With many traditional oil and gas contractors now diversifying into offshore renewables, the recent acquisition of Seaway Heavy Lifting will give buyer Subsea 7 a stronger foothold in this market, which it has targeted as a growing sector.

Subsea 7’s offering in the heavy lifting and decommissioning markets will also be boosted by the deal, giving Subsea 7 a triple play to exploit.

“Subsea 7 will fully support further growth of the business in this market and has capacity to invest in growth of the segment, with due regard to capital discipline,” the company told SEN regarding the renewables sector.

The move into renewables is partly business opportunity and partly survival. The oil price crash in mid-2014 caused the worst oil and gas industry downturn in decades and operators put countless developments on hold. Many remain on ice until the oil price holds steady between US $55-$60/bbl at a minimum.

Since the recession hit, operators and contractors have worked together to bring project development costs down by up to 40% compared to pre-downturn times. This means many projects are looking more viable, with OPEC and non-OPEC production cuts giving more stability to global prices despite North American shale producers cashing in on any crude price rises to hike their own output. OPEC seems likely to extend its production cuts to lend further support.

Renewables, Heavy Lifting Growth

Subsea 7’s business operates across three major offshore units: SURF and conventional; life of field (delivered by i-Tech Services); and renewables and heavy lifting (now delivered by Seaway Heavy Lifting).

“Within renewables and heavy lifting segment, this acquisition is aligned with our strategy to provide market leading offshore energy services by creating long-term growth opportunities and increasing our presence in three key markets: oil and gas heavy lifting; oil and gas decommissioning; and offshore renewables,” Subsea 7 told SEN.

Already an established installer of wind farm foundations, Seaway Heavy Lifting has an “excellent track record” in the offshore wind sector, having installed more than 550 turbine foundations. Subsea 7 also pointed out that Seaway Heavy Lifting recently expanded into the engineering, procurement, construction and installation contracting and has picked up jobs on U.K.’s Beatrice and Germany’s Trianel Borkum West II wind projects.

“Consolidating Seaway Heavy Lifting into the group increases our participation in renewables, heavy lifting and decommissioning services,” Subsea 7 said. “These are areas where we expect market activity to increase and see potential to grow our market share. Seaway Heavy Lifting operates two world-class vessels, the Oleg Strashnov and the Stanislav Yudin and is active in three specialist segments of the offshore energy market.”

These three areas are:

  • Installation of wind farm infrastructure such as foundations and substations;
  • Heavy-lifting operations for oil and gas developments, including installation of SPARs and TLPs; and
  • Decommissioning of redundant offshore structures.

Decommissioning Potential

Given the U.K. government’s recent move to clarify decommissioning tax history—an issue that has blocked many deals between operators on fields that will soon be facing decommissioning—the purchase of Seaway Heavy Lifting makes Subsea 7 well-positioned to boost its involvement in this area.

“The acquisition of Seaway Heavy Lifting allows Subsea 7 to provide a more comprehensive decommissioning capability for the U.K.,” Subsea 7 noted.

Subsea 7 added that Seaway Heavy Lifting has 25 years of experience and has completed more than 150 heavy-lifting installation projects for oil and gas clients around the world.

Acquisition Completion

Following signing and completion of the deal, Seaway Heavy Lifting and its subsidiaries became wholly-owned by Subsea 7 on March 10.

Prior to the acquisition, Seaway Heavy Lifting—which employs about 550 people—was a joint venture company in which Subsea 7 held a 50% stake. Subsea 7 paid $279 million in cash for the equity. Upon completion, an additional sum of up to $40 million will be paid in 2021 on the condition that certain performance targets are met, according to a news release.

“Our investment to acquire the remaining shares in Seaway Heavy Lifting, such that it becomes a wholly owned subsidiary of our group, is aligned with our strategy to grow and strengthen our business for the long-term,” Subsea 7 CEO Jean Cahuzac said.

The group will report revenues and net operating income from Seaway Heavy Lifting within a new business unit called Renewables and Heavy Lifting. This new reporting structure will be reflected within Subsea 7’s first-quarter 2017 results, which will be posted on April 27.

On Dec. 31, 2016, the consolidated balance sheet of Seaway Heavy Lifting reflected net assets of $392 million, including net cash of $62 million. At the time, Seaway Heavy Lifting had $284 million of order backlog, excluding $1.1 billion relating to the U.K. Beatrice offshore wind farm project, which is already included in the reported order backlog of Subsea 7.

Offshore