Oil services companies in Europe are finding alternative ways to raise cash and repay debt after falling crude prices made it difficult for them to get funding from traditional sources.
Dolphin Group AS has sought to persuade private-equity and hedge funds to finance projects exploring and mapping seabeds in return for interest tied to sales, according to people familiar with the matter. At least two Norwegian drillers are planning to sell and lease back ships to raise cash and fund operations as they struggle to access loan and bond markets, said the people, who asked not to be identified because the matters are private.
Energy companies are being shut out of bond markets and lenders are reducing credit lines after prices dropped about 60 percent from last year’s peak. Services companies in Europe are starting to run out of cash as producers from Royal Dutch Shell Plc to Petroleo Brasileiro SA cut their own investments and delay projects.
“Bond markets are closed for these companies, especially small ones, and banks may not be lending to them at this stage,” said Nigel Thomas, partner at law firm Watson Farley & Williams in London. “Services companies need to buy time to survive during the downturn and alternative investors are able to give them that, albeit at a very expensive cost.”
Bonds issued by oil-services businesses globally dropped to $6.7 billion this year, on pace for the least in a decade, according to data compiled by Bloomberg. French oilfield surveyor CGG SA said it had to cancel a loan in July because banks had offered unfavorable terms.
Energy-services companies are searching for new investors and funding strategies as even lenders of last resort pull back. Hedge funds and private-equity firms that previously sought to lend at high rates are becoming reluctant to step in after getting stuck with losing positions.
Bonds of speculative-grade energy companies in dollars have lost 9 percent this year, while high-yield debt globally gained 0.3 percent, according to Bank of America Merrill Lynch Index data.
Dolphin approached hedge funds and private-equity investors last month for a $50 million loan that would return about 15 percent annually, people familiar with the matter said. The Bergen-based company is working with a potential lender for a deal that will pay interest linked to data sales, Chief Executive Officer Atle Jacobsen said this month.
“We have never seen this type of funding in the industry before,” said Hakon Johansen, an analyst at Fondsfinans ASA in Oslo. “The market remains very weak, but Dolphin’s management wants to expand operations, hoping that someone in the end will buy their data.”
Dolphin, which had about $264 million of debt on June 30, also extended bond maturities and is considering ways to cut costs and improve liquidity as it awaits a rebound in demand, according to a report on Aug. 12.
The company’s bonds have plunged, according to data compiled by Bloomberg. Its 500 million kroner ($59.2 million) of notes due March 2019 are quoted at about 25 percent of face value.
Bergen-based Norshore Holding AS said it transferred control of its ship to creditors as part of a $150 million debt restructuring last month and leased it back to continue operating.
“The service industry is under enormous pressure as oil companies continue to strive for significant cuts,” said Terje Fatnes, an analyst at SEB Enskilda AS in Oslo. “Getting new liquidity in this market could be a painful exercise. For many companies, financial restructuring seems inevitable.”