January 13th, 2014 Editor: Ian McIntosh Volume 14 Issue 01 ISSN 1475-4169

SBM dream deal falls flat on face

Everyone loves a good ght. Though watching is obviously be er than being one of the protagonists. SBM has had a few ba les to deal with in recent years. Not least with operator Talisman in Norway a er the Yme development project went as wrong as any project can go. That meant SBM needed to raise money and part of that saw the contractor sell the old DSV Dynamic Installer, and then also decide to let the brand new, custom designed newbuild DSV SBM Installer go too. Daya of Malaysia appeared to have a deal in place to buy the vessel for a jaw-dropping high price of $180 million. That always looked a bit suspect. Always looked a bit too good to be true for SBM. Now the deal appears well and truly turned sour. SBM conrms that eorts to sell the vessel have been reopened. However, sources close to the scene suggest that chartering the vessel out might be possible, and if all else fails, for SBMs account the vessel could s ll be operated. That might be dicult as even before delivery, the vessel was being prepared for sale, so spares are limited and spending on the ship was being ghtly controlled and curtailed. The vessel remains o Singapore, outside territorial waters, with a reduced crew on board. However SBM s ll shortly hopes to secure a new purchaser. Even if that does come to pass, then any new sale is hardly likely to be anything approaching the price tag Daya appeared to be considering. Boskalis and Harkand had been contenders to buy the vessel at various stages, but theres no sign of either of those two companies returning to the nego a ng table. Theyve also moved on since those earlier points, and SBMs nego a ng stance on a sale is obviously somewhat weakened. On the situa on with Daya, SBM maintains a memorandum of agreement was in place subject to Daya securing nancing. SBM claims the deadline was extended several mes for Daya to come up with that nancing. Even in the days before SBM called o the sale, Daya had s ll been trying to nalise a nancing source with Maas Capital of the Netherlands, yet SBM thinks that the Daya parent company has no inten on to permit honouring of the memorandum of agreement. SBM will now seek legal recourse. While SBM makes that sound vague, FrontRunner understands that if the sale was not completed by an in January deadline then in principle Daya could be liable to pay 10% of the sale price as a penalty. Daya on the other hand notes that no deposit was required. But the Malaysian company does say an irrevocable on-demand bank guarantee of 10% of the sale price was to be issued from Fortress Bank in favour of SBM with January 15th the earliest call date, while SBM could cancel the sale and claim compensa on if no evidence of Dayas nancing of the purchase was forthcoming. Yet on face value SBM appears to have cancelled the sale before the deadline was even reached, most likely because the expected bank guarantee was never received. That might make it hard to recover anything from Daya. Dayas parent gets even more blunt on the ma er. Daya has no inten on to purchase the vessel and has not a empted to meet any terms of the sale agreement. Somewhat more damningly and making the whole thing look like a can of worms, Daya says the SBM agreement was signed without knowledge or prior approval of the parent companys board or shareholders. Daya has issued no ca on to SBM to terminate the sale and further adds that SBMs original statement on the agreement was inaccurate, although declining to go into more detail on that. Daya has also received legal advice that only SBM can terminate the sale and that the liability on the parent company would not be material. The Daya subsidiary that had signed the sale agreement has paid up capital of only $10 and a shareholders fund that shows a decit of $15.5 million. So SBM making
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Inside this issue: Ceona has one ship Brazil bound Technip braced for tough first quarter Harkand orders.

Old hands tempted back SBM sees red

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Ceona triple threat

Where the subsea market is s ll seeing the most newbuilding is the subsea construc on support segment. And somehow both the new and exis ng vessels keep on ge ng chartered away. The latest, and slightly surprising move has seen Solstads Normand Pacic xed to Ceona. Surprising in that Ceona has two other newbuilds coming. However, one of those is ge ng tucked away in Brazil and the contractor obviously wants another vessel to trade elsewhere in the mean me. For some me, heres been rumours of Ceona having a vessel heading to Brazil. Thats now conrmed with the Polar Onyx xed to Brazil for one year rm. Odebrecht and Ceona have a 12 month plus op ons Petrobras award for exible owline and umbilical lay in up to 2,200 msw. May should see that work commence in Brazil. Odebrecht will hold the main Brazilian service contract while Ceona will con nue to manage the vessel and conduct the subsea services on board. Given Petrobras wild desire for addional owline vessels that should be at a decent day-rate. Thats the maiden contract for Ceona in the subsea market in the companys own right. Earlier awards have been for accommoda on support and simply hiring a ship to Cecon for that company to do African pipelay from. The other bigger newbuild the Ceona Amazon comes out in 2015 and appears uncommi ed at this stage. Back on the Normand Pacic, April sees the Ceona charter commence. One-year plus a one-year op on is the charter period. While the rate involved hasnt been ocially conrmed, Solstad says the price being paid is, rather obviously, in line with present market condi ons for this type of vessel. Ceona will mobilise a 75 tonne Ver cal Lay Tower, reel drive systems and two work ROVs on board. That equipment
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a claim against the subsidiary might not source any compensa on. SBM really doesnt need any other nancial headaches right now. The second half 2013 accounts are li ered with new one-o charges. Enough to total up to $160 million of red ink. Where do those charges come from? $40 million is for higher than expected decommissioning expenses for the FPSOs Kuito and Brazil. Another $55 million non-cash charge is being taken to further write-down the book-values of the laid-up FPSO Falcon and the tanker Alba. Another $65 million write down is being taken on the value of the Thunderhawk oa ng produc on system in the Gulf of Mexico, while $5 million more is being taken on the nal commissioning of the EnCana Deep Panuke pla orm. Deep Panuke is now nally, a er numerous issues, on hire and genera ng a full day rate. On the other hand, SBM did record a prot of $30 million on the one-o sale of real estate in Monaco. Without that the charges would have been the best part of $200 million. SBM used to be something of a corporate dreadnought. The company specialised in oa ng produc on systems and specialist buoys with a huge amount of long term contracts to con nuously service, par cularly in West Africa. As the company has diversied, painful issues have emerged all over the place. A lot needs to be done to restore the companys ba ered reputaon, despite SBMs important, and pioneering, posi oning in oa ng produc on. And last year there were some strange corporate goings on too at SBM. COO Jean-Philippe Laures was
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immediately dismissed. No further details on that were ever revealed other than SBM saying Laures ge ng his marching orders was not related to opera onal performance of projects in hand. That comment hardly put an end to specula on. The COO func ons were transferred to CEO Bruno Chabas on a temporary basis. Since then, SBM has created a new post of Group Execu ve Managing Director which is being ll by Bernard van Leggelo, who was previously heading up the SBM Houston oce. Van Leggelo has returned to Monaco and reports to the aforemen oned Chabas. All SBM MDs report directly to Chabas with a repor ng line to van Leggelo too. Even with DSVs in ght supply, nding a buyer for the SBM Installer is hardly going to be easy. Especially if SBM is perceived as needing money in a hurry. And, the vessel has bespoke ou i ng from SBM that would need modica on for more general use.
SBM must have diving to cover

What also isnt clear is what happens to SBMs diving requirements in West Africa. The Dynamic Installer could easily spend most of each year on such work, and that work clearly isnt just going to disappear. SBM s ll controls the bigger Normand Installer via a seasonal charter from Solstad. That vessel doesnt have a dive system and spent most of last year working for BP west of Shetland for Technip. The Solstad boat is back in West Africa and currently in Pointe Noire. Given how popular oa ng producon has become as a eld development method, SBM should be in one of the industrys sweet-spots. Yet issues from earlier a empts at diversica on s ll have to be dealt with when the FPSO basics are strong.

Technip expects sticky Q1

Managing expecta ons is never that easy. Especially for publicly quoted companies. Over promise and share prices are hammered because stock watchers are disappointed. Under es mate and the nancial men in sharp suits think a company doesnt fully understand their own businesses. Any surprise is analysed to the nth degree. Yet, subsea construc on contractors working on mul -year contracts also have the poten al to provide signicant quarterly varia ons in their nancial results. Thats just the way the cookie can crumble without sugges ng anything sinister underneath. Subsea 7 has already been highligh ng what project deferrals and cancella ons could mean for the market. Technip has been open about the nancial impact of nally ge ng the Deep Energy working. Now Technip is for the rst quarter of 2014 dampening down expecta ons of what the Subsea division is going to deliver. For the full year 2014, Technip expects the Subsea division to have revenues in a range between 4.35 billion and 4.75 billion. Some 3.5 billion of that number is already covered by secured contracts, Technip says. Those headline numbers sound more than decent, but Technip notes that margin in the rst quarter is expected to be excep onally low at 5%. Thats put down to numerous projects being in their very early stages where no prot can be recognised. As much as one third of the revenues are seen as coming from such early stage projects. Technip does not recognise prots un l projects are past 20% comple on. At the same me theres increased vessel yard me at a cost of around 25 million. Then theres also comple on of zero margin work in the Gulf of Mexico mainly thanks to the late start up of the Deep Energy newbuild and theres also signicant costs to be absorbed with the start-up of the new Acu exibles plant in Brazil. The eet maintenance is seeing, Technip claims, a good deal of work accelerated to the rst quarter to minimise down me in the rest of 2014 and 2015 too. Technip says the yard me will be twice 2013s level. Only one vessel will actually be out of the water in dry-dock. That will be the Deep Pioneer which has just arrived in Santander. In the Gulf of Mexico where both the Deep Energy and Deep Blue are busy Technip expects a few months from 2014 to s ll feature projects with no margin. For the Acu plant in Brazil, Technip has some work in hand and in the second half of the year the facility is expected to at least break even. Technip recently won a new Petrobras award for 100km of exible owlines and risers for the Sapinhoa Norte and Lula I5 project. This quarter work gets underway on that job and the majority of the fabrica on work will take place at Acu. For the whole year, the Subsea division is s ll expected to have margins in the order of 12%. Technip expects a second quarter big rebound in Subsea margins. In context, the overall year 2014 expected margin from Technips onshore divisions is expected to be in the 6% to 7% range. Less than half that of the Subsea opera ons. Technip adds the Deep Energy has now completed rst rigid pipelay work in the Gulf of Mexico. The Acu plant s ll has 10 million more to be spent on further commissioning work.

Technip looking for 2015 big leap

Further ahead Technip expects results to leap up. For 2015 revenues are expected well above 5 billion with margins between 15% and 17%. Addi onally, Technip does not share some parts of the markets pessimism on projects and increased costs. Technip s ll intends to slim down the older vessels in the eet. Though what exactly that will mean in prac ce remains to be seen. Technip wants to conduct some eet replacement but hasnt ordered anything and no sign of disposal or scrapping moves have been seen either. Despite the stock market o en only focusing on short-term news, the Technip announcement seems to have gone down well. Stock analysts seem very buoyed up by the 2015 projec ons. Technip being unconcerned by project delays seems to have been instantly accepted as well. Thats not a straigh orward issue. Obviously projects are being delayed and high costs are clearly a major contributor to that. Technip might well not really be feeling that eect. That would come from the strong workload the company already has in hand. So Technip could be feeling that a li le less keenly, but surely every contractor will start to feel that eventually when replacing backlog is necessary and required. The toe-to-toe stando between higher costs and what operators are prepared to spend has already begun. Technip might be hoping that recent years serious eorts to increase local content coverage and to nd ways into big projects earlier and earlier, will give the company the ability to ride out that market trend be er than the others.

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Harkand better late than never

Its taken a while, but Harkand has nally got into posi on to order another brand new DSV. For the best part of a year the order has been mooted, but only now has ink hit paper with a shipyard. The Oaktree venture capital backed contractor earlier appeared to be looking to place the order in the Far East. Thats changed now. The newbuild order has been placed in Norway with Vard securing the NKr 1 billion order ($165 million). For Vard the order is design and build as the ship will be the yards own 303 spec. On board will be a 250 tonne crane, ROV hanger and a twin-bell 18man split-level satura on dive spread rated to 300 msw. The hull will be 121 metres long and 23 metres beam. That hull will be built in Romania for nal ou i ng to take place at Soviknes in Norway. Second quarter 2016 is the scheduled delivery date. The contract with Vard also includes an op on for a second sister ship, and there appears to be some strong poten al that op on will be taken up. Harkand is trying to be a pure play diving and produc on support contractor. The company might describe the newbuild as having a construc on element as well, but by contemporary standards the hull size is smaller than most current construc on vessels. Given the ghtness of the North Sea DSV market, the newbuild is bound to become involved in construc on support tasks as well. Harkand probably has to keep ordering. The companys business plan is all about growing in simple volumetric terms. Shying away from heavier construc on work means Harkand cant suddenly unlock more margin by covering expanded tasks. For this year, what Harkand does with the Da Vinci DSV is unclear. That vessel spent most of last year working in South Africa. A transfer to the North Sea to work alongside sister ship Atlan s seems likely. However, the North Sea market s ll has to deal with where the Bibby-chartered Mermaid Endurer is going to sit. That vessel is now in Singapore for maintenance, with the North Sea expected the next des na on.

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In and out of the Gulf

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will go on board in the Gulf of Mexico but in principle the vessel could work anywhere. Right now, the Pacic is already in the Gulf of Mexico working with Harkand as part of the purchase of Veolias subsea interests. However, Harkand is swapping that vessel out with another newbuild the Siem Spearsh that soon delivers. New players o en nd ge ng some contrac ng trac on easier in the Gulf of Mexico. End clients there seem more prepared to straight away give new players a chance. So new players

establishing even modest presences there makes a lot of sense. Another vessel is already enroute to the Gulf. Ocean Installers chartered Normand Clipper is in the process of arriving in the Port of Houston. Some work for the vessel there must be in hand or close to rm, though details s ll remain to be conrmed. The Clipper is expected back in the North Sea for the main work season. Despite that theres s ll vessels available in the Gulf of Mexico right now. EMAS-AMC has immediate availability on the Lewek Connector.

The Connector is ready to go for new work and si ng in Port Freeport. Installa on of 28km of power cables for Petrobras on the Cascade and Chinook deepwater elds has just been completed. At least through to the end of January the vessel is expected to remain in the Gulf of Mexico. Therea er a return to the North Sea is expected. EMAS-AMC has addi onally recently transferred the Lewek Falcon to the Gulf of Mexico with that vessel expected to go to an extensive construc on support programme for Enbridge.

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