Odfjell Drilling mulls splitting into two groups to think beyond core services

Offshore rig owner Odfjell Drilling is contemplating spinning off its Well Services and Energy segments into a newly established company, Odfjell Technology Ltd. (OTL or Odfjell Technology), and listing it on the Oslo Stock Exchange in order to proactively respond to the changes and opportunities facing the industry, including further expansion into green ventures.

The drilling contractor explained on Monday that the spin-off enables all parts of the business to think beyond their existing core activities, capabilities, markets, and competitive environment to evolve and strengthen their position to meet the needs of customers in the energy transition phase and towards the anticipated increasing activity levels in the global oil & gas industry.

Odfjell Drilling claims that, during the last years’ downturn in oil & gas, the company and OTL’s component parts have through this cycle delivered resilient operational and financial performance. Combined with the favourable underlying drivers and market outlook for both companies, the spin-off is part of the company’s strategy to create further shareholder value.

With an inherent commitment to pursue adjacent opportunities within energy transition, the spin-off will enable increased focus in OTL on innovation and development of new services, technologies and products required in the energy transition, offering reduced emissions for customers through e.g., increased drilling efficiencies and by applying new technology.

In addition, OTL will seek to further expand into green ventures, such as the current investment in Odfjell Oceanwind. OTL will seek to leverage its industrial heritage, specialist competence and long relationships from the offshore oil & gas industry to serve new energy markets in the marine environment with mission-critical equipment and services.

The spin-off businesses comprise the company’s current Well Services and Energy segments. The Energy segment consists of platform drilling and engineering & projects, as well as a 21 per cent ownership in Odfjell Oceanwind, a company focused on developing mobile offshore wind units providing flexible energy solutions to offshore infrastructure.

Before executing the spin-off, Odfjell will carry out an internal reorganisation and the relevant Well Services and Energy companies will become subsidiaries of OTL. Subject to completion of the spin-off, the management of Odfjell Technology will consist of Simen Lieungh (CEO), Jone Torstensen (CFO), George Taggart (EVP Well Services) and Elisabeth Haram (EVP Drilling Operations and Engineering), and the initial board of directors will consist of Helene Odfjell, Alasdair Shiach, Susanne Munch Thore and one additional director to be announced at a later stage.

After the spin-off, Odfjell Drilling will continue to be the harsh environment offshore drilling company and will collaborate with OTL through strategic frame agreements to provide fully integrated services.

Odfjell Drilling has four fully owned high specification harsh environment semi-submersible drilling rigs, Deepsea Atlantic, Deepsea Stavanger, Deepsea Aberdeen, and Deepsea Nordkapp. In addition, Odfjell Drilling now has a total of three harsh environment semi-submersible drilling units under marketing and management services, namely Deepsea Yantai, West Mira, and West Bollsta. The company reached an agreement with Northern Ocean for the management of West Mira and West Bollsta last December, thereby replacing Seadrill.

Odfjell believes that, with an improving offshore drilling market, the contemplated spin-off will simplify the corporate and capital structure, increase management focus, and allow for additional strategic flexibility whilst evaluating accretive growth opportunities.

In connection with the spin-off, Odfjell Technology intends to issue four-year, senior secured bonds through a private placement. The net proceeds will, together with a new $25 million super senior revolving credit facility, be used to carry out the internal reorganisation and to repay the existing $150 million credit facility related to the Well Services and Energy segments.

The shares in Odfjell Technology, in its entirety, are expected to be distributed to the shareholders in the company and admitted for trading on the Oslo Stock Exchange in 1Q 2022. However, Odfjell noted that no assurance can currently be given that the spin-off and the listing will be completed.

Simen Lieungh, CEO of Odfjell Drilling, commented: “Splitting the MODU and services segments into two groups, allows us greater flexibility to proactively respond to the changes and opportunities facing the industry. We strongly believe that the timing for this is good as the company is financially healthy and prepared to stand alone as two separate entities. Increased management focus within Odfjell Technology Ltd will further allow those segments to think beyond their existing core services and evolve for the future.”

Another offshore rig owner, Transocean, this month said it was leveraging its rigs beyond its core business of drilling ultra-deepwater and harsh environment wells following a contract award which will see it work in support of the Northern Lights carbon capture and storage (CCS) project.