BW Offshore is the company that has been in my portfolio the longest. Probably more than 10 years, with trims and buys along the way.
Today BWO announced that they have sold the FPSO BW Opportunity; for several years she was known as “FPSO Cidade de Sao Mateus”. In addition BWO is trying to get a 5 year contract for EPCC and O&M. The price agreed upon is far higher than any analyst has expected. But they tend to be very conservative with these kinds of value estimates. Most have probably used scrap value.
The oil producers are not interested in projects with long lead times, and cash flows long into the future. Furthermore, most still have a healthy cost focus, and with current inflation actions that might mitigate inflation is appreciated. With a redeployment candidate as Opportunity, you will roughly save 50% compared to a new build, in a regular inflation environment. In this high inflation environment, probably more. In addition you reduce time to first oil, and likely you can also claim a environmental benefit of saved CO2. In comparison the Barossa project had an initial capex cost of $2 bn. On Barossa cost seems to be under control, but also remember the Gato do Mato project is currently paused by the operator, due to inflationary pressure.
As indicated by the price to book ratio, the market has refused to value these old ladies at this kinds of valuations. An interresting question now is: What about the rest of the units in layup? Currently there are four FPSOs marketed for sale. If we assume $16 million in scrap value pr unit, these are currently valued at $64 million, around half of what Opportunity was sold for. According to Pareto Securities this sale alone is worth 6,40 nok a share. If the remaining four vessels are worth the same as Opportunity, those vessels alone are worth the entire mcap of BWO before fridays large gain. If we are somewhat more conservative, and assume scrap value for two, and comparable valuations as Opportunity for the last two, we still end up with large hidden value in BWO. I wonder if it is something like this Francisco García Paramés has predicted, as he has bought BWO with both hands. His funds now own 8,6% of the shares in the company. Also, Salt Value are the third largest owner, with 2,3% In addition the fund manager owns 0,4% of BW Offshore privately.
Earlier BWO had sold BW Cidade de São Vicente and Umuroa for recycling. BW Joko Tole in Indonesia and Yùum K’ak’Náab are sold to the field owners, while Polvo is sold to BW Energy. The price of Polvo was $50 million, much better than scrap, but far lower than Opportunity. Perhaps Opportunity was in much better shape, after the repairs? In their 2022 annual report, under note 14 we can read that Joko Tole was sold to the field owners for $52.2 million, while Cidade de São Vicente was sold for scrap at $12.8 million. This was higher than book value. So my preliminary conclusion here, is that there is a wide range of outcomes on the possible values for the last vessels. I don’t think we will see a price like Opportunity got, but even scrap value seems undervalued on the balance sheet. So management also has trouble valuing these vessels. Units in active production seems to sell for about $50 million give or take, and that also seems to be the case for redevelopment candidates. Anyway, according to the annual report all four should be disposed of during 2023.
Regarding the proceeds from the sale of Opportunity, If BWO uses it to buy back bonds for less than pair, that would be a good use of money. We could also hope they buy back shares, since I believe the price is far lower than the value at this time. But I’m somewhat worried they will use them on value destruction, i.e in BW Ideol. BWI will probably need more cash going forward.
valueinvestor 