Pareto Securities AS is among banks targeting debt funds and private-equity firms to buy oil rigs at firesale prices to hold until demand for offshore-drilling rebounds, according to people familiar with the matter.
Norwegian investment banks are sounding out interest in special-purpose investment vehicles that would buy rigs from distressed companies, mothball them and sell them when the market picks up, said the people, who declined to be identified because the plans are private.
Drillers may be forced to sell rigs at a discount as they struggle to repay debt amid a more than 50% fall in oil prices since August 2014. Almost a third of rigs are without a contract this week after oil producers canceled or renegotiated contracts as a glut of new-builds come online, according to a Pareto note on Nov. 12.
“There are now more funds interested in investing in rigs as values have fallen significantly,” said Nigel Thomas, a partner at Watson Farley & Williams in London, a law firm that specializes in the shipping and offshore industries. “The risk is that prices will bump along the bottom for quite a long time.”
Pareto CEO Ole Henrik Bjoerge declined to comment on the investment vehicles.
“I expect some of the banks, which sit on a large amount of rig debt in distress or which may come in distress, will try to push for asset sales,” said Eirik Rohmesmo, a credit analyst at Clarksons Platou Securities AS in Oslo. “Funds alone would not be able to run a fleet and they will need an industrial operator to manage it.”
Chartering rates for the most advanced equipment have dropped to as little as $250,000 a day from as much as $650,000, according to the Pareto note.
“It’s hard to calculate the price of a rig these days, because you don’t know how long you’ll remain without cash flow,” said Janne Kvernland, an analyst at Nordea Markets in Oslo. “So it’s anybody’s guess what a rig is actually worth.”
Published: December 1, 2023