Offshore contractor Subsea 7 is merging its renewables business with fellow Oslo-listed company OHT to create a “pure-play renewables company” focused on offshore fixed wind.
The new entity, which will be dubbed Seaway 7, will provide a range of standalone, integrated or engineering, procurement construction and installation offerings encompassing the installation of wind turbines, foundations, offshore substations, submarine cables and heavy transport.
Subsea 7 will provide financial support for Seaway 7’s working capital requirements, while it is expected future capital expenditure will be met through operating cash flows and, if required, new debt facilities that may be supported by Subsea 7.
As of 31 March, Subsea 7 had a renewables backlog of $1.8 billion, while OHT’s renewables backlog stood at $150 million.
Subsea 7 will own 72% of the new entity, which will maintain OHT’s listing on the Euronext Growth Market and be based in Oslo, while OHT’s shareholders will hold 28% of Seaway 7.
'Next step' in energy transition journey
The duo see the offshore wind industry as a “high-growth market”, noting annual installation of wind power is anticipated to increase at a compound average growth rate above 20% between 2020 and 2030.
While they see the current market for foundation installation as “competitive”, they believe the markets for cable lay and turbine installation are more favourable in the near term.
They also expect installation capacity across all three markets to be absorbed by 2025, resulting in a material improvement in the market dynamic of all these sectors from then onwards.
“This transaction represents an important next step in Subsea 7’s energy transition journey that will accelerate and enhance value creation for our shareholders,” Subsea 7 chief executive John Evans said.
“As a listed company with a comprehensive fleet and experienced management team, Seaway 7 ASA is positioned to forge an enhanced growth trajectory as a global leader in offshore wind.”
Seaway 7 will employ approximately 600 people globally and have an active fleet of 10 vessels, which will include OHT’s five heavy transport vessels, while Subsea 7 will bring two heavy lift vessels, two cable lay vessels and an installation support vessel to the new venture.
Seaway 7 will see its fleet expand further, with two high specification vessels currently under construction for OHT to be added in the future.
This includes the customised Alfa Lift wind turbine foundation installation vessel — scheduled for delivery next year — as well as the Vind-1 jack-up heavy lift vessel, capable of installing the largest wind turbines as well as wind turbine foundations — scheduled for delivery in 2023.
"The only area of overlap is within foundations transportation and installation where management believe the market will be particularly undersupplied from 2024-2025 and where Seaway 7 will be a market leader. The combined offering will also allow Seaway to offer integrated contracts," said analysts Redburn.
"Disappointingly, the transaction is only expected to be accretive to Subsea 7 earnings from 2024, and will not necessarily be incremental to the existing $1 billion renewables revenue target. The delivery of the two newbuild vessels and the associated capex ($385m) will also be fully consolidated and thus impact at a group level.
"However, there is nothing in Subsea 7’s valuation for its renewables upside and a separate listing suggesting a value of around $700 million is accretive for shareholders," added Redburn.
The new entity’s board will comprise four directors nominated by Subsea 7 and one nominated by OHT’s largest shareholder — Songa, which holds a 51.1% stake in the Norwegian company.
OHT’s current chairman, Rune Magnus Lundetrae, will take up the chairman’s role at Seaway 7, while Subsea 7’s current executive vice president of Strategy and Alliances, Stuart Fitzgerald, will take up the mantle of chief executive.
OHT’s current chief executive, Torgeir Ramstad, and Subsea 7’s renewables executive vice president, Steph McNeill, will also hold executive roles at Seaway 7.
The merger is anticipated to be completed by the end of the third quarter, subject to regulatory and other approvals, including approval from OHT’s shareholders.
Major shareholders Songa and Lotus Marine, which hold 51.1% and 25.6% interests in OHT respectively, have already given their support to the deal.