Category Archives: Offshore

Australia is not a country you'd expect to be investigated for crimes against humanity, but that's exactly what a group of human rights lawyers is asking the International Criminal Court to do.

The alleged human rights abuses took place far from Australia, in two offshore immigration detention centers in the South Pacific.

"Both of these are extremely remote Pacific islands," says Rebecca Hamilton, an Australian human rights lawyer who teaches at American University's Washington College of Law.

She's not kidding. One camp is on the tiny 10-square-mile island nation of Nauru. It's in the middle of Pacific about 25 miles south of the equator. There's nothing near it.

The other camp is on Manus Island, part of Papua New Guinea but several hundred miles off its coast in the Admiralty Islands.

Hamilton says Australia outsourced the detentions camps with one thing in mind: "They have been set up by the Australian government with the specific purpose of not letting any asylum-seekers onto the Australian mainland."

The offshore location of the detention camps also allowsAustralia to skirt its obligations as a signatory to theUnited Nations Refugee Convention.

Since 2001, the "Pacific Solution," as it's known, has been used on and off by Australian governments to intercept asylum-seekers at sea and transport them to the detention centers on Nauru and Manus Island.Hamilton says it's not a right or left issue. Australian governments across the political spectrum have used the detention camps.

"The rationale has been that making the boat journey to Australia is very dangerous and [the government]doesn't want people trying to make that journey," Hamilton explains."But the situations that these people are fleeing are incredibly dangerous as well and if they are making the calculationsthat it is worth them to try to at least seek asylum in Australia, then the Australian government has no right to say that they can't pursue that option."

The asylum-seekers on Nauru and Manus Island number around 1,250. Many have been there for nearly four years. The camp on Manus Island houses single men only. Nauru has women, families and children.

The 108-page brief submitted to the ICC on March 6 describesthe "harrowing practices of the Australian state and corporations towards asylum-seekers,"including long-term detention in inhumane conditions, physical and sexual abuse of adults and children and "epidemic levels" of self-harm among those held on the islands.

Hamilton says even though the camps are outside Australia and operated by people who are not Australian citizens, if the ICC decides to investigate and finds something, it's the Australian government who is still in the hot seat.

"Australian government officials, to the extent that they are aware of what is happening and are continuing to authorize it, they're absolutely on the hook," she says.

Hamilton says the evidence presented in the report to the ICC was gathered through interviews with former officials who have worked at the detention camps. "The Australian government has outsourced the running of these islands to private contractors. And as some of those people have resigned and left those positions, they have spoken out about the conditions that they've seen on the island."

The lawyers also drewon atrove of documentsleaked to The Guardian newspaperin August 2016. It comprised more than 2,000 incident reportsfrom inside the detention camp in Nauru that describedassaults, sexual abuse, self-harm attempts and child abuse. More than half of the incidents involved children.

It's not yet clear if the ICC will investigate the controversial camps. The court must first decide if it wants to do a preliminary examination. Hamilton says the standard for that is: "Is there a 'reasonable basis'for thinking that these allegations that are being made could be true?If there is and if the particular situation meets different legal standards for the court, then the court is able to start a preliminary examination."

Hamilton is hoping that the submission to the ICCwill help pressure the Australian government to shut down the camps and allow the asylum-seekers to resettle somewhere safe.

"There's a very strong constituency in Australia that is opposed to what the Australian government is doing here," she says."They're a minority but they have been on this issue for years and years and years and there are Australian human rights lawyers who have been pushing the Australian government to try to address this issue. But it hasn't yet hit a tipping point domestically."

She hopes that the submission to the ICC will get it there.

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Is the Australian government enabling crimes against humanity in its ... - PRI

The Turnbull government is contemplating measures to boost the revenue it collects from offshore oil and gas projects. Photograph: AFP/Getty Images

The federal government could gain revenue of US$4.8bn ($6.4 bn) from Chevrons Gorgon gas project between now and 2030 if it made offshore gas projects subject to a royalties regime, according to research from a Monash University academic.

The Turnbull government is contemplating measures to boost the revenue it collects from offshore oil and gas projects after collections under the petroleum resource rent tax plunged after 2012-13, and crude oil excise collections fell by more than half.

The Tax Justice Network has used an inquiry the government is conducting into the PRRT to argue that it should impose a 10% royalty on all offshore oil and gas projects in Australia to ensure taxpayers start getting a fair return on their natural resources.

Monash University lecturer Diane Kraal, who is conducting research on integrated natural gas-to-liquids projects that extract from basins in commonwealth waters, also favours the imposition of a royalties regime for offshore oil and gas.

She says that in the absence of a royalties regime, the Gorgon project will not pay any PRRT until at least 2030.

Kraal says the PRRT is clearly not working as intended for gas, and imposing commonwealth royalties for offshore projects would be one way of addressing the problem, without creating double taxation.

Royalties are fully credited from any PRRT payment, so there is no double taxation, she says.

Gas producers have used the review to dig their heels in over changes to the PRRT.

The Australian Petroleum Production and Exploration Association (APPEA), the peak national body that represents companies engaged in oil and gas exploration and production operations in Australia, has told the inquiry investment is at risk if the system is overhauled.

Any changes that lead to increased imposts under the resource taxation system will damage the ability of Australia to attract projects and thereby diminish the capacity to create sustainable taxation revenue streams for future generations, APPEA says in its submission to the PRRT review.

But with the budget in need of more revenue, the government has made it clear it will use the review process to determine how to achieve better rates of return. Reports this week suggest the treasurer, Scott Morrison, is contemplating several options, including imposing a minimum resource tax.

On Friday, the government also left open the option to pursue a separate policy change that the gas industry is opposed to creating a domestic gas reservation to ensure a percentage of gas remains onshore for domestic use.

The prime minister, who will meet gas executives next week to address a looming shortage of gas supply, refused on Friday to rule out reserving gas for domestic industry.

The Australian Energy Market Operator warned this week that New South Wales, Victoria and South Australia would face gas shortages from the summer of 2018-19. It said the tight domestic gas market would have flow-on effects, including rising electricity prices, that could threaten the financial viability of commercial and industrial businesses.

Last year, the Australian Competition and Consumer Commission warned the government against adopting a reservation policy be it a percentage of reserved gas supply, export controls or a national interest test to try to address the problem of gas shortages in Australias eastern states.

The ACCC said gas reservation policies seek to shield domestic users from the effects of linking to export markets.

In the short term, such policies may reduce prices for domestic users as additional gas is forced onto the domestic market above efficient market demand, the competition watchdog said. These artificially reduced prices weaken the economic incentives for further gas exploration and appraisal.

The gas industry has rejected arguments it should face a royalties regime for offshore projects.

Kraal said on Friday she had analysed all the industry submissions to the PRRT review. It is clear that the petroleum industry has closed ranks and is calling for no change to resource taxation, such as the PRRT, she said.

But she contended the industry had not supplied any substantive evidence to the inquiry to support the idea that the PRRT was operating as intended, and providing equitable returns to the public from current gas projects.

No industry submission has fully addressed the range of issues put forward by the PRRT review, she said.

Kraal expressed hope that the review would countenance a wider range of views than just those of the industry because the Australian public was entitled to have adequate rates of return on resources development.

She said she was a supporter of LNG development, and it was obvious Australia should welcome foreign investment, but the hanging question is who is shaping our policy on resource taxation?

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Offshore gas project royalty would reap billions for government, report says - The Guardian

A sum of US$11.6 million has been allocated to the Jamaica Defence Force (JDF) Coast Guard and Air Wing in the 2017/18 Financial Year to improve its offshore patrol and aerial surveillance capabilities.

Minister of Finance and the Public Service Audley Shaw made the disclosure in his budget debate presentation, titled Journey to Prosperity, in the House of Representatives on Thursday.

He said the allocation is part of a three-year programme, valued at $6.6 billion (US$51.4 million), which aims to improve the capacity of the JDF to eradicate the guns-for-drugs trade.

This is in light of evidence indicating that violent crimes are being fuelled by the trade.

He said the investment will also serve to provide greater protection of the fishing industry and improve search and rescue operations.

The first tranche of the funds of US$33.6 million was expended in the 2016/17 Financial Year, and the third tranche of US$9 million will be programmed in 2018/19.

Minister Shaw noted that $1 billion was expended during the current financial year to upgrade the information and communications technology (ICT) capability of the police, the JDF and the Department of Correctional Services.

Funds have also been made available to the Ministry of National Security for the upgrading and refurbishing of police stations and the acquisition of motor vehicles. Over $400 million has been spent on improving the mobility of the security forces, he indicated.

Shaw pointed out that the 2017/18 budget includes provisions to continue with the acquisition of equipment to secure the countrys borders, complete the ICT upgrade, acquire additional motor vehicles, rehabilitate police stations, and construct the Lathbury Barracks at Up Park Camp.

The Citizen Security and Justice Programme has also been allocated $1.3 billion to continue the implementation of social intervention programmes, with an increased focus on improving governance and promoting behaviour change.

This is to be achieved through conflict resolution, social inclusion and safety, and increased use of gender-responsive justice services through the Legal Aid Council, victim support services and the Justice Training Institute.

The Ministry of National Security has been allocated $3 billion, which is 24 per cent of the total Capital A budget.

JIS

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JDF gets US$11.6 million to improve offshore patrol, aerial surveillance - Jamaica Observer

LONDON Subsidy costs for British offshore wind farms are likely to fall below that of new nuclear plants in next month's government auction, German firm Siemens' head of its British offshore wind turbines business told Reuters.

Britain's government is under pressure to bring down users' electricity costs at the same time as subsidizing low-carbon generation to help meet its carbon emission reduction targets and plug a looming supply gap.

The next government auction setting prices for new renewable power projects will open in April and Clark MacFarlane, Siemens managing director for offshore wind, said this could see offshore wind costs fall below new nuclear for the first time.

"I predict the price for offshore wind in the upcoming auction will be lower than that given to Hinkley," he told Reuters in an interview.

"The price will keep coming down, as we find better logistic solutions, new grid solutions, as well as bigger turbines, he said.

French utility EDF was awarded a contract which guarantees the new Hinkley C nuclear power station will get a price of 92.5 pounds ($112.50) per pounds/megawatt hour (MWh) for the electricity it produces, which is more than double the current wholesale price of electricity.

The cost of producing electricity from wind farms off the coast of Britain has already fallen 32 percent in the past four years, and averaged around 97 pounds per megawatt-hour (MWh) in the 2015-2016 financial year an industry report said earlier this year.

MacFarlane said increasing the size of wind turbines means automatically cutting the number of turbine towers and foundations needed to produce the same amount of electricity, thereby reducing costs.

Siemens produces turbines for British offshore wind projects at its 310 million-pound ($380 million) manufacturing plant in Hull, northeast England, including Dong Energy and Macquarie's Race Bank project off the nearby coast.

The plant's current order book will keep it busy until 2019, MacFarlane said, adding that the firm was confident of securing future deals with offshore project developers who are successful in the new government auctions.

In the longer term Siemens hopes to also export turbines from the plant across Europe but has said this could depend on the outcome of Britain's negotiations to leave the European Union.

"If we don't have tariff exemptions for exports then that would be a concern," MacFarlane said.

($1 = 0.8222 pounds)

(Reporting By Susanna Twidale; Editing by Greg Mahlich)

Utility crews reinforced by teams from several Midwestern states scrambled on Thursday to remove fallen trees and repair downed electric lines strewn across Michigan the day after a record windstorm that claimed two lives and left at least 1 million customers without power.

LOS ANGELES New U.S. solar installations nearly doubled last year, but slowing demand for both residential and large-scale systems, falling panel prices and concerns about looming federal tax reform are still dampening investor appetite for the sector.

SANTIAGO SunPower Corp has put a large solar plant in Chile up for sale, according to two sources with knowledge of process, as the second largest U.S. solar panel maker seeks to cut costs across the globe.

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UK offshore wind power subsidies set to drop below nuclear ... - Reuters

New Bill Takes Aim at Offshore Tax Avoidance | Financial ... Common Dreams WASHINGTON - Legislation introduced by Sen. Bernie Sanders (I-VT), Sen. Brian Schatz (D-HI), and Rep. Jan Schakowsky (D-IL) Thursday takes aim at ... and more »

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New Bill Takes Aim at Offshore Tax Avoidance | Financial ... - Common Dreams

This is a traditional article dedicated to results of the earnings season for offshore drillers. Here, we will discuss the situation in the oil market, key trends in the offshore drilling industry and individual offshore drillers whose stocks trade at major U.S. stock exchanges.

Oil

Back on February 22, I wrote that OPEC had little time to push Brent oil (NYSEARCA:BNO) over $57.50 before the inevitable downside correction. The rationale for this was simple - there were too many long speculative bets in oil without a corresponding increase in oil prices. Recent inventory data was the last straw that broke the camel's back, and both Brent and WTI (NYSEARCA:USO) experienced big sell-offs.

This move cemented $57.50 for Brent and $55 for WTI as key resistance levels. Should prices come back to these levels, you can expect increased selling due to profit taking, hedging of outright shorting. Oil will need a significant fundamental catalyst to break through this resistance. Long bets by speculators proved insufficient to push oil above the major resistance line.

This is very bad news for all offshore drilling companies. Previous oil price levels were not good enough to increase contracting activity as highlighted by earnings and fleet status reports. The new downside move means that oil will spend at least some more time under $57.50. Also, such fast moves are negative for oil producers' confidence in price stability. Unless oil majors become confident that prices will stay at $55 - $60 (at minimum!) per barrel, all incremental money will go to short-cycle projects like shale.

The move is also bad for the OPEC deal. Compliance to the deal heavily depends on the cartel's ability to sustain prices. Should prices go lower, participants will realize that they have done everything wrong - provided a lifeline for struggling U.S. shale producers, lost market share and did not get better prices.

Some observers expect that OPEC will be able to negotiate an even bigger cut if they fail to improve the pricing environment, but I expect the exact opposite. If OPEC deal fails to improve prices and the cartel finds itself selling less oil at the very same prices that were before the deal, the deal will fall apart. There will be no reason to subsidize U.S. shale and other producers at the expense of OPEC countries.

Oil is oil, so there's a lot of volatility ahead. The key takeaway for offshore drilling industry is that OPEC deal was no silver bullet and the industry will have to wait even more for recovery.

Key highlights from the earnings season

Long-term contracts at rock-bottom rates started to emerge. Examples include Noble Corp.'s (NYSE:NE) and Ensco's (NYSE:ESV) contracts with Saudi Aramco. Judging by drillers' comments during conference calls, the industry expects there's more to come. While contracts are important to provide financial visibility in the future, they tie up the fleet at rates that contribute nothing or next-to-nothing to the bottom line.

There is no mass scrapping. The chart from recent Atwood Oceanics (NYSE:ATW) presentation highlights that pace of scrapping increased, but not dramatically:

Most companies continue to clutch at straws and hang on to their rigs as long as they can. Another problem with scrapping rigs is the accompanying impairment on the balance sheet - drillers don't want to scare investors (and potentially violate covenants!) with real numbers. Ocean Rig (NASDAQ:ORIG), which is preparing for restructuring, showed how hard can it get by writing off 60% of value of its modern (!) fleet.

Most management teams portrayed a better future, but they had no facts to back up their optimism. More calls, more talks, more everything with clients - that's how most drillers described the situation after the OPEC/non-OPEC deal. We have heard this before. You can check my article on the results of the Q3 2016 earnings season, where I highlighted that drillers mentioned increased customer inquiries. In my view, words mean nothing until we see tangible evidence.

Restructuring talks proved to be extremely complicated. Suddenly, Seadrill Partners (NYSE:SDLP) turned out to be not immune to Seadrill (NYSE:SDRL) restructuring, presenting a wonderful short opportunity. Seadrill itself spent a whole year to come up with a poor proposal which was based on unrealistic expectations. There's little surprise that the company still has to work on a viable deal and Chapter 11 is already in sight. Pacific Drilling and Ocean Rig restructuring talks also continue. Faced with unprecedented downturn, creditors try to find a scheme that will save their money, but it's not easy (or even possible) given the current market situation.

Floaters remain dead money. Oil price is not high enough to improve demand for floaters, period. It's safe to say that you can forget about any material improvements in the segment with a sub-$55 oil.

Jack-ups are better, but rates are low. Jack-ups are getting some work, but the jack-up overcapacity is so huge that dayrates are glued to the very bottom. I see no catalysts that can push rates from the bottom in the near term.

Oil majors have already chosen their strategy for 2017. They will preserve their balance sheets and allocate money to shale. The wild card was that oil breaks through $57.50 with a vengeance, continuing the post-OPEC deal upside, but this did not happen. While this is early in the year, I already expect that any improvements are postponed to 2018. The reason for this is that oil producers need stable prices at higher levels to increase their offshore exposure. "Stable" means that prices spend months above $57.50 or even $60, and we are not even there yet.

Let's now turn to individual names.

Atwood Oceanics

While Atwood Oceanics does not have immediate cash problems, especially after equity issue at the beginning of the year, the company's backlog remains a big problem. Atwood's shares have already corrected significantly from the $14 level, but more downside may follow if oil prices fail to rebound swiftly. I continue to believe that the situation remains dangerous for the company.

Diamond Offshore Drilling (NYSE:DO)

Shares of Diamond Offshore Drilling are close to the key support level. As I wrote in the comments section of my previous article on the company, I believe that its shares may be an interesting bet here if the stock breaches the support to the downside and then immediately returns above $15. If you are more optimistic than me on oil prices, Diamond Offshore Drilling's current level may be suitable for you.

Ensco

The $12 level proved to be a wall for Ensco's shares, and now they are correcting together with oil prices. Ensco is definitely part of the survivor group, but current momentum looks strong and the stock needs to stabilize first before any upside is possible.

Noble Corp.

Troubled by the usual problem - lack of specific catalysts - Noble Corp. shares are slowly gravitating towards November lows. I expect a wide range trading for Noble Corp. stock and I believe that it may be attractive for a range play when the low end of the range is established. Judging by what we see on the fundamental (no improvement in the market situation) and the technical (sell-off across all offshore drillers, current support does not look strong) fronts, entering at $6 may be premature.

North Atlantic Drilling (NYSE:NADL)

Avoid North Atlantic Drilling. The probability of Seadrill restructuring being beneficial for North Atlantic Drilling is close to zero.

Ocean Rig

Avoid Ocean Rig. After the recent write-off, shareholder equity became negative which highlights that there is no value left in common shares and the company knows it.

Pacific Drilling (NYSE:PACD)

Avoid Pacific Drilling. Market for floaters is awful and the debt is huge. Creditors will need to take significant haircuts to make the company a viable enterprise again, which means that common shareholders stand to receive nothing in the upcoming restructuring.

Rowan (NYSE:RDC)

Rowan continues correction along with other offshore drilling names. This is one of the best companies in the industry that receives little interest from retail investors compared to battleground stocks like Seadrill. The next support level for Rowan is at $15, it will be interesting to see whether the stock will be able to hold at this level. While the company right now is hardly a momentum play, it should be closely watched for buying opportunities.

Transocean (NYSE:RIG)

I believe that Transocean was a bit overhyped following the OPEC/non-OPEC deal, so correction was almost inevitable. The company has a whole fleet of stacked rigs, and I believe that many of them won't work again. I see Transocean as a survivor and I believe that it may present a buying opportunity after the current sell-off.

Seadrill

Seadrill is only good for daytrading now. The Chapter 11 possibility is real. Should the company file for bankruptcy, shareholders will be lucky to get anything at all. Unless you are a real gambler, you'd be better off watching Seadrill from the sidelines.

Seadrill Partners

The easy short is over. At the same time, uncertainty will lead to increased volatility in the coming days and weeks. Those willing to grab Seadrill Partners units after the big sell-off should keep in mind that the company may end up being part of Seadrill restructuring, which would be a real catastrophe for Seadrill Partners unitholders. Risks are very significant.

Bottom line

I see no evidence of recovery. I believe that offshore drilling stocks remain a vehicle for momentum plays - both long and short. Those willing to commit to offshore drilling for the long-term (for whatever reason) will be better off sticking to best players and avoiding gambling with battleground stocks like Seadrill and Ocean Rig. The industry is in bad shape and mistakes will cost dearly for investors.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: I may trade any of the abovementioned stocks.

Editor's Note: This article covers one or more stocks trading at less than $1 per share and/or with less than a $100 million market cap. Please be aware of the risks associated with these stocks.

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Offshore Drilling In Deep Trouble As Oil Dives Lower - Seeking Alpha

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The International Monetary Fund in Washington is shifting some of its IT work overseas, and somewhere between 100 and 200 IT workers are impacted by this change.

The work is being taken over by India-based IT managed services provider L&T Infotech, and the change was announced to the staff last year. The transition, which involves training L&T employees, is continuing through the end of this year. IMF IT workers are being to encourage to stay by means of an incentive package.

The affected IT workers are all third-party contractors. Some of the contractors have been working at the IMF for five and 10 years or longer, and are viewed as staff for most purposes.

"Some people are just mad," said one affected IT employee, who requested anonymity. "Why are they bringing people in from overseas to do these jobs?" Computerworld reached several IMF IT workers.

The affected areas include networking, security, servers and desktops.

L&T Infotech, is an H-1B dependent firm, meaning 15% or more of staff works on temporary visas. IMF IT workers reached weren't certain if the contractor's employees were on a visa. One IT worker said that Labor Condition Application notices from the contractor, indicating the salary and workplace of a visa worker, had been posted in their office.

The employees say that a number of IT workers have left for other jobs. L&T is expected to offer jobs to a small number.

The IMF is based in downtown Washington and its IT operations are located about three blocks from the White House.

One of the third-party contractors that supplies IT workers to the IMF is TEKsystems. Computerworld asked whether it will find the workers new jobs. Nathan Bowen, TEKsystems spokesperson, in a written statement said: "A TEKsystems recruiter's chief priority is to keep our consultants consistently employed with organizations and jobs that match their skill sets, needs and personal and professional goals. We understand the iterative nature of contract work and both the opportunities and challenges it presents. While our consultants focus on their work, we focus on ensuring that next opportunity is waiting for them when theyre ready to take it."

Computerworld contacted the IMF by email and phone, but the organization did not respond to a request for comment. But the IMF did release an unrelated statement Thursday afternoon describing IMF Managing Director Christine Lagarde's meeting with U.S. Treasury Secretary Steven Mnuchin, telling him that the IMF was interested in creating jobs.

This statement said, in part, "Madame Lagarde expressed the IMF's desire to continue close engagement with the U.S. to encourage policies that will promote growth, stability, and job creation in the U.S. and globally."

Senior Editor Patrick Thibodeau covers Internet of Things, enterprise applications, outsourcing, government IT policies, data centers and IT workforce issues for Computerworld.

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IMF moving IT jobs to offshore firm | Computerworld - Computerworld

Forbes

Can You Opt Out Of Big IRS Offshore Penalties? Forbes Undisclosed foreign accounts or income can trigger significant civil penalties. They can even carry potential criminal penalties. Since 2009, many U.S. persons with foreign accounts and income have come within the IRS's enormous offshore enforcement ...

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Can You Opt Out Of Big IRS Offshore Penalties? - Forbes

This might be the last chance to sell or short GulfMark Offshore (NYSE:GLF).

GulfMark's Highland Knight. Source: Adrian SPye, Creative Commons.

Cash Running Low

The company's last financial statements are from Q3 2016. GLF shareholder equity fell from about $1 billion in 2014 to $518M last quarter, a decrease of almost 50% since the beginning of the market downturn. The company operates 71 vessels that provide support to offshore operations of the oil and gas industry, and fixed assets' carrying value has been impaired in the last months. The cash position is $10 million, and working capital is $23 million. But cash flow last quarter was -$12 million.

The cash from financing is mostly from increasing debt. At this burn rate the company should have already run out of cash by Q4 2016, and all working capital will be gone in by Q2 2017. Also, the company disclosed in their last 10-Q a cash commitment of $24 million:

We have a vessel under construction in Norway that was scheduled to be completed and delivered during the first quarter of 2016; however, in the fourth quarter of 2015, we amended our contract with the shipbuilder to delay delivery of the vessel until January 2017. Concurrently, in order to delay the payment of a substantial portion of the construction costs, we agreed to pay monthly installments through May 2016 totaling 92.2 million NOK (or approximately $11.0 million) and to pay a final installment on delivery in January 2017 of 195.0 million NOK (or approximately $24.4 million at September 30, 2016)

The company's access to the revolvers is subject to the valuation of the collateral (vessels) that could be further impaired in quarters to come, and many other inconvenient covenants that:

This latter point might ultimately prove to be a killer because the company is operating at a negative EBIT.

What's Next?

According to Stein's Law: "If something cannot go on forever, then eventually it must stop." Sooner rather than later, GLF will be unable to pay the interest on its debt (carried at about $473 million). GLF debt has been trading at deep discounts, between $30 and $65. The current prices around $60 represent a 100% rally from historic lows.

As previously mentioned on Seeking Alpha, a group of hedge funds has acquired a significant portion of the debt. Based on the table above, I believe their cost basis for the debt could be between $140 and $310 million. In other words, after a hypothetical bankruptcy, they will have acquired the company and its 71 offshore vessels at about $2 to $4.5 million each.

Market price of GLF debt. Source: Borse Berlin.

Worse Than Insider Selling

On March 7, the company disclosed the resignation of William Martin as a director. Martin is the CIO of Raging Capital Management, an investment fund that as of Dec. 31, 2016, was GulfMark's largest shareholder. This development might reflect differing interests between Raging Capital as a shareholder and as a bond holder.

Competitive Position

One of the main markets for GulfMark is the North Sea. In this region, the industry has begun to see consolidation through a three-way merger between Solstad Offshore (the aqcuirer), Farstad Offshore, and Deep Sea Supply. This deal is illustrative of what can happen to a distressed OSV (offshore support vessel) operator. After heavy losses, Farstad had an unsustainable capital structure:

Source: Created by author with data taken from Farstad's financial statements.

The company reached a restructuring deal with their debt holders that includes:

After the deal, old shareholders would keep 0.8% of the company:

Source: Created by author with data taken from Farstad's restructuring press release.

Immediately after this restructuring, Farstad and Solstad will merge through a stock-for-stock transaction. The ratio will be 0.35 shares of Solstad for every 12.5 shares of Farstad. Immediately afterward, Deep Sea Supply will merge into the new "Solstad Farstad." This new company will be a major global player in the industry, with a fleet numbering 155 vessels. The share of vessels provided by each predecessor is as follows:

Source: Created by author with data take from the companies' websites.

There are many differences among vessels in design, deadweight tons, etc., but this provides some insight about the merger. The actual ownership of the resulting entity will be split in such a manner that Farstad post-restructuring shareholders will own 59% of the company.

Solstad Farstad ownership will be as follows:

Source: Created by author with data from Farstad's restructuring press release.

There is, certainly, some important dilution for continuing Solstad shareholders: Now, they collectively own just 31% of the resulting company. But this could prove highly beneficial for them since they have received an almost debt-free Farstad, and the total debt/equity ratio is going down.

Contrast and Compare

One of the approaches I learned from Benjamin Graham is to compare the financial information of several companies to try and find which one has a better relative valuation. For example, I've taken the main, public American OSV companies:

Note: Income figures are in thousands. Source: Created by author with data taken from the companies' financial statements (GLF Q3 2016, TDW and HOS Q4 2016).

Only Hornbeck Offshore Services (NYSE:HOS) has positive cash flow, and their CEO announced plans to position the company as an acquirer in the industry.

Highway to Liquidation

Debtholders in the OSV industry face three scenarios:

1. The company is strong and there's little fear of a default under any circumstances.

2. The company is near insolvency, so it can be readily taken over and liquidated, merged, etc.

3. The company is in trouble but insolvency could happen a few years from now. By then, demand for secondhand vessels is going to be close to zero. This situation offers the least chance of recovering the principal.

It is in the best interests of debtholders to sell the underlying assets as fast as possible. Time works against them: As months go by, more cash is burnt by the companies and other foreclosures satisfy the secondhand vessel demand. I believe that intelligent debtholders will try to accelerate the realization of the company's assets, as long as they keep some resale value. The urgency will decline as the fleet approaches scrap value.

Catalyst

Tidewater (NYSE:TDW), the industry leader, is expected to announce either a restructuring or a bankruptcy on Monday, March 13. This could have contagious effects on the rest of the industry. Currently, the company does not comply with the debt covenants, and debtholders have been granting temporary waivers in order to avoid a default situation. Management has already warned that "it is likely that the shareholders' ownership interests will, at a minimum, be significantly diluted." It isn't pleasant for shareholders to be at the mercy of vulture funds.

The Effects of Consolidation

The OSV market is grossly oversupplied, and it is almost impossible to sell a fleet one vessel at a time. In many countries, cabotage laws restrict the operation of foreign-owned or foreign-flagged vessels, notably in the American Gulf of Mexico. Finding buyers will be harder as time goes by. Therefore, debtholders who want to maximize the probability of recovering their principal need to dispose of their fleets in the most value-adding manner. In the North Sea, Farstad's debtholders essentially wiped out the equity and traded the company as a whole. In return, they get shares of a promising industry leader that they can sell immediately in the stock market.

Now, consolidation is very bad news for the acquired companies (Farstad shareholders essentially got wiped out). There are many other Farstads out there and their shareholders face permanent capital losses. There is still a lot of pain coming for the equity in this industry.

Key Takeaways

Disclosure: I am/we are long HOS.

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GulfMark Offshore: Insolvency Ahead? - Seeking Alpha

Cabinda Gulf Oil Company began drilling in the second phase of the fields development, collecting 150,000 barrels of oil and 350,000 cubic feet of natural gas per day. Production is expected to peak in 2018.

This milestone supports our priority of completing major projects and improving free cash flow, Jay Johnson, executive vice president of upstream projects for Chevron, told World Oil. The Mafumeira Sul project generates new production and value for Angola, our partners and the corporation.

The block sits just 15 miles off the coast of the Cabinda province under 200 feet of water. As part of Phase 1 operations, a temporary production system pumped oil in October 2016.

Sonangol, Angolas state-run energy company, owns a 41 percent share of the venture, while Shell holds a 39.2 percent stake. Total and Eni own the remainder.

Last month, Johnson said Chevron had been discussing more attractive tax rules for investment in Angola with the local government and Sonangol to determine Chevrons future in the African country.

Existing tax terms are not very attractive ... We have been working both with Sonangol and with various departments of the government of Angola so that we can make it feasible and we can invest, the executive said. Our investment will depend on what will result from these negotiations.

Angolas economy has been struggling with low oil prices, and talks over amending tax regimes would starve the country from other streams of revenue. The countrys economy did not grow in 2016, and GDP is expected to increase by 1.5 percent this year, while consumer prices will continue to soar, according to projections by the International Monetary Fund (IMF).

By Zainab Calcuttawala for Oilprice.com

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Chevron Subsidiary Begins Drilling On Angola's Offshore Blocks - OilPrice.com