John Fredriksen, Idan Ofer, Emanuele Lauro, Robert Maersk Uggla, Tor Olav Troim and Fred Olsen — they are among the most influential names in shipping today.
Their reputations stretch perhaps further than their fleets. Together, they and their families control assets worth almost $50bn.
Yet they all have a far less glamorous claim to fame. They have all bet heavily on the offshore business. And lost. Some worse than others. Some several times over.
Today, as a number of offshore drilling players stagger towards another round of debt restructuring, it is timely to ask what the attraction of the business has been, and how have so many storied dealmakers failed so spectacularly.
And, what is the impact of such value destruction on the large commercial shipping fleets these players control?
Deja vu
For those in the industry, it really does sound — in the immortal words of Yogi Berra — like deja vu all over again.
The pandemic caused a slump in energy prices, which triggered the sector's second wave of bankruptcies and debt restructuring deals in four years.
Four of the seven largest offshore drillers have sought protection from creditors or begun restructuring talks that could lead to bankruptcy.
Seadrill is facing its second restructuring in as many years. Of its 35 drilling rigs, 21 were idle at the end of the second quarter.
Controlled by Norwegian billionaire Fredriksen and once a prize asset, it has written down the value of its rigs by $1.2bn as it struggles with $7.5bn of debt.
Fredriksen, who quit as chairman last year, said the earlier restructuring was the toughest of his half century in business.
Meanwhile, Idan Ofer’s Pacific Drilling, which restructured two years ago, has said it is considering Chapter 11.
Borr Drilling, founded in 2016 by former Fredriksen right-hand man Tor Olav Troim, has seen its share price fall 90%.
Even Maersk Drilling, part of Maersk Uggla’s Danish empire, has seen its share price drop from about DKK 550 ($87.97) last year to DKK 150 this summer.
And Hermitage Offshore — founded by Herbjorn Hansson and now controlled by Lauro and Bugbee’s Scorpio Group as an offshore vessel asset play vehicle — is set to be humiliated with its fleet auctioned off.
Its lenders, DNB and SEB, have extended the company $133m but the vessels are estimated to be worth only $85m to $100m.
And last summer, Dolphin Drilling was forced into a restructuring deal due to debts of more than $1bn. The outfit, formerly known as Fred Olsen Energy, was part of the Olsen family empire, which includes a majority stake in TradeWinds’ parent company.
Glory days
After the financial haemorrhage of the past few years, it is important to remember why offshore drilling has been seen as such a lucrative investment.
Rigs are big-ticket assets with high upside potential. They can throw off prodigious amounts of cash from charters to blue-chip oil companies.
The combination of quality long-term charters, high cash flow and investible names in control meant banks and investors were willing to offer plentiful finance at low margins.
The upside looked good, but the stakes were high if the market failed. And that has happened not once, but twice.
Many offshore companies have seen equity virtually wiped out as creditors have taken control. Further problems are likely.
Offshore experts believe that of the 800 existing rigs up to about 200 will need to be scrapped to bring the market to some semblance of balance.
Shipping impact
While the sector may be something of a foreign country to some in merchant shipping, the impact of the crisis on those leading names has had significant consequences.
Not only has it sapped management time, it has sucked liquidity from their networks. It has also tarnished the trust and credit worthiness of the business in the eyes of lenders.
Have you ever wondered why some of these big names have not ordered more new ships over the past few years in the face of strong trade growth, low newbuilding prices and near zero interest rates? Well here’s part of the answer.
Ultimately, the crimping of the ambitions of some of shipping’s biggest names may hold a silver lining.
At least unneeded ships have not been built, due to cash, management time and even enthusiasm being consumed by the double black hole of the offshore crises. With the newbuilding orderbook now at a 20-year low, the market is better structured than it has been for a long time. And that can’t be bad thing.
