Rising OSV market and aggressive expansion of Tidewater

Increased activity is bubbling through the Offshore Support Vessel (OSV) sector, and US companies are in the thick of the action with Tidewater leading the charge.

In the minds of many participants, the industry cycle has now turned upwards against the background of a favorable supply-demand balance. Hornbeck Offshore Services (HOS) announced in early March that it was acquiring six high specification Jones Act compliant OSVs from a subsidiary of Edison Chouest Offshore. The ships to be delivered over the next 12 to 15 months are described as DP-2 280 class, each about 4,750 dwt.

A year earlier, HOS, which had undergone a financial restructuring with a private equity infusion in 2020, had acquired eight similar vessels from the same seller along with two slightly smaller 240-foot boats.

Also, in the first week of March, publicly traded company Tidewater (NYSE: TDW) announced that it will acquire 37 international-flagged platform support vessels (PSVs) from Solstad Offshore, the Norwegian company which was restructured in 2020 after an ambitious expansion in the face of a downturn market. Tidewater had also undergone a reorganization three years earlier in 2017.

According to Quintin Kneen, President and CEO of Tidewater, “These vessels form the highest specification PSV fleet of their size in the world. All 37 vessels are currently active and working around the world, mainly in the North Sea but also in Brazil, Australia and West Africa.” A year ago, Tidewater had a large, well-timed acquisition of Swire Pacific Offshore Holdings Limited, totaling 50 vessels around 215 million US dollars.

The much larger $577 million Solstad ship acquisition, expected to close in the second quarter of 2023, will consist of a combination of cash, unspecified new debt and a new three-year $325 million secured debt package. Dollars, which will pay off to around $75 million – led by DNB ASA. TDW’s CEO described the financial arrangement as: “A judicious use of leverage at the right time in the OSV economic cycle.”

Importantly, given the attention being paid to eco-friendly bona fides throughout the ship finance world, the vessels to be acquired include nine described as battery hybrids, which would bring Tidewater’s total to 14, and two described as LNG (dual-fuel ) to be discribed.

In his presentation to investors, Tidewater estimated the potential profit margins on the vessels if their current employment contracts are renewed. At daily rates of $20,000 per day, the newly acquired ships could generate $130 million in cash flow; 19 of the 37 will have their fixed contract terms expire by the end of 2024, with three of the fixed contracts running until 2030.

With a rising market, TDW suggested that large PSVs could be worth $24,000 per day on a year-long charter, based on estimates by Clarksons, who recently noted the strengthening of the overall OSV market. The company said the acquisition would “significantly improve TDW’s presence in the North Sea.”

When Tidewater’s Kneen was asked on a conference call regarding the acquisition for an opinion on why the assets could be acquired at a good price with daily margins higher than the existing Tidewater fleet, which is tied to about 50%, left entering a strong phase of the season in the North Sea, alluding to possible seller considerations, replied: “(Some) companies are still finding their way through restructuring and for that they need to find liquidity. That could have fallen into that category.”

TDW stock has performed very well over the past year, more than doubling its level at the beginning of March 2022. Before the recent downturn in US stock markets, prompted by concerns about rising interest rates and the health of banks, the share price had touched just under $50 per share in late February.

Source: News Network