Offshore companies batten down the hatches as oil price hits 11-year low

After spiking upwards on Monday due to concerns over Middle East tensions Brent crude declined to $34.23 per barrel on Wednesday, levels not seen since 2004.

There are very few signs that OPEC will cut production to reduce the glut in supply. Observers see the tensions between Saudi Arabia, which has led the move not cut production, and Iran making any agreement to lower production all the less likely. Meanwhile US shale oil and gas producers have proved to be much more resilient to low prices than many had expected.

All of this equates to unwelcome news for offshore marine companies that are already struggling with huge imbalance between demand and supply of vessels and rigs, and extremely depressed rates for units that are able to find employment.

With the much-reported prediction that the oil price could fall to $20 per barrel offshore companies are facing very real cashflow concerns, and questions over their abilities to meet financial obligations.

This week has seen offshore marine companies on three continents look to either majorly restructure their financing or alter terms on their bonds.

Both Havila Shipping in Norway and Polarcus in Dubai have announced major financial restructuring drastically reducing their commitments in the coming few years, while Singapore-listed Nam Cheong is seeking to amend the covenants with its bondholders to waive any non-compliance.

The comprehensive restructuring plans set out by Havila covered the period 2016 – 18 and the company made it clear it was not expecting any quick turnaround in market conditions.

“The company foresees severe financial challenges for the period 2016-2018, and has several debt maturities coming up over the next months, of which it has no readily available means of refinancing,” it said.

“Further, cashflow from operations is not sufficient to serve the current amortisation schedules, and the company does not expect that the market will improve materially in the short to medium term.”

The moves we have seen this week by offshore marine companies to restructure their financing arrangements are likely to only be the first of many that will take place this year.

The alternative is unfortunately bankruptcy as happened to Dolphin Group in December last year when it proved unable to restructure its finances and Ceona in the UK in September.