Offshore floating at rising tide


Along with the improving pricing environment onshore comes a new buzz in the offshore oil services sector. Greg Lewis, analyst at BTIG, in a recent report on Transocean (NYSE: RIG) said: “We believe we are in the early innings of the ongoing offshore platform ramp-up cycle, which should provide strong cash flow and refinancing opportunities for RIG to improve. his balance sheet.”

RIG has now placed multi-year charters on floats at $400,000 or more per day, including a six-year contract on its ultra-deepwater drillship, Petrobras 10000from the end of 2023. Another listed offshore owner, Diamond Offshore (NYSE:DO) has announced a pair of deals – on its semi-submersible top of the ocean in Australia and drilling Vela in US waters of the Gulf of Mexico.

More drilling increases the demand for service vessels. As the U.S. baseball season enters its final stretch, Evercore ISI analyst James West, writing about Tidewater (NYSE:TDW), where he returned to coverage with an “Outperform” rating, said “The offshore oil and gas market is in the early innings of what we expect to be a long and solid up cycle. The multi-year underinvestment in the offshore market has reversed and billions of dollars are being invested in the growth of offshore production.

Following the acquisition of the Swire Pacific Offshore (SPO) fleet earlier this year, TDW is now the largest owner in the OSV ratings with just under 200 OSVs. In 2018, following bankruptcy filings, Tidewater partnered with GulfMark International in a $1.25 billion deal.

West wrote that, “Tidewater average daily rates increased to $12.5,000 in 2Q with much more upside to come. This implies an increase of 24.4% compared to two years ago. For reference, average daily rates for the Tidewater fleet during peak cycles were around $20,000. Thanks to the GulfMark agreement and the acquisition of SPO, Tidewater obtained younger and better vessels. Tidewater got younger and better ships, which will lead to higher prices.

The acquisition of SPO also allowed TDW to further diversify geographically; Evercore ISI states, “During Q2, TDW introduced two new distinct segments: 1) Middle East and 2) Asia-Pacific. The decision to split the Middle East/Asia-Pacific segment was primarily due to the increased exposure to the Asia-Pacific market and the size of the additional vessels added to the company’s portfolio.

Consistent with shipping equity analysts’ emphasis on conservative capital structures, Evercore ISI emphasizes TDW’s moves in that direction. They note, “We view Tidewater’s strategy of balancing funding for its expansion while maintaining adequate resources as setting itself apart from its peers. Although a capital-intensive business, Tidewater’s strategy to preserve capital, create dry powder for potential accretive acquisitions and shareholder returns, sets itself apart from its peers.

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