making process and empowering those “closest to the vessel to make decisions and take ownership”.
To support that process, Tidewater has been redesigning and implementing a new shore-based information management system. “I’m a strong believer in leveraging technology to create standardisation and scalability and to reduce what we refer to internally as ‘administrivia and clutter,’ says Mr Kneen. This dedication to creating efficiency with technology extends across both financial information and ship-based management systems.
Mr Kneen believes the changes to Tidewater’s structure and business model are necessary to compete in an offshore oil and gas industry and OSV market that has been transformed during the prolonged downcycle.
“These transformational changes are in response to changes in the industry,” he says. “Tidewater had been successful in the past, focusing on utilisation and a price-taking philosophy that generated sufficient cash flows to keep the business running,” he says.
“Over the past five years, the industry has shrunk. Tidewater’s business has shrunk. And the profit margins generated by a basic price-taking philosophy have shrunk considerably. To respond to industry conditions today, we needed to change the business and the financial incentive to empower those closest to the vessel or push day rates back to where they need to be to support our capital investment and to incentivise those leaders to grow a cash flow-positive business.”
Mr Kneen says the process of significant cultural transformation does not happen with small incremental changes and will not happen overnight. “You have to break it before you can fix it. You have to take big bold steps to redefine the culture and that’s what we have done,” he declares.
He points out that a priority for Tidewater will be maximising the return on its portfolio of vessels. Mr Kneen says that like many charterers, Tidewater will focus “on the regions and activities that we believe will provide the best opportunities and returns on capital.”
Tidewater is also taking a disciplined approach regarding the drydocking of vessels and reactivating vessels in layup.
“One of the challenges facing owners in our industry, Tidewater included, is the number of drydockings required to be completed in 2019 and 2020,” says Mr Kneen. Every five years, vessels are statutorily required to undergo a major drydock costing an average of about US$1.2M. Based on Tidewater’s active fleet of 158 vessels, the company would have to drydock an average of 32 vessels per year, equating to about US$38M per year in reinvestment costs. This year, Tidewater estimated it would spend over US$60M on scheduled drydockings.
Mr Kneen says that managing the company’s 60 OSVs currently in layup costs approximately US$400 per day per vessel, or US$8.8M per year. He says it is Tidewater’s intention to sell those vessels that will not be returning to service to buyers outside of the industry, or to recycling yards.
The cost to reactivate the vessels currently in layup is prohibitive – an estimated US$90M. Notes Mr Kneen: “It’s not just US$400 per day, but the continued escalating cost of reactivation as the vessels continue to age and deteriorate. And every year, the remaining economic life decreases.”
He concludes: “Our path to acceptable free cash flow generation isn’t predicated on a recovery in the drilling market. It’s based on designing our shore-based infrastructure to be efficient and fully scalable. It’s based on focusing our vessels in the fewest regions possible while driving the highest margin on those vessels. It’s about tightly managing the required investment in those vessels. It’s about rationalising the fleet and layup. And last but certainly not least, it’s about keeping the net debt low, and keeping working capital investment at a minimum.”