James Holloway, Senior Reporter at Reorg Research attended Marine Money’s Offshore Finance Forum in Houston Texas to hear industry leaders share their insights on the state of distress in the Offshore and broader energy markets. James shares their thoughts here.
Some of the offshore rig contractors currently engaged in restructuring have state-of-the-art, latest-generation rigs, Jason Cohen, a partner at Bracewell, said at the Marine Money Offshore’s seventh annual Houston Offshore Finance Forum in Texas today. Citing Ocean Rig, Paragon Offshore and Vantage Offshore, Cohen noted that cleaned-up balance sheets will give them considerable advantages over non-restructured competitors.
The offshore industry is burdened by too much debt, too many vessels and too much liquidity, especially as companies with insolvent balance sheets continue to get banks’ support for “amend and extend,” said Steven Strom, CEO of Blackhill Partners, during a panel on restructuring the industry.
A handful of companies with healthy balance sheets and the ability to take advantage of weaker competitors will drive “significant change” in the industry, specifically consolidation.
He added that the sector should think about recapitalizing around lower enterprise values and debt levels. Valuation may cause considerable debate in any restructuring, Strom said. Pricing is less straightforward for offshore support vessel and rig operators than for onshore exploration-and-production companies, which have forward commodity price curves and reserves at their disposal. Any recovery in offshore utilization and day rates may result in junior creditors seeking better recoveries.
“There’s so much liquidity, it’s not forcing the necessary restructuring,” Strom said, adding that restructurings are a necessary precursor to and catalyst for the consolidation that will provide the industry with its best opportunity to remove excess tonnage. Strom noted that “there’s not a lot of quantitative data” supporting a recovery in offshore. While there’s some improvement in backlog, it’s not enough to improve balance sheets, he said.
John Ashmead, head of the bankruptcy and reorganization group at Seward and Kissel, added that as long as the environment of overcapacity and suppressed day rates continues, the offshore industry will continue to struggle. Although some recent activity in the North Sea shows that the “patient is alive,” Ashmead says, rehabilitation will take time.
According to Strom, amend-and-extend cannot provide access to new capital for the capital-intensive offshore E&P industry; only debt-to-equity conversions will allow additional to capital to be brought in.
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