The Norwegian Competition Authority has rejected the merger of two of the largest offshore accommodation vessel companies
In rejecting the proposed business combination of Stavanger-based Prosafe SE and Floatel International to create the world’s largest offshore accommodation vessel owner, the Norwegian Competition Authority (NCA) said the move would “significantly prevent effective competition in the market for offshore accommodation services on the Norwegian continental shelf (NCS).”
Typical charterers of accommodation vessel services are oil and gas operators, with Equinor accounting for 70% of the production activity in the NCS. ConocoPhillips, Aker BP, Shell and Wintershall, Neptune Energy, Var Energi, and Lundin Norway are among others with production activity interests in the NCS.
Both Floatel International and Prosafe SE are working to get clearance for the merger from regulatory bodies in Norway and the UK and have agreed to extend their transaction agreement from 31 December 2019 to 30 June 2020.
Beyond regulatory approval, the merger is also subject to approval of Floatel International’s bondholders and through an extraordinary general meeting of Prosafe SE.
Prosafe has filed an appeal to the NCA’s decision and will continue its efforts to get clearance in Norway.
In the UK, the merger is being reviewed by the UK’s Competition and Markets Authority.
A marriage of Prosafe and Floatel International would unite two of the leaders in accommodation vessels in the offshore energy business.
Prosafe and its subsidiaries own and operate a fleet of eight semi-submersible platform vessels and one tender support vessel (TSV). Four of Prosafe’s semi-submersible offshore accommodation vessels, Safe Scandinavia, Regalia, Safe Boreas and Safe Zephyrus, have a compliance statement to participate in petroleum activities on the NCS. Prosafe also has an option to purchase two new semi-submersible accommodation vessels, Safe Nova and Safe Vega, from China’s COSCO shipyard. Prosafe also operates the accommodation ship Safe Swift.
Two of Prosafe’s largest shareholders are private equity firm HitecVision, which invests in the oil and gas industry and owns a 29.9% interest, and M&G Investments, which has a 14% stake.
Bermuda-headquartered Floatel International owns and operates five semi-submersible accommodation vessels, with Floatel Superior and Floatel Endurance both holding compliance statements to operate in the NCS.
Major shareholders in Floatel International are Keppel Corporation, with a 49.9% interest and Oaktree Capital Management, with a 42.6% interest. All five accommodation vessels in Floatel’s fleet have been built by Keppel.
Strength through consolidation
Investors see the merger as an opportunity to create a stronger accommodation vessel player with a more robust financial footing, larger backlog and the ability to better survive the cyclical nature of the offshore energy business.
The transaction is an all-share merger and would be implemented through issuance of new shares in Prosafe as consideration for all ordinary shares in Floatel. After completion, Prosafe and Floatel shareholders would, on a fully diluted basis (including Prosafe convertible bonds and Prosafe warrants), own 55% and 45% of the combined company’s equity, respectively.
Prosafe chairman Glen Ole Rødland would be the chairman of the merged companies.
It should not come as a surprise that the accommodation vessel market, just as the broader offshore vessel sector, has been through some challenging times over the last five years. Utilisation for the worldwide semi‐submersible accommodation fleet was 55% in Q3 2019 as compared with 65% in the same period in 2018, according to Floatel International.
Prosafe reported fleet utilisation of 48.2% for Q3 2019 ending 30 September and 47.3% for financial year (fy) 2018 and 38.4% in fy2017.
Floatel’s Q3 2019 results were tough, with fleet utilisation of 47% including yard-stays and transit, with revenues of US$24.5M, as compared with fleet utilisation of 73% and revenues of US$93.4M in the same period in 2018. For the nine months ending 30 September 2019, Floatel International posted revenues of US$136.8M, with a loss of US$31.0M, or US$0.31 per share. During the same period in 2018, Floatel International had revenues of US$204.2M, with a profit of US$10.7M and earnings per share of US$0.08.
Prosafe had revenues of US$57M in Q3 2019, posting a loss of US$4.10 per share. For Q3 2018, Prosafe had revenues of US$74M, with a loss of US$1.37 per share.
In detailing its Q3 2019 results, Prosafe said the overall offshore market is slowly improving from the downturn, driven by oil price developments combined with continued pressure to reduce cost levels for oil and gas operators. It believes higher drilling activity and the general improvement within offshore oil services will pave the way for future accommodation charters. “Within the offshore accommodation market, we face prolonged downturn and foresee weaker outlook than estimated before and especially in the North Sea,” it said in a statement. Prosafe has seen some bidding activity, especially in the maintenance and modification market, resulting in some recent awards, albeit at low rates relative to historical levels.
The company also notes that there is potentially an increase in supply coming into the market and the potential for further scrapping of older vessels.
Prosafe expects to see improved utilisation in 2021, based on an increase in tendering activity and improved market demand, but it notes “current activity and prices do not support improved earnings before 2021.”
Like the OSV market, the accommodation vessel sector needs increased scrapping to return to balance. Safe Astoria, built in 1983 and converted to a semi-submersible accommodation vessel in 2004 and 2005, was sold by Prosafe for recycling in 2018, its sixth vessel sold for scrap.
New charter for Floatel Victory
Harsh environment accommodation vessels have been able to secure work, but not enough. UK-based oil and gas company Ineos has awarded a contract to Floatel International for the deployment of the semi-submersible accommodation vessel Floatel Victory at the Unity platform in the North Sea. The contract is for a period of four months starting 1 May 2020, with options to extend the charter.
Floatel Victory is a harsh environment semi-submersible accommodation vessel that is dynamic positioning (DP) class 3 capable and has capacity for 560 in single and double cabins. It also offers large recreational areas, including mess and day rooms, a gymnasium, internet café and cinema. Based on a Keppel FELS SSAU 4000NG design, Floatel Victory has a 38-m telescopic gangway for client personnel to transfer between the vessel and the offshore installation. Two deck cranes, one with a 120-tonne capacity on the portside and another with a 64-tonne capacity on the starboard side, facilitate construction support activities.
For station keeping, the accommodation vessel has a Kongsberg K-Pos DPM-32 DP 3 system, with six 3,200-kW azimuth thrusters. Mooring can also be accomplished through a 10-point chain mooring system.
Successful merger creates new player
While the Floatel International-Prosafe marriage has not received the blessing of regulatory authorities, the merger between Master Marine and Crossway Holdings has and was completed in December. The newly merged entity is Stavanger-based Macro Offshore.
With chief executive Bjorn Henriksen at the helm, Macro Offshore owns two harsh-environment deep-water accommodation jack-up rigs, Haven and Crossway Eagle, which are currently on contracts with Equinor and Total Denmark, respectively.
Built in 2011, Haven, an MSC Gusto CJ50 design self-elevating jack-up accommodation rig, with capacity of 444, is contracted to Equinor at Johan Sverdrup until mid-April 2020, while Crossway Eagle is on contract with Total Denmark through early 2021.
Macro Offshore also controls a third accommodation jack-up rig, Crossway Dolphin, which is sitting at DSIC Offshore in Dalian, China and is available for work in 2020. Crossway Dolphin is a sister vessel to Crossway Eagle. Both are MSC Gusto AJ46-360 design, self-elevating accommodation jack-up rigs with accommodation for 354.