Norwegian offshore vessel owner Solstad Offshore on Thursday posted a higher 1Q revenue but expects its full-year revenue in 2020 to be negatively affected by the COVID-19 pandemic and sharp decline in the oil price.
Solstad’s revenue for the first quarter of 2020 was MNOK 1,203 vs MNOK 1,146 in 2019, while EBITDA (adjusted) for the first quarter was MNOK 284 vs MNOK 223 in 2019.
Solstad earlier this month signed a Restructuring Implementation Agreement for a restructuring of the Group with a majority of the Restructuring’s key stakeholders, including all of its secured finance providers except for three creditors in the Solship Invest 3 AS and Farstad Shipping AS silos.
The deal, among other things, includes conversion of around 11 billion crowns of debt into equity, and the sale or scrapping of 37 older and less sophisticated vessels, to reduce the number of the vessels in the fleet to about 90 vessels.
The implementation of the Restructuring is further subject to the approval of the general meeting of the Company and relevant bondholders meetings, agreement on long-form documentation with relevant stakeholders, and related customary condition precedent documentation.
“The Company’s and the Group’s financial situation is unsustainable as equity is negative and liquidity is under pressure. The long-term viability of the Company’s and the group’s business depends on the Company finding a solution to its financial situation,” Solstad said.
Solstad board’s view that the Restructuring Implementation Agreement has a reasonable prospect of being implemented.
However, Solstad said that if the Restructuring Implementation Agreement is not implemented, and in the event, the Group should be forced to realize its assets, there is a risk that these will be realized at a significantly lower value than their carrying amount, as value in use is higher than estimated sales values for several of the vessels.
"When entering 2020, there were expectations of a gradually higher activity level in 2020 compared to 2019. That was based on an oil-price at a stable, high level and the E&P budgets published by the oil companies. During March 2020 the oil prices dropped significantly because of the Covid-19 pandemic and the “trade-war” between certain oil producing countries," Solstad said.
Consequently, most oil companies announced a revision of their activity plans for 2020, leading to a significant and immediate reduction in activity.
"It is now a great uncertainty how the markets will develop. There are reasons to believe that the activity in general will be significantly reduced, but activity linked to oil & gas production will be less affected than activity linked to exploration and maintenance," Solstad said.
"Within the Renewable energy sectors, the activity continues to grow. Not only in Europe, but also in other areas and particularly Asia," Solstad said.
Solstad's backlog is approximately MNOK 8,500 whereof MNOK 4,000 for the next 12 months.
"The Group has so far been able to continue normal operations of its vessels even if crew changes has become difficult due to COVID-19. There is an increased risk in the sector of delays in execution of offshore projects as a result of COVID-19. It could be expected that both COVID19 and the oil price development will have a negative effect on the Group. Currently, there are limited information available to provide clear data for calculating any estimates on financial exposure," Solstad said.