Top Bankers Warn Offshore Oil Industry’s Debt Woes Aren’t Over

Photo: corlaffra / Shutterstock

By Mikael Holter (Bloomberg) — Offshore oil and gas bankers in Oslo are warning that the industry is far from out of the woods as a recovery is slow to take hold.

Lender SEB AB is prepared for a potential second round of debt restructurings, following what has already been a wave of debt troubles over the past years. A renewed swoon in crude prices is now tamping down on optimism that the offshore-rig and supply-vessel operators, which depend on higher investments from oil companies and improved rates, are home free.

“There was always a possibility for a second round,” SEB’s Head of Shipping & Offshore Hans Christian Kjelsrud said in an interview at the Nor-Shipping Conference in Lillestrom, Norway on Tuesday. “I don’t think that would be a big surprise.”

One company that’s struggled to convince investors of a recovery in the past months even after a restructuring is driller Seadrill Ltd. The stock has dropped 84% since an October peak, and was recently downgraded by Carnegie Investment Bank AB, which said the market recovery wasn’t coming quick enough for the indebted company.

Read more… Ex-Fredriksen Adviser Says ‘Sorry’ for not Making Money in Rigs Seadrill’s Plunge Deepens After Analysts Slash Target by 88% (1)
Among supply-vessel operators, Solstad Offshore ASA is still negotiating with lenders, while DOF ASA said last month it was struggling to roll over existing loans, making a covenant breach likely.

SEB doesn’t expect a significant improvement in market utilization or rates until 2021, but had still “hoped to see a somewhat firmer market” by now, Kjelsrud said, without commenting on any specific clients.

‘Too Much Debt’

DNB ASA, Norway’s biggest bank, agrees there won’t be a significant market improvement before 2021, its head of Ocean Industries, Kristin Holth, said in an interview at the same conference. While she stopped short of predicting a second round of restructurings, she acknowledged leverage is too high.

“A lot of companies in the industry have too much debt,” Holth said. “That needs to be solved one way or another.”

What Bloomberg Intelligence Says:

“The global offshore drilling outlook remains bleak, with contract coverage expected to be below 55% for the rest of 2019, amid a net rig supply increase of 54 rigs year-to-date.”- Leon Huang – credit analyst, click here to read research

Yet both SEB and DNB remain confident in the longer-term recovery of the offshore industry, both executives said.

One recent illustration was more than $1.5 billion in loans provided to three offshore drillers last week, including Borr Drilling Ltd and Northern Drilling Ltd, the two companies founded during the downturn by former associates Tor Olav Troim and billionaire John Fredriksen.

The two rig companies didn’t name the creditors, and Holth and Kjelsrud declined to say whether DNB and SEB were among them.

© 2019 Bloomberg L.P

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