Why Nordic’s platform supply vessels acquisitions seek expansion

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Nordic’s platform supply vessels

Shares of Nordic American Offshore (NAO) surged after Leon Cooperman’s Omega Advisors disclosed a more than 20% stake in the international offshore supply vessel company.

Nordic American Offshore, which debuted on the New York Stock Exchange (NYSE) earlier in June, recently announced that it has entered into firm agreements to purchase two newbuilding platform supply vessels (or PSVs) with essentially similar design and capabilities as its current fleet. The price of the ships is about $43 million each.

New Gen OSVs

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A statement from the company said the vessels will be built on the western coast of Norway by Aukra which is in the Vard shipbuilding group. The release noted that the vessels are particularly well suited for operations in the North Sea and in cold climate conditions. The delivery of these two new buildings will increase the Nordic American Offshore’s fleet to ten PSVs during the second and third quarter of 2015.

NAO said in its June initial public offerings (or IPO) filing that it intended to use the net proceeds from its IPO to purchase two newbuilding platform supply vessels and for other acquisitions and general corporate purposes, including working capital. The company added it may use the balance of the net proceeds for the construction of up to three additional PSVs in a Norwegian yard. NAO noted it was a good time to acquire PSVs because they are primarily used for servicing drilling rigs. The orderbook for such drilling rigs is at an all-time high according to Fearnley Offshore Supply AS (or Fearnley). Citing Fearnley, NAO said that utilization rates of PSVs are on an upward trend with average year-to-date (or YTD) levels of 92%, which are approaching peak usage rates of 95% from 2007.

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The company’s strategy is to acquire additional modern secondhand PSVs and develop a fleet that can expand its activities in the North Sea and to the Barents Sea as well as broaden its focus, in the longer term, to other areas such as West Africa, the Gulf of Mexico, and Brazil. It currently has a five-year horizon to consider expanding outside of the North Sea and the Barents Sea. The company added that “The main factor for our expansion to other regions will be our level of success operating vessels in the North Sea and the Barents Sea and the market conditions and the global demand for PSVs. We have maintained a strong relationship with Ulstein Shipping AS, or Ulstein, an unrelated party, which holds 4% of our outstanding common shares, which is known for developing highly advanced vessels for offshore segments.” NAO expects the relationship with Ulstein will help it grow its fleet at favorable prices.

Citing Fearnley Offshore Supply, NAO said that its “PSV fleet will grow considerably the next few years. During the last two years, many new orders were placed for large PSVs mainly driven by the expectation of deep water developments and the renewed optimism on behalf of the North Sea activity where PSVs often are employed in pools (not dedicated to one rig or field).”

An increase in deepwater drilling will benefit offshore supply vessel companies such as Tidewater (TDW), Hornbeck Offshore Services (HOS), Gulfmark Offshore (GLF), and Seacor Holdings (CKH). Tidewater said in its fiscal year 2014 filing that vessel revenues in the Americas segment increased around 26%, or $83.7 million, during fiscal 2014 as compared to fiscal 2013, due to higher revenues earned on the deepwater vessels. It added that deepwater vessels were transferred into the Americas region from other regions due to increased demand for deepwater drilling services in Brazil and the U.S. Gulf of Mexico during fiscal 2014.

NAO further said “PSV orderbook is currently about 27% of the existing fleet. The medium and large vessels dominate the orderbook. For PSVs above 3,500 dwt, the orderbook is currently 59% of the existing fleet (262 vessels under construction, 442 existing vessels). The PSVs being built at European shipyards is at historically low levels. About 58 % of the vessels under construction are built at Asian shipyards, and few of these are built and equipped for North Sea operations. Similarly, 16% of the vessels in the orderbook are under construction at U.S. shipyards and intended for the U.S. Gulf of Mexico market.”

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