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with Carl Lieungh, President and CEO, Sevan Marine

03.10.2012 / Energyboardroom

The last 12 months have witnessed a major restructuring program within Sevan Marine. What persuaded you to take over the operation in May last year and how do the challenges compare with your original expectations?

The main reason I was attracted to the company was the innovative nature of their business and what they had achieved in a very short time-frame. I have admired the creativity of the founders for a long time. Indeed, Sevan Marine was responsible for launching the Navis, a state-of-the-art drillship, and they pioneered the concept of circular FPSOs.

Actually when they launched these designs I was personally very skeptical that a conservative industry like oil and gas would take this concept on. Nonetheless, over the past decade the company has brought new technology to the market, constructed three operating FPSOs, has one huge FPSO destined for the sub-Arctic conditions on the Goliat Field currently under construction, and an additional two drillships on order. From an industrial point of view this development has been phenomenal.

Obviously from a business perspective the growth was simply too fast. During the financial crisis in 2008 the high level of debt leverage hit the company hard and this was when the major problems started.

Before I started at Sevan Marine, an IPO for the drilling division, which is now Sevan Drilling, was prepared for launch on the Oslo stock exchange. Sevan Marine was to own 28.5 percent initially of the company and bring cash from a consequent down sale to help with Sevan Marine’s debts. The IPO process did not work out as planned and there was still an urgent need for liquidity to serve the enormous debt.
Thinking back to my expectations, when I joined the company in May last year, I understood the job would entail restructuring Sevan Marine but I really had no idea of the magnitude of the task I was taking on.

The day after my last day at NCA, Saturday 30 April 2011, I drove to Arendal to pick up the chairman of Sevan Marine for a board meeting in Oslo, and it was at this board meeting I discovered the task would be a lot more challenging than I had originally envisaged.

How adaptable are Norwegians to this kind of change?

Norwegian mentality is very well suited to this kind of adaptation. There are no major hierarchies in Norway and reporting lines are short. No one is afraid of raising their voices or expressing their opinions and this is very helpful in a restructuring operation.

I made sure early on to explain the full extent of the situation to the employees of Sevan Marine. I did not hide the possibility of the company’s bankruptcy. As a consequence, I received very good feedback. They were interested in the new strategy, wanted to influence its direction and wanted a meaningful way of conducting this business.

There have been many changes in the management team and the way we are doing business, and the employees at Sevan Marine have worked hard to make the transition go smoothly.

What steps did you take after discovering the full nature of the situation?

We started with two projects: the first was a road show to meet our major shareholders and receive their advice, and the second was to audit the Sevan Voyageur upgrade project as I suspected project reporting and the project itself were not entirely in sync and forthcoming information was inaccurate.

Firstly, our shareholders advised that we should attempt a direct private placement, however, we understood early on that this would not be sufficiently supported. There was uncertainty over the Voyageur project so we were advised that the best method of financing would be a preferential rights issue. We put this in place with DNB who were willing to underwrite the cost, while the following week the share price plummeted making this instrument impossible.

There was no other choice than to seek a solution involving the bond holders. Sevan Marine initiated a discussion with its creditors and Jens D Ulltveit-Moe, a solid Norwegian industrial investor, bought more than five percent of the shares, requested an extraordinary general assembly and took the position of chairman. Ulltveit-Moe had also been involved in restructuring PGS. Neither Ulltveit-Moe nor I had been with Sevan Marine previously and were therefore fairly objective in our examination of the company.

One complex situation was that the company was not financed from the top on a fleet level but rather the bonds were assigned to individual vessels. Each bond holder had their own agenda. An important step in facilitating the process was the bond holders reaching agreement on a common set of financial and legal advisers to harmonize the company’s restructuring.

Sevan Marine used the specialist restructuring company, AlixPartners, as advisers and put a lot of effort into reformulating the business plan. This was important since in order to convert the debt into equity, investors needed to see a clear business plan. In September we went to New York to present the plan to the bond holders.

In parallel Sevan Marine was engaged in discussions with Canadian ship-owner, Teekay. Teekay was initially interested in the Sevan Voyageur upgrade since it was still a commercially viable contract. When the financial market became shaky last autumn, Teekay made an offer for the entire restructuring which the bond holders found acceptable. In November 2011 the solution for the restructuring process was agreed.

Teekay injected USD 25 million into the company as equity thereby becoming a 40 percent shareholder in Sevan Marine. The remaining shareholders, and unsecured bondholders, subscribed to a further USD 25 million generating USD 50 million for the company.

People thought this would be the end of the process but it took us another five months this year to complete the paperwork, execute the changes, etc. It is only now that Sevan Marine is approaching the end of the restructuring process.

The last element will be for Teekay to take over the Sevan upgraded vessel, Voyageur, which will happen on first oil. Teekay will then pay the holders of the Voyageur bonds and assume full responsibility for ownership and operation of the vessel. Teekay has provided Sevan Marine with a bridge loan of USD 103 million which is being used to complete the upgrade.

As a result of the cooperation with Teekay, Sevan Marine moved from a build-own-operate model to a design and technology company and project developer. Sevan Marine is now concentrating on concept studies that will lead into feed studies and a license contract like the project for ENI’s Goliat Field.

What are your remaining objectives in the restructuring process for 2012?

I have five objectives for this year. Firstly, I want to complete the Sevan Voyageur upgrade and have first oil by the end of the year.
Secondly, we are carrying out a strategically important concept study for Statoil on Skrugard. This project will establish our reputation as a provider of FPSOs to Arctic and sub-Arctic regions.

Thirdly I want to secure a licensing agreement which would prove our new business model. This is about to be done on the Western Isles project for Dana Petroleum. Although the project is awaiting sanctioning, Dana have issued a press release and selected our concept so we are working as if it were a project already.

Fourthly, we are trying to find a buyer for the two hulls that are partly completed and located at the Cosco facility in China. I need to find good projects for these hulls. They are adaptable and could be utilized for many offshore applications.

Finally, I’m looking into developing the growth of the company’s business group which designs topsides.

2012 will be a transition year and so far we have been able to do exactly what we have communicated. The pure fact that we received the study pact from Statoil and that Dana Petroleum is using Sevan Marine technology shows we are on the right path. Of course Sevan Marine’s normal operations have been affected by the restructuring and the decisions of the major oil companies have been influenced by the company’s poor financial situation. However, throughout restructuring, the employees have worked diligently on the existing projects and step by step there are more and more encouraging signs.

Beyond doubt the Sevan Marine circular FPSO concept has motion characteristics which are the best in the world, particulary for harsh environments and deep water applications. The circular concept eliminates the need for a turret which is a great advantage in many instances. When the Sevan Hummingbird FPSO operating for Centrica on the Chestnut field in the North Sea was hit by a 100-year wave, it moved exactly as predicted, and to a very limited degree. Many other FPSOs in the area experienced problems. Those who were skeptical from a hydrodynamic point of view have since been convinced.

Where do you see some of the most applicable areas for this technology?

We consider the North Sea as our backyard: both the Norwegian and UK sector. The Goliat project is in a sub-Arctic area with extreme temperatures however without ice. We have the ability to go further north into the ice and have developed technologies to enable this. Our technology has been proven in the deep waters offshore Brazil where Sevan FPSOs are operating with good performance. There has been considerable reluctance to having FPSOs in the Gulf of Mexico due to the hurricane season and the necessity to disconnect in the event of severe weather conditions. However Sevan Marine has been developing a good concept for disconnection if required – something we have also been developing for ice conditions.

We are now concentrating on our core business – the FPSO engineering and technology. With Teekay owning 40 percent of the company, from a competition point of view we are considered as one unit. Teekay’s acquisition of Petrojarl in Trondheim linked them to the FPSO company having the longest experience in the world. Therefore in joint bids with Teekay as the principal contractor, Sevan Marine gains Teekay’s operational experience and financial muscle. Sevan Marine has assumed the role of project developer of EPC contracts. Teekay will then pay a license fee for the using this technology and we will be paid for the people we deploy for the project. This means Sevan Marine will essentially be performing the same operations as before but with more financial backing and extremely strong operator experience.

Which markets are you targeting?

A large part of our business strategy planning has involved assessing the various world markets. At the moment, the North Sea is a highly attractive market for the coming years. Sevan Marine has proven its concept in this market in terms of its applicability and competitiveness. This will be maintained as a very high focus. Brazil is also an attractive region for us to expand our work. Petrobras was the first to embrace our concept and it is a very forward-thinking company.

One of the benefits of our partnership with Teekay is that whilst Sevan Marine does not have a presence in Brazil, Teekay does and we are hoping to piggyback off their international channels to access new markets. This is one of the major benefits of having such a substantial international owner within the company.

Southeast Asia is also an extremely interesting market. However, this is a market dominated by relatively lean and mean conversions operating in benign waters and there is often no need for a turret – just a riser balcony – therefore it is difficult for Sevan Marine’s circular concept to compete directly in this market. However, from a topside engineering point of view, we see a lot of potential in this market. The largest conversion yards in the world are in this region.

As for the others: West Africa is an attractive market where we hope to move with our clients to the region, especially those in the UK. We will also be monitoring the Gulf of Mexico market. It will be interesting as the industry moves into harsher environments and deeper waters to see how the market responds to our technology.

When do you think Sevan Marine’s troubles will finally be over and you can rest easy?

Even though you go to sleep with the problems and wake up with the problems the process of transformation has been very rewarding. Nowadays, I sleep extremely well and once the Sevan Voyageur reaches first oil this will be a large weight off the company’s shoulders. The last payment for the securitized loan for the Goliat project was paid off in August and once the two hulls in China are sold, I believe the company will be back on track.

I see the next 3-5 years developing our business model both with oil companies like Dana Petroleum and ENI as direct clients and lease contracts with Teekay. The organization is being strengthened and we are recruiting an increasing number of people – a sign that we believe in a healthy market to come.

We are looking at our technology development for other applications such as accommodation units. I have had some preliminary discussions about well intervention and enhanced oil recovery. We have developed a concept together with Siemens for a power hub, we also have a concept for liquefaction and regassification. These will be further down the line. Essentially, we will use what has been developed as an incubator for new initiatives. Eventually I see Sevan Marine in the market launching new innovative products while for the moment we want to keep our feet on the ground and finish the restructuring process.

Do you enjoy the restructuring process and would you have done this again?

That is a big question. People often ask me: “Why?! You knew this would be extremely difficult.” My response is simply that being able to fix problems gives me huge satisfaction and you are not doing this on your own rather as part of a team. Actually, I would have hated to be recruited into a position where things are going smoothly and you inherit a stable business. It must then be very hard to maintain motivation on a day to day basis.

Do you have any advice for a CEO initiating a similar restructuring operation?

As an obvious point, you need to have the organization working with you and for this to happen you need to be very honest about the situation. My second piece of advice is to seek external help because there are good advisers out there, and that said, you need to be selective. A restructuring is all about the financial side. I am an engineer by background although I have some financial background as well. In a restructuring process you never lack financial advisers but there are often few people with an industrial background. Many people in the financial world know a lot about oil and gas and technology but they do not know the specifics. This is a dangerous scenario because they have strong opinions yet do not see the whole picture. Having good industrial advisers is therefore highly recommended.



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