Tidewater leading the charge in OSV expansion

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

A year earlier, HOS, which had gone through 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 footers.

Also, during the first week of March, the listed company Tidewater (NYSE: TDW) announced that it would be acquiring 37 internationally flagged Platform Supply Vessels (PSVs) from Solstad Offshore, the Norwegian entity that restructured, in 2020, following an ambitious expansion in the face of a declining market. Tidewater had also undergone a re-organisation, three years earlier in 2017.

According to Tidewater’s President and CEO, Quintin Kneen, “These vessels make up the highest specification PSV fleet of its size anywhere in the world. All 37 vessels are currently active and are working throughout the world, principally in the North Sea, but also in Brazil, Australia and West Africa.” A year ago, Tidewater had pulled off a large superbly timed acquisition of Swire Pacific Offshore Holdings Limited, with 50 vessels, for around $215m total.

Related:Investors eye offshore marine - Tidewater share offering

The much larger $577m Solstad vessel acquisition, expected to close in Q2 2023, will be financed from a combination of cash on hand, unspecified new debt, and a new $325m three year secured debt package amortising down to around $75m- led by DNB ASA. TDW’s CEO described the financial arrangement as: “A judicious use of leverage at the appropriate time in the OSV business cycle.”

Importantly, with the attention on green bona fides throughout the ship finance world, the to-be-acquired vessels include nine described as battery hybrid, which would bring Tidewater’s total to 14, and two described as LNG power capable (dual-fuelled).

In its presentation to investors, Tidewater estimated the potential earnings margins on the vessels as their present employment contracts roll over. At day rates of $20,000 per day, the newly acquired vessels could generate $130m of cashflow; 19 of the 37 will be rolling off their firm contractual periods by end 2024, with three of the firm contracts extending out to 2030.  

Related:Tidewater buys Swire Pacific Offshore for $190m

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

On a conference call regarding the acquisition, Tidewater’s Kneen, when asked for an opinion on why the assets, with daily margins higher than those of the existing Tidewater fleet- pegged around 50%, could be obtained at a good price, going into a strong season in the North Sea, answered, alluding to the sellers’ possible thinking: “[Some] companies are still finding their ways through restructurings and in order to do that- they need to find liquidity. This may have fallen into that category.”

TDW stock has done very well in the past year, more than doubling from its early March 2022 levels. Prior to the recent downturn in US equity markets, brought on by concerns about rising interest rates and the health of the banks, its share price had reached just under $50 per share at end February.