The Economics of Constraints and (Really) Deepsea Diving…

It’s a poor sort of memory that only works backwards.

Lewis Carroll, Alice in Wonderland

In historical events what is most obvious is the prohibition against eating the fruit from the tree of knowledge.

Leo Tolstoy, War and Peace

One of my frustrations with offshore/SURF is that despite the mathematics of engineering and economics being the same, both are really optimisation problems, there is precious little of the latter influencing the former in offshore. A classic case of this came in Frontrunner today where there was an attempt at a serious discussion about diving below 300m. Now I accept that this is technically possible, lots of things are technically possible, for a billion dollars you can probably get NASA to take you on holiday to the moon, but because not that many people want/are able to spend a billion dollars on such a holiday there are very few companies offering this as an economic choice. If money is not a constraint then you have few constraints, but in economics and business money is always a constraint.

Diving at up to 600m is definitely technically possible, but it would be economic lunacy. Don’t get me wrong if I was an equipment supplier I would want to believe it was possible as well, but that doesn’t make it viable. There are so many realistic economic and organisational constraints on this I can’t be bothered going into them all, but here are a few, all of which are complete showstoppers:

  1. There is no market: the list of marginal field developments that could be made viable between 300-600m of water if a DSV could be used is minimal, even on a global basis. Most shelves drop off completely below 300m and there simply no proof that there are suitable reserves that could be tapped by this technology
  2. In order to service this (non) market you would have to build a 600m capable DSV completely at risk (which is admittedly what UDS claims to be doing), budget $160-185m, then prove the technology and procedures, which will be months of testing and practice dives etc, and only then be ready to sell it, all the while burning vast amounts of risk capital. Then you would need to get a bunch of global oil companies to change their entire HSE approval process, which will take years, and get this to coincide with a project approval process. This strikes me as an enormous barrier because even if you could prove this worked there is no demonstrable evidence of the long-term health effects on the divers and you risk creating an abestos like residual legal claim on the oil companies (as the diving contractor may be bankrupt) for approving this. And then, and only then, years after building a 25 year asset and burning through working capital you might, just might, win a project competitively tendered against an ROV solution. That is without going into IMCA, class, various regulatory agencies etc. All this for a project whose financial upside must by definition be capped at what a comparable ROV service could deliver the project for. So a venture capital investor has no possible way of making a returns in the 100s of % to cover the risk. Literally nuts.
  3. ROVs are currently oversupplied and operating below their capital cost, and are likely to for an extended period, so not only would this harebrained plan have to compete for work against the above constraints it would have to with competitors who will be selling at below economic cost

If you speak to divers who go below 250m they will tell you the joints hurt and they really notice the pressure. It is not a popular depth to dive at. Subsea 7 and Technip now have special dive procedures in place for anything over 200m and there is enormous resistance to diving over this depth level even if you could prove what it costs. Changing this organisational inertia for marginal benefits only just don’t represent a viable economic time/cost trade-off.

This is just a classic case of someone trying or thinking of doing something because it is technically possible not because there is any economic rationale to it. The idea is so DOA from an economic perspective it doesn’t bear serious analysis.

SOR also make the following highly questionable claim:

Sources close to the scene, suggest BP’s huge west of Shetland Quad -204 redevelopment might have cost a third of the total bill if the project could have used divers. [Emphasis added].

Now the best estimate of the costs I have is £4.4bn ($5.7bn), but that includes drilling, fabrication, control modules, a FPSO etc. Traditionally the SURF installtion scope is 10-15% of the total project budget, so at best what I think SOR mean is they could have saved 1/3 of this… so maybe 5% of the total budget. But that is a pretty minimal saving in the scheme of things and exposes the installation to a lot more weather and other operational and contractual risks. For a 5% saving on the overall cost you would have exposed yourself to having a minimal choice of assets to complete the task and run the risk that all future OpEx operations would have to be done by divers (i.e. no ROV handles) and that needs to be factored in to the total economic cost.

[But if I am wrong I am happy for SOR to publish some more detailed information to correct my erroneous logic and I will happily publish a correction having been suitably educated].

But again the Quad 204 cost statement avoids the economics of this situation: if Quad 204 was going offshore in 2014, when every North Sea class DSV was operating at capacity the job would probably have cost more because DSV rates were at a premium. Re-bid the job now and you might get a different answer. Markets are dynamic not static. So there “might” have been a saving, but there is a much smaller North Sea class DSV fleet than ROV fleet that “might” have been busy, or it might not, and the saving would have been dependent on that. And surely the losing contractor would have gone back and offered to make such a substantial saving? But whatever the situation it would not have transformed the economics of a project the size of Quad 204 as suggested.

Interestingly the whole Frontrunner is relatively bullish on diving. Although, frankly any previous investors in vessels backing MEDS would be amazed if their ability to get hold of a vessel should be seen as a sign of confidence in  the market given the losses they have suffered on the Altus Invictus and Altus Extertus (disclosure of interest: I was a Director of one such company). I don’t think SAT diving is going to go away, that isn’t what I am arguing at all, but until significant CapEx projects involving DSVs return to the North Sea then the market on any reasonable basis remains over-supplied and day rates and utilisation levels will remain under huge pressure.

SOR has been at the forefront of reporting the creditors involved in the rescue of Bibby Offshore and I’d be interested to know if they have a consulting relationship with any of the bondholders who they have named? Either someone very close to the deal is speaking to them or they are working on this deal… And you would really have to believe in a degree of bullishness about diving that isn’t grounded in current market reality to buy into the Bibby deal at current value levels…. And frankly any financially rational actor would be more than a little nervous now Boskalis have the Nor vessels… contracts for small DSVs in Brazil won’t save the North Sea market…

I am wondering if a lack of clear economic thinking has permeated the deal for the investors, maybe they have been blinded by perceived benefits such as 600m diving, because when you have to get management to warrant that:

  • Within the next 7 days, Bibby Offshore will appoint an independent consultant on behalf of the noteholders to support management on the ongoing cash flow management and transition of the business to the new shareholders.

you clearly don’t have a great handle on the business or what you plan to do with it. This could well be a classic situation of the “Winners Curse” in M&A.

At the time I had worked with two seperate hedge funds who were also looking at the deal. We valued the business at ~.08 – .15 of the outstanding bonds (£14.0 – 26.5m) reflecting the new working capital required. Different people have different perceptions of value and therein will lie the answer to who makes money on this deal. A 2 x North Sea DSV operation, focused only on being a low cost operator, was the plan. In order to get to a bigger number you need to back a platform business to expand. No one outside of the large contractors has made diving work on a global basis as there are no economies of scale and procurement is all regional and follows different standards. So in order to recover £115m Enterprise Value York & Co., are backing a subscale, loss-making business, in an industry that is consolidating with large competitors, in a market with huge cost pressures. Traditionally that has been a poor route to value creation… but it is also true that counter cyclical investments generate huge returns. The hard part here is that because of the lead times for projects (which are well documentted), and Bibby’s own investment documents show, this is a market forecast to grow at CAGR c. 7%… roll the dice…

Private equity and offshore: Bibby/York Offshore, DOF Subsea, and Ocean Installer and “stuck in the middle”..

Realism provides only amoral observation, while Absurdism rejects even the possibility of debate.



The firm stuck in the middle is almost guaranteed low profitability. It either loses the high-volume customers who demand low prices or must bid away its profits to get this business away from low-cost firms. Yet it also loses high-margin businesses — the cream — to the firms who are focused on high-margin targets or have achieved differentiation overall. The firm stuck in the middle also probably suffers from a blurred corporate culture and a conflicting set of organizational arrangements and motivation system.”

Porter, Competitive Strategy, p. 41-42


“Alice laughed: “There’s no use trying,” she said; “one can’t believe impossible things.” “I daresay you haven’t had much practice,” said the Queen. “When I was younger, I always did it for half an hour a day. Why, sometimes I’ve believed as many as six impossible things before breakfast.”

Bibby/York Offshore, DOF Subsea, and Ocean Installer are all tied into the same economic dynamic in the offshore market: the improvement in the market is coming in IRM spend (marginally), large-deepwater projects, and  step-outs associated with existing deepwater infrastructure, not the markets that made these firms viable economic entities (although the DOF Subsea question is just as much about leverage and overcommitting to assets). These companies highlight that although offshore spending may increase in 2018 over 2017, though DNB notes risk to the downside, a recovery will not benefit everyone equally: asset choice and strategy that recognise different market segments are important to identify.

I have read the Bibby Offshore “Cleansing Document” that was sent out as part of the takeover/recapitalisation notice. A cleansing document is required when investors, who are classed as “outsiders”, gain confidential information as part of deal and therefore become “insiders”, who learn confidential information, and must make all the investors aware of what they know. It’s an extraordinary presentation, a business plan so outrageous that it can’t be taken seriously. The document obviously has its origins in the EY attempted distress M&A transaction, that couldn’t be funded, and when you read this you can see why. Worringly the new investors must accept something similar or they are involved in a gigantic scheme to knowingly lose money.

The most obvious affront to intelligence is the 2017 growth rate for revenue pegged at 52%!!! Seriously, in this market someone is telling you they are going to grow at 52% and they actually have enough chutzpah to put it to paper… words don’t often fail me. Not only that they then double down and state it will rise 50% again the year after. I can tell you there is a 0 (zero)% chance of that happening. There is more chance of drydocking the Sapphire on the moon to save money. It’s not just the fact that IMR spend, the core Bibby/York offering, is set to grow at 3.3%, or the fact that total market spend is due to grow at 6.7%, that is just a common sense point: if the market grows at 6.7% and you are growing at 53% then 46% of your growth is coming from winning market share. Does anyone really think Bibby’s competitors are just going to wake up one day and allow them to be the only company in the entire industry that can grow that fast and let them take all that market share? Really?

Fictional Revenue and EBITDA Forecast

Lewis Carrol

Source: Lewis Carroll

To be clear the previous best year of growth was 2013-2014 when Bibby chartered in tonnage, in the greatest North Sea DSV boom ever, and it grew a measly 46%… seriously you can’t make this up.

North Sea Outlook

The fact is this forecast shows the core Bibby/York IRM market declining after 2019 and all the growth is coming in windfarm work. A portion of the windfarm work is likely to be bundled with installation workscopes, and that leaves Subsea 7 and Boskalis well positioned with their topflight installation capacity. And I have said many times the lack of oil and gas construction work (the light grey bar EPCI) will leave a surplus of DSVs as there are no multi-month construction projects to soak up capacity. There is an even more absurd graph later on designed to show a market shortfall in a few years that ignores latent capacity in meeting supply challenges.

Bibby/York will turnover £85m if they are lucky for 2017. In this market, if they have an amazing year next year they will turnover £95-100m, and if they have a bad year they will come in at £70-75m. And the risk is on the downside here because the first six months of 2017 included ROVs in Asia that were sold, most of which were working. But in offshore contracting in general some jobs will go your way and some won’t, so everyone in the industry budgets a modest increase and some get lucky. But what definitely won’t happen is putting 15 Red on at the casino and winning 30 times in a row, and talk of £130m in revenue is more unrealistic mathematically than that.

Even more the Sapphire now looks to be going into layup! So not only is turnover going up 53% but DSV capacity is going back 33%. It’s a miracle I tell you! That’s not profitability that is top-line!

The US office is of course a giant millstone and is put in the presentation as a “Diversification” play rather than as a cost centre – and certainly no spefic financiakl data on the office is offered. The US must be costing Bibby/York c.USD 250k per month in cash terms and now has no boat to bid. That puts them Bibby against DOF Subsea and OI for any significant project except they don’t have a boat? Zero chance. Literally less than zero. Only someone who really didn’t understand, or didn’t want to, the reality of the current market would sanction such move. Operating margins of similar competitors, following exactly that strategy are less than 10%, which means you will be losing cash forever. Nuts. Not needed and not wanted in an oversupplied market, it is simply a matter of time before that office is closed.

But I don’t want to get into it in a micro level because it degrades the wider point: in this market businesses don’t grow organically at 53%. It is a preposterous statement and needs to be treated as such on that basis only.

Not only that, Bibby claim they will make an EBITDA of ~£12m on the 2 x DSVs in the North Sea, and a staggering c.£11m using vessels of opportunity. So not only are they betting they will take enormous amounts of market share off their competitors they are also planning to do it at margins way above anyone else in the industry. And this from a management team, with exactly the same asset base, who presided over a revenue decline of 56% in 2016 and is on target for a 45% decline in 2017. The first few people who got this presentation must have phoned up and asked if the printer had had a typesetting error, not believing that intelligent people would send them this.

The only certainty of this plan is that it will fail. Statements around its release confirm the company ~50 days of work for 2018 yet they are planning 78% utilisation (up from 53% in 2017), yet if the first quarter work isn’t booked in now it won’t happen in a meaningful sense.  And once you are chasing you tail to that extent a dreadful dynamic sets it because you have committed to the cost and the revenue miss means you know early in the year you are facing a massive cash flow deficit. The fixed cost base is so high in the operation that a miss on the revenue side produces catastrophic financial results; just like a budget airline, the inventory is effectively disposable (i.e. after a possible days sale has passed) yet the cost base is committed. This of course explains how the model was created I suspect: a revenue number that magically covered the costs was devised, how real management believed that number to be at the time will be crucial by March (only 12 weeks away) when the plan is revealed as a fantasy. I’m not saying it’s deliberate, humans are strange, it took Hiroo Onoda until 1974 to surrender, so if you want to you can believe a lot of things, and unless you believe the revenue number then the whole economic model falls apart.

York clearly got into this late in 2016 and early 2017 not believing the scale of the decrease going on in the business in revenue terms, and without clearly understanding how the competitive space was directly supported by the construction market. Instead of pulling out they have doubled down and appear set to pump more in working capital into the business than the assets are worth (one of which is going into lay-up for goodness sake). York appear to have confused a liquidity problem with a solvency one.

The funds this come from are large but this is till going to be a painful episode for York while doing nothing to solve the long-term solvency issues at Bibby who now only have a 6 month liquidity runway based on current expenditure. At an Enterprise Value of £115m it values a business with one DSV on lay-up and a cost centre with no work, and an operation with a 1999 DSV and one chartered asset, losing substantial amounts of money and with historic liabilities, way above a the operation Boskalis are building with 2 x 2011 DSVs at a blended capital cost of ~USD 80m. Good luck with that.

I still wouldn’t rule out a Swiber scenario here where as York get close to the drawdown/ scheme of arrangement date they get lawyers to examine MAC clauses (e.g. Boskalis buying the Nor vessels), or simply not pay and worry about getting sued by the administrator. They must know now this is a terrible financial idea.

DOF Subsea on the other hand have the opposite issue: First Reserve looked to reduce their position earlier in the year via an IPO and couldn’t. Now DOF are slowly diluting First Reserve out in  the latest capital raise… there is no more money coming from First Reserve for DOF Subsea. I get the fact that some technical reasons are in  play here: it is difficult for late-life private equity funds to buy inter-related holdings, but they always seem to manage it on the up but never on the down.

DOF Subsea might be big but the problem is clear:

DOF Subsea Debt repayent profile Q3 2017


DOF Subsea EBITA Q3 2017

DOF Subsea isn’t generating enough cash to pay the scheduled debt repayments. And in these circumstances it is no surprise that the private equity fund is reluctant to put more equity in. DOF Subsea could sell its crown-jewels, the flexlay assets, to Technip but that would involve a price at nothing like book value; or maybe DOF/Mogsters’ bail them out but that will further dilute First Reserve. Either way First Reserve, some of the smartest energy PE money in history on a performance basis, have decided if you can’t get someone else to buy your equity then dilution is a better option.

Ocean Installer is a riddle wrapped in a mystery. OI has some chartered tonnage and some smart people. But it is subscale in nearly everything and I doubt it was even cash flow positive in the boom years as they were “investing” so much in growing capacity. The company had takeover talks with McDermott, that failed on price, and seems to exist solely because Statoil is worried about having an installation duopoly in Norway. It can’t continue like this forever. Rumours abound that Hi Tec have now installed staff in the Aberdeen office and are seriously looking at how to cut the burn rate.

There is nothing in OI that you couldn’t recreate for less in todays market, and that unfortunately means the equity is worth zero. Hi Tec, whose standard business model of taking Norwegian companies and opening a foriegn office, expanding both the quantum and size of the acquisition multiple (admittedly a fantastic idea in the boom), will not work here. Now it’s hunker down and build a substantial business of scale or exit. All the larger players have to do is sit this out, no one needs to pay an acquisition premium, buying work at a marginal loss, which will eventually reduce industry capacity, is a far more rational option.

Not all of these companies can survive as they are simply too similar and chasing the same projects that are also now being chased by the larger SURF contractors. Clearly DOF Subsea is in the best position as OI and Bibby/York have a very high cost of capital and owners with unrealistic value assumptions.

All these firms suffer from two problems:

  1. In strategic terms they are “stuck in the middle”. In 1980 Michael Porter wrote his famous text (“Competitive Strategy“) positing that a company chooses to be either low cost or value added; firms that didn’t  were “stuck in the middle” and destined to low profitability forever. In subsea the deepwater contractors are the value-add and the contractors without a vessel, or the regional companies with local tonnage,  are the low cost. Bibby/York, DOF Subsea, OI are stuck in the middle – not deepwater/rigid reel to add value and with too high a cost base to compete with the regional low cost operators – given their funding requirements this will not carry on indefinitelyPorter stuck in the middle
  2. The projects that made these companies profitable (if OI ever was) have suffered the largest fall in demand of all the market segments. Small scale field development, with flexibles as the core component, just aren’t big enough to move the needle for the the larger companies and the smaller E&P companies can’t raise the cash. All the FID stats show these developments to be almost non-existent. These were projects commissioned at the margin to satisfy high oil prices and therefore are the first to fall off as the price drops. That is why these companies have suffered disproportionately in the downturn: they have lost market size and market share (Bibby Offshore revenue has dropped by 77% since 2014 where as Subsea has (only!) dropped 45%

The subsea/SURF market is an industry that private equity/ alternative asset managers struggle with: a market with genuine advantages to industrial players with economies of scale, scope and knowledge. In an age of seemingly endless debt and leverage these equity providers are not used to coming across industries where their organisational advantages of capital and speed cannot work. But for the next few years, as the industry requires less capital not more, the smart money here will be on the industrial companies. It wasn’t the distressed debt investors in Nor Offshore who made money on the liquidity bond (issued this time last year), it was Boskalis when the reckoning came for more liquidity. That is a parable of this market.


How much is enough?

How much equity and working capital do you need to be a UKCS saturation dive contractor? And just as importantly, how much can you make from such an investment? Two different groups of North Sea DSV bondholders are pondering this question at the moment.

On the one hand are the Bibby Offshore Holding Ltd (“BOHL”) bondholders who must realise now that a financial restructuring is coming. Moodys noted in November that:

Bibby Offshore cash generation has been negative since the beginning of the year resulting in a reduction of cash on balance sheet of approximately GBP40 million out of the GBP97.1 million it had at the start of the year. Moody’s believes that cash generation will remain negative in 2017 to approximately GBP30 million with increased pressure in the first half of 2017 due to seasonality. Cash generation in the second half of 2017 should slightly improve due to the anticipated positive effects of the renegotiation of charter rates.

In anything things have only got worse… Let’s leave out the fact that the only charter open for renegotiation in 2017 is the Bibby Topaz and here BOHL have a problem: give the vessel back and the bond holders know they are not getting paid back in full as BOHL can’t generate enough revenue; or, keep the vessel, and spend some of the remaining cash on a vessel with little backlog.

Moody’s estimated Bibby will generate EBITDA of GBP 12m for 2017 and means leverage rises to more than 20x EBITDA (including operating lease calculations): a totally unsustainable number. The only hope could have been a really busy 2017 summer with extraordinarily high day-rates; however, despite high tendering levels, rates are rock bottom and the volume of work is small. The question for BOHL is only the size of the financing gap not the reality of the need for one.

BOHL needs a debt-for-equity swap. [Non-financially interested don’t need to worry about the specifics here but in essence the people who lent the company money on a fixed basis agree to turn this into shares accepting the may carry some upside potential].  In reality, I think there will be a raidcal restructuring of the BOHL. I believe the bondholders will seek a restructuring that takes the business back the 2005 model of 2 x DSVs based in Aberdeen. Singapore, Norway, and the US are gone. No offices outside Aberdeen appear to be cash flow generative at all even taking into account ROV utilisation. The bondholders are in for the Sapphire and Polaris anyway so the need to come up with the least cash exposure that offers them the maximum return. ROVs are not a BOHL specialty and there is no reason to fund that business with precious working capital beyond the DSVs own need. Its back to Waterloo Quay and 2005 for those of us who were there (and they were great days I can assure you).

Given the size fof the debt write-down the bondholders will be expected to take they will leave enough cash in to allow the business to trade for a few years in a way that maximises their chances of recovery and nothing more. So unless they can reach a revenue sharing agreement with the Volstad Topaz bond holders that won’t feature as well. The ramifications to the BOHL brand will be enormous but the cash call will be of a magnitude that will allow for little sentimentality.

What % of the business they demand for this is anyone’s gusess and will be dependent on any equity Bibby Line Group agree to put in.  These things are a matter for negotiation rather than hard-and-fast rules. Remember also this is a business that is going to have to be 100% equity financed for the foreseeable future as no one will lend to such specialist vessels without backlog (i.e. an asset and cash flow facility) for a long time. However what does seem reasonable is this:

EBITDA per DSV: GBP 8 – 12m; Corp Overhead: GBP 4m; Implied cash flow for debt multiple: GBP 16m (mid-point average). [Debt at 4.0x EBITDA: 64m]; [Debt at 5.0x EBITDA: 80m]. Outstanding debt: GBP 175m.

I get valuation and cash flow modelling are an art not a science and that I have made a lot of assumptions here. But also bear in mind most DSV operators will kill to get EBITDA of GBP 10m per vessel this year, many DSVs are going out at OPEX plus a small margin if they are lucky, and given the way discounting works I could be seen to be generous here front-loading cash flow. Don’t forget the risk either: this market is far more volatile than anyone, including me, ever thought possible. I think I am directionally correct here and I don’t need to to into greater detail in this forum. The core point is this: under any number of reasonable scenarios the bondholders are looking at writing off at least 50% – 66% of their debt and if a working capital call is made then way more than that; and that selling the DSVs in this market is probably the worst, but not unthinkable, option for them.

The BOHL bondholders are (rightly) terrified of getting the Polaris and Sapphire redelivered. Not only have the Nor/Harkand bondholders taken the vessels out of the market for them they have also highlighted what a shambles getting re-delivered such vessels can be. It is very doubtful the two BOHL DSVs could be sold at anything like the value implied by recent bond market prices (.60-.67) if at all. The bondholders knew the DSVs didn’t cover the value of the bond (i.e. it wasn’t fully secured) but they are currently spending funds they thought would be used to grow the business on basic working capital (that is the fault of the market not management it needs to be said and was a risk they took signing up to a huge unsecured portion of the bond for “general corporate purposes” in a cyclical industry). The cash position could be significantly worse than Moody’s forecast: I doubt EMAS has paid for the Angostura work and some sort of agreed deal with Borderlon, currently in arbitration, could see c. USD 5m handed over for a settlement for 10% of the outstanding claim. Anything more could mean a nuclear outcome for BOHL. Better to stem the exposure now…

At these sort of levels the bondholders are going to ask for a significant dilution of the Bibby Line Group stake (potentially all of it if a signficant amount isn’t invested with the bondholders in the new working capital facility). But the most logical option here is therefore to cut the business back to what could realistically trade at a profit and cauterise the loss making exposure. That means everything apart from the core UK dive business with maybe a couple of ROVs to support it. But the BOHL bondholders are disparate and international. And while M&G (who have their own workout team) are the largest I believe, and may have some interest in a controlled restructuring, this was a “US 144 issue” meaning that a lot of the bonds will be held by US institutions who may just write this off as it becomes to complicated. In such a situation a rump business being sold is the most likely option as there is some value there, just nothing like GBP 175m + working capital.

I think we are looking at a pre-pack here with a “credit bidding” element where the bondholders, or new investors, agree to buy the vessels, backlog, IP and management system and very little visibly changes apart from the closure of international operations and the redlivery of the Topaz and the Olympic vessels with the Borderlon claim left in the insolvent rump. Quite how far they will run the cash reserves down to before such a transaction happens will be the call of from the legal/financial advisers. Olympic, who would appear not have to any Bibby Line Group guarantee, will simply end up as an unsecured creditor and have to accept redelivery of their vessels for what in this market are essentially onerous charters. Borderlon in Houston potentially have the most to lose: having built a vessel for Bibby in the US the charter was cancelled when the market turned. I have no idea who was wrong or right legally, but UK companies traditionally do very badly in US Courts/ Arbitration and they must be hoping for a meaningful payout.

I am not sure the scale of the problems are acknowledged. The company has 10 Directors now, and seems to be focusing on such diverse strategies as small pools (which offer the prospect of cost with no immediate revenues). It’s the ultimate re-arranging of deck chairs on the Topaz  Titanic. I undertand why. I have been in a similar position and there is an element of cognitive dissonance involved. But to believe the bondholders would write off at least half their debt and fund an international expansion for a loss-making business is about as likely as believing the UKCS SAT diving market will miraculously recover. Stranger things have happened.

The only other option would seem to be an investor throwing millions into this business to keep it going until the market recovers and would involve keeping the bondholders whole. I just don’t see it and it pains me to say that. Because the answer to the first question is of course, like all post-modern phenomena, the answer is relative. BOHL not only need enough working capital to satisfy their creditors they need enough to outlast other players in the market especially DOF Subsea.

The marionette Nor Bondholders and their puppet-master Maritime Finance Corporation have a plan so cunning Blackadder would be confused. The top secret idea is to do exactly what they did last year and tie the DSVs up in Blyth and wait for the market to recover and thus, without any investment in infrastructure and systems that the other five SAT dive companies have spent millions per annum on; they will ride a demand wave and recover their investment. Like all cunning plans it involves an element of risk, namely, exactly like last year where they end up spending USD 350k per vessel per month and get no work. But hey I realise I’m a glass half empty guy…

The Nor bondholder have gambled that USD 15m is enough. However, they have burned through at least USD 2.1m since November when they raised the money and appear no closer to some paid days. The problem for Bibby isn’t that they are seriously threatening work its that it is artifically depressing DSV asset prices. I’ll discuss my views on the Nor vessels in depth later. But while their strategy is economically irrational it isn’t depressing rates because 1) E&P companies buy a system + DSV (i.e. engineering, HSE, etc); or 2) the current SAT dive companies all have excess tonnage.

The amount of working capital and the financing gap BOHL have is dependent on all these factors and there is no firm answer here. Keep the debt high and you need a lot. But whatever the agreement is it represents a number in the low tens of millions each year until a market recovery and no one can supply any quantitative information suggesting one, in fact a lot can be shown to make the opposite: this is a period of structural decline for UKCS DSVs.