Hermitage Offshore Becomes Latest to Issue "Going Concern" Warning
Hermitage Offshore Services became the latest company in the offshore sector to issue a dire financial outlook. The company said it has engaged financial advisors to provide consultation and has commenced discussions with its lenders.
The owner of 23 vessels consisting of 10 platform supply vessels, two anchor handling tug supply vessels, and 11 crew boats that primarily operate in the North Sea or the West Coast of Africa, said that current circumstances give rise to substantial doubt about the company’s ability to continue as a going concern.
In reporting first quarter results, the company cited the outbreak of COVID-19 coupled with the abrupt deterioration in the price of crude oil resulting, which prompted significant reductions of both current and planned capital expenditure outlays from major oil producers throughout the world. Consequently, it said, the markets in which the company's vessels operate, particularly in the North Sea, have come under significant pressure in the form of reduced spot market rates and utilization, higher lay-up activity, and contract cancellations and renegotiations.
Hermitage became just the latest company in parts of the offshore sector to raise concerns. At the beginning of the week, offshore rig operator Seadrill said that it would voluntarily delist from the New York Stock Exchange followed by issuing its own going concern warning for investors, citing the fundamental market imbalance between rig supply and demand.
Numerous companies related to the offshore industry have also announced cutbacks in their workforces. Subsea 7 announced this week that it would reduce its headcount by about 3,000 employees during the second quarter out of a global workforce of 12,000. In the North Sea, Maersk Drilling announced about 300 layoffs in April and another 150 in May. In the U.S. Gulf of Mexico oil patch, the Louisiana Oil & Gas Association indicates that its members have already laid off as much as a quarter of its workforce.
Siem Offshore, which operates a fleet of 35 vessels serving the oil and gas industry, announced in April that it has entered into a standstill agreement with its secured lenders in Europe and Norway as a first step toward improving cash flow and liquidity to maintain operations. Siem, however, must also obtain a similar agreement with its secured lenders in Brazil and Canada as well as obtaining approval from its bondholders to defer payments and suspend their acceleration rights.
After years of struggling with oversupply and weak demand, many analysts point to the challenges in the current economic downturn from the global pandemic as causing the current collapse in the industry.