December 31Marshall Islands9, Boulevard
Charles IIIMonaco98000Mr. Emanuele
Lauroinfo@scorpiobulkers.com3779798-5715Monaco980009 Boulevard
Charles
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 20-F
(Mark One)
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☐ |
REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE
SECURITIES EXCHANGE ACT OF 1934
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OR
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
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For the fiscal year ended December 31, 2021
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OR
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
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OR
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SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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Date of event requiring this shell company report
_________________ |
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For the transition period from _________________ to
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Commission file number: 001-36231
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ENETI INC. |
(Exact name of Registrant as specified in its charter) |
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(Translation of Registrant’s name into English) |
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Republic of the Marshall Islands
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(Jurisdiction of incorporation or organization) |
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9, Boulevard Charles III Monaco 98000
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(Address of principal executive offices) |
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Mr. Emanuele Lauro
377-9798-5715
Investor.Relations@Eneti-inc.com
9 Boulevard Charles III Monaco 98000
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(Name, Telephone, E-mail and/or Facsimile, and Address of Company
Contact Person) |
Securities registered or to be registered pursuant to Section 12(b)
of the Act.
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Title of each class |
Trading Symbol(s) |
Name of each exchange on which registered |
Common stock, par value $0.01 per share |
NETI |
New York Stock Exchange |
Securities registered or to be registered pursuant to section 12(g)
of the Act.
Securities for which there is a reporting obligation pursuant to
Section 15(d) of the Act.
Indicate the number of outstanding shares of each of the issuer’s
classes of capital or common stock as of the close of the period
covered by the annual report.
As of December 31, 2021, there were 39,741,204 outstanding
shares of common stock, par value $0.01 per share.
Indicate by check mark if the registrant is a well-known seasoned
issuer, as defined in Rule 405 of the Securities Act.
If this report is an annual or transition report, indicate by check
mark if the registrant is not required to file reports pursuant to
Section 13 or 15(d) of the Securities Exchange Act of
1934.
Note – Checking the box above will not relieve any registrant
required to file reports pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 from their obligations under those
Sections.
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days.
Indicate by check mark whether the registrant has submitted
electronically every Interactive Data File required to be submitted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter)
during the preceding 12 months (or for such shorter period that the
registrant was required to submit such files).
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer or
an emerging growth company. See definition of “large accelerated
filer”, “accelerated filer”, and “emerging growth company” in Rule
12b-2 of the Exchange Act.
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Large accelerated filer |
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Accelerated filer |
x |
Non-accelerated filer |
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Emerging growth company |
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If an emerging growth company that prepares its financial
statements in accordance with U.S. GAAP, indicate by check mark if
the registrant has elected not to use the extended transition
period for complying with any new or revised financial accounting
standards† provided pursuant to Section 13(a) of the Exchange Act.
o
† The term “new or revised financial accounting standard” refers to
any update issued by the Financial Accounting Standards Board to
its Accounting Standards Codification after April 5,
2012.
Indicate by check mark whether the registrant has filed a report on
and attestation to its management’s assessment of the effectiveness
of its internal control over financial reporting under Section
404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the
registered public accounting firm that prepared or issued its audit
report.
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Indicate by check mark which basis of accounting the registrant has
used to prepare the financial statements included in this
filing:
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U.S. GAAP |
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International Financial Reporting Standards as issued by the
international Accounting Standards Board |
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Other |
If “Other” has been checked in response to the previous question,
indicate by check mark which financial statement item the
registrant has elected to follow:
If this is an annual report, indicate by check mark whether the
registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act).
TABLE OF CONTENTS
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING
STATEMENTS
Eneti Inc., or the Company, desires to take advantage of the safe
harbor provisions of the Private Securities Litigation Reform Act
of 1995 and is including this cautionary statement in connection
therewith. This document and any other written or oral statements
made by the Company or on its behalf may include forward-looking
statements, which reflect its current views with respect to future
events and financial performance. The Private Securities Litigation
Reform Act of 1995 provides safe harbor protections for
forward-looking statements in order to encourage companies to
provide prospective information about their business.
Forward-looking statements include statements concerning plans,
objectives, goals, strategies, future events or performance, and
underlying assumptions and other statements, which are other than
statements of historical facts. This document includes assumptions,
expectations, projections, intentions and beliefs about future
events. These statements are intended as “forward-looking
statements.” We caution that assumptions, expectations,
projections, intentions and beliefs about future events may and
often do vary from actual results and the differences can be
material. When used in this document, the words “believe,”
“expect,” “anticipate,” “estimate,” “intend,” “plan,” “targets,”
“projects,” “likely,” “would,” “could” and similar expressions or
phrases may identify forward-looking statements.
These forward-looking statements are not guarantees of future
performance, conditions or results, and involve a number of known
and unknown risks, uncertainties, assumptions and other important
factors, many of which are outside our management’s control, that
could cause actual results or outcomes to differ materially from
those discussed in the forward-looking statements. These
forward-looking statements are based on information available as of
the date hereof, and current expectations, forecasts and
assumptions, and involve a number of judgments, risks and
uncertainties. Accordingly, forward-looking statements should not
be relied upon as representing our views as of any subsequent
date.
We cannot guarantee the accuracy of the forward-looking statements,
and you should be aware that results and events could differ
materially and adversely from those contained in the
forward-looking statements due to a number of factors including,
but not limited to:
•our
future operating or financial results;
•changes
in demand for wind turbine installation vessel (“WTIV”)
capacity;
•the
strength of world economies and currencies;
•the
length and severity of the recent novel coronavirus (COVID-19)
outbreak, including its effects on demand for WTIVs and the
installation of offshore windfarms;
•our
ability to successfully employ our existing and newbuilding WTIVs
and the availability and suitability of our vessels for customer
projects;
•our
ability to compete successfully for future chartering and
newbuilding opportunities;
•our
continued ability to employ our vessels;
•fluctuations
in interest rates and foreign exchange rates;
•early
termination of customer contracts, our failure to secure new
contracts for our vessels or the failure of counterparties to fully
perform their contracts with us;
•our
ability to successfully identify, consummate, integrate and realize
the expected benefits from acquisitions and changes to our business
strategy;
•our
ability to successfully operate in new markets;
•changes
in our operating expenses, including bunker prices, drydocking and
insurance costs;
•compliance
with, and our liabilities under, governmental, tax, environmental
and safety laws and regulations;
•changes
in governmental rules and regulations or actions taken by
regulatory authorities;
•potential
liability from pending or future litigation;
•general
domestic and international political conditions or hostilities,
including the recent conflict between Russia and
Ukraine;
•potential
disruption of shipping routes due to accidents or political
events;
•our
ability to procure or have access to financing, our liquidity and
the adequacy of cash flows for our operations;
•our
continued borrowing availability under our debt agreements and
compliance with the covenants contained therein;
•fluctuations
in the value of our vessels and investments;
•our
ability to fund future capital expenditures and investments in the
construction, acquisition and refurbishment of our vessels
(including the amount and nature thereof and the timing of
completion thereof, the delivery and commencement of operations
dates, expected downtime and lost revenue);
•potential
exposure or loss from investment in derivative instruments or other
equity investments in which we invest;
•potential
conflicts of interest involving members of our Board of Directors
(“Board”) and senior management and our significant shareholders;
and
•our
expectations regarding the availability of vessel acquisitions and
our ability to complete acquisition transactions
planned.
We have based these statements on assumptions and analyses formed
by applying our experience and perception of historical trends,
current conditions, expected future developments and other factors
we believe are appropriate in the circumstances. All future written
and verbal forward-looking statements attributable to us or any
person acting on our behalf are expressly qualified in their
entirety by the cautionary statements contained in or referred to
in this section. We undertake no obligation, and specifically
decline any obligation, except as required by law, to publicly
update or revise any forward-looking statements, whether as a
result of new information, future events or otherwise. In light of
these risks, uncertainties and assumptions, the forward-looking
events discussed in this annual report might not
occur.
See “Item 3. Key Information—D. Risk Factors” for a more complete
discussion of these risks and uncertainties and for other risks and
uncertainties. These factors and the other risk factors described
in this annual report are not necessarily all of the important
factors that could cause actual results or developments to differ
materially from those expressed in any of our forward-looking
statements. Other unknown or unpredictable factors also could harm
our results. Consequently, there can be no assurance that actual
results or developments anticipated by us will be realized or, even
if substantially realized, that they will have the expected
consequences to, or effects on, us. Given these uncertainties,
current and prospective investors are cautioned not to place undue
reliance on such forward-looking statements.
PART I
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ITEM 1. |
IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS |
Not applicable.
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ITEM 2. |
OFFER STATISTICS AND EXPECTED TIMETABLE |
Not applicable.
Unless otherwise indicated, references to “Eneti,” the “Company,”
“we,” “our,” “us” or similar terms refer to the registrant, Eneti
Inc., and its subsidiaries, except where the context otherwise
requires.
All references in this Annual Report to “$,” “US$,” “U.S.$,” “U.S.
dollars,” “dollars” and “USD” mean U.S. dollars and all references
to “€” and “euros,” mean euros, unless otherwise
noted.
On April 7, 2020, we effected a one-for-ten reverse stock split.
All share and per share information has been retroactively adjusted
to reflect the reverse stock split. The par value was not adjusted
as a result of the reverse stock split.
The Company’s results for the twelve months ended December 31, 2021
include the impact of Seajacks International Limited’s (“Seajacks”)
earnings during the period from August 12, 2021 (the date the
acquisition was completed) through December 31, 2021. Since the
completion of the acquisition, the operations of the Company are
primarily those of Seajacks as the Company completed its exit from
the dry bulk sector of the shipping industry in July
2021.
A.[Reserved]
B.Capitalization
and Indebtedness
Not applicable.
C.Reasons
for the Offer and Use of Proceeds
Not applicable.
D.Risk
Factors
The following risks relate principally to the industry in which we
currently operate, our plans to the offshore energy sector, and our
business in general. Other risks relate principally to the
securities market and ownership of our securities, including our
common shares. The occurrence of any of the events described in
this section could significantly and negatively affect our
business, financial condition, operating results or cash available
for the payment of dividends on our common shares, or the trading
price of our securities.
INDUSTRY SPECIFIC RISK FACTORS
•Lower
prices for other energy sources may reduce the demand for wind
energy development, which could have a material adverse effect on
us.
•We
may be unable to keep pace with rapidly changing technology in wind
turbine and other industrial component manufacturing.
•The
U.S. wind energy industry is significantly impacted by tax and
other economic incentives. A significant change in these incentives
could significantly impact our results of operations and
growth.
•We
face competition from industry participants who may have greater
resources than we do.
•We
are dependent on the employment of our vessels and the backlog of
contracts may not materialize.
•We
may not be able to renew or replace expiring contracts for our
vessels.
•The
early termination of contracts on our vessels could have a material
adverse effect on our operations.
•Our
fleet operations may be subject to seasonal factors.
•We
are exposed to hazards that are inherent to offshore
operations.
•Our
insurance coverage may be inadequate to protect us from the
liabilities that could arise in our business.
•Increasing
scrutiny and changing expectations from investors, lenders and
other market participants with respect to our ESG policies may
impose additional costs on us or expose us to additional
risks.
•We
are subject to complex laws and regulations, including
environmental regulations that can adversely affect the cost,
manner or feasibility of doing business.
•Regulations
relating to ballast water discharge may adversely affect our
revenues and profitability.
•We
are subject to international safety regulations and requirements
imposed by our classification societies and the failure to comply
with these regulations and requirements may subject us to increased
liability, may adversely affect our insurance coverage and may
result in a denial of access to, or detention in, certain
ports.
•Volatile
economic conditions may adversely impact our ability to obtain
financing or refinance our future credit facilities on acceptable
terms, which may hinder or prevent us from operating or expanding
our business.
•Outbreaks
of epidemic and pandemic diseases, including COVID-19, and
governmental responses thereto could adversely affect our
business.
•A
cyber-attack and failure to comply with data privacy laws could
materially disrupt our business.
•World
events, including piracy, terrorist attacks and political
conflicts, could affect our results of operations and financial
condition.
•If
our vessels operate in countries that are subject to restrictions,
sanctions, or embargoes imposed by the U.S. government, the
European Union, the United Nations, or other governments, it could
lead to monetary fines or adversely affect our reputation and the
market for our shares of common stock and their trading
price.
•Failure
to comply with the U.S. Foreign Corrupt Practices Act could result
in fines, criminal penalties, contract terminations and an adverse
effect on our business.
•There
may be limits in our ability to mobilize our vessels between
geographic areas, and the time and costs of such mobilizations may
be material to our business.
•Maritime
claimants could arrest or attach one or more of our vessels, which
could interrupt our cash flows.
•Governments
could requisition our vessels during a period of war or emergency,
which could negatively impact our business, financial condition,
results of operations, and available cash.
COMPANY SPECIFIC RISK FACTORS
•We
currently have only five WTIV vessels and are vulnerable should any
of such vessels remain idle or lose contracted
revenue.
•We
are a holding company, and we depend on the ability of our
subsidiaries to distribute funds to us in order to satisfy our
financial obligations and to make dividend payments.
•Seajacks
has identified material weaknesses in its internal controls over
financial reporting. Although we are taking steps to remediate
these material weaknesses, we may not be successful in doing so in
a timely manner, or at all, and we may identify other material
weaknesses.
•Our
costs of operating as a public company are significant, and our
management is required to devote substantial time to complying with
public company regulations. We cannot assure you that our internal
control over financial reporting will be sufficient.
•Because
we are organized under the laws of the Marshall Islands, it may be
difficult to serve us with legal process or enforce judgments
against us, our directors or our management.
•The
international nature of our operations may make the outcome of any
bankruptcy proceedings difficult to predict.
•Breakdowns
in our information technology, including as a result of
cyberattacks, may negatively impact our business, including our
ability to service customers, and may have a material adverse
effect on our future performance, results of operations, cash flows
and financial position.
•We
may be subject to litigation that, if not resolved in our favor and
not sufficiently insured against, could have a material adverse
effect on us.
•A
change in tax laws in any country in which we operate could result
in higher tax expense.
•The
Company and any of its subsidiaries may be subject to taxation in
the United Kingdom.
•U.S.
tax authorities could treat us as a “passive foreign investment
company,” which could have adverse U.S. federal income tax
consequences to our U.S. shareholders.
•We
may have to pay tax on U.S. source income, which would reduce our
earnings and cash flow.
•Our
Chief Executive Officer, President, Chief Operating Officer, Chief
Financial Officer, Vice President and Secretary do not devote all
of their time to our business, which may hinder our ability to
operate successfully.
•We
are dependent on our employees and key personnel and we cannot
assure you that we will be able to retain such
persons.
RISKS RELATED TO OUR INDEBTEDNESS
•Servicing
our current or future indebtedness limits funds available for other
purposes and if we cannot service our debt, we may lose our
vessels.
•We
are exposed to volatility in interest rates which can result in
higher than market interest rates and charges against our
income.
•We
are leveraged, which could significantly limit our ability to
execute our business strategy and we may be unable to comply with
our covenants in our credit facilities that impose operating and
financial restrictions on us, which could result in a default under
the terms of these agreements.
RISKS RELATING TO OUR COMMON SHARES
•We
are incorporated in the Marshall Islands, which does not have a
well-developed body of corporate law.
•The
market price of our common shares has fluctuated widely and may
fluctuate widely in the future, or there may be no continuing
public market for you to resell our common shares.
•We
cannot assure you that our Board will continue to declare
dividends.
•Future
sales of our common shares could cause the market price of our
common shares to decline.
•Anti-takeover
provisions in our organizational documents could have the effect of
discouraging, delaying or preventing a merger or acquisition, or
could make it difficult for our shareholders to replace or remove
our current Board, which could adversely affect the market price of
our common shares.
INDUSTRY SPECIFIC RISK FACTORS
Lower prices for other energy sources may reduce the demand for
wind energy development, which could have a material adverse effect
on us.
The wind energy market is affected by the price and availability of
other energy sources, including nuclear, coal, natural gas and oil,
as well as other sources of renewable energy. To the extent
renewable energy, particularly wind energy, becomes less
cost-competitive due to reduced government targets, increases in
the cost of wind energy, as a result of new regulations or
incentives that favor alternative renewable energy, cheaper
alternatives or otherwise, demand for wind energy and other forms
of renewable energy could decrease. Slow growth or a long-term
reduction in the demand for wind energy could reduce the demand for
our services and have a material adverse effect on our business,
financial condition and operating results.
We may be unable to keep pace with rapidly changing technology in
wind turbine and other industrial component
manufacturing.
The global markets for wind turbines and other manufactured
industrial components are rapidly evolving technologically. Our
WTIVs may not be suited for future generations of products being
developed by wind turbine companies. As turbines grow in size,
particularly to support the development of offshore windfarms,
tower manufacturing becomes more complicated and may require
investments in new manufacturing equipment. Currently, three of our
five WTIVs have a turbine carrying capacity of 4MW (NG2500X),
which, while suitable for maintenance work on certain classes of
wind turbine currently in use, are no longer suitable for wind
turbine installations because the wind turbine sizes have increased
significantly. If wind turbine sizes further increase significantly
in the future, demand for our WTIVs, including our larger capacity
WTIVs, the Seajacks Scylla, the Seajacks Zaratan, and our
newbuilding WTIVs, may decline, and may also result in a lower
useful life than currently anticipated. To maintain a successful
business in our field, we must keep pace with technological
developments and the changing standards of our customers and
potential customers and meet their constantly evolving demands. If
we fail to adequately respond to the technological changes in our
industry, make the necessary capital investments or are not suited
to provide components for new types of wind turbines, our business,
financial condition and operating results may be adversely
affected. Please also see, “Risk Factors - Company Specific Risk
Factors - We currently have only five WTIV vessels and are
vulnerable should any of such vessels remain idle or lose
contracted revenue.”
The U.S. wind energy industry is significantly impacted by tax and
other economic incentives. A significant change in these incentives
could significantly impact our results of operations and
growth.
The U.S. wind energy industry is significantly impacted by federal
tax incentives and state Renewable Portfolio Standards (“RPSs”).
Despite recent reductions in the cost of wind energy, due to
variability in wind quality and consistency, and other regional
differences, wind energy may not be economically viable in certain
parts of the country absent such incentives. While we do not
currently operate Jones Act WTIVs or other Jones Act vessels, the
expansion of the U.S. wind energy industry may provide additional
opportunities for the employment of our vessels and therefore may
have a material impact on our business. The expiration or
curtailment of programs that create material incentives to develop
U.S. wind energy generation facilities could have an adverse impact
the demand for our services and our results of
operations.
We face competition from industry participants who may have greater
resources than we do.
Our business is subject to risks associated with competition from
new or existing industry participants who may have more resources
and better access to capital. Certain of our competitors and
potential competitors may have substantially greater financial
resources, customer support, technical and marketing resources,
larger customer bases, longer operating histories, greater name
recognition and more established relationships in the industry than
we do. Among other things, these industry participants compete with
us based upon price, quality, location and available capacity. We
cannot be sure that we will have the resources or expertise to
compete successfully in the future. We also cannot be sure that we
will be able to match cost reductions by our competitors or that we
will be able to succeed in the face of current or future
competition.
We are dependent on the employment of our vessels and the backlog
of contracts may not materialize.
Our revenue is dependent on short-term time charters of between
three to twelve months, with potential deployment of vessels on
multi-year charters for larger windfarm installation projects. In
the ordinary course of business, we seek to enter into new
contracts for the employment of our vessels.
Such charters, and revenues derived therefrom, are subject to
various terms and conditions including cancellation events. In
addition, such contracts could be subject to termination,
amendments and/or delays resulting in revenues being more limited,
occurring at different time periods or not occurring at all. Our
current customer contracts include express cancellation rights on
the part of the customers. Under the customer contracts, we may
also become liable to the customers for liquidated damages if there
are delays in delivering a vessel or for delays that arise during
the operation of our vessels under the contracts.
We also identify potential charters we may be able to secure, but
there is no guarantee that contractual commitments of future
revenue will result from these prospects. There is a risk that it
may be difficult for us to obtain future employment for our vessels
and utilization may drop. Windfarm installation projects are also
sanctioned at irregular intervals and installation projects in some
locations are seasonal. Consequently, our vessels may need to be
deployed on lower-yielding work or remain idle for periods without
any compensation to us. Some of our vessels are opportunistically
deployed on projects in the oil and gas sector to the extent not
contracted for windfarm installation or maintenance work. However,
we can provide no assurance that such work will be available during
the relevant periods, on favorable terms or at all. There can also
be off-hire periods as a consequence of accidents, technical
breakdown and non-performance. The cancellation, amendments to or
postponement of one or more contracts can have a material adverse
impact on our earnings and may thus affect the pricing of our
common shares. As we currently have five vessels in our fleet, our
financial condition, business and prospects could be materially
impacted if one or more of our vessels became disabled or otherwise
unable to operate for an extended period. We are thus exposed to
our vessels not getting contracts and vessel charters compared to
other companies in the offshore wind industry that have several
windfarm installation vessels and/or similar vessels in
operation.
We may not be able to renew or replace expiring contracts for our
vessels.
Our ability to renew or replace expiring contracts or obtain new
contracts, and the terms of any such contracts, will depend on
various factors, including market conditions and the specific needs
of our customers. Given the highly competitive and historically
cyclical nature of the industry, we may not be able to renew or
replace expiring contracts or we may be required to renew or
replace expiring contracts or obtain new contracts at rates that
are below, and potentially substantially below, existing day rates,
or that have terms that are less favorable to us than existing
contracts, or we may be unable to secure contracts for our vessels.
In particular, the Seajacks Scylla and Seajacks Zaratan accounted
for a large majority of our revenue in the last two years and if we
are not able to renew or replace expiring contracts for the
Seajacks Scylla or Seajacks Zaratan, this could materially impact
our business, prospects and financial results and condition,
including our ability to be compliant with the financial covenants
pursuant to our financing arrangements.
The early termination of contracts on our vessels or certain
concessions that we may be forced to make to our customers could
have a material adverse effect on our operations.
We cannot ensure investors that our customers would not choose to
exercise their termination rights in spite of any remedies
available to us or the threat of litigation with us. Until
replacement of such business with other customers, any termination
could temporarily disrupt our business or otherwise adversely
affect our financial condition and results of operations, in
particular if the Seajacks Scylla or Seajacks Zaratan customer
contracts would be terminated as the Seajacks Scylla and Seajacks
Zaratan accounted for a large majority of the revenue in our fleet.
If any contracts are terminated, we might not be able to replace
such business on economically equivalent terms. In addition, during
an economic downturn, customers may request contractual concessions
even though such concessions are contrary to existing contractual
terms. While we may not be legally required to give concessions,
commercial considerations may dictate that we do so. If we are
unable to collect amounts owed to us or contracts for our vessels
are terminated and our vessels are not sufficiently utilized, this
could have a material adverse effect on our business, financial
position, results of operations, cash flows and
prospects.
Failure to secure new charters for our vessels may result in some
or all of our vessels remaining idle. While idle, our vessels
nonetheless present significant costs relating to maintenance,
security, mooring fees and staffing, which could negatively impact
our cash flows and results of operations should any vessel remain
idle for a significant period.
Our fleet operations may be subject to seasonal
factors.
Demand for our offshore support services is directly affected by
the levels of construction and maintenance activity for our wind
farm customers. Budgets of many of our customers are based upon a
calendar year, and demand for our services may be stronger in the
second and third calendar quarters when allocated budgets are
expended by customers and weather conditions are more favorable for
offshore activities. Adverse events relating to our vessels or
business operations during peak demand periods could have a
significant adverse effect on our business, financial position,
results of operations, cash flows and prospects. In addition,
seasonal volatility can create unpredictability in activity and
utilization rates, which could have a material adverse effect on
our business, financial position, results of operations, cash flows
and prospects.
We are exposed to hazards that are inherent to offshore
operations.
We operate in the offshore industry and are thus subject to
inherent hazards, such as breakdowns, technical problems, harsh
weather conditions, environmental pollution, force majeure
situations (nationwide strikes etc.), collisions and groundings.
These hazards can cause personal injury or loss of life, severe
damage to or destruction of property and equipment, pollution
or
environmental damage, claims by third parties or customers and
suspension of operations. Windfarm installation vessels, including
our vessels, will also be subject to hazards inherent in marine
operations, either while on-site or during mobilization, such as
capsizing, sinking, grounding, collision, damage from severe
weather and marine life infestations. Operations may also be
suspended because of machinery breakdowns, abnormal operating
conditions, failure of subcontractors to perform or supply goods or
services or personnel shortages. We are covered by industry
standard hull and machinery and P&I insurance. Standard P&I
insurance for vessel owners provides limited cover for damage to
project property during windfarm installation operations, as such
damage is expected to be covered by the construction all risks
insurance procured by our customers. However, in recent years, the
industry has seen more contracts imposing liability for property
damage to contractors such as us. Such risks are difficult to
adequately insure under standard P&I insurance for vessel
owners. We have also obtained insurance for loss-of-hire of our
vessels that are unable to perform under their
charters.
Our insurance coverage may be inadequate to protect us from the
liabilities that could arise in our business.
Although we maintain insurance coverage against the risks related
to our business, risks may arise for which we may not be insured.
Claims covered by insurance are subject to deductibles, the
aggregate amount of which could be material, and certain policies
impose caps on coverage. Insurance policies are also subject to
compliance with certain conditions, the failure of which could lead
to a denial of coverage as to a particular claim or the voiding of
a particular insurance policy. There also can be no assurance that
existing insurance coverage can be renewed at commercially
reasonable rates or that available coverage will be adequate to
cover future claims. If a loss occurs that is partially or
completely uninsured, or the carrier is unable or unwilling to
cover the claim, we could be exposed to substantial liability.
Further, to the extent the proceeds from insurance are not
sufficient to repair or replace a damaged asset, we would be
required to expend funds to supplement the insurance and in certain
circumstances may decide that such expenditures are not justified,
which, in either case, could adversely affect our business,
financial position, results of operations, cash flows and
prospects.
Increasing scrutiny and changing expectations from investors,
lenders and other market participants with respect to our ESG
policies may impose additional costs on us or expose us to
additional risks.
Companies across all industries are facing increasing scrutiny
relating to their ESG policies. Investor advocacy groups, certain
institutional investors, investment funds, lenders and other market
participants are increasingly focused on ESG practices and in
recent years have placed increasing importance on the implications
and social cost of their investments. The increased focus and
activism related to ESG and similar matters may hinder access to
capital, as investors and lenders may decide to reallocate capital
or to not commit capital as a result of their assessment of a
company’s ESG practices. Companies which do not adapt to or comply
with investor, lender or other industry shareholder expectations
and standards, which are evolving, or which are perceived to have
not responded appropriately to the growing concern for ESG issues,
regardless of whether there is a legal requirement to do so, may
suffer from reputational damage and the business, financial
condition, and/or stock price of such a company could be materially
and adversely affected.
We may face increasing pressures from investors, lenders and other
market participants, who are increasingly focused on climate
change, to prioritize sustainable energy practices, reduce our
carbon footprint and promote sustainability. As a result, we may be
required to implement more stringent ESG procedures or standards so
that our existing and future investors and lenders remain invested
in us and make further investments in us. If we do not meet these
standards, our business and/or our ability to access capital could
be harmed.
Additionally, certain investors and lenders may exclude shipping
companies, such as us, from their investing portfolios altogether
due to environmental, social and governance factors, which may
affect our ability to develop as our plans for growth may include
accessing the equity and debt capital markets. If those markets
are unavailable, or if we are unable to access alternative means of
financing on acceptable terms, or at all, we may be unable to
implement our business strategy, which would have a material
adverse effect on our financial condition and results of operations
and impair our ability to service our indebtedness. Further, it is
likely that we will incur additional costs and require additional
resources to monitor, report and comply with wide ranging ESG
requirements. The occurrence of any of the foregoing could have a
material adverse effect on our business and financial
condition.
Finally, organizations that provide information to investors on
corporate governance and related matters have developed ratings
processes for evaluating companies on their approach to ESG matters
Unfavorable ESG ratings and recent activism directed at shifting
funding away from companies with fossil fuel-related assets could
lead to increased negative investor sentiment toward us and our
industry and to the diversion of investment to other, non-fossil
fuel markets, which could have a negative impact on our access to
and costs of capital.
We are subject to complex laws and regulations, including
environmental regulations that can adversely affect the cost,
manner or feasibility of doing business.
Our operations are subject to numerous international, national,
state and local laws, regulations, treaties and conventions in
force in international waters and the jurisdictions in which our
vessels operate or are registered, which can significantly affect
the ownership and operation of our vessels. These laws and
regulations include, but are not limited to, the U.S. Oil Pollution
Act of 1990, (the “OPA”), the Comprehensive Environmental Response,
Compensation and Liability Act (“CERCLA”), the U.S. Clean Air Act,
the U.S. Clean Water Act (“CWA”), and the U.S. Maritime
Transportation Security Act of 2002 (the “MTSA”), and regulations
of the International Maritime Organization (the “IMO”), including
the International Convention for the Prevention of Pollution from
Ships of 1973 (as from time to time amended and generally referred
to as MARPOL) including the designation of Emission Control Areas
(the “ECAs”), thereunder, the International Convention for the
Safety of Life at Sea of 1974 (as from time to time amended and
generally referred to as SOLAS), the International Convention on
Civil Liability for Bunker Oil Pollution Damage, and the
International Convention on Load Lines of 1966 (as from time to
time amended, the “LL Convention”).
Compliance with such laws, regulations and standards, where
applicable, may require installation of costly equipment or
implementation of operational changes and may affect the resale
value or useful lives of our vessels. These costs could have a
material adverse effect on our business, results of operations,
cash flows and financial condition. A failure to comply with
applicable laws and regulations may result in administrative and
civil penalties, criminal sanctions or the suspension or
termination of our operations. Because such conventions, laws, and
regulations are often revised, we cannot predict the ultimate cost
of complying with them or the impact thereof on the resale prices
or useful lives of our vessels. Additional conventions, laws and
regulations may be adopted which could limit our ability to do
business or increase the cost of our doing business and which may
materially adversely affect our operations. For example, the
International Convention for the Control and Management of Ships’
Ballast Water and Sediments, or the BWM Convention, which was
adopted by the UN International Maritime Organization in February
2004 and entered into force on September 8, 2017, calls for the
phased introduction of mandatory reduction of living organism
limits in ballast water over time (as discussed further below). In
order to comply with these living organism limits, vessel owners
must install expensive ballast water treatment systems or make port
facility disposal arrangements and modify existing vessels to
accommodate those systems.
Environmental laws often impose strict liability for remediation of
spills and releases of oil and hazardous substances, which could
subject us to liability without regard to whether we were negligent
or at fault. Under OPA, for example, owners, operators and bareboat
charterers are jointly and severally strictly liable for the
discharge of oil within the 200-mile exclusive economic zone around
the United States.
We are required by various governmental and quasi-governmental
agencies to obtain certain permits, licenses, and certificates with
respect to our operations, and satisfy insurance and financial
responsibility requirements for potential oil (including marine
fuel) spills and other pollution incidents. Although we have
insurance to cover certain environmental risks, there can be no
assurance that such insurance will be sufficient to cover all such
risks or that any claims will not have a material adverse effect on
our business, results of operations, cash flows, financial
condition, and our future ability to pay dividends on our common
shares.
Regulations relating to ballast water discharge may adversely
affect our revenues and profitability.
The IMO has imposed updated guidelines for ballast water management
systems specifying the maximum amount of viable organisms allowed
to be discharged from a vessel’s ballast water. Depending on the
date of the International Oil Pollution Prevention (“IOPP”) renewal
survey, existing vessels constructed before September 8, 2017 must
comply with the updated D-2 standard on or after September 8, 2019.
For most vessels, compliance with the D-2 standard will involve
installing on-board systems to treat ballast water and eliminate
unwanted organisms. Ships constructed on or after September 8, 2017
are to comply with the D-2 standards on or after September 8, 2017.
Two of our vessels have been fitted with alternate management
systems (“AMS”) (IMO-approved ballast water treatment systems) that
comply with the updated guidelines and standards, and we have plans
to fit the other three by 2024. While we believe that our vessels
have been fitted with systems that comply with the updated
guidelines and standards, we cannot be assured that these systems
will be approved by the regulatory bodies of every jurisdiction in
which we may wish to conduct our business. If they are not approved
it could have an adverse material impact on our business, financial
condition, and results of operations depending on the available
ballast water treatment systems and the extent to which existing
vessels must be modified to accommodate such systems.
Furthermore, United States regulations are currently changing.
Although the 2013 Vessel General Permit (“VGP”) program and U.S.
National Invasive Species Act (“NISA”) are currently in effect to
regulate ballast discharge, exchange and installation, the Vessel
Incidental Discharge Act (“VIDA”), which was signed into law on
December 4, 2018, requires that the
EPA develop national standards of performance for approximately 30
discharges, similar to those found in the VGP within two years. On
October 26, 2020, the EPA published a Notice of Proposed Rulemaking
for Vessel Incidental Discharge National Standards of Performance
under VIDA. Within two years after the EPA publishes its final
Vessel Incidental Discharge National Standards of Performance the
U.S. Coast Guard must develop corresponding implementation,
compliance and enforcement regulations regarding ballast water. The
new regulation could require the installation of new equipment,
which may cause us to incur substantial costs.
We are subject to international safety regulations and requirements
imposed by our classification societies and the failure to comply
with these regulations and requirements may subject us to increased
liability, may adversely affect our insurance coverage and may
result in a denial of access to, or detention in, certain
ports.
The operation of our vessels is affected by the requirements set
forth in the International Management Code for the Safe Operation
of Ships and for Pollution Prevention, or the ISM Code. The ISM
Code requires ship owners, ship managers and bareboat charterers to
develop and maintain an extensive “Safety Management System” that
includes the adoption of a safety and environmental protection
policy setting forth instructions and procedures for safe operation
of vessels and describing procedures for dealing with emergencies.
In addition, vessel classification societies impose significant
safety and other requirements on our vessels.
The failure of a shipowner or bareboat charterer to comply with the
ISM Code may subject it to increased liability, may invalidate
existing insurance or decrease available insurance coverage for the
affected vessels and may result in a denial of access to, or
detention in, certain ports. Each of our vessels is ISM
Code-certified. However, if we are subject to increased liability
for non-compliance or if our insurance coverage is adversely
impacted as a result of non-compliance, it may negatively affect
our ability to pay dividends on our common shares. If any of our
vessels are denied access to, or are detained in, certain ports as
a result of non-compliance with the ISM Code, our revenues may be
adversely impacted.
In addition, the hull and machinery of every commercial vessel must
be classed by a classification society authorized by its country of
registry. The classification society certifies that a vessel is
safe and seaworthy in accordance with the applicable rules and
regulations of the country of registry of the vessel and the Safety
of Life at Sea Convention. The cost of maintaining our vessels’
classifications may be substantial. If any vessel does not maintain
its class or fails any annual, intermediate or special survey, the
vessel will be unable to trade between ports and will be
unemployable and uninsurable, which could negatively impact our
results of operations and financial condition.
Volatile economic conditions may adversely impact our ability to
obtain financing or refinance our future credit facilities on
acceptable terms, which may hinder or prevent us from operating or
expanding our business.
Global financial markets and economic conditions have been, and
continue to be, unstable and volatile.
Recent hostilities between Russia and Ukraine and the response of
the United States and its allies to these hostilities, as well as
the threat of future wars, hostilities, terrorist attacks, continue
to cause uncertainty in the world financial markets and may affect
our business, operating results and financial condition. The
continuing conflict in Ukraine may lead to additional armed
conflicts, which may contribute to further economic instability in
the global financial markets. These uncertainties could also
adversely affect our ability to obtain any additional financing or,
if we are able to obtain additional financing, to do so on terms
favorable to us.
Beginning in February 2020, due in part to fears associated with
the spread of COVID-19 (as more fully described below), global
financial markets experienced extreme volatility and a steep and
abrupt downturn followed by a recovery. By 2021, however many of
these measures were relaxed. Nonetheless, we cannot predict whether
and to what degree emergency public health and other measures will
be reinstituted in the event of any resurgence in the COVID-19
virus or any variants thereof. If the COVID-19 pandemic continues
on a prolonged basis or becomes more severe, the adverse impact on
the global economy and the rate environment for product tankers and
other cargo vessels may deteriorate further and our operations and
cash flows may be negatively impacted. Relatively weak global
economic conditions during periods of volatility have and may
continue to have a number of adverse consequences for product
tankers and other shipping sectors, as we experienced in 2020-2021
and we may experience in the future, including, among other things
the general willingness of banks, other financial institutions and
lenders to extend credit, particularly in the shipping industry,
due to the historically volatile asset values of vessels. Credit
markets and the debt and equity capital markets have been
distressed and the uncertainty surrounding the future of the global
credit markets has resulted in reduced access to credit worldwide.
These issues, along with significant write-offs in the financial
services sector, the re-pricing of credit risk and the uncertain
economic conditions, have made, and may continue to make, it
difficult to obtain additional financing. Adverse developments in
global financial markets or economic conditions may adversely
impact our ability to issue additional equity at prices that will
not be dilutive to our existing shareholders or preclude us from
issuing equity at all. Continued economic drag from COVID-19 and
the international governmental responses to the virus may also
adversely affect the market price of our common
shares.
As a result of concerns about the stability of financial markets
generally and the solvency of counterparties specifically, the cost
of obtaining money from the credit markets has increased as a
result of increases in interest rates, stricter lending standards,
refusals to extend debt financing at all or on similar terms as
existing debt arrangements, reductions, and in some cases,
termination of funding to borrowers on the part of many
lenders.
Due to these factors, we cannot be certain that financing or any
alternatives will be available to the extent required, or that we
will be able to finance or refinance our future credit facilities
on acceptable terms or at all. If financing or refinancing is not
available when needed, or is available only on unfavorable terms,
we may be unable to meet our obligations as they come due or we may
be unable to enhance our existing business, complete the
acquisition of newbuildings and additional vessels or otherwise
take advantage of business opportunities as they arise. The
COVID-19 outbreak has negatively impacted, and may continue to
negatively impact, global economic activity, demand for energy, and
funds flows and sentiment in the global financial markets.
Continued economic disruption caused by the continued failure to
control the spread of the virus could significantly impact our
ability to obtain additional debt financing.
Outbreaks of epidemic and pandemic diseases, including COVID-19,
and governmental responses thereto could adversely affect our
business.
Global public health threats, such as COVID-19 (as described more
fully below), influenza and other highly communicable diseases or
viruses, outbreaks of which have from time to time occurred in
various parts of the world in which we operate could adversely
impact our operations, as well as the operations of our customers.
The ongoing COVID-19 pandemic has, among other things, caused
delays and uncertainties relating to newbuildings, drydockings and
scrubber installations at shipyards.
COVID-19 has already caused severe global disruptions and may
negatively affect economic conditions regionally as well as
globally and otherwise impact our operations and the operations of
our customers and suppliers. Governments in affected countries may
renew or expand travel bans, quarantines and other emergency public
health measures, which could impact our operations and those of our
customers and suppliers, which could materially and adversely
affect our business and results of operations. We may experience
severe operational disruptions and delays, unavailability of normal
port infrastructure and services including limited access to
equipment, critical goods and personnel, disruptions to crew
change, quarantine of ships and/or crew, counterparty
nonperformance, closure of ports and custom offices, as well as
disruptions in the supply chain and industrial
production.
Epidemics may also affect personnel operating payment systems
through which we receive revenues from the chartering of our
vessels or pay for our expenses, resulting in delays in payments.
Organizations across industries, including ours, are rightly
focusing on their employees’ well-being, whilst making sure that
their operations continue undisrupted and at the same time,
adapting to the new ways of operating. As such employees are
encouraged or even required to operate remotely which significantly
increases the risk of cyber security attacks.
The occurrence of any of the foregoing events or other epidemics or
an increase in the severity or duration of the COVID-19 or other
epidemics could have a material adverse effect on our business,
results of operations, cash flows, financial condition, value of
our vessels, and ability to pay dividends. The extent of such
effects on our operational and financial performance will depend on
future developments, including the duration, spread and intensity
of any such outbreak, any resurgence or mutation of the COVID 19
virus, or whether it will exist on a prolonged basis, the
availability of vaccines and their global deployment, the
development of effective treatments, the imposition of effective
public safety and other protective measures and the public’s
response to such measures. There continues to be a high level of
uncertainty relating to how the pandemic will evolve, how
governments and consumers will react and progress on the approval
and distribution of vaccines, all of which are uncertain and
difficult to predict considering the rapidly evolving landscape. As
a result, although our operations have not been materially affected
by the COVID-19 outbreak to date, the ultimate severity of a future
COVID-19 outbreak is uncertain at this time and therefore we cannot
predict the impact it may have on our future operations, which
impact could be material and adverse, particularly if the pandemic
continues to evolve into a severe worldwide health
crisis.
A cyber-attack and failure to comply with data privacy laws could
materially disrupt our business.
We and our ship managers rely on information technology systems and
networks in our and their operations and business administration.
The efficient operation of our business, including processing,
transmitting and storing electronic and financial information, is
dependent on computer hardware and software systems. Information
systems are vulnerable to security breaches by computer hackers and
cyber terrorists. We rely on industry accepted security measures
and technology to securely maintain confidential and proprietary
information maintained on our information systems. However, these
measures and
technology may not adequately prevent security breaches. Therefore,
our or any of our ship managers’ operations and business
administration could be targeted by individuals or groups seeking
to sabotage or disrupt such systems and networks, or to steal data
and these systems may be damaged, shutdown or cease to function
properly (whether by planned upgrades, force majeure,
telecommunications failures, hardware or software break-ins or
viruses, other cyber-security incidents or otherwise). A successful
cyber-attack could materially disrupt our or our managers’
operations, which could also adversely affect the safety of our
operations or result in the unauthorized release or alteration of
information in our or our managers’ systems. Such an attack on us,
or our managers, could result in significant expenses to
investigate and repair security breaches or system damages and
could lead to litigation, fines, other remedial action, heightened
regulatory scrutiny, diminished customer confidence and damage to
our reputation. We do not maintain cyber-liability insurance at
this time to cover such losses. As a result, a cyber-attack or
other breach of any such information technology systems could have
a material adverse effect on our business, results of operations
and financial condition.
World events, including piracy, terrorist attacks and political
conflicts, could affect our results of operations and financial
condition.
Past terrorist attacks, as well as the threat of future terrorist
attacks around the world, continue to cause uncertainty in the
world’s financial markets and may affect our business, operating
results and financial condition. Continuing conflicts, instability
and other recent developments in the Ukraine, the Middle East,
North Korea and elsewhere and the presence of U.S. or other armed
forces in the Middle East, may lead to additional acts of terrorism
and armed conflict around the world, which may contribute to
further economic instability in the global financial markets. These
uncertainties could also adversely affect our ability to obtain
additional financing on terms acceptable to us or at all. In the
past, political conflicts have also resulted in attacks on vessels,
mining of waterways and other efforts to disrupt international
shipping and ocean-going vessels, particularly in the Arabian Gulf
region. Acts of terrorism and piracy have also affected vessels
traversing in regions such as the South China Sea, the Gulf of Aden
off the coast of Somalia and West Africa. If these piracy attacks
result in regions in which our vessels are deployed being
characterized as “war risk” zones by insurers or Joint War
Committee “war and strikes” listed areas, premiums payable for such
coverage could increase significantly and such insurance coverage
may be more difficult to obtain. In addition, crew costs, including
due to employing onboard security guards, could increase in such
circumstances. Any of these occurrences could have a material
adverse impact on our operating results, revenues and
costs.
If our vessels operate in countries or territories that are subject
to restrictions, sanctions, or embargoes imposed by the U.S.
government, the European Union, the United Nations, or other
governments, it could lead to monetary fines or other penalties and
adversely affect our reputation and the market for our common
shares and their trading price.
Although we do not expect that our vessels will operate in
countries or territories subject to country-wide or territory-wide
sanctions or embargoes imposed by the U.S. government and other
authorities in violation of applicable sanctions laws and we
endeavor to take precautions reasonably designed to mitigate the
risk of such activities it is possible that our vessels may call on
ports located, and/or otherwise operate in countries or territories
subject to such sanctions, including on charterers’ instructions
and without our consent.
The sanctions and embargo laws and regulations vary in their
application, as they do not all apply to the same covered persons
or proscribe the same activities, and such sanctions and embargo
laws and regulations may be amended, strengthened, or lifted over
time.
Although we believe that we have been in compliance with all
applicable sanctions and embargo laws and regulations in 2021, and
intend to maintain such compliance, there can be no assurance that
we will be in compliance with all applicable sanctions and embargo
laws and regulations in the future, particularly as the scope of
certain laws may be unclear and may be subject to changing
interpretations. Any such violation could result in fines,
penalties, or other sanctions that could severely impact our
ability to access U.S. capital markets and conduct our business,
and could result in some investors deciding, or being required, to
divest their interest, or not to invest, in us. In addition,
certain institutional investors may have investment policies or
restrictions that prevent them from holding securities of companies
that have contracts with countries identified by the U.S.
government as state sponsors of terrorism. The determination by
these investors not to invest in, or to divest from, our common
shares may adversely affect the price at which our common shares
trade. Moreover, our charterers may violate applicable sanctions
and embargo laws and regulations as a result of their actions that
do not involve us or our vessels, and those violations could in
turn negatively affect our reputation. In addition, our reputation
and the market for our securities may be adversely affected if we
engage in certain other activities, such as entering into charters
with individuals or entities in countries subject to U.S. sanctions
and embargo laws that are not controlled by the governments of
those countries, or engaging in operations associated with those
countries pursuant to contracts with third parties that are
unrelated to those countries or entities controlled by their
governments. Investor perception of the value of our common shares
may be adversely affected by the consequences of war, the effects
of terrorism, civil unrest and governmental actions in these and
surrounding countries.
Failure to comply with the U.S. Foreign Corrupt Practices Act could
result in fines, criminal penalties, contract terminations and an
adverse effect on our business.
We operate in a number of countries throughout the world, including
countries known to have a reputation for corruption. We are
committed to doing business in accordance with applicable
anti-corruption laws and have adopted a code of business conduct
and ethics which is consistent and in full compliance with the U.S.
Foreign Corrupt Practices Act of 1977 (“FCPA”), UK Bribery Act, and
other applicable anti-corruption laws. We are subject, however, to
the risk that we, our affiliated entities or our or their
respective officers, directors, employees and agents may take
actions determined to be in violation of such anti-corruption laws,
including the FCPA and UK Bribery Act. Any such violation could
result in substantial fines, sanctions, civil and/or criminal
penalties and curtailment of operations in certain jurisdictions,
and might adversely affect our business, results of operations or
financial condition. In addition, actual or alleged violations
could damage our reputation and ability to do business.
Furthermore, detecting, investigating, and resolving actual or
alleged violations is expensive and can consume significant time
and attention of our senior management.
There may be limits in our ability to mobilize our vessels between
geographic areas, and the time and costs of such mobilizations may
be material to our business.
We operate globally and our WTIVs may be mobilized from one area to
another. However, the ability to mobilize WTIVs can be impacted by
several factors, including, but not limited to, governmental
regulation and customs practices, the significant costs of moving a
WTIV, weather, political instability, civil unrest, military
actions and the technical capability of the WTIVs to relocate and
operate in various environments.
Additionally, while a WTIV is being mobilized from one geographic
market to another, we may not be paid by the charterer for the time
that the WTIV is out of service. In addition, we may mobilize a
WTIV to another geographic market without a charter in place, which
will result in costs not reimbursable by future charterers. Any
such impacts of mobilization could have a material adverse effect
on our business, results of operations, cash flows and financial
condition.
Maritime claimants could arrest or attach one or more of our
vessels, which could interrupt our cash flows.
Crew members, suppliers of goods and services to a vessel, lenders,
and other parties may be entitled to a maritime lien against a
vessel for unsatisfied debts, claims or damages. In many
jurisdictions, a maritime lien holder may enforce its lien by
arresting or attaching a vessel through foreclosure proceedings.
The arrest or attachment of one or more of our vessels could
interrupt our cash flows and require us to pay large sums of money
to have the arrest or attachment lifted. In addition, in some
jurisdictions, such as South Africa, under the “sister ship” theory
of liability, a claimant may arrest both the vessel that is subject
to the claimant’s maritime lien and any “associated” vessel, which
is any vessel owned or controlled by the same owner. Claimants
could attempt to assert “sister ship” liability against one vessel
in our fleet for claims relating to another of our
vessels.
Governments could requisition our vessels during a period of war or
emergency, which could negatively impact our business, financial
condition, results of operations, and available cash.
A government could requisition one or more of our vessels for title
or for hire. Requisition for title occurs when a government takes
control of a vessel and becomes its owner, while requisition for
hire occurs when a government takes control of a vessel and
effectively becomes its charterer at dictated charter rates.
Generally, requisitions occur during periods of war or emergency,
although governments may elect to requisition vessels in other
circumstances. Although we would be entitled to compensation in the
event of a requisition of one or more of our vessels, the amount
and timing of payment would be uncertain. Government requisition of
one or more of our vessels may negatively impact our
revenues.
COMPANY SPECIFIC RISK FACTORS
We currently have only five WTIV vessels and are vulnerable should
any of such vessels remain idle or lose contracted
revenue.
Our fleet consists of five WTIVs, one of which remains subject to a
call option that will remain exercisable until August 12, 2022,
which, if exercised, would require us to re-sell one of the NG2500X
vessels to the sellers at the pre-agreed sale price of $65.0
million. If any of the vessels remains idle without charter or is
taken out of operation, due to, for example, one of the risks
described in this annual report materializing, this could
materially impact our business, prospects and financial results and
condition, including our ability to be compliant with the financial
covenants pursuant to our financing arrangements.
In particular, the Seajacks Scylla and Seajacks Zaratan accounted
for a large majority of our revenue in the last two years and that
is expected to continue in 2023. Should either the Seajacks Scylla
or Seajacks Zaratan be taken out of operation for any reason or
should any of their existing charter contracts be terminated or
breached, this could materially impact our business, prospects and
financial results and condition, including our ability to be
compliant with the financial covenants pursuant to our financing
arrangements.
The vessels may be subject to operational incidents and/or the need
for upgrades, refurbishments and/or repairs following which the
vessels may be out of operation for a shorter or longer period of
time. With a fleet of only five vessels, the need to remove any
vessel from service for a significant period for upgrades or
repairs, or as a result of damage to the vessel, could reduce our
earning potential for the period during which the vessel is out of
service. In addition, our fleet may be further reduced if the
sellers exercise the call option noted above. Vessel upgrades may
be necessary or desirable in the future. Expenditures may be
incurred when repairs or upgrades are required by law, in response
to an inspection by a governmental authority, when damaged, or
because of market or technological developments. Such upgrades,
refurbishment and repair projects are subject to risks, including
delays and cost overruns, which could have an adverse impact on our
available cash resources, results of operations and our ability to
comply with e.g. financial covenants pursuant to our financing
arrangements. Periods without operations for one or more of our
vessels may have a material adverse effect on the business and
financial results. If we do not acquire additional windfarm
installation vessels or similar vessels in the future, such as the
WTIVs in our newbuilding program, we will have a limited asset
base, and any failure to maintain and/or perform secured contracts
or failure to secure future employment at satisfactory rates for
such vessel(s) will affect our results significantly more than
those of a company in the offshore wind industry with a larger
fleet, and may thus have a material adverse effect on the earnings
and the value of our common shares.
Material acquisitions, disposals or investments in the future may
present material risks and uncertainties, including distraction of
management from current operations, insufficient revenue to offset
liabilities assumed, potential loss of significant revenue and
income streams, unexpected expenses, inadequate return of capital,
potential acceleration of taxes currently deferred, regulatory or
compliance issues, the triggering of certain covenants in our debt
instruments (including accelerated repayment) or other agreements
and other unidentified issues not discovered in due diligence. If
we were to complete such an acquisition, disposition, investment or
other strategic transaction, it may require additional debt or
equity financing that could result in a significant increase in the
amount of debt we have or the number of outstanding common shares.
As a result of the risks inherent in such transactions, we cannot
guarantee that any such transaction will ultimately result in the
realization of the anticipated benefits of the transaction or that
significant transactions will not have a material adverse impact on
our business, financial positions, results of operations, cash
flows and prospects.
We are a holding company, and we depend on the ability of our
subsidiaries to distribute funds to us in order to satisfy our
financial obligations and to make dividend payments.
We are a holding company and our subsidiaries conduct all of our
operations and own or lease all of our operating assets. We have no
significant assets other than the equity interests in our
subsidiaries. As a result, our ability to satisfy our financial
obligations and to pay dividends to our shareholders depends on our
subsidiaries and their ability to distribute funds to us. If we are
unable to obtain funds from our subsidiaries, our Board may
exercise its discretion not to declare dividends.
Seajacks has identified material weaknesses in its internal control
over financial reporting. Although we are taking steps to remediate
these material weaknesses, we may not be successful in doing so in
a timely manner, or at all, and we may identify other material
weaknesses.
In connection with the preparation of Seajacks’ consolidated
financial statements for each of the years ended March 31, 2021 and
2020, prior to our acquisition of Seajacks,Seajacks’ management
identified material weaknesses in Seajacks’ internal control over
financial reporting. A material weakness is a deficiency or
combination of deficiencies in the internal control over financial
reporting of a company such that there is a reasonable possibility
that a material misstatement of its consolidated financial
statements would not be prevented or detected on a timely basis.
With respect to Seajacks, the material weaknesses related to: (i)
insufficient personnel in the finance team with an appropriate
level of knowledge and experience commensurate with Seajacks’
financial reporting requirements, including revenue, income taxes
and goodwill impairment testing; (ii) information technology (“IT”)
general controls, which were either not sufficiently designed or
were not operating effectively, and (iii) policies and procedures
with respect to the review, supervision and monitoring of the
accounting and reporting functions, which were not operating
effectively in some areas. As a result, a number of required
adjustments to Seajacks’ consolidated financial statements for the
period ended December 31, 2021 and for each of the two years ended
March 31, 2021 were identified and made during the course of our
audit and management’s review process, including revenue, income
taxes and goodwill impairment testing. Additionally, these
deficiencies could result in additional misstatements to its
consolidated financial statements that may be material and may not
be prevented or detected on a timely basis.
With respect to the deficiency noted above regarding IT general
controls, Seajacks did not design and maintain effective IT general
controls for certain information systems that are relevant to the
preparation of its financial statements. Specifically, Seajacks did
not design and maintain: (i) program change management controls to
ensure that program and data changes are identified, tested,
authorized and implemented appropriately; (ii) user access controls
to ensure appropriate segregation of duties and to adequately
restrict user access to appropriate personnel; (iii) computer
operations controls to ensure that processing and transfer of data,
and data backups and recovery are monitored; and (iv) program
development controls to ensure that new software development is
tested, authorized and implemented appropriately.
As a private company, Seajacks was not required to comply with the
rules and regulations of the U.S. Securities and Exchange
Commission (the “Commission”) regarding Section 404 of the
Sarbanes-Oxley Act (“SOX 404”), and therefore was not required to
make an assessment of the effectiveness of its internal control
over financial reporting. Accordingly, Seajacks’ independent
auditor has not been engaged to express, nor have they expressed,
an opinion on the effectiveness of Seajacks’ internal control over
financial reporting. As a public company, however, Eneti is
currently subject to SOX 404, which requires a report by our
management on, among other things, the effectiveness of internal
control over financial reporting of Eneti and its consolidated
subsidiaries, including Seajacks, in our annual report on Form
20-F. The SOX 404 report by our management for the year ended
December 31, 2021 and future periods will need to include
disclosure of any material weaknesses identified in internal
control over financial reporting. Management’s assessment of
internal controls over financial reporting, when assessed as of
December 31, 2022, could detect additional deficiencies with
internal controls over financial reporting, with respect to
Seajacks’ internal controls over financial reporting, which could
lead to financial statement restatements and require us to incur
the expense of remediation. However, for purposes of this annual
report, Eneti’s management has excluded Seajacks’ internal controls
over financial reporting from Eneti’s assessment of its internal
controls over financial reporting because it was acquired by Eneti
in a purchase combination during the year ended December 31,
2021.
Assessing our procedures to improve Seajacks’ internal control over
financial reporting is an ongoing process and will be part of our
assessment of internal controls over financial reporting regarding
the consolidated financial statements as of December 31, 2022. To
remediate the material weaknesses, we are taking actions designed
to strengthen our compliance functions with additional experienced
hires and external advisors to assist in the design and
implementation of controls responsive to those material weaknesses
described above. However, these actions may not be successful. If
we are unable to remediate the identified material weaknesses
effectively, if we identify additional material weaknesses or
otherwise fail to maintain an effective system of internal controls
in the future, we may not be able to accurately or timely report
our financial condition or results of operations, which may cause
us to become subject to investigation or sanctions by the
Commission or adversely affect investor confidence in us and, as a
result, the value of our common shares. There can be no assurance
that all existing material weaknesses have been identified, or that
additional material weaknesses will not be identified in the
future.
Our costs of operating as a public company are significant, and our
management is required to devote substantial time to complying with
public company regulations. We cannot assure you that our internal
control over financial reporting will be sufficient.
We are subject to the reporting requirements of the Securities
Exchange Act of 1934, as amended, or the Exchange Act, and the
other rules and regulations of the Commission, including the
Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, and as such,
we will have significant legal, accounting and other expenses.
These reporting obligations impose various requirements on public
companies, including changes in corporate governance practices, and
these requirements may continue to evolve. We and our management
personnel, and other personnel, if any, need to devote a
substantial amount of time to comply with these requirements.
Moreover, these rules and regulations increase our legal and
financial compliance costs and make some activities more
time-consuming and costly.
The Sarbanes-Oxley Act requires, among other things, that we
maintain and periodically evaluate our internal control over
financial reporting and disclosure controls and procedures. In
particular, we need to perform system and process evaluation and
testing of our internal control over financial reporting to allow
management and our independent registered public accounting firm to
report on the effectiveness of our internal control over financial
reporting, as required by the rules and regulations of the SEC
regarding Section 404 of the Sarbanes-Oxley Act. If we have a
material weakness in our internal controls over financial
reporting, we may not prevent or detect misstatements on a timely
basis and our financial statements may be materially misstated. We
dedicate a significant amount of time and resources and incur
substantial accounting expenses to ensure compliance with these
regulatory requirements. We will continue to evaluate areas such as
corporate governance, corporate control, internal audit, disclosure
controls and procedures and financial reporting and accounting
systems. We will make changes in any of these and other areas,
including our internal control over financial reporting, which we
believe are necessary. However, these and other measures we may
take may not be sufficient to allow us to satisfy our obligations
as a public company on a timely and reliable basis. Please also see
in this Section “Seajacks
has identified material weaknesses in its internal control over
financial reporting. Although we are taking steps to remediate
these material weaknesses, we may not be successful in doing so in
a timely manner, or at all, and we may identify other material
weaknesses.”
Because we are organized under the laws of the Marshall Islands, it
may be difficult to serve us with legal process or enforce
judgments against us, our directors or our management.
We are organized under the laws of the Marshall Islands, and
substantially all of our assets are located outside of the United
States. In addition, the majority of our directors and officers are
non-residents of the United States, and all or a substantial
portion of the assets of these non-residents are located outside
the United States. As a result, it may be difficult or impossible
for someone to bring an action against us or against these
individuals in the United States if they believe that their rights
have been infringed under securities laws or otherwise. Even if you
are successful in bringing an action of this kind, the laws of the
Marshall Islands and of other jurisdictions may prevent or restrict
them from enforcing a judgment against our assets or the assets of
our directors or officers.
The international nature of our operations may make the outcome of
any bankruptcy proceedings difficult to predict.
We are incorporated under the laws of the Republic of the Marshall
Islands and we conduct operations in countries around the world.
Consequently, in the event of any bankruptcy, insolvency,
liquidation, dissolution, reorganization or similar proceeding
involving us or any of our subsidiaries, bankruptcy laws other than
those of the United States could apply. If we become a debtor under
U.S. bankruptcy law, bankruptcy courts in the United States may
seek to assert jurisdiction over all of our assets, wherever
located, including property situated in other countries. There can
be no assurance, however, that we would become a debtor in the
United States, or that a U.S. bankruptcy court would be entitled
to, or accept, jurisdiction over such a bankruptcy case, or that
courts in other countries that have jurisdiction over us and our
operations would recognize a U.S. bankruptcy court’s jurisdiction
if any other bankruptcy court would determine it had
jurisdiction.
Breakdowns in our information technology, including as a result of
cyberattacks, may negatively impact our business, including our
ability to service customers, and may have a material adverse
effect on our future performance, results of operations, cash flows
and financial position.
Our ability to operate our business and service our customers is
dependent on the continued operation of our information technology,
or IT, systems, including our IT systems that relate to, among
other things, the location, operation, maintenance and employment
of our vessels. Our IT systems may be compromised by a malicious
third party, man-made or natural events, or the intentional or
inadvertent actions or inactions by our employees or third-party
service providers. If our IT systems experience a breakdown,
including as a result of cyberattacks, our business information may
be lost, destroyed, disclosed, misappropriated, altered or accessed
without consent, and our IT systems, or those of our service
providers, may be disrupted.
Cyberattacks may result in disruptions to our operations or in
business data being temporarily unreadable, and cyberattackers may
demand ransoms in exchange for de-encrypting such data. As
cyberattacks become increasingly sophisticated, and as tools and
resources become more readily available to malicious third parties,
there can be no guarantee that our actions, security measures and
controls designed to prevent, detect or respond to intrusion, to
limit access to data, to prevent destruction or alteration of data
or to limit the negative impact from such attacks, can provide
absolute security against compromise.
Any breakdown in our IT systems, including breaches or other
compromises of information security, whether or not involving a
cyberattack, may lead to lost revenues resulting from a loss in
competitive advantage due to the unauthorized disclosure,
alteration, destruction or use of proprietary information,
including intellectual property, the failure to retain or attract
customers, the disruption of critical business processes or
information technology systems and the diversion of management’s
attention and resources. In addition, such breakdown could result
in significant remediation costs, including repairing system
damage, engaging third-party experts, deploying additional
personnel, training employees and compensation or incentives
offered to third parties whose data has been compromised. We may
also be subject to legal claims or legal proceedings, including
regulatory investigations and actions, and the attendant legal fees
as well as potential settlements, judgments and fines.
Even without actual breaches of information security, protection
against increasingly sophisticated and prevalent cyberattacks may
result in significant future prevention, detection, response and
management costs, or other costs, including the deployment of
additional cybersecurity technologies, engaging third-party
experts, deploying additional personnel and training employees.
Further, as cyber threats are continually evolving, our controls
and procedures may become inadequate, and we may be required to
devote additional resources to modify or enhance our systems in the
future. Such expenses could have a material adverse effect on our
future performance, results of operations, cash flows and financial
position.
We may be subject to litigation that, if not resolved in our favor
and not sufficiently insured against, could have a material adverse
effect on us.
We may be, from time to time, involved in various litigation
matters. These matters may include, among other things, contract
disputes, personal injury claims, environmental claims or
proceedings, asbestos and other toxic tort claims, employment
matters, governmental claims for taxes or duties, and other
litigation that arises in the ordinary course of our business.
Although we intend to defend these matters vigorously, we cannot
predict with certainty the outcome or effect of any claim or other
litigation matter, and the ultimate outcome of any litigation or
the potential costs to resolve them may have a material adverse
effect on us. Insurance may not be applicable or sufficient in all
cases and/or insurers may not remain solvent which may have a
material adverse effect on our financial condition.
A change in tax laws in any country in which we operate could
result in higher tax expense.
We conduct our operations through various subsidiaries in countries
throughout the world. Tax laws, regulations and treaties are highly
complex and subject to interpretation. Consequently, we are subject
to changing tax laws, regulations and treaties in and between the
countries in which we operate, including treaties between the
United Kingdom and other nations. Our income tax expense is based
upon our interpretation of the tax laws in effect in various
countries at the time that the expense was incurred. A change in
these tax laws, regulations or treaties, including those in and
involving the United Kingdom, or in the interpretation thereof, or
in the valuation of our deferred tax assets, which is beyond our
control, could result in a materially higher tax expense or a
higher effective tax rate on all or a portion of our worldwide
earnings.
The Company and any of its subsidiaries may be required to pay
taxes in the United Kingdom.
Certain of our subsidiaries are resident for taxation purposes in
the United Kingdom and so are subject to corporation tax in the
United Kingdom on their income. However, we have significant tax
losses and other deferred tax assets for United Kingdom tax
purposes that we expect to be available (subject to the operation
of the United Kingdom’s rules restricting the use of
carried-forward losses) to offset the United Kingdom corporation
tax that we would otherwise be required to pay until these tax
attributes are exhausted. Most of these tax attributes were
generated by entities in the Seajacks group prior to its
acquisition by us and it is possible that the availability or
quantity of these tax attributes could be challenged by the tax
authorities. It is also possible that changes in our business,
organizational structure or capitalization, including as a result
of how we use the proceeds of the November 2021 Offering or future
financing transactions, could significantly limit or eliminate
these tax attributes, although we expect that we will be able to
conduct ourselves in a manner such that this will not occur. These
considerations, as well as changes in tax laws, applicable tax
rates and market factors affecting expected future revenue and
operating expenses, may impact our future taxation and
profitability and our actual outcomes may differ from our estimates
and judgements made which could result in all or part of the
deferred tax assets remain unutilized or become
unavailable.
U.S. tax authorities could treat us as a “passive foreign
investment company,” which could have adverse U.S. federal income
tax consequences to our U.S. shareholders.
A foreign corporation will be treated as a “passive foreign
investment company,” or PFIC, for U.S. federal income tax purposes
if either (1) at least 75% of its gross income for any taxable year
consists of certain types of “passive income” or (2) at least 50%
of the quarterly average value of the corporation’s assets produce
or are held for the production of those types of “passive income,”
including cash. For purposes of these tests, “passive income”
includes dividends, interest, and gains from the sale or exchange
of investment property and rents and royalties other than rents and
royalties which are received from unrelated parties in connection
with the active conduct of a trade or business. For purposes of
these tests, income derived from the performance of services to
third parties does not constitute “passive income.” U.S.
shareholders of a PFIC are subject to a disadvantageous U.S.
federal income tax regime with respect to the income derived by the
PFIC, the distributions they receive from the PFIC and the gain, if
any, they derive from the sale or other disposition of their shares
in the PFIC.
For our 2022 taxable year and subsequent taxable years, whether we
will be treated as a PFIC will depend upon the nature and extent of
our operations. Our income from wind turbine installation should be
treated as services income for purposes of determining whether we
are a PFIC. Accordingly, we believe that our income from wind
turbine installation should not constitute passive income, and the
assets that we own and operate in connection with the production of
that income should not constitute passive assets. However, no
assurance can be given that we would not constitute a PFIC for any
taxable year if there were to be changes in the nature and extent
of our operations.
If we were treated as a PFIC for any taxable year, our U.S.
shareholders may face adverse U.S. federal income tax consequences
and information reporting obligations. Under the PFIC rules, unless
those shareholders made an election available under the Code (which
election could itself have adverse consequences for such
shareholders), such shareholders would be liable to pay U.S.
federal income tax upon excess distributions and upon any gain from
the disposition of our common
shares at the then prevailing (and for certain periods, the
highest) income tax rates applicable to ordinary income plus
interest as if the excess distribution or gain had been recognized
ratably over the shareholder’s holding period of our common shares.
See “Tax Considerations—U.S. Federal Income Tax Considerations—U.S.
Federal Income Taxation of U–S. Holders—Passive Foreign Investment
Company Status and Significant Tax Consequences” for a more
comprehensive discussion of the U.S. federal income tax
consequences to U.S. holders of our common shares if we are or were
to be treated as a PFIC.
We may have to pay tax on U.S. source income, which would reduce
our earnings and cash flow.
We may be subject to U.S. federal income taxation if our activities
in the United States or its territorial waters constitute a trade
or business. If we determine that any of our income is effectively
connected with a trade or business in the United Stated, we would
be subject to U.S. federal income taxation at the corporate tax
rate applicable to U.S. corporations and we may be subject to an
additional tax on branch profits. We may incorporate one or more
subsidiaries to conduct activities in the United States or its
territorial waters to mitigate against any potential adverse U.S.
federal income tax consequences.
Our Chief Executive Officer, President, Chief Operating Officer,
Chief Financial Officer, Vice President and Secretary do not devote
all of their time to our business, which may hinder our ability to
operate successfully.
Our Chief Executive Officer, President, Chief Operating Officer,
Chief Financial Officer, Vice President and Secretary participate
in business activities not associated with us, and some of them
serve as members of the management teams of Scorpio Tankers Inc.
(NYSE: STNG) (“Scorpio Tankers”) and are not required to work
full-time on our affairs. Additionally, our Chief Executive
Officer, President, Chief Operating Officer, Vice President and
Secretary serve in similar positions in other entities within the
Scorpio group of companies. As a result, such executive officers
may devote less time to us than if they were not engaged in other
business activities and may owe fiduciary duties to both our
shareholders as well as shareholders of other companies which they
may be affiliated with, including Scorpio Tankers. This may create
conflicts of interest in matters involving or affecting us and our
customers and it is not certain that any of these conflicts of
interest will be resolved in our favor. This could have a material
adverse effect on our business, financial condition, results of
operations and cash flows.
We are dependent on our employees and key personnel and we cannot
assure you that we will be able to retain such
persons.
Our success depends to a significant extent upon our abilities and
efforts to hire and retain key personnel with relevant expertise.
The loss of any of these individuals could adversely affect our
business prospects and financial condition. Difficulty in hiring
and retaining such personnel could adversely affect our results of
operations. We do not maintain “key man” life insurance on any of
our officers
In addition, our success is dependent upon our ability to
adequately crew our vessels. The market for qualified personnel is
highly competitive and we cannot be certain that we will be
successful in attracting and retaining qualified personnel and
crewing our vessels in the future. If we fail to retain key
personnel and hire, train and retain qualified employees, we may
not be able to compete effectively and may have increased incident
rates as well as regulatory and other compliance failures, which
could have a material adverse effect on our business, financial
position, results of operations, cash flows and
prospects.
RISKS
RELATED TO OUR INDEBTEDNESS
Servicing our current or future indebtedness limits funds available
for other purposes and if we cannot service our debt, we may lose
our vessels.
Borrowing under our credit facilities requires us to dedicate a
part of our cash flow from operations to paying interest on our
indebtedness under such facilities. These payments limit funds
available for working capital, capital expenditures and other
purposes, including further equity or debt financing in the future.
Amounts borrowed under our credit facilities bear interest at
variable rates. Increases in prevailing rates could increase the
amounts that we would have to pay to our lenders, even though the
outstanding principal amount remains the same, and our net income
and cash flows would decrease. If we do not generate or reserve
enough cash flow from operations to satisfy our debt obligations,
we may have to undertake alternative financing plans, such
as:
•seeking
to raise additional capital;
•refinancing
or restructuring our debt; or
•reducing
or delaying capital investments.
However, these alternative financing plans, if necessary, may not
be sufficient to allow us to meet our debt obligations. If we are
unable to meet our debt obligations or if some other default occurs
under our credit facilities, our lenders could elect
to declare that debt, together with accrued interest and fees, to
be immediately due and payable and proceed against the collateral
vessels securing that debt.
We are exposed to volatility in interest rates which can result in
higher than market interest rates and charges against our
income.
The loans under our secured credit facilities are generally
advanced at a floating rate based on LIBOR, which has been stable,
but was volatile in prior years, which can affect the amount of
interest payable on our debt, and which, in turn, could have an
adverse effect on our earnings and cash flow. Recently, however,
there has been uncertainty relating to the LIBOR calculation
process and the phasing out of LIBOR. The publication of the U.S
Dollar LIBOR for the one-week and two-month U.S. Dollar LIBOR
tenors ceased on December 31, 2021 and the ICE Benchmark
Administration (“IBA”), the administrator of LIBOR, with the
support of the United States Federal Reserve and the United
Kingdom’s Financial Conduct Authority, announced the publication of
all other U.S. Dollar LIBOR tenors will cease on June 30, 2023. The
United States Federal Reserve concurrently issued a statement
advising banks to cease issuing U.S. Dollar LIBOR instruments after
2021.
In the event of the unavailability of LIBOR, many of our financing
agreements contain a provision requiring or permitting us to enter
into negotiations with our lenders to agree to an alternative
interest rate or an alternative basis for determining the interest
rate. These clauses present significant uncertainties as to how
alternative rates or alternative bases for determination of rates
would be agreed upon, as well as the potential for disputes or
litigation with our lenders regarding the appropriateness or
comparability to LIBOR of any substitute indices. In the absence of
an agreement between us and our lenders, most of our financing
agreements provide that LIBOR would be replaced with some variation
of the lenders’ cost-of-funds rate. The discontinuation of LIBOR
presents a number of risks to our business, including volatility in
applicable interest rates among our financing agreements, increased
lending costs for future financing agreements or unavailability of
or difficulty in attaining financing, which could in turn have an
adverse effect on our profitability, earnings and cash
flow.
Please see “Item 11. Quantitative and Qualitative Disclosures About
Market Risk - Interest Rate Risk.”
We are leveraged, which could significantly limit our ability to
execute our business strategy and we may be unable to comply with
our covenants in our credit facilities that impose operating and
financial restrictions on us, which could result in a default under
the terms of these agreements.
As of December 31, 2021, we had $140.7 million of outstanding
indebtedness under our credit facilities and other financing
obligations.
Our credit facilities impose operating and financial restrictions
on us, that limit our ability, or the ability of our subsidiaries
party thereto, to:
•pay
dividends and make capital expenditures if we do not repay amounts
drawn under our credit facilities or if there is another default
under our credit facilities;
•incur
additional indebtedness, including the issuance of
guarantees;
•create
liens on our assets;
•change
the flag, class or management of our vessels or terminate or
materially amend the management agreement relating to each
vessel;
•sell
our vessels;
•merge
or consolidate with, or transfer all or substantially all our
assets to, another person; and/or
•enter
into a new line of business.
Therefore, we may need to seek permission from our lenders in order
to engage in some corporate actions. Our lenders’ interests may be
different from ours and we may not be able to obtain our lenders’
permission when needed. This may limit our ability to pay dividends
on our common shares, finance our future operations or capital
requirements, make acquisitions or pursue business
opportunities.
In addition, our secured credit facilities require us to maintain
specified financial ratios and satisfy financial covenants,
including ratios and covenants based on the market value of the
vessels in our fleet. Should our charter rates or vessel values
materially decline in the future, we may seek to obtain waivers or
amendments from our lenders with respect to such
financial
ratios and covenants, or we may be required to take action to
reduce our debt or to act in a manner contrary to our business
objectives to meet any such financial ratios and satisfy any such
financial covenants.
Events beyond our control, including changes in the economic and
business conditions in the shipping markets in which we operate,
may affect our ability to comply with these covenants. We cannot
assure you that we will meet these ratios or satisfy these
covenants or that our lenders will waive any failure to do so or
amend these requirements. A breach of any of the covenants in, or
our inability to maintain the required financial ratios under, our
credit facilities would prevent us from borrowing additional money
under our credit facilities and could result in a default under our
credit facilities. If a default occurs under our credit facilities,
the lenders could elect to declare the outstanding debt, together
with accrued interest and other fees, to be immediately due and
payable and foreclose on the collateral securing that debt, which
could constitute all or substantially all of our assets. Moreover,
in connection with any waivers or amendments to our credit
facilities that we may obtain, our lenders may impose additional
operating and financial restrictions on us or modify the terms of
our existing credit facilities. These restrictions may further
restrict our ability to, among other things, pay dividends,
repurchase our common shares, make capital expenditures, or incur
additional indebtedness.
Furthermore, our debt agreements contain cross-default provisions
that may be triggered if we default under the terms of any one of
our financing agreements. In the event of default by us under one
of our debt agreements, the lenders under our other debt agreements
could determine that we are in default under such other financing
agreements. Such cross defaults could result in the acceleration of
the maturity of such debt under these agreements and the lenders
thereunder may foreclose upon any collateral securing that debt,
including our vessels, even if we were to subsequently cure such
default. In addition, our credit facilities and finance leases
contain subjective acceleration clauses under which the debt could
become due and payable in the event of a material adverse change in
our business. In the event of such acceleration or foreclosure, we
might not have sufficient funds or other assets to satisfy all of
our obligations, which would have a material adverse effect on our
business, results of operations and financial
condition.
Please see “Item 5. Operating Financial Review and Prospects-B.
Liquidity and Capital Resources-Credit Facilities.”
RISKS RELATING TO OUR COMMON SHARES
We are incorporated in the Marshall Islands, which does not have a
well-developed body of corporate law.
Our corporate affairs are governed by our amended and restated
articles of incorporation and bylaws and by the Marshall Islands
Business Corporations Act (“BCA”). The provisions of the BCA
resemble provisions of the corporation laws of a number of states
in the United States. However, there have been few judicial cases
in the Marshall Islands interpreting the BCA. The rights and
fiduciary responsibilities of directors under the laws of the
Marshall Islands are not as clearly established as the rights and
fiduciary responsibilities of directors under statutes or judicial
precedent in existence in the United States. The rights of
shareholders of companies incorporated in the Marshall Islands may
differ from the rights of shareholders of companies incorporated in
the United States. While the BCA provides that it is to be
interpreted according to the laws of the State of Delaware and
other states with substantially similar legislative provisions,
there have been few, if any, court cases interpreting the BCA in
the Marshall Islands and we cannot predict whether Marshall Islands
courts would reach the same conclusions as U.S. courts. Thus, you
may have more difficulty in protecting your interests in the face
of actions by the management, directors or controlling shareholders
than would shareholders of a corporation incorporated in a U.S.
jurisdiction which has developed a relatively more substantial body
of case law.
The market price of our common shares has fluctuated widely and may
fluctuate widely in the future, or there may be no continuing
public market for you to resell our common shares.
The market price of our common shares has fluctuated widely since
our common shares began trading on the NYSE in December 2013, and
may continue to do so as a result of many factors such as actual or
anticipated fluctuations in our quarterly and annual results and
those of other public companies in our industry, mergers and
strategic alliances in our industry, market conditions in our
industry, changes in government regulation, shortfalls in our
operating results from levels forecast by securities analysts,
announcements concerning us or our competitors, our transition to
the offshore energy sector, and the general state of the securities
market. Further, there may be no continuing active or liquid public
market for our common shares.
The market for common shares has historically been, and may
continue to be in the future, volatile. Therefore, we cannot assure
you that you will be able to sell any of our common shares you may
have purchased at a price greater than or equal to its original
purchase price, or that you will be able to sell them at
all.
We cannot assure you that our Board will continue to declare
dividends.
Although we have declared and paid dividends in the past, we cannot
assure you that we will continue to declare and pay dividends in
the future. The declaration and payment of dividends, if any, will
always be subject to the discretion of our Board of Directors,
restrictions contained in our credit facilities and the
requirements of Marshall Islands law. The timing and amount of any
dividends declared will depend on, among other things, our
earnings, financial condition and cash requirements and
availability, our ability to obtain debt and equity financing on
acceptable terms as contemplated by our growth strategy, the terms
of our outstanding indebtedness and the ability of our subsidiaries
to distribute funds to us. We cannot predict with certainty the
amount of cash, if any, that will be available for distribution as
dividends in any period. Also, there may be a high degree of
variability from period to period in the amount of cash that is
available for the payment of dividends.
We may incur expenses or liabilities or be subject to other
circumstances in the future that reduce or eliminate the amount of
cash that we have available for distribution as dividends,
including as a result of the risks described herein.
In general, under the terms of our existing agreements of
indebtedness, we are not permitted to pay dividends if there is a
default or a breach of a covenant thereunder.
The Republic of Marshall Islands laws generally prohibit the
payment of dividends other than from surplus (retained earnings and
the excess of consideration received for the sale of shares above
the par value of the shares) or while a company is insolvent or
would be rendered insolvent by the payment of such a dividend. We
may not have sufficient surplus in the future to pay dividends and
our subsidiaries may not have sufficient funds or surplus to make
distributions to us. We can give no assurance that we will continue
to declare dividends on our common shares in the
future.
Anti-takeover provisions in our organizational documents could have
the effect of discouraging, delaying or preventing a merger or
acquisition, or could make it difficult for our shareholders to
replace or remove our current Board of Directors, which could
adversely affect the market price of our common
shares.
Several provisions of our amended and restated articles of
incorporation and bylaws could make it difficult for our
shareholders to change the composition of our Board in any one
year, preventing them from changing the composition of management.
In addition, the same provisions may discourage, delay or prevent a
merger or acquisition that shareholders may consider favorable.
These provisions include:
•authorizing
our Board to issue “blank check” preferred stock without
shareholder approval;
•providing
for a classified Board with staggered, three-year
terms;
•establishing
certain advance notice requirements for nominations for election to
our Board or for proposing matters that can be acted on by
shareholders at shareholder meetings;
•prohibiting
cumulative voting in the election of directors;
•limiting
the persons who may call special meetings of
shareholders;
•authorizing
the removal of directors only for cause and only upon the
affirmative vote of the holders of a majority of the outstanding
common shares entitled to vote for the directors; and
•establishing
super majority voting provisions with respect to amendments to
certain provisions of our amended and restated articles of
incorporation and bylaws.
These anti-takeover provisions could substantially impede the
ability of public shareholders to benefit from a change in control
and, as a result, may adversely affect the market price of our
common shares and shareholders’ ability to realize any potential
change of control premium.
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ITEM 4. |
INFORMATION ON THE COMPANY |
A.History
and Development of the Company
Eneti Inc. (formerly Scorpio Bulkers Inc.) is an international
shipping company that was incorporated in the Republic of the
Marshall Islands pursuant to the Marshall Islands Business
Corporations Act (“BCA”) on March 20, 2013. Our common shares have
been listed for trading on the New York Stock Exchange, or NYSE,
under the symbol “SALT” since December 12, 2013. Effective February
8, 2021, our common shares began trading on the NYSE under the
symbol “NETI”.
On August 3, 2020, we announced our intention to transition away
from the business of drybulk commodity transportation and towards
marine-based renewable energy including investing in the next
generation of wind turbine installation vessels. We completed our
exit from the dry bulk industry with the sale of our last drybulk
vessel in July 2021.
On August 12, 2021, we completed our acquisition of 100% of
Atlantis Investorco Limited, the parent of Seajacks. With five
WTIVs on-the-water and high-specification newbuildings scheduled
for delivery in 2024 and 2025, Eneti has one of the largest, most
capable installation fleets in the offshore wind
sector.
Our principal executive offices are located at 9, Boulevard Charles
III, Monaco 98000 and our telephone number at that location is
+377-9798-5715. The SEC maintains an Internet site that contains
reports, proxy and information statements, and other information
regarding issuers that file electronically with the SEC. The
address of the SEC's Internet site is http://www.sec.gov. The
address of the Company's Internet site is
http://www.eneti-inc.com/. None of the information contained on
these websites is incorporated into or forms a part of this annual
report.
Recent and Other Developments
Signing of $175 Million Multicurrency Credit Facility
On March 31, 2022, we signed a previously announced five-year
$175.0 million multicurrency credit facility (the “Credit
Facility”) from DNB Capital LLC, Societe Generale, Citibank N.A.,
Credit Agricole Corporate and Investment Bank and Credit Industriel
et Commercial.
We expect to draw down the Credit Facility within April 2022 and
the immediate use of proceeds is planned to include repayment of
outstanding debt under its existing $60.0 million ING revolving
credit facility (which will be terminated) and the repayment in
full of $53.0 million of outstanding redeemable notes due March
2023.
Quarterly Dividend
On February 23, 2022, the Board declared a quarterly cash dividend
of $0.01 per share on our common shares.
Discontinuance of Discussions with U.S. Shipyard
On February 1, 2022, we announced that we discontinued discussions
with a shipyard in the United States to build a Jones Act-compliant
Wind Turbine Installation Vessel.
November 2021 Common Share Offering
On November 16, 2021, we closed an underwritten public offering of
19,444,444 Common Shares, at $9.00 per share (the “November 2021
Offering”), which raised net proceeds of approximately $165.9
million.
B.Business
Overview
We are a company focused on serving the offshore wind and
marine-based renewable energy industry through our operation of
wind turbine installation vessels (“WTIVs”). WTIVs are vessels
specifically designed for the transport and installation of
offshore wind turbines, which are power generating devices driven
by the kinetic energy of the wind near-shore or further offshore on
coastlines for commercial electricity generation, onto pre-prepared
foundations.
Our current fleet consists of five WTIVs that are currently
on-the-water. Certain WTIVs in our current fleet are also employed
in the maintenance of existing offshore wind turbines and are also
suitable to employment servicing offshore oil and gas
installations. In addition, we have two contracts with Daewoo
Shipbuilding and Marine Engineering (“Daewoo”) for the construction
of two newbuilding WTIVs that we expect to take delivery of during
the third quarter of 2024 and second quarter of 2025 (the
“Newbuilding WTIVs” or our “newbuilding program”).
We were formed by the Scorpio group of companies, with an affiliate
of the Scorpio group remaining one of our principal shareholders,
and completed our initial public offering and commenced trading on
the NYSE in 2013. From March 2013 through July 2021, we were an
international shipping company that owned and operated dry bulk
carriers. Over the past year, we have shifted our focus from the
dry bulk commodity transportation business to focus on serving the
offshore wind and marine-based renewable energy industry, through
the acquisition and operation of WTIVs. In July 2021, we completed
our exit from the business of dry bulk commodity transportation by
selling the last of the 49 vessels that were previously in our
fleet. In
August 2021, we completed the transformational Seajacks
Transaction, as defined and described below, through which we
acquired our current fleet of five WTIVs, becoming the only
NYSE-listed company that exclusively owns and operates
WTIVs.
In addition to the ownership and operation of our fleet, we,
through one of our wholly-owned subsidiaries, serve in a technical
advisory role to Dominion Energy, on the construction of the first
WTIV being constructed in the United States under the U.S. Jones
Act.
Our Common Shares are listed for trading on the NYSE under the
symbol "NETI."
Acquisition of Seajacks
On August 12, 2021, the Company completed a previously announced
transaction whereby one of its wholly-owned direct subsidiaries
acquired from Marubeni Corporation, INCJ Ltd and Mitsui OSK Lines
Ltd. (together, the “Sellers”) 100% of Atlantis Investorco Limited,
the parent of Seajacks International Limited (“Seajacks”), for
consideration of approximately 8.13 million shares, and $70.7
million of newly-issued redeemable notes. Upon completion,
7.5 million common shares and 700,000 preferred shares were
issued to the Sellers. The preferred shares were subsequently
converted to common shares.
Seajacks was founded in 2006 and is based in Great Yarmouth, United
Kingdom. It has a track record of installing wind turbines and
foundations dating to 2009. Seajacks’ flagship, NG14000X design
Seajacks Scylla, was delivered from Samsung Heavy Industries in
2015 and is capable of installing turbines up to 14 MW. Seajacks
also owns and operates the NG5500C design Seajacks Zaratan which is
currently operating in the Japanese market under the Japanese flag
capable of installing turbines up to 9.5 MW, as well as three
NG2500X specification WTIVs capable of installing turbines up to 4
MW.
We believe our combination with Seajacks creates one of the world’s
leading owner/operators of WTIVs and that our operating fleet,
along with our high-specification contracted newbuilding WTIVs
creates the most capable installation fleet in the offshore wind
sector.
Our Fleet
The following tables set forth certain summary information
regarding our Operating Fleet as of the date of April 15,
2022:
Operating Fleet
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vessel |
|
Seajacks
Scylla |
Seajacks
Zaratan |
Seajacks
Hydra |
Seajacks
Leviathan |
Seajacks
Kraken |
Design |
|
NG14000X |
NG5500C |
NG2500X |
NG2500X |
NG2500X |
Delivery |
|
Nov 2015 |
May 2012 |
June 2014 |
June 2009 |
March 2009 |
Yard |
|
Samsung Heavy Industries |
Lamprell Energy Limited |
Lamprell Energy Limited |
Lamprell Energy Limited |
Lamprell Energy Limited |
Flag |
|
Panama |
Japan |
Panama |
Panama |
Panama |
Length overall (m)
|
|
139 |
109 |
75 |
75 |
75 |
Width (m) |
|
50 |
41 |
36 |
36 |
36 |
Main crane capacity (t)
|
|
1,540 |
800 |
400 |
400 |
300 |
Boom length (m)
|
|
105 |
92 |
73 |
78 |
70 |
Main deck area (m2)
|
|
4,600 |
2,000 |
900 |
900 |
900 |
Pre-load per leg (t/leg)
|
|
14,000 |
5,500 |
2,700 |
2,700 |
2,700 |
Max jacking load
(t/leg)
|
|
7,680 |
3,200 |
1,475 |
1,475 |
1,475 |
Turbine carrying capacity
|
|
12-14MW class |
9.5MW class |
4MW class |
4MW class |
4MW class |
DP system
|
|
DP2 |
DP2 |
DP2 |
DP2 |
DP2 |
Max POB (pax)
|
|
130 |
90 |
100 |
120 |
90 |
Leg length (m)
|
|
105 |
85 |
85 |
85 |
85 |
Water depth (m) |
|
65 |
55 |
48 |
48 |
48 |
Thrusters |
|
3 x
3,000kW +
3 x aft |
2 x
2,000kW +
3 x 1,500kW |
4 x
1,500kW |
4 x
1,500kW |
4 x
1,500kW |
Technical and Commercial Highlights about our Fleet
Seajacks Scylla
Since delivery in 2015, the Seajacks Scylla has installed jacket
foundations and up to 8MW turbines in Europe and Asia. Currently
our largest vessel, the Seajacks Scylla has been specifically
designed for larger wind farm component installation. With the
largest deck space, leg length and lifting capacity of our fleet,
the Seajacks Scylla has been specifically designed for deep water
and large wind farm components. The Seajacks Scylla is equipped
with a 1540t leg-encircling crane, has useable deck space in excess
of 5000m², and over 8000t of available variable load. Sailing at
speeds of 12 knots or over, the Seajacks Scylla is outfitted with
105-meter-long legs that have the ability to install components in
water depths of up to 65m.
Seajacks Zaratan
The Seajacks Zaratan is purposely designed to service the offshore
wind farm installation market, as well as to provide services to
the oil and gas industry in the harsh operating environment of the
Southern North Sea. With the capability of carrying turbines and
installing turbines of up to 9.5MW, a 800t crane and 2,000m² of
deck space, Seajacks Zaratan supports offshore wind farm
construction and substation commissioning. The Seajacks Zaratan is
a modified version of the MSC NG5500X design, which incorporates a
fully redundant DP2 propulsion system and an 800t leg encircling
crane designed by Gusto MSC.
The vessel’s first engagement was at Gunfleet Sands offshore wind
farm, where the Seajacks Zaratan facilitated Operations and
Maintenance (“O&M”). O&M necessitates fast transits between
sites, which was expedited by the Seajacks Zaratan’s
self-propulsion and guidance systems. Seajacks Zaratan further
supported monopile installation at the Meerwind Offshore Wind Farm,
where the vessel was fitted with a 400t Hydro Hammer and managed,
at one stage, to drive 3 monopiles into the seabed in just 36
hours. The Seajacks Zaratan worked in conjunction with Seajacks
Leviathan to erect 80 3.6MW turbines at Meerwind.
Seajacks Hydra
The Seajacks Hydra is a modified version of Gusto MSC’s NG2500X
design, fully adaptable for work in both the offshore wind and oil
and gas industries. The Hydra’s accommodation capacity of up to 100
crew members makes the Hydra an attractive asset for projects
related to the commissioning and decommissioning of offshore oil
and gas platforms. She was delivered by Lamprell Shipyard in Dubai
on June 2, 2014, and upon delivery commenced employment providing
accommodation for the SylWin Alpha substation.
Seajacks Kraken
The Seajacks Kraken has been specifically designed to operate in
harsh environments such as the North Sea, operating in compliance
with the most stringent regulations and in accordance with standard
procedures required to operate in the hydrocarbon industry. This
state-of-the-art, self-propelled jack-up vessel is equipped with
DP2 capability which allows for fast, safe, and cost-efficient
transit and positioning between locations; this not only transforms
operations in the oil and gas industry, but also facilitates
efficient installation and maintenance of offshore wind farms. This
vessel has accommodation capacity for up to 90 crew members, which
makes the Seajacks Kraken an attractive asset for projects related
to the commissioning and decommissioning of offshore oil and gas
platforms.
The Seajacks Kraken completed her first project by providing
accommodation and support for ExxonMobil in 2009 at the Thébaud
Platform, off Nova Scotia. Subsequently, the vessel carried out a
well intervention project for TAQA Energy BV in the Dutch Sector of
the North Sea and has completed a 15 month contract with DONG
Energy (Ørsted) to perform wind farm installation work at the
Walney Offshore Wind Farm located in the Irish Sea. The Seajacks
Kraken played a major part in the Shell ONE gas campaign,
supporting the servicing of more than 50 platforms over a 3-year
period to increase their productive life.
Seajacks Leviathan
The Seajacks Leviathan, a sister-ship of the Seajacks Kraken, is
also equipped with DP2 capability which allows for fast, safe, and
cost-efficient transit and positioning between locations; this not
only transforms operations in the oil and gas industry, but also
facilitates efficient installation and maintenance of offshore wind
farms and has an accommodation capacity of up to 120 crew members,
making the Seajacks Leviathan well suited to projects related to
the commissioning and decommissioning of offshore oil and gas
platforms. The Seajacks Leviathan concluded a 15-month contract
with Fluor for work on the Greater Gabbard Offshore Wind Farm
located off the Suffolk/Essex coast. Seajacks Leviathan also worked
with Seajacks Zaratan on the Meerwind Offshore Wind Park,
installing the transition pieces and turbines of 88 Siemens 3.6MW
wind turbines.
The Seajacks Leviathan has installed and maintained offshore wind
farm components in the Southern North Sea since her delivery in
2009. The Seajacks Leviathan has installed turbines on Sheringham
Shoal Offshore Wind Farm, Greater Gabbard Offshore Wind Farm and
Meerwind Offshore Wind Park. The Seajacks Leviathan also maintains
offshore substations and performs blade exchanges as part of wind
farm maintenance campaigns.
In addition, the Seajacks Hydra, the Seajacks Kraken, and the
Seajacks Leviathan (our NG 2500X-design WTIVs) are well suited for
operation and maintenance, specifically in Europe, of offshore wind
farms where the average turbine capacity is less than 4 MW. While
newer and larger turbines are being installed today, existing
offshore wind farms still need operation and maintenance work
completed. This work typically consists of preventative and
unscheduled maintenance. Preventative maintenance involves the
replacement of problematic parts that are detected through
condition monitoring of the offshore wind farm and are replaced to
improve long-term yield and avoid future failures. Unscheduled
maintenance is due to unexpected or undetected turbine component
failures.
Chartering Strategy and Employment of Our Fleet
We seek to employ our vessels on short-term time charters of
between three to twelve months, and may employ our vessels on
multi-year charters for larger windfarm installation projects. We
charter our vessels on a dayrate basis for short-term charters, and
for a fixed project fee for multi-year charters. Our charters are
with a number of different charterers and expire on different dates
over a period of time. Our vessels are primarily employed to
install offshore wind turbines and provide operational support and
maintenance services to the offshore oil and gas industry. We
believe that our chartering strategy allows us to maximize charter
coverage and minimize downtime between charters.
Current and Upcoming Projects
As of April 11, 2022, we have contracted to perform the following
assignments for 2022 and 2023:
•We
have a time charter contract with a group of offshore wind farm
project companies to operate the Seajacks Zaratan to provide
transportation, management and installation services over a five
month period for wind turbine generators for an offshore wind farm
project off the coast of Japan that is expected to commence in
2022. Contracted revenue for this project is $38.0 million, which,
in addition to contracted revenue for chartering, includes
mobilization and demobilization fees and payments for sea
fasteners;
•We
are currently on a time charter contract with an offshore wind farm
project company for Seajacks Scylla to provide loading,
transportation, crane operation and installation services for
certain wind turbine generators for an offshore wind farm project
in Taiwan. This project commenced in in February 2022 and is
expected to last for eight months. Contracted revenue for this
project is $73.1 million which, in addition to contracted revenue
for chartering, includes mobilization and demobilization fees,
payments for sea fasteners and additional days requested by the
client;
•We
have six contracts with customers in Northwest Europe for between
366 to 533 days, in aggregate, of employment for our NG2500-class
vessels that together are expected to generate between
approximately $20.4 million to $28.3 million of revenue in 2022;
and
•We
have a contract with Van Oord for the employment of Seajacks Scylla
in Europe in 2023. The firm charter duration of the contract will
generate approximately $60.0 million of revenue in
2023.
Management of Our Vessels
Commercial and Technical Management
We perform the technical and commercial management of our fleet
in-house. Our commercial management personnel secure employment for
our vessels. Our technical management personnel have experience in
the complexities of oceangoing vessel operations, including the
supervision of maintenance, repairs, drydocking, and crewing,
purchasing supplies, spare parts, and monitoring regulatory and
classification society compliance and customer
standards.
Administrative Services
Effective September 21, 2021, we entered into the Amendment No. 1
to Administrative Services Agreement with Scorpio Services Holding
Limited (“SSH”), a related party, for the provision of
administrative staff, office space and accounting, legal
compliance, financial and information technology services for which
we reimburse SSH for the direct and indirect expenses incurred
while providing such services. The services provided to us by SSH
may be sub-contracted to other entities.
In addition, SSH has agreed with us not to own any vessels engaged
in seabed preparation, transportation, installation, operation and
maintenance activities related to offshore wind turbines so long as
the Amended Administrative Services Agreement is in full force and
effect. The agreement may be terminated by either party upon 3
months’ prior notice.
Technical Support Agreement
On October 20, 2021, we, through our wholly-owned subsidiary,
entered into a technical support agreement with Scorpio Ship
Management S.A.M. (“SSM”), a related party, pursuant to which SSM
provides technical advice and services to us in connection with the
construction of our newbuilding WTIV at Daewoo. In consideration
for these services, we paid SSM a fee of $671,200, and thereafter,
will pay a monthly fee in the amount of $41,667.
Our Customers
We believe that developing strong relationships with the end users
of our services allows us to better satisfy their needs with
appropriate and capable vessels. A prospective charterer’s
financial condition, creditworthiness, reliability and track record
are important factors in negotiating our vessels’ employment. Our
customers are typically wind-farm developers, wind turbine OEMs,
EPCI contractors or oil & gas companies.
Seasonality
We operate our WTIV vessels in markets that have historically
exhibited seasonal variations in demand and boom-bust cycles and,
as a result, variable charterhire rates. This seasonality may
result in quarter to quarter volatility in our operating results.
The market is typically stronger in the spring and summer months
when weather conditions are more favorable for offshore activities.
As a result, revenues of European WTIV operators in general have
historically been weaker during the fiscal quarters ended December
31 and March 31, and, conversely, been stronger in fiscal quarters
ended June 30 and September 30. Due to global expansion, these
trends may vary according to continental seasonality. This
seasonality may materially affect our operating results and cash
available for the payment of dividends.
Competition
We operate in markets that are highly competitive and based
primarily on supply and demand. We compete for charters on the
basis of vessel capability (crane capacity, water depth capability,
deck space, accommodation), vessel emissions profile, price, vessel
location as well as on our reputation. We compete primarily with
other WTIV-owners. Ownership of WTIVs is divided among publicly
listed companies, and private shipowners; these owners are
typically focused on WTIVs, or are part of larger construction or
offshore focused conglomerates.
Industry and Market Conditions
The Offshore Wind Industry
The statistical information and industry and market data contained
in this section (the “data”) is based on or derived from
statistical information and industry and market data collated and
prepared by 4C Offshore Ltd. (“4C Offshore”). The data is based on
4C Offshore’s review of such statistical information and market
data available at the time, including internal surveys and sources,
independent financial information, independent external industry
publications, reports or other publicly available information. Due
to the incomplete nature of the statistical information and market
data available, 4C Offshore has made some estimates where necessary
when preparing the data. The data is subject to change and may
differ from similar assessments obtained from other analysts of the
offshore wind industry. While reasonable care has been taken in the
preparation of the data, 4C Offshore has not undertaken any
independent verification of the information and market data
obtained from published sources. The Company believes and acts as
though the market data provided in this section, “The Offshore Wind
Industry” is reliable and accurate.
Introduction
Electricity is at the heart of modern economies. Demand for
electricity is set to increase further due to increasing
population, rising incomes, the electrification of transport and
heat, and growing demand for digitally connected devices. Rising
electricity demand is one of the key reasons for increasing global
CO2
emissions and resulting climate change. Renewable energy plays an
increasingly vital role in producing decarbonised
electricity.
The International Energy Agency (IEA) shared its two scenarios for
electricity demand growth and how offshore wind will
contribute:
•Stated
Policies Scenario:
Global electricity demand grows at 2.1% per year to 2040.
This raises electricity’s share in total final energy consumption
from 19% in 2018 to 24% in 2040.
Offshore wind capacity is set to grow by 13% per year and global
electricity supply from offshore wind will increase to
3%.
•Sustainable
Development Scenario:
Electricity share in total energy consumption reaches 31% of the
final energy consumption. Offshore wind capacity increases
fifteen-fold from 2018 to 2040 (560 GW)
(Figure 1). Offshore wind’s share of global electricity supply
rises to 5%.
Figure
1. Projected global offshore wind capacity and share of electricity
supply by scenario.
The Paris Climate Change Agreement, adopted by 196 Parties in
December 2015, is a legally binding agreement on climate change
which aims to limit global warming to well below 2°C. The EU and
its Member states are all signatories. To achieve this ambitious
target, an immense expansion of renewable energy deployment is
required at global scale. Offshore wind has a huge potential that
is technologically and commercially feasible, and will play a
critical role in Europe’s efforts to achieve net zero emissions by
2050.
The advantages of offshore wind power include:
•Renewable
source with growth potential:
Offshore wind is one of the highest growth sources of electricity
supply. According to the IEA, offshore wind expansion could avoid
between 5 billion and 7 billion tonnes of CO2
emission from the power sector globally (EIA, 2019).
•Stronger
and more reliable wind resources:
Offshore wind resources tend to
be stronger and more consistent than on land. Small increases in
wind speed result in large increases in energy production. The
faster wind speeds offshore mean much more energy can be generated
than onshore.
•Higher
capacity factors:
The net capacity factor is the ratio of an actual electrical energy
output over a given period of time compared to the maximum possible
electrical energy output over that period. Offshore wind’s capacity
factor is higher than solar and onshore wind, as solar panels do
not produce energy at night.
•Cost
competitive:
Offshore wind is expected to be the second cheapest electricity
source after solar by 2040 (BEIS,2020).
•Close
proximity to demand centres:
Most of the global population is concentrated in major coastal
cities. Conversely, good land-based wind sites are often located in
remote locations, far from cities where the electricity is needed.
Building offshore wind farms in these coastal areas can help to
meet energy needs from a domestic source of energy.
•Reduced
land requirements:
Land requirement/MW is a lot less for offshore wind compared to
solar technology. Offshore wind turbines are also widely spaced
apart allowing other activities in the project area.
•Less
local impact:
With onshore wind, concerns exists over the noise produced by
turbine blades and the visual impacts to the landscape. Because
offshore windfarms are getting further from shore the concerns for
noise or aesthetics are minimal.
Vindeby was the first offshore windfarm, deployed in the coast of
Danish Island of Lolland in 1991. However, in the last 10 years the
market has really taken off. Soon to be world’s largest offshore
wind farm, Hornsea Two (1.4GW) is under construction off the coast
of England. Hornsea One (1.2 GW) is the largest operational
windfarm to date. The global leader Ørsted’s Hornsea One project
produces enough energy to power well over one million homes. Ørsted
has built more offshore wind farms than any other offshore wind
developer in the world, with 9.9 GW operational
capacity.
Offshore Wind Market Outlook
Despite the COVID pandemic, the outlook for renewable energy
continues to improve as the world transitions to cleaner sources of
energy. While offshore wind has growth has been slower than other
renewable energy sources such as solar and onshore wind projects,
it has accelerated over the last few years.
The acceleration in growth of offshore wind is not only due to
ambitious national targets and supportive policy frameworks, but
also declining costs and improving economies of scale. Thus,
offshore wind is posed for significant growth over the next
decade.
The high level of offshore wind growth can be credited to favorable
economics versus other sources of electricity, and additionally
supportive policy frameworks reducing risk to lenders.
Annual capacity entering construction globally has increased by
around 27% per year between 2010 and 2019 (Figure 2). A significant
level of 2020 and 2021 capacity build out is driven by China.
Chinese projects were incentivized to enter construction in order
to secure subsidies; these projects began construction but made
minimal progress in 2020 and each will continue to work in batches
for 2-3 years until completion. China is excluded from analysis
throughout this report due to its self-served market
dynamics.
The global offshore wind market is set to grow 18% per year from
2022 through 2027. Offshore wind cumulative capacity is expected to
increase to 175 GW by end-2027, 108 GW up from the end-2021
underway capacity.
Significant technological improvements have led to increases in the
size and output of offshore wind turbines. For example, Vestas’
V-80 turbine constructed in 2000 was only 2 MW whereas its new
V-236 turbine is 15 MW. This is expected to be ready for commercial
deployment in 2024.
Europe has been the global leader in offshore wind farm
development, where high wind speeds, shallow waters and favorable
ground conditions have facilitated rapid growth. In Europe the
average installed turbine size has increase from 4 MW in 2014 to
8-10 MW in 2021. This is expected to increase further as 15 MW are
being planned for installation from 2026 onwards.
Asia has followed Europe in offshore windfarm development, while
their average installed turbine has been 5-6 MW, turbine sizes are
expected to increase to 14 MW in 2027.
Recent announcements for offshore wind development North America,
specifically the United States, and proposed projects are expected
to install turbine capacity similar to Europe.
The growth rate of offshore wind has been nurtured in European
countries where high wind speed, shallow waters and good ground
conditions have provided suitable conditions for rapid growth.
Considering the total commissioned capacity (Figure 3) by country,
it can be seen that the UK retains its position as the leader
excluding China, with a total of 10.4 GW capacity commissioned by
Q4 2021. The global total, excluding China, stands at 26.8 GW with
another 21.9 GW of capacity currently under-construction, or in
pre-construction (having reached FID) (Figure 4).
Figure 3. Global fully commissioned capacity by Q4 2021. China (not
shown) has 23.7 GW of fully commissioned capacity.
Figure 4. Global capacity under construction and having reached
financial investment decision by Q4 2021. China (not shown) has 5.3
GW under construction and post-FID.
Offshore Wind Turbine Trends
Turbines convert kinetic energy from wind into alternative current
(AC) electrical energy. Offshore turbines are horizontal axis wind
turbines with three-bladed rotors and are much larger than onshore
models.
The main turbine components are:
•Nacelle:
supports the rotor and converts the rotational energy from the
rotor into AC electrical energy. The nacelle includes a generator,
gearbox, yaw system, bed plate and many other
components.
•Rotor:
extracts the kinetic energy from the air. The blades form part of
the rotor, attached to the nacelle at the hub. Swept area refers to
the area of the circle created by the blades as they rotate through
the air. New turbine designs have a larger swept area to capture
more energy and achieve a higher capacity factor.
•Tower:
is a tubular steel structure supporting the nacelle and
rotor.
Figure 5. Illustration of an offshore wind turbine (Source: TU
Delft,2020)
Figure 6. Illustration of turbine size (Source: BNEF)
Wind turbine suppliers are systems integrators. Blades are
typically manufactured in-house, along with other components in
some cases. Most of the internal components however are supplied by
different manufacturers. The design life of an offshore wind
turbine is generally 25 years.
The market has seen rapid progress in turbine technology, with
larger turbines contributing to cost reductions for three primary
reasons:
•Energy
yield is proportional to the swept area of the rotor, which scales
with rotor diameter by the relationship πr2,
i.e. energy yield scales at a quicker rate than the increase in
rotor diameter.
•Larger
turbines mean fewer turbine installations and associated balance of
plant are required to reach the target capacity, reducing
CAPEX/MW.
•OPEX
is primarily driven by the number of turbines and not the wind farm
capacity, so fewer turbines mean lower O&M costs per unit of
energy production.
Increasing appetite driven by competitive pressure for low-cost
energy means turbine manufacturers continue to develop larger
turbines (Figure 7).
|
|
|
|
|
|
|
|
|
|
|
|
|
MW |
Rotor Diameter (m) |
First Commercial Commissioning |
GE Renewable Energy |
Haliade-X 12 MW |
12/13/14 |
220 |
2022, Skipjack, USA |
Vestas |
V236-15.0 MW |
15 |
236 |
Not contracted yet, serial production is expected in
2024 |
V164-10.0 MW |
10 |
164 |
2022, Golfe du Lion,France |
V174-9.5 MW |
9.5 |
174 |
2023, Arcadis Ost, Germany |
V164-9.5 MW |
9.5 |
164 |
2020, Northwester 2 |
V164-8.0 MW |
8 |
164 |
2016, Burbo Bank Extension, UK |
Siemens Gamesa Renewable Energy |
SG 14.0-222 DD |
14 |
222 |
Dominion Energy,US, Hai Long 2A,Taiwan and Sofia, UK |
SG 11.0-200 DD |
11 |
200 |
Gode Wind 3, 2024, Germany |
SG 11.0-193 DD |
11 |
193 |
2023, HKZ I and II, Netherlands |
SG 10.0-193 DD |
10 |
193 |
No current contracts, available from 2022 (was HKZ) |
SG 8.0-167 DD |
8 |
167 |
2020, Seamade, Belgium |
SWT-7.0-154 |
7 |
154 |
2017, Walney Ext |
Figure 7. Latest offshore wind turbine models (excluding Chinese
models).
The growing physical dimensions of turbine components increases the
demands placed on the jack up fleet which install them. As rotor
diameter increases, the turbine tower height and thus weight, also
increases. The tower height must encompass both the blade length
and a measure of blade clearance to allow for high sea states,
typically in the region of 25-35 m. Nacelle weight Roincreases with
rated turbine capacity, although innovations in drive trains and
design optimization mean this trend is not linear (Figure
8).
Higher stiffness materials with improved fatigue performance,
lighter weight and higher reliability are being continually
developed and commercialized to give longer, more slender blades.
As blades get increasingly longer, there will be further
production, transportation and installation
challenges.
Figure 8. Offshore wind turbine physical dimensions
trends
Cost of Offshore Wind: LCOE & CAPEX
The levelized cost of electricity (LCOE) is the revenue required to
build and operate a project over a cost recovery period. The
long-term success of offshore wind industry depends on its cost
competitiveness. The latest BEIS (Department for Business, Energy
and Industrial Strategy) report estimates the LCOE for projects
starting operation in 2025, 2030, 2035 and 2040. By 2040, offshore
wind is expected to overtake onshore wind as the second cheapest
solution following solar (Figure 9).
Figure 9.Forecasted cost of electricity generation from different
resources in the UK (Source: BEIS, 2020)
Technological developments, changes in financing costs, competitive
auctions and cluster effects have facilitated offshore wind to
experience rapid cost reduction. The windfarm supply chain has also
developed more efficient manufacturing and installation practices.
The cost of offshore wind is expected to fall further; global
offshore wind LCOE dropped under €100/MWh in 2019 and is projected
to decline to €50/MWh on average by 2025 (Figure 10).
Figure 10.LCOE of global offshore wind farms excluding
China.
Capital Expenditure (CAPEX) is the cost of all activities up until
works completion date and the largest contributor to the lifecycle
costs, at approximately 60-65% of LCOE. Offshore wind turbine
supply makes up around 40% of total CAPEX. 4C estimates the current
turbine installation cost is around 2% of the total CAPEX (Figure
11) which is in line with the UK Crown Estate’s latest “Guide to an
Offshore Windfarm” report. Vattenfall has also stated the turbine
installation cost for its upcoming UK projects to be around 2% of
the CAPEX.
Figure 11.CAPEX breakdown of a typical fixed-bottom offshore
windfarm. Other includes contingencies, management reserves,
resource costs, insurance and construction management.
Siting Trends in Offshore Wind
A clear trend towards increased water depth, further distance from
shore and increased project size in Europe, Asia, and North America
can be seen in Figure 12.
The depths at which turbines are installed has steadily increased
in Europe and will continue to do so as larger upcoming projects
are scheduled install larger turbines in deeper waters. Future
offshore wind sites in the midterm (by 2027) are similar to some of
those existing or underway. The average project capacity is
steadily increasing as economy of scale starts to be realised in
larger parks. 1 GW projects are expected to become the norm in
Europe and North America by 2026 but APAC (ex. China) is lagging
behind.
Figure 12. Weighted depth (top left), weighted distance (top
right), and annual project size (bottom) of fixed-bottom global
offshore windfarms by offshore construction start year. APAC
excludes China.
Offshore Wind Project Value Chain
The offshore wind industry connects a wide range of industries and
companies worldwide, starting from the development phase through to
decommissioning. Figure 13 summarizes a typical offshore windfarm
project life cycle.
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Development and consent |
Manufacture |
Installation and commissioning |
Operation and maintenance |
Decommissioning |
Activities up to the point of financial close, including: planning
consents, environmental impact assessments, resource and met ocean
surveys, engineering and consultancy services
Developers are responsible for development and
consents
Key Developers:
Ørsted, Vattenfall, RWE, Equinor, SSE
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Supply of the key components contracted by the
developer
Turbine Suppliers (OEM):
Siemens Gamesa, GE, Vestas
Foundation suppliers:
Bladt, EEW, Sif, Navantia (Designers: COWI, Atkins,
Ramboll)
Cable Suppliers:
JDR, Hellenic Cable, LS Cable, Nexans, NKT, Prysmian
Offshore substation Suppliers-Electrical:
ABB, GE, Schneider
Offshore substation Suppliers-Structure:Bladt,
Smulders, Navantia
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Installation and commissioning of the key components contracted by
the developer
For more detail see the Installation Value Chain
Section
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It is the combined functions of day-to-day management, maintenance
of assets, and service of assets during the lifetime of the wind
farm. Activities formally start at construction completion
date
The wind farm operator will oversee and fulfil overall site
operations activities, including turbine and balance of plant
maintenance
Key Operators:
Ørsted, Vattenfall, RWE, Equinor, SSE
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Removal or making safe of offshore infrastructure at the end of its
useful life, plus disposal of equipment.
Contractors will be similar to those used for
installation.
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DEVEX |
CAPEX |
OPEX |
DECEX |
Figure 13. Offshore windfarm project lifecycle
Development and consent are managed by the windfarm developer,
covering the activities up to the point of financial close with a
time span of 5-7 years. The developer will typically procure the
Tier 1 suppliers to design, supply and installation of key
components in the late stage of development.
The offshore wind supply chain has a strong cohort of major
component suppliers which contract directly with project
developers. This top level of the supply chain is commonly referred
to as Tier 1, and typically supplies or installs wind turbine
generators (WTGs), foundations, substations (onshore &
offshore) export and array cables. Manufacturing, and transport and
installation (T&I) contracts are often signed two years before
construction. Construction of an offshore windfarm takes 3-4 years
on average. Turbine installation is the final stage of
construction, and typically takes place in the final 12 months of
the construction process. Once the windfarm is fully commissioned,
the longest value chain activities start, in the operation and
maintenance (O&M) phase. O&M activities last for 20-25
years or more.
Wind turbines are typically under warranty for 5 to 10 years of
operations and the wind turbine suppliers (i.e. Siemens Gamesa, GE,
Vestas) offer a service level agreement to the windfarm operator
during this period to provide turbine maintenance and service.
After this initial warranty period, the wind farm operator may
choose to retain the services of the supplier, maintain and service
the wind farm using an in-house team, contract a specialist
company, or develop an intermediate arrangement where turbine
technicians transfer to the wind farm owner at the end of the
warranty period.
Installation Value Chain
The typical offshore installation process for fixed bottom
windfarms is in the following order, with overlaps where possible
to shorten the construction timeline:
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Foundation
Installation |
Offshore Substation Installation |
Array Cable Installation |
Export Cable Installation |
Turbine Installation |
Monopile, jacket or gravity-based foundation
installation
Monopiles and jackets can be installed by floating or jack up
vessels. Gravity-based can be installed by floating vessels or
crane barges.
Monopiles usually also require a separate transition piece
installing, and jackets usually require pre-piling.
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The foundation is installed prior to the topside. The substation
foundation can be a monopile or jacket.
Substation installation is a heavy lift operation requiring high
crane capacity.
Sheerleg crane vessels, barges, heavy lift vessels and
semisubmersible vessels can be used.
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Cable installation between wind turbines and the offshore
substation (typically rated at 66kV AC)
Steps include: Cable lay, cable burial (pre-trenching/simultaneous
lay & burial), cable pull in to turbine and testing &
termination.
Specialized cable lay vessels are used
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Cable installation between offshore and onshore substation
(typically rated at 220kV AC)
Export cable installation steps involves the same activities as
array cables.
Same cable lay vessels can be used for export cable installation
however, export cable installation vessels will typically have
larger carousels.
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Turbine installation vessels transport turbine components to the
site and install the turbine on the foundation
Jack-up vessels are used for turbine installation
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Key Players:
DEME, Van Oord, Subsea 7, Boskalis, Saipem
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Key Players:
Subsea 7, DEME, Scaldis, Heerema, Saipem, Boskalis
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Key Players:
Boskalis, Subsea 7, DEME, Global Marine, Van Oord
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Key Players:
Boskalis, NKT, Prysmian, Jan De Nul, DEME, Nexans
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Key Players:
DEME, Van Oord, Fred Olsen, Cadeler, Jan De Nul,
Seajacks
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Figure 14. Installation stages of an offshore windfarm
Turbine installation vessels are specifically designed for the
purpose. Currently, turbine installation is completed using
self-propelled jack up vessels, which are fitted with long support
legs that can be raised and lowered. The vessel transits into the
windfarm site in floating configuration and jacks up at the work
location by extending the legs down to the seabed. Jack ups provide
a stable platform for lifting in what can be harsh sea conditions
and are used in the offshore wind sector for a variety of roles
across development, construction, O&M and
decommissioning.
Figure 15. Illustration of a turbine installation vessel, jack up
vessel
Crane capabilities and deck space are increasingly important
drivers of competitiveness. Leg length, crane reach and vessel
stability determine the water depths and sea states in which
vessels can jack-up, and the height above deck it is possible to
reach. The current available fleet was designed to install 6-10MW
turbines. Currently, 15MW turbines are being developed by
manufacturers. While several vessels have undergone upgrades,
upgrades can impact other aspects of vessel performance if they
were not taken into consideration in the initial design. To date,
emerging market turbine sizes have lagged behind Europe (Figure 2).
Therefore, vessels no longer suitable for the European market can
work in emerging markets, especially those in
Asia. However, projects in Asia are also catching up with bigger
turbine sizes so this is only a likely revenue source in the short
term.
Smaller jack-ups which are no longer capable of installing newer,
larger turbines can find roles in accommodation, geotechnical
investigations, transition piece installation, substation
commissioning work, large component repair and replacement during
operations, and lastly decommissioning.
Turbine Installation:
Larger turbines place greater demands on vessels, installation
processes and port infrastructure meaning further innovation and
adaptation of installation equipment and methodologies are expected
as turbine size increases. As demand for larger rotor size
increases, pre-assembly becomes less viable due to the additional
quayside and deck space required as well as subjecting vessels to
greater dynamic loads, navigational challenges and lift
limitations. All European projects in recent years installed on
site using the five-piece lift installation method (tower, nacelle,
three blades), but tower weight constraints may move the market
back toward split tower configuration.
Turbine Installation Contract:
EPCI contracts, with full turnkey scope were common on the very
first pioneering projects (e.g., North Hoyle, 2003 and Kentish
Flats, 2005) but were considered unsuitable following a series of
cost overruns and supply chain insolvencies as a result of exposing
contractors to unanticipated risks (e.g. Greater
Gabbard).
Therefore, multi-contracting became more popular as projects grew
in size and complexity, with the project developer signing several
contracts for the delivery of different components of the wind
farm, often with separate contracts for the supply and T&I of
each key component. The most experienced developers (e.g. Ørsted)
manage the most contracts and use their in-house project
development, design and contract management expertise as a source
of competitive advantage. Taking the risks in-house and managing
them successfully rather than passing them on to the supply chain
allows for cost savings and more control over design and
delivery.
Recent announced contracts show a mix of contracting styles, but in
the 40+ turbine contract (EPCI and installation) contracts which
have been awarded since 2019 (exc. China and Vietnam),
multi-contracting, i.e. separate supply and installation contacts
for turbines, remains the most popular.
Wind Turbine Installation Vessel Supply
The water depth at which jack-ups can safely install turbines is
dependent on several site-specific variables including wave and
wind conditions, sea bed conditions, tides and tidal range and sea
state. Turbine transport and installation requires stable platforms
for operations to ensure safe operations and reduce the risk of
damage to components. A small motion at deck level quickly becomes
a large movement at an elevated hook height, adding dynamic loads
on to the crane and making turbine installation more complex. For
these reasons only jack-up platforms are used for turbine
installation.
Maximum installation depth:
The actual limiting depth for each deployment depends on installed
leg length, sea-bed penetration and required air-gap and must be
determined through site specific assessment. Vessel water depth
capability at each windfarm site is not accounted for in this
supply analysis due to the inaccuracy in estimating future site
conditions, but for the purpose of fleet comparison, maximum
operable water depth as stated by the operator, is presented for
each vessel.
Maximum hook height (ASL):
A crane’s maximum nacelle lifting height is determined by the hook
height above deck (which will be reduced by outreach) plus the
depth of the vessel and the height of the airgap, less the height
of any rigging and the nacelle module:
Maximum hook height ASL(m) = airgap (10 m) + vessel depth(m) + hook
above deck(m) – rigging allowance(m)
Maximum Lift Capacity:
Quoted lift capacity at working radius (~30-40m) was used as a
preferred estimate to max lift.
Figure 16.Illustration of a jack-up vessel and parameters for
turbine installation
Key Operators and Market Shares
Figure 17. Key operators and their assets by turbine rating.
Current assets and firm orders only. Options are not included and
upgrades are not presented.
Figure 18. Turbine installation market share by operator and by
vessels, global exc. China, 2016-2022
Eneti is well positioned in the offshore wind market with the
Seajacks acquisition (5 vessels) and 1 new build. The market leader
DEME owns 6 turbine installation vessels but currently they are not
capable of installing turbines larger than 10 MW. Sea Installer
will undergo crane upgrades and operators also have an option to
upgrade Sea Challenger. All key operators have firm orders in place
for jack-ups to install next generation turbines except DEME and
Fred. Olsen Windcarrier.
Market share charts show the known market shares of turbine
installation vessels from 2016 to 2022. DEME Offshore is the market
leader for turbine installation over the last five years, using Sea
Installer and Sea Challenger (Figure 18). Other key players for
turbine installation include Fred. Olsen, Cadeler, Seajacks, Jan de
Nul, and Van Oord. 5 major operators (DEME, Fred. Olsen, Cadeler,
Seajacks, JDN) secured 80% of the global market share with 9
vessels.
Current Fleet
The active turbine installation fleet consists of 14 jack ups. Many
of these vessels also engage in foundation installation and turbine
maintenance. Three additional jack ups are also considered;
although not currently active in turbine installation they are
technically capable and thus likely to contribute to future
installations. These are DEME Offshore’s Innovation (a foundation
installation vessel, likely to transition from foundations to
turbines due to increasing foundation weights), Van Oord’s MPI
Adventure (primarily engaged in maintenance but could be
re-deployed for remaining <10 MW turbine installations) and
Penta-Ocean’s CP-8001 which is intended for use in the Japanese
market. A further 13 jack-ups are not competitive in turbine
installation and operate in the <10 MW maintenance and oil and
gas markets.
Outside of Europe, the jack ups in Table 1 are likely to serve
emerging Asian markets, where cabotage rules allow, until domestic
assets are built. Since the latest update, Taillavent was sold to a
Chinese operator. Sea Challenger will undergo crane upgrade and
will be reflagged as Japanese vessel to start installation by
2025.
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Capacity Installable |
Vessel |
Operator |
Year Built |
Design |
Hook height ASL (m)1
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Max lift capacity(t)2
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Max water depth (m) |
Variable deck load (t) |
10 MW |
12 - 14 MW |
15 MW |
#12-15 MW |
Aeolus 2.0 |
Van Oord |
2014 |
N/A |
136.1 |
1600 |
45 |
7250 |
X |
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Blue Tern |
Fred. Olsen |
2012 |
KFELS MPSEP |
124.75 |
800 |
65 |
7000 |
X6
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Bold Tern |
Fred. Olsen |
2013 |
NG-9000C-HPE |
138 |
640 |
60 |
9500 |
X5
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Brave Tern |
Fred. Olsen |
2012 |
NG-9000C-HPE |
138 |
640 |
60 |
9500 |
X5
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CP-80017
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Penta-Ocean |
2018 |
GJ-3750C |
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800 |
50 |
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X?
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INNOVATION |
DEME Offshore |
2012 |
N/A |
141 |
1500 |
65 |
8000 |
X |
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MPI Adventure |
Van Oord |
2011 |
NG-7500/6 |
120 |
1000 |
40 |
6000 |
X6
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SEACHALLENGER |
DEME Offshore |
2014 |
NG-9000C |
140 |
632 |
55 |
6000 |
X6
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SEA INSTALLER |
DEME Offshore |
2012 |
NG-9000C |
121 |
632 |
55 |
6000 |
X6
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Seajacks Scylla |
Seajacks |
2015 |
NG-14000X |
153 |
1500 |
65 |
8390 |
X |
X6
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3 |
Seajacks Zaratan |
Seajacks |
2012 |
NG-5500C |
119 |
600 |
55 |
3607 |
X |
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Vole au Vent |
Jan de Nul |
2013 |
N/A |
139.5 |
15003
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50 |
6500 |
X |
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Wind Orca |
Cadeler |
2012 |
N/A |
117.4 |
1200 |
60 |
8400 |
X6
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Wind Osprey |
Cadeler |
2012 |
N/A |
152.4 |
1150 |
60 |
8400 |
X |
X6
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3 |
Table 1 Specifications of the current turbine installation fleet.
(1) Hook height above deck + specified vessel depth + 10 m air gap
(2) At ~30-40 m radius (3) At 20-25 m radius (4) Lift weight
marginal (5) Hook height marginal (6) At sites with low blade
clearance and/or increased air gap (7) Unlikely to leave Japanese
market.
10 MW: 112 m hub height + 15 m rigging allowance, 450 t nacelle
weight (exc. ~50 t for grillage, equipment and
rigging)
12-14 MW: 150 m hub height + 15 m rigging allowance; 850 t nacelle
weight (exc. ~50 t for grillage, equipment and rigging); carrying
capacity assumes ~2200 t per turbine.
15 MW: 155 m hub height + 20 m rigging allowance; 550 t nacelle
weight (exc. ~50 t for grillage, equipment and rigging) ASL: Above
Sea Level
New Builds and Upgrades
Increasing turbine dimensions mean that to secure asset longevity
operators are proceeding with upgrades to existing vessels.
Upgrades provide a lower cost option than newbuilds and are usually
scheduled over winter months to minimize lost earnings
impact.
Several existing operators and new market entrants intend to build
new jack ups to meet the rising demand. Those considered most
viable to reach the market by 2027 are listed in Table 2 along with
the planned upgrades. While the modelled new build market includes
ten jack ups, three are Japanese builds and are expected to see
sufficient demand to remain in their domestic market.
Table 2 Specifications of future vessels and upgrades. (1) Hook
height above deck + specified vessel depth + 10 m air gap (2) At
~30-40 m radius (3) At sites with low blade clearance or increased
air gap (4) Likely to remain in Japanese market (5) Likely to
remain in US market (6) Restricted depth and tower weight
restrictions.
12-14 MW: 150 m hub height + 15 m rigging allowance; 850 t nacelle
weight (exc. ~50 t for grillage, equipment and rigging); carrying
capacity assumes ~2200 t per turbine unless otherwise
stated
15 MW: 155 m hub height + 20 m rigging allowance; 550 t nacelle
weight (exc. ~50 t for grillage, equipment and rigging) ASL: Above
Sea Level
Vessel Suitability Analysis
Figure 19. Number of vessels capable of installing turbine capacity
by end-2027. Compares hook height above deck + specified vessel
depth + 10 m air gap, and maximum lift capacity at 30-40 m radius
to turbine hub height + rigging allowance and nacelle weight.
Includes marginal capability vessels, excludes the Japanese fleet.
Charybdis expected to meet 15 MW + turbines but likely to remain in
US market due to high demand.
Based on lift height and weight, only two existing vessels are
capable of installing a 12+ MW turbine (under specific site
conditions). Including new builds and vessel upgrades increases the
pool to 15 vessels (Figure 19). This does not include Japanese
vessels but does include the US-built Charybdis.
Increasing tower weights will prove an additional challenge, with a
12-15 MW turbine tower weighing in the region of 900-1200 t. Towers
can be installed offshore in sections but this increases offshore
installation time and, due to reduced deck space, means fewer
installations per loadout. It could also increase mobilization
time.
The 15+ MW market is limited to 13 vessels due to increased lift
height requirements.
Wind Turbine Installation Vessel Demand
As the demand for large offshore wind turbines grows so does the
demand for highly specialized vessels capable of installing these
larger components. An analysis of the scale and characteristics of
this demand is forecasted below.
Turbine installation start (if unknown) is modelled assuming that
turbine installation will start one year after offshore
construction starts (foundation installation start).
Installation is spread through the year and may roll into the
following year. The length of the installation period (unless known
from developer communications) is calculated by multiplying the
number of turbines by an installation rate of 3 days per turbine.
Projects in Asia are modelled at the average European rate plus 0.5
days per turbine to account for the learning rate and the influence
of typhoons and earthquakes. Floating projects and projects in
under 15 m water depth are excluded from the installation demand
since these projects are not suitable for jack-up vessels. Chinese
projects and Japanese projects (after 2023) are also excluded due
to self-served market dynamics.
In order to forecast the number of vessels required per year, an
estimate of number of vessel days for future turbine installations
(number of turbines x turbine installation rate) is calculated.
Additionally, the productivity rate of a vessel (the proportion of
the year spent on turbine installation related activities) is set
at 65% in accordance with historical data. A lower productivity
rate will increase the number of vessels required for turbine
installation and vice-versa.
Figure 20. Global turbine installation demand by turbine bins and
by year (exc. China and excluding Japan after 2023)
Forecasting shows an average of 25 vessels per year will be
required between the period 2025-2027 (Figure 20). The demand for
vessels that can install 12 MW+ turbines is 25 and 18 vessels in
2026 and 2027 respectively.
Turbine Installation Demand in the US
Figure 21. US turbine installation demand by turbine bins and by
year
36.7 GW of offshore wind capacity is expected to be installed
between 2023 and 2030 in the US. The US turbine installation demand
peaks in 2026 with 10 turbine installation vessels required. The
demand for vessels that can install 12 MW+ turbines is, on average,
4 vessels each year between 2024 and 2030.
Supply vs Demand
Table 3. Total vessel fleet and number of vessels capable of
installing 12 MW + turbines for the period 2021-2026. Excludes
Chinese vessels. Starting from 2023, Japan is modelled as a closed
market due to expected delivery of domestic vessels.
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Vessel Supply |
2022 |
2023 |
2024 |
2025 |
2026 |
2027 |
Total Fleet |
15 |
20 |
23 |
25 |
25 |
25 |
12 MW+ vessels only |
4 |
9 |
12 |
16 |
16 |
16 |
Table 4. Total vessel demand and demand for the vessel capable of
installing 12MW + turbines for the period 2021-2026. Excludes
Chinese demand. After 2023, Japan is modelled as a closed market
due to expected delivery of domestic vessels.
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Vessel Demand |
2022 |
2023 |
2024 |
2025 |
2026 |
2027 |
Total Turbine Demand |
15 |
7
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10 |
22 |
31 |
21 |
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12 MW+ vessels only |
0 |
2 |
4 |
14 |
25 |
18 |
12 MW+ demand for foundation installation |
0 |
0 |
4 |
5 |
0 |
0 |
Increasing demand for projects with larger turbines and the limited
corresponding supply of jack-ups results in a shortage in 2025,
2026, and 2027 (Figure 24). Developers will find it increasingly
difficult to secure the vessels needed to ensure their projects
remain on schedule and meet planned commissioning dates. Project
delays can have knock on effects for developers in terms of
additional development costs, missed milestones in power offtake
contracts and suboptimal alignment of projects within the
developers’ portfolio. Under these conditions some market power is
likely to shift from project developers towards those vessel
operators that have assets capable of installing large turbines
(12-15 MW).
On the other hand, a shortage of foundation installation vessels to
install over 1500 t monopiles is expected. Therefore, turbine
installation vessels are expected to be contracted to install
foundations. WTIV capable of installing larger than 1500 t
monopiles are required to have high lifting capacities therefore
only 12 MW+ turbine vessels are expected to perform foundation
installation. It is estimated that 4 WTIVs will be required to
install foundations in 2024 (Figure 24, left). Foundation
installation demand will lessen the impact of possible oversupply
of 12 MW+ vessels in 2024, but turbine installation vessel
shortages will increase in 2025 and 2026 (Figure 24,
right).
The current estimated price for turbine installation is
approximately €0.6m/ turbine. The average day rate for existing
vessels is US$180-220,000 per day and the assumed day rate for
newbuild vessels is US$180-260,000 per day. Under the current
supply shortage, it is likely that vessel operators will target the
high-end of the range. It is expected that developers will struggle
to secure a capable asset to keep their projects on schedule, and
therefore US$240-260,000 per day levels are considered
achievable.
The less capable vessels will become obsolete for the turbine
installation market beyond 2025, unless they undergo upgrades, and
are otherwise expected to compete in the O&M
market.
Figure 22.Comparison of global turbine installation vessel supply
and demand and foundation demand for 12 MW+ vessels (left) for all
turbine ratings, and the balance of supply and demand of those
capable of installing 12 MW+ turbines(right)
Environmental and Other Regulations in the Shipping
Industry
Government regulation and laws significantly affect the ownership
and operation of our fleet. We are subject to international
conventions and treaties, national, state and local laws and
regulations in force in the countries in which our vessels may
operate or are registered relating to safety and health and
environmental protection including the storage, handling, emission,
transportation and discharge of hazardous and non-hazardous
materials, and the remediation of contamination and liability for
damage to natural resources. Compliance with such laws, regulations
and other requirements entails significant expense, including
vessel modifications and implementation of certain operating
procedures.
A variety of government and private entities subject our vessels to
both scheduled and unscheduled inspections. These entities include
the local port authorities (applicable national authorities such as
the United States Coast Guard (“USCG”), harbor master or
equivalent), classification societies, flag state administrations
(countries of registry) and charterers, particularly terminal
operators. Certain of these entities require us to obtain permits,
licenses, certificates and other authorizations for
the
operation of our vessels. Failure to maintain necessary permits or
approvals could require us to incur substantial costs or result in
the temporary suspension of the operation of one or more of our
vessels.
Increasing environmental concerns have created a demand for vessels
that conform to stricter environmental standards. We are required
to maintain operating standards for all of our vessels that
emphasize operational safety, quality maintenance, continuous
training of our officers and crews and compliance with United
States and international regulations. We believe that the operation
of our vessels is in substantial compliance with applicable
environmental laws and regulations and that our vessels have all
material permits, licenses, certificates or other authorizations
necessary for the conduct of our operations. However, because such
laws and regulations frequently change and may impose increasingly
stricter requirements, we cannot predict the ultimate cost of
complying with these requirements, or the impact of these
requirements on the resale value or useful lives of our vessels. In
addition, a future serious marine incident that causes significant
adverse environmental impact could result in additional legislation
or regulation that could negatively affect our
profitability.
International Maritime Organization
The International Maritime Organization, the United Nations agency
for maritime safety and the prevention of pollution by vessels (the
“IMO”), has adopted the International Convention for the Prevention
of Pollution from Ships, 1973, as modified by the Protocol of 1978
relating thereto, collectively referred to as MARPOL 73/78 and
herein as “MARPOL,” adopted the International Convention for the
Safety of Life at Sea of 1974 (“SOLAS Convention”), and the
International Convention on Load Lines of 1966 (the “LL
Convention”). MARPOL establishes environmental standards relating
to oil leakage or spilling, garbage management, sewage, air
emissions, handling and disposal of noxious liquids and the
handling of harmful substances in packaged forms. MARPOL is
applicable to vessels of any type under countries that are
signatories and is broken into six Annexes, each of which regulates
a different source of pollution. Annex I relates to oil leakage or
spilling; Annexes II and III relate to harmful substances carried
in bulk in liquid or in packaged form, respectively; Annexes IV and
V relate to sewage and garbage management, respectively; and Annex
VI, lastly, relates to air emissions. Annex VI was separately
adopted by the IMO in September of 1997; new emissions standards,
titled IMO 2020, became effective on January 1, 2020.
Air Emissions
In September of 1997, the IMO adopted Annex VI to MARPOL to address
air pollution from vessels. Effective May 2005, Annex VI sets
limits on sulfur oxide and nitrogen oxide emissions from all
commercial vessel exhausts and prohibits “deliberate emissions” of
ozone depleting substances (such as halons and
chlorofluorocarbons), emissions of volatile compounds from cargo
tanks, and the shipboard incineration of specific substances. Annex
VI also includes a global cap on the sulfur content of fuel oil and
allows for special areas to be established with more stringent
controls on sulfur emissions, as explained below. Emissions of
“volatile organic compounds” from certain vessels, and the
shipboard incineration (from incinerators installed after January
1, 2000) of certain substances (such as polychlorinated biphenyls,
or “PCBs”) are also prohibited. We believe that all our vessels are
currently compliant in all material respects with these
regulations.
The Marine Environment Protection Committee, or “MEPC,” adopted
amendments to Annex VI regarding emissions of sulfur oxide,
nitrogen oxide, particulate matter and ozone depleting substances,
which entered into force on July 1, 2010. The amended Annex VI
seeks to further reduce air pollution by, among other things,
implementing a progressive reduction of the amount of sulfur
contained in any fuel oil used on board ships. On October 27, 2016,
at its 70th session, the MEPC agreed to implement a global 0.5% m/m
sulfur oxide emissions limit (reduced from 3.50%) starting from
January 1, 2020. This limitation can be met by using low-sulfur
compliant fuel oil, alternative fuel, or certain exhaust gas
cleaning systems. Ships are now required to obtain bunker delivery
notes and International Air Pollution Prevention (“IAPP”)
Certificates from their flag states that specify sulfur content.
Additionally, at MEPC 73, amendments to Annex VI to prohibit the
carriage of bunkers above 0.5% sulfur on ships were adopted and
took effect March 1, 2020, with the exception of vessels fitted
with exhaust gas cleaning equipment (“scrubbers”) which can carry
fuel of higher sulfer content. These regulations subject
ocean-going vessels to stringent emissions controls and may cause
us to incur substantial costs.
Sulfur content standards are even stricter within certain “Emission
Control Areas,” or “ECAs”. As of January 1, 2015, ships operating
within an ECA were not permitted to use fuel with sulfur content in
excess of 0.1% m/m. Amended Annex VI establishes procedures for
designating new ECAs. Currently, the IMO has designated four ECAs,
including specified portions of the Baltic Sea area, North Sea
area, North American area and United States Caribbean area.
Ocean-going vessels in these areas will be subject to stringent
emission controls and may cause us to incur additional costs. Other
areas in China are subject to local regulations that impose
stricter emission controls. In December 2021, the member states of
the Convention for the Protection of the Mediterranean Sea Against
Pollution (“Barcelona Convention”) agreed to support the
designation of a new ECA in the Mediterranean. The group plans to
submit a formal proposal to the IMO by the end of 2022 with the
goal of having the ECA implemented by 2025. If other ECAs are
approved by the IMO, or other new or more stringent requirements
relating to emissions from marine diesel engines or port operations
by vessels are adopted by the U.S. Environmental Protection
Agency
(“EPA”) or the states where we operate, compliance with these
regulations could entail significant capital expenditures or
otherwise increase the costs of our operations.
Amended Annex VI also establishes new tiers of stringent nitrogen
oxide emissions standards for marine diesel engines, depending on
their date of installation. At the MEPC meeting held from March to
April 2014, amendments to Annex VI were adopted which address the
date on which Tier III Nitrogen Oxide (“NOx”) standards in ECAs
will go into effect. Under the amendments, Tier III NOx standards
apply to ships that operate in the North American and U.S.
Caribbean Sea ECAs designed for the control of NOx produced by
vessels with a marine diesel engine installed and constructed on or
after January 1, 2016. Tier III requirements could apply to areas
that will be designated for Tier III NOx in the future. At MEPC 70
and MEPC 71, the MEPC approved the North Sea and Baltic Sea as ECAs
for nitrogen oxide for ships built on or after January 1, 2021. The
EPA promulgated equivalent (and in some senses stricter) emissions
standards in late 2010. As a result of these designations or
similar future designations, we may be required to incur additional
operating or other costs.
As determined at the MEPC 70, the new Regulation 22A of MARPOL
Annex VI became effective as of March 1, 2018 and requires ships
above 5,000 gross tonnage to collect and report annual data on fuel
oil consumption to an IMO database, with the first year of data
collection having commenced on January 1, 2019. The IMO intends to
use such data as the first step in its roadmap (through 2023) for
developing its strategy to reduce greenhouse gas emissions from
ships, as discussed further below.
As of January 1, 2013, MARPOL made mandatory certain measures
relating to energy efficiency for ships. All ships are now required
to develop and implement Ship Energy Efficiency Management Plans
(“SEEMPS”), and new ships must be designed in compliance with
minimum energy efficiency levels per capacity mile as defined by
the Energy Efficiency Design Index (“EEDI”). Under these measures,
by 2025, all new ships built will be 30% more energy efficient than
those built in 2014.
Additionally, MEPC 75 introduced draft amendments to Annex VI that
impose new regulations to reduce greenhouse gas emissions from
ships. These amendments introduce requirements to assess and
measure the energy efficiency of all ships and set the required
attainment values, with the goal of reducing the carbon intensity
of international shipping. The requirements include (1) a technical
requirement to reduce carbon intensity based on a new Energy
Efficiency Existing Ship Index (“EEXI”), and (2) operational carbon
intensity reduction requirements, based on a new operational carbon
intensity indicator (“CII”). The attained EEXI is required to be
calculated for ships of 400 gross tonnage and above, in accordance
with different values set for ship types and categories. With
respect to the CII, the draft amendments would require ships of
5,000 gross tonnage to document and verify their actual annual
operational CII achieved against a determined required annual
operational CII. Additionally, MEPC 75 proposed draft amendments
requiring that, on or before January 1, 2023, all ships above 400
gross tonnage must have an approved SEEMP on board. For ships above
5,000 gross tonnage, the SEEMP would need to include certain
mandatory content. The draft amendments introduced at MEPC 75 were
adopted at the MEPC 76 session in June 2021 and are expected to
enter into force on November 1, 2022, with the requirements for
EEXI and CII certification coming into effect from January 1, 2023.
MEPC 77 adopted a non-binding resolution which urges Member States
and ship operators to voluntarily use distillate or other cleaner
alternative fuels or methods of propulsion that are safe for ships
and could contribute to the reduction of Black Carbon emissions
from ships when operating in or near the Arctic.
We may incur costs to comply with these revised standards.
Additional or new conventions, laws and regulations may be adopted
that could require the installation of expensive emission control
systems and could adversely affect our business, results of
operations, cash flows and financial condition.
Safety Management System Requirements
The SOLAS Convention was amended to address the safe manning of
vessels and emergency training drills. The Convention of Limitation
of Liability for Maritime Claims (the “LLMC”) sets limitations of
liability for a loss of life or personal injury claim or a property
claim against ship owners. We believe that our vessels are in
substantial compliance with SOLAS and LLMC standards.
Under Chapter IX of the SOLAS Convention, or the International
Safety Management Code for the Safe Operation of Ships and for
Pollution Prevention (the “ISM Code”), our operations are also
subject to environmental standards and requirements. The ISM Code
requires the party with operational control of a vessel to develop
an extensive safety management system that includes, among other
things, the adoption of a safety and environmental protection
policy setting forth instructions and procedures for operating its
vessels safely and describing procedures for responding to
emergencies. We rely upon the safety management system that we and
our technical management team have developed for compliance with
the ISM Code. The failure of a vessel owner or bareboat charterer
to comply with the ISM Code may subject such party to increased
liability, may decrease available insurance coverage for the
affected vessels and may result in a denial of access to, or
detention in, certain ports.
The ISM Code requires that vessel operators obtain a safety
management certificate for each vessel they operate. This
certificate evidences compliance by a vessel’s management with the
ISM Code requirements for a safety management system. No vessel can
obtain a safety management certificate unless its manager has been
awarded a document of compliance, issued by
each flag state, under the ISM Code. We have obtained applicable
documents of compliance for our offices and safety management
certificates for all of our vessels for which the certificates are
required by the IMO. The document of compliance and safety
management certificate are renewed as required.
Amendments to the SOLAS Convention Chapter VII apply to vessels
transporting dangerous goods and require those vessels be in
compliance with the International Maritime Dangerous Goods Code
(“IMDG Code”). Effective January 1, 2018, the IMDG Code includes
(1) updates to the provisions for radioactive material, reflecting
the latest provisions from the International Atomic Energy Agency,
(2) new marking, packing and classification requirements for
dangerous goods, and (3) new mandatory training requirements.
Amendments that became effective on January 1, 2020 also reflect
the latest material from the UN Recommendations on the Transport of
Dangerous Goods, including (1) new provisions regarding IMO type 9
tank, (2) new abbreviations for segregation groups, and (3) special
provisions for carriage of lithium batteries and of vehicles
powered by flammable liquid or gas. The upcoming amendments, which
will come into force on June 1, 2022, include (1) addition of a
definition of dosage rate, (2) additions to the list of high
consequence dangerous goods, (3) new provisions for
medical/clinical waste, (4) addition of various ISO standards for
gas cylinders, (5) a new handling code, and (6) changes to stowage
and segregation provisions.
The IMO has also adopted the International Convention on Standards
of Training, Certification and Watchkeeping for Seafarers (“STCW”).
As of February 2017, all seafarers are required to meet the STCW
standards and be in possession of a valid STCW certificate. Flag
states that have ratified SOLAS and STCW generally employ the
classification societies, which have incorporated SOLAS and STCW
requirements into their class rules, to undertake surveys to
confirm compliance.
The IMO’s Maritime Safety Committee and MEPC, respectively, each
adopted relevant parts of the International Code for Ships
Operating in Polar Water (the “Polar Code”). The Polar Code, which
entered into force on January 1, 2017, covers design, construction,
equipment, operational, training, search and rescue as well as
environmental protection matters relevant to ships operating in the
waters surrounding the two poles. It also includes mandatory
measures regarding safety and pollution prevention as well as
recommendatory provisions. The Polar Code applies to new ships
constructed after January 1, 2017, and after January 1, 2018, ships
constructed before January 1, 2017 are required to meet the
relevant requirements by the earlier of their first intermediate or
renewal survey.
Furthermore, recent action by the IMO’s Maritime Safety Committee
and United States agencies indicates that cybersecurity regulations
for the maritime industry are likely to be further developed in the
near future in an attempt to combat cybersecurity threats. By IMO
resolution, administrations are encouraged to ensure that
cyber-risk management systems are incorporated by ship-owners and
managers by heir first annual Document of Compliance audit after
January 1, 2021. In February 2021, the U.S. Coast Guard published
guidance on addressing cyber risks in a vessel’s safety management
system. This might cause companies to create additional procedures
for monitoring cybersecurity, which could require additional
expenses and/or capital expenditures. The impact of future
regulations is hard to predict at this time.
Pollution Control and Liability Requirements
The IMO has negotiated international conventions that impose
liability for pollution in international waters and the territorial
waters of the signatories to such conventions. For example, the IMO
adopted an International Convention for the Control and Management
of Ships’ Ballast Water and Sediments (the “BWM Convention”) in
2004. The BWM Convention entered into force on September 8, 2017.
The BWM Convention requires ships to manage their ballast water to
remove, render harmless, or avoid the uptake or discharge of new or
invasive aquatic organisms and pathogens within ballast water and
sediments. The BWM Convention’s implementing regulations call for a
phased introduction of mandatory ballast water exchange
requirements, to be replaced in time with mandatory concentration
limits, and require all ships to carry a ballast water record book
and an international ballast water management
certificate.
On December 4, 2013, the IMO Assembly passed a resolution revising
the application dates of the BWM Convention so that the dates are
triggered by the entry into force date and not the dates originally
in the BWM Convention. This, in effect, makes all vessels delivered
before the entry into force date “existing vessels” and allows for
the installation of ballast water management systems on such
vessels at the first International Oil Pollution Prevention
(“IOPP”) renewal survey following entry into force of the
convention. The MEPC adopted updated guidelines for approval of
ballast water management systems (G8) at MEPC 70. At MEPC 71, the
schedule regarding the BWM Convention’s implementation dates was
also discussed and amendments were introduced to extend the date
existing vessels are subject to certain ballast water standards.
Those changes were adopted at MEPC 72. Ships over 400 gross tons
generally must comply with a “D-1 standard,” requiring the exchange
of ballast water only in open seas and away from coastal waters.
The “D-2 standard” specifies the maximum amount of viable organisms
allowed to be discharged, and compliance dates vary depending on
the IOPP renewal dates. Depending on the date of the IOPP renewal
survey, existing vessels must comply with the D-2 standard on or
after September 8, 2019. For most ships, compliance with the D-2
standard will involve installing on-board systems to treat ballast
water and eliminate unwanted organisms. Ballast water management
systems, which include systems that make use of chemical, biocides,
organisms or biological mechanisms, or which alter the chemical or
physical characteristics of the ballast water, must be approved in
accordance with IMO Guidelines (Regulation D-3). As of October 13,
2019, MEPC 72’s amendments to the BWM Convention
took effect, making the Code for Approval of Ballast Water
Management Systems, which governs assessment of ballast water
management systems, mandatory rather than permissive, and
formalized an implementation schedule for the D-2 standard. Under
these amendments, all ships must meet the D-2 standard by September
8, 2024. Costs of compliance with these regulations may be
substantial. Additionally, in November 2020, MEPC 75 adopted
amendments to the BWM Convention which would require a
commissioning test of the ballast water management system for the
initial survey or when performing an additional survey for
retrofits. This analysis will not apply to ships that already have
an installed BWM system certified under the BWM Convention. These
amendments are expected to enter into force on June 1,
2022.
Once mid-ocean exchange ballast water treatment requirements become
mandatory under the BWM Convention, the cost of compliance could
increase for ocean carriers and may have a material effect on our
operations. However, many countries already regulate the discharge
of ballast water carried by vessels from country to country to
prevent the introduction of invasive and harmful species via such
discharges. The U.S., for example, requires vessels entering its
waters from another country to conduct mid-ocean ballast exchange,
or undertake some alternate measure, and to comply with certain
reporting requirements.
The IMO also adopted the International Convention on Civil
Liability for Bunker Oil Pollution Damage (the “Bunker Convention”)
to impose strict liability on ship owners (including the registered
owner, bareboat charterer, manager or operator) for pollution
damage in jurisdictional waters of ratifying states caused by
discharges of bunker fuel. The Bunker Convention requires
registered owners of ships over 1,000 gross tons to maintain
insurance for pollution damage in an amount equal to the limits of
liability under the applicable national or international limitation
regime (but not exceeding the amount calculated in accordance with
the LLMC). With respect to non-ratifying states, liability for
spills or releases of oil carried as fuel in a ship’s bunkers
typically is determined by the national or other domestic laws in
the jurisdiction where the events or damages occur.
Ships are required to maintain a certificate attesting that they
maintain adequate insurance to cover an incident. In jurisdictions,
such as the United States where the Bunker Convention has not been
adopted, various legislative schemes or common law govern, and
liability is imposed either on the basis of fault or on a
strict-liability basis.
Anti-Fouling Requirements
In 2001, the IMO adopted the International Convention on the
Control of Harmful Anti-fouling Systems on Ships, or the
“Anti-fouling Convention.” The Anti-fouling Convention, which
entered into force on September 17, 2008, prohibits the use of
organotin compound coatings to prevent the attachment of mollusks
and other sea life to the hulls of vessels. Vessels of over 400
gross tons engaged in international voyages will also be required
to undergo an initial survey before the vessel is put into service
or before an International Anti-fouling System Certificate (the
“IAFS Certificate”) is issued for the first time; and subsequent
surveys when the anti-fouling systems are altered or
replaced.
In November 2020, MEPC 75 approved draft amendments to the
Anti-fouling Convention to prohibit anti-fouling systems containing
cybutryne, which would apply to ships from January 1, 2023, or, for
ships already bearing such an anti-fouling system, at the next
scheduled renewal of the system after that date, but no later than
60 months following the last application to the ship of such a
system. In addition, the IAFS Certificate has been updated to
address compliance options for anti-fouling systems to address
cybutryne. Ships that are affected by this ban on cybutryne must
receive an updated IAFS Certificate no later than two years after
the entry into force of these amendments. Ships that are not
affected (i.e. with anti-fouling systems that do not contain
cybutryne) must receive an updated IAFS Certificate at the next
Anti-fouling application to the vessel. These amendments were
formally adopted at MEPC 76 in June 2021.
We have obtained Anti-fouling System Certificates for all of our
vessels that are subject to the Anti-fouling
Convention.
Compliance Enforcement
Noncompliance with the ISM Code or other IMO regulations may
subject the ship owner or bareboat charterer to increased
liability, may lead to decreases in available insurance coverage
for affected vessels and may result in the denial of access to, or
detention in, some ports. The USCG and European Union authorities
have indicated that vessels not in compliance with the ISM Code by
applicable deadlines will be prohibited from trading in U.S. and
European Union ports, respectively. As of the date hereof, each of
our vessels is ISM Code certified. However, there can be no
assurance that such certificates will be maintained in the
future.
The IMO continues to review and introduce new regulations. It is
impossible to predict what additional regulations, if any, may be
passed by the IMO and what effect, if any, such regulations might
have on our operations.
United States Regulations
The U.S. Oil Pollution Act of 1990 and the Comprehensive
Environmental Response, Compensation and Liability Act
The U.S. Oil Pollution Act of 1990 (“OPA”) established an extensive
regulatory and liability regime for the protection and cleanup of
the environment from oil spills. OPA affects all “owners and
operators” whose vessels trade or operate within
the U.S., its territories and possessions or whose vessels operate
in U.S. waters, which includes the U.S.’s territorial sea and its
200-nautical mile exclusive economic zone around the U.S. The U.S.
has also enacted the Comprehensive Environmental Response,
Compensation and Liability Act (“CERCLA”), which applies to the
discharge of hazardous substances other than oil, except in limited
circumstances, whether on land or at sea. OPA and CERCLA both
define “owner and operator” in the case of a vessel as any person
owning, operating or chartering by demise, the vessel. Both OPA and
CERCLA impact our operations.
Under OPA, vessel owners and operators are “responsible parties”
and are jointly, severally and strictly liable (unless the spill
results solely from the act or omission of a third party, an act of
God or an act of war) for all containment and clean-up costs and
other damages arising from discharges or threatened discharges of
oil from their vessels, including bunkers (fuel). OPA defines these
other damages broadly to include:
(i) injury to, destruction or loss of, or loss of use of, natural
resources and related assessment costs;
(ii) injury to, or economic losses resulting from, the destruction
of real and personal property;
(iii) loss of subsistence use of natural resources that are
injured, destroyed or lost;
(iv) net loss of taxes, royalties, rents, fees or net profit
revenues resulting from injury, destruction or loss of real or
personal property, or natural resources;
(v) lost profits or impairment of earning capacity due to injury,
destruction or loss of real or personal property or natural
resources; and
(vi) net cost of increased or additional public services
necessitated by removal activities following a discharge of oil,
such as protection from fire, safety or health hazards, and loss of
subsistence use of natural resources.
OPA contains statutory caps on liability and damages; such caps do
not apply to direct cleanup costs. Effective November 12, 2019, the
USCG adjusted the limits of OPA liability for non-tank vessels,
edible oil tank vessels, and any oil spill response vessels, to the
greater of $1,200 per gross ton or $997,100 (subject to periodic
adjustment for inflation). These limits of liability do not apply
if an incident was proximately caused by the violation of an
applicable U.S. federal safety, construction or operating
regulation by a responsible party (or its agent, employee or a
person acting pursuant to a contractual relationship), or a
responsible party’s gross negligence or willful misconduct. The
limitation on liability similarly does not apply if the responsible
party fails or refuses to (i) report the incident as required by
law where the responsible party knows or has reason to know of the
incident; (ii) reasonably cooperate and assist as requested in
connection with oil removal activities; or (iii) without sufficient
cause, comply with an order issued under the Federal Water
Pollution Act (Section 311 (c), (e)) or the Intervention on the
High Seas Act.
CERCLA contains a similar liability regime whereby owners and
operators of vessels are liable for cleanup, removal and remedial
costs, as well as damages for injury to, or destruction or loss of,
natural resources, including the reasonable costs associated with
assessing the same, and health assessments or health effects
studies. There is no liability if the discharge of a hazardous
substance results solely from the act or omission of a third party,
an act of God or an act of war. Liability under CERCLA is limited
to the greater of $300 per gross ton or $5.0 million for vessels
carrying a hazardous substance as cargo and the greater of $300 per
gross ton or $500,000 for any other vessel. These limits do not
apply (rendering the responsible person liable for the total cost
of response and damages) if the release or threat of release of a
hazardous substance resulted from willful misconduct or negligence,
or the primary cause of the release was a violation of applicable
safety, construction or operating standards or regulations. The
limitation on liability also does not apply if the responsible
person fails or refused to provide all reasonable cooperation and
assistance as requested in connection with response activities
where the vessel is subject to OPA.
OPA and CERCLA each preserve the right to recover damages under
existing law, including maritime tort law. OPA and CERCLA both
require owners and operators of vessels to establish and maintain
with the USCG evidence of financial responsibility sufficient to
meet the maximum amount of liability to which the particular
responsible person may be subject. Vessel owners and operators may
satisfy their financial responsibility obligations by providing a
proof of insurance, a surety bond, qualification as a self-insurer
or a guarantee. We comply and plan to comply going forward with the
USCG’s financial responsibility regulations by providing applicable
certificates of financial responsibility.
Deepwater Horizon
The 2010 oil spill in the Gulf of Mexico resulted in additional
regulatory initiatives or statutes, including higher liability caps
under OPA, new regulations regarding offshore oil and gas drilling,
and a pilot inspection program for offshore facilities. However,
several of these initiatives and regulations have been or may be
revised. For example, the U.S. Bureau of Safety and Environmental
Enforcement’s (“BSEE”) revised Production Safety Systems Rule
(“PSSR”), effective December 27, 2018, modified and relaxed certain
environmental and safety protections under the 2016 PSSR.
Additionally, the BSEE amended the Well Control Rule, effective
July 15, 2019, which rolled back certain reforms regarding the
safety of drilling operations, and former U.S. President Trump had
proposed leasing new sections of U.S. waters to oil and gas
companies for offshore drilling. In January 2021, current U.S.
President Biden signed an executive order temporarily blocking new
leases for
oil and gas drilling in federal waters. However, attorney generals
from 13 states filed suit in March 2021 to lift the executive
order, and in June 2021, a federal judge in Louisiana granted a
preliminary injunction against the Biden administration, stating
that the power to pause offshore oil and gas leases “lies solely
with Congress.” With these rapid changes, compliance with any new
requirements of OPA and future legislation or regulations
applicable to the operation of our vessels could impact the cost of
our operations and adversely affect our business.
OPA specifically permits individual states to impose their own
liability regimes with regard to oil pollution incidents occurring
within their boundaries, provided they accept, at a minimum, the
levels of liability established under OPA and some states have
enacted legislation providing for unlimited liability for oil
spills. Many U.S. states that border a navigable waterway have
enacted environmental pollution laws that impose strict liability
on a person for removal costs and damages resulting from a
discharge of oil or a release of a hazardous substance. These laws
may be more stringent than U.S. federal law. Moreover, some states
have enacted legislation providing for unlimited liability for
discharge of pollutants within their waters, although in some
cases, states which have enacted this type of legislation have not
yet issued implementing regulations defining vessel owners’
responsibilities under these laws. We intend to comply with all
applicable state regulations in the ports where our vessels
call.
We currently maintain pollution liability coverage insurance in the
amount of $1.0 billion per incident for each of our vessels except
the Scylla Zaratan, which due to her flag, trade and ownership, is
required to have coverage in Japan and is limited to $500 million.
If the damages from a catastrophic spill were to exceed our
insurance coverage, it could have an adverse effect on our business
and results of operation.
Other United States Environmental Initiatives
The U.S. Clean Air Act of 1970 (including its amendments of 1977
and 1990) (“CAA”) requires the EPA to promulgate standards
applicable to emissions of volatile organic compounds and other air
contaminants. The CAA requires states to adopt State Implementation
Plans, or “SIPs”, some of which regulate emissions resulting from
vessel loading and unloading operations, which may affect our
vessels.
The U.S. Clean Water Act (“CWA”) prohibits the discharge of oil,
hazardous substances and ballast water in U.S. navigable waters
unless authorized by a duly-issued permit or exemption, and imposes
strict liability in the form of penalties for any unauthorized
discharges. The CWA also imposes substantial liability for the
costs of removal, remediation and damages and complements the
remedies available under OPA and CERCLA. In 2015, the EPA expanded
the definition of “waters of the United States” (“WOTUS”), thereby
expanding federal authority under the CWA. Following litigation on
the revised WOTUS rule, in December 2018, the EPA and Department of
the Army proposed a revised, limited definition of WOTUS. In 2019
and 2020, the agencies repealed the prior WOTUS Rule and
promulgated the Navigable Waters Protection Rule (“NWPR”), which
significantly reduced the scope and oversight of EPA and the
Department of the Army in traditionally non-navigable waterways. On
August 30, 2021, a federal district court in Arizona vacated the
NWPR and directed the agencies to replace the rule. On December 7,
2021, the EPA and the Department of the Army proposed a rule that
would reinstate the pre-2015 definition. On February 24, 2022, the
EPA announced ten roundtables to facilitate discussion on the
implementation of WOTUS, which will meet in Spring and Summer 2022.
On January 24, 2022, the U.S. Supreme Court granted certiorari for
Sackett v. EPA, for which oral arguments will likely be held in
Fall 2022 and will address the scope of WOTUS and may impact the
rulemaking.
The EPA and the USCG have also enacted rules relating to ballast
water discharge, compliance with which requires the installation of
equipment on our vessels to treat ballast water before it is
discharged or the implementation of other port facility disposal
arrangements or procedures at potentially substantial costs, and/or
otherwise restrict our vessels from entering U.S. Waters. The EPA
will regulate these ballast water discharges and other discharges
incidental to the normal operation of certain vessels within United
States waters pursuant to the Vessel Incidental Discharge Act
(“VIDA”), which was signed into law on December 4, 2018 and
replaces the 2013 Vessel General Permit (“VGP”) program (which
authorizes discharges incidental to operations of commercial
vessels and contains numeric ballast water discharge limits for
most vessels to reduce the risk of invasive species in U.S. waters,
stringent requirements for exhaust gas scrubbers, and requirements
for the use of environmentally acceptable lubricants) and current
Coast Guard ballast water management regulations adopted under the
U.S. National Invasive Species Act (“NISA”), such as mid-ocean
ballast exchange programs and installation of approved USCG
technology for all vessels equipped with ballast water tanks bound
for U.S. ports or entering U.S. waters. VIDA establishes a new
framework for the regulation of vessel incidental discharges under
the CWA, requires the EPA to develop performance standards for
those discharges within two years of enactment, and requires the
U.S. Coast Guard to develop implementation, compliance, and
enforcement regulations within two years of EPA’s promulgation of
standards. Under VIDA, all provisions of the 2013 VGP and USCG
regulations regarding ballast water treatment remain in force and
effect until the EPA and U.S. Coast Guard regulations are
finalized. Non-military, non-recreational vessels greater than 79
feet in length must continue to comply with the requirements of the
VGP, including submission of a Notice of Intent (“NOI”) or
retention of a Permit Authorization and Record of Inspection
(“PARI”) form and submission of annual reports. Compliance with the
EPA, U.S. Coast Guard and state regulations could require the
installation of ballast water treatment equipment on our vessels or
the implementation of
other port facility disposal procedures at potentially substantial
cost, or may otherwise restrict our vessels from entering U.S.
waters.
European Union Regulations
In October 2009, the European Union amended a directive to impose
criminal sanctions for illicit ship-source discharges of polluting
substances, including minor discharges, if committed with intent,
recklessly or with serious negligence and the discharges
individually or in the aggregate result in deterioration of the
quality of water. Aiding and abetting the discharge of a polluting
substance may also lead to criminal penalties. The directive
applies to all types of vessels, irrespective of their flag, but
certain exceptions apply to warships or where human safety or that
of the ship is in danger. Criminal liability for pollution may
result in substantial penalties or fines and increased civil
liability claims. Regulation (EU) 2015/757 of the European
Parliament and of the Council of 29 April 2015 (amending EU
Directive 2009/16/EC) governs the monitoring, reporting and
verification of carbon dioxide emissions from maritime transport,
and, subject to some exclusions, requires companies with ships over
5,000 gross tonnage to monitor and report carbon dioxide emissions
annually, which may cause us to incur additional
expenses.
The European Union has adopted several regulations and directives
requiring, among other things, more frequent inspections of
high-risk ships, as determined by type, age and flag as well as the
number of times the ship has been detained. The European Union also
adopted and extended a ban on substandard ships and enacted a
minimum ban period and a definitive ban for repeated offenses. The
regulation also provided the European Union with greater authority
and control over classification societies, by imposing more
requirements on classification societies and providing for fines or
penalty payments for organizations that failed to comply.
Furthermore, the European Union has implemented regulations
requiring vessels to use reduced sulfur content fuel for their main
and auxiliary engines. The EU Directive 2005/33/EC (amending
Directive 1999/32/EC) introduced requirements parallel to those in
Annex VI relating to the sulfur content of marine fuels. In
addition, the European Union imposed a 0.1% maximum sulfur
requirement for fuel used by ships at berth in the Baltic, the
North Sea and the English Channel (the so called “SOx-Emission
Control Area:). As of January 2020, EU member states also have to
ensure that ships in all EU waters, except the SOx-Emission Control
Area, use fuels with a 0.5% maximum sulfur content.
On September 15, 2020, the European Parliament voted to include
greenhouse gas emissions from the maritime sector in the European
Union’s carbon market. On July 14, 2021, the European Commission
formally proposed its plan, which would involve gradually including
the maritime sector from 2023 and phasing the sector in over a
three-year period. This will require shipowners to buy permits to
cover these emissions. Contingent on negotiations and a formal
approval vote, these proposed regulations may not enter into force
for another year or two.
International Labour Organization
The International Labour Organization (the “ILO”) is a specialized
agency of the UN that has adopted the Maritime Labor Convention
2006 (“MLC 2006”). A Maritime Labor Certificate and a Declaration
of Maritime Labor Compliance is required to ensure compliance with
MLC 2006 for all ships of 500 gross tons or over and are either
engaged in international voyage or flying the flag of a Member and
operating from a port, or between ports, in another country. We
believe that all our vessels are in substantial compliance with and
are certified to meet MLC 2006.
Greenhouse Gas Regulation
Currently, the emissions of greenhouse gases from international
shipping are not subject to the Kyoto Protocol to the United
Nations Framework Convention on Climate Change, which entered into
force in 2005 and pursuant to which adopting countries have been
required to implement national programs to reduce greenhouse gas
emissions with targets extended through 2020. International
negotiations are continuing with respect to a successor to the
Kyoto Protocol, and restrictions on shipping emissions may be
included in any new treaty. In December 2009, more than 27 nations,
including the U.S. and China, signed the Copenhagen Accord, which
includes a non-binding commitment to reduce greenhouse gas
emissions. The 2015 United Nations Climate Change Conference in
Paris resulted in the Paris Agreement, which entered into force on
November 4, 2016 and does not directly limit greenhouse gas
emissions from ships. The U.S. initially entered into the
agreement, but on June 1, 2017, former U.S. President Trump
announced that the United States intends to withdraw from the Paris
Agreement, and the withdrawal became effective on November 4, 2020.
On January 20, 2021, U.S. President Biden signed an executive order
to rejoin the Paris Agreement, which the U.S. officially rejoined
on February 19, 2021.
At MEPC 70 and MEPC 71, a draft outline of the structure of the
initial strategy for developing a comprehensive IMO strategy on
reduction of greenhouse gas emissions from ships was approved. In
accordance with this roadmap, in April 2018, nations at the MEPC 72
adopted an initial strategy to reduce greenhouse gas emissions from
ships. The initial strategy identifies “levels of ambition” to
reducing greenhouse gas emissions, including (1) decreasing the
carbon intensity from ships through implementation of further
phases of the EEDI for new ships; (2) reducing carbon dioxide
emissions per transport work, as an average across international
shipping, by at least 40% by 2030, pursuing efforts towards 70% by
2050, compared to 2008 emission levels; and (3) reducing the total
annual greenhouse emissions by at least 50% by 2050 compared to
2008 while pursuing efforts towards phasing them out entirely. The
initial strategy notes that technological innovation, alternative
fuels
and/or energy sources for international shipping will be integral
to achieve the overall ambition. These regulations could cause us
to incur additional substantial expenses. At MEPC 77, the Member
States agreed to initiate the revision of the Initial IMO Strategy
on Reduction of GHG emissions from ships, recognizing the need to
strengthen the ambition during the revision process. A final draft
Revised IMO GHG Strategy would be considered by MEPC 80 (scheduled
to meet in spring 2023), with a view to adoption.
The European Union made a unilateral commitment to reduce overall
greenhouse gas emissions from its member states from 20% of 1990
levels by 2020. The European Union also committed to reduce its
emissions by 20% under the Kyoto Protocol’s second period from 2013
to 2020. Starting in January 2018, large ships over 5,000 gross
tonnage calling at EU ports are required to collect and publish
data on carbon dioxide emissions and other information. As
previously discussed, regulations relating to the inclusion of
greenhouse gas emissions from the maritime sector in the European
Union’s carbon market are also forthcoming.
In the United States, the EPA issued a finding that greenhouse
gases endanger public health and safety, adopted regulations to
limit greenhouse gas emissions from certain mobile sources, and
proposed regulations to limit greenhouse gas emissions from large
stationary sources. However, in March 2017, former U.S. President
Trump signed an executive order to review and possibly eliminate
the EPA’s plan to cut greenhouse gas emissions, and in August 2019,
the Trump Administration announced plans to weaken regulations for
methane emissions. On August 13, 2020, the EPA released rules
rolling back standards to control methane and volatile organic
compound emissions from new oil and gas facilities. However, U.S.
President Biden directed the EPA to publish a proposed rule
suspending, revising, or rescinding certain of these rules. On
November 2, 2021, the EPA issued a proposed rule under the CAA
designed to reduce methane emissions from oil and gas sources. The
proposed rule would reduce 41 million tons of methane emissions
between 2023 and 2035 and cut methane emissions in the oil and gas
sector by approximately 74 percent compared to emissions from this
sector in 2005. EPA also anticipates issuing a supplemental
proposed rule in 2022 to include additional methane reduction
measures following public input and anticipates issuing a final
rule by the end of 2022. Although the so-proposed emissions
regulations do not apply to greenhouse gas emissions from vessels,
the EPA has received petitions from the California Attorney General
and environmental groups to regulate greenhouse gas emissions from
ocean-going vessels. Furthermore, Congress, the EPA or individual
U.S. states could enact climate change legislation or regulations,
such as cap-and-trade programs, carbon taxes, and mandatory
greenhouse gas emissions monitoring and reporting, that would
affect our operations.
Any passage of climate control legislation or other regulatory
initiatives by the IMO, the EU, the U.S. or other countries where
we operate, or any treaty adopted at the international level to
succeed the Kyoto Protocol or Paris Agreement, that restricts
emissions of greenhouse gases could require us to make significant
financial expenditures which we cannot predict with certainty at
this time. Even in the absence of climate control legislation, our
business may be indirectly affected to the extent that climate
change may result in sea level changes or certain weather
events.
Vessel Security Regulations
Since the terrorist attacks of September 11, 2001 in the United
States, there have been a variety of initiatives intended to
enhance vessel security such as the U.S. Maritime Transportation
Security Act of 2002 (“MTSA”). To implement certain portions of the
MTSA, the USCG issued regulations requiring the implementation of
certain security requirements aboard vessels operating in waters
subject to the jurisdiction of the United States and at certain
ports and facilities, some of which are regulated by the
EPA.
Similarly, Chapter XI-2 of the SOLAS Convention imposes detailed
security obligations on vessels and port authorities and mandates
compliance with the International Ship and Port Facility Security
Code (“the ISPS Code”). The ISPS Code is designed to enhance the
security of ports and ships against terrorism. To trade
internationally, a vessel must attain an International Ship
Security Certificate (“ISSC”) from a recognized security
organization approved by the vessel’s flag state. Ships operating
without a valid certificate may be detained, expelled from or
refused entry at port until they obtain an ISSC. The various
requirements, some of which are found in the SOLAS Convention,
include, for example, on-board installation of automatic
identification systems to provide a means for the automatic
transmission of safety-related information from among similarly
equipped ships and shore stations, including information on a
ship’s identity, position, course, speed and navigational status;
on-board installation of ship security alert systems, which do not
sound on the vessel but only alert the authorities on shore; the
development of vessel security plans; ship identification number to
be permanently marked on a vessel’s hull; a continuous synopsis
record kept onboard showing a vessel’s history including the name
of the ship, the state whose flag the ship is entitled to fly, the
date on which the ship was registered with that state, the ship’s
identification number, the port at which the ship is registered and
the name of the registered owner(s) and their registered address;
and compliance with flag state security certification
requirements.
The USCG regulations, intended to align with international maritime
security standards, exempt non-U.S. vessels from MTSA vessel
security measures, provided such vessels have on board a valid ISSC
that attests to the vessel’s compliance with the SOLAS Convention
security requirements and the ISPS Code. Future security measures
could have a significant financial
impact on us. We intend to comply with the various security
measures addressed by MTSA, the SOLAS Convention and the ISPS
Code.
The cost of vessel security measures has also been affected by the
escalation in the frequency of acts of piracy against ships,
notably off the coast of Somalia, including the Gulf of Aden and
Arabian Sea area. Substantial loss of revenue and other costs may
be incurred as a result of detention of a vessel or additional
security measures, and the risk of uninsured losses could
significantly affect our business. Costs are incurred in taking
additional security measures in accordance with Best Management
Practices to Deter Piracy, notably those contained in the BMP5
industry standard.
Inspection by Classification Societies
The hull and machinery of every commercial vessel must be classed
by a classification society authorized by its country of registry.
The classification society certifies that a vessel is safe and
seaworthy in accordance with the applicable rules and regulations
of the country of registry of the vessel and SOLAS. Most insurance
underwriters make it a condition for insurance coverage and lending
that a vessel be certified “in class” by a classification society
which is a member of the International Association of
Classification Societies, the IACS. The IACS has adopted harmonized
Common Structural Rules, or “the Rules,” which apply to oil tankers
and bulk carriers contracted for construction on or after July 1,
2015.
The Rules attempt to create a level of consistency between IACS
Societies. All of our vessels are certified as being “in class” by
all the applicable Classification Societies (e.g., American Bureau
of Shipping, Lloyd’s Register of Shipping).
A vessel must undergo annual surveys, intermediate surveys,
drydockings and special surveys. In lieu of a special survey, a
vessel’s machinery may be on a continuous survey cycle, under which
the machinery would be surveyed periodically over a five-year
period. Every vessel is also required to be drydocked every 30 to
36 months for inspection of the underwater parts of the vessel. If
any vessel does not maintain its class and/or fails any annual
survey, intermediate survey, drydocking or special survey, the
vessel will be unable to carry cargo between ports and will be
unemployable and uninsurable which could cause us to be in
violation of certain covenants in our loan agreements. Any such
inability to carry cargo or be employed, or any such violation of
covenants, could have a material adverse impact on our financial
condition and results of operations.
General
The operation of any vessel includes risks such as mechanical
failure, physical damage, collision, property loss, cargo loss or
damage and business interruption due to political circumstances in
foreign countries, piracy incidents, hostilities and labor strikes.
In addition, there is always an inherent possibility of marine
disaster, including oil spills and other environmental mishaps, and
the liabilities arising from owning and operating vessels in
international trade. OPA, which imposes virtually unlimited
liability upon shipowners, operators and bareboat charterers of any
vessel trading in the exclusive economic zone of the United States
for certain oil pollution accidents in the United States, has made
liability insurance more expensive for shipowners and operators
trading in the United States market. We carry insurance coverage as
customary in the shipping industry. However, not all risks can be
insured, specific claims may be rejected, and we might not be
always able to obtain adequate insurance coverage at reasonable
rates.
Hull and Machinery Insurance
We procure hull and machinery insurance plus hull interest
insurance, protection and indemnity insurance, which includes
environmental damage and pollution insurance and war risk insurance
including war loss of hire and freight, demurrage and defense
insurance for our fleet.
Protection and Indemnity Insurance
Protection and indemnity insurance is provided by mutual protection
and indemnity associations, or “P&I Associations”, and covers
our third-party liabilities in connection with our shipping
activities. This includes third-party liability and other related
expenses of injury or death of crew, passengers and other third
parties, loss or damage to cargo, claims arising from collisions
with other vessels, damage to other third-party property, pollution
arising from oil or other substances, and salvage, towing and other
related costs, including wreck removal. Protection and indemnity
insurance is a form of mutual indemnity insurance, extended by
protection and indemnity mutual associations, or
“clubs”.
Our current protection and indemnity insurance coverage for
pollution is $1 billion per vessel per incident for all of our
vessels except the Scylla Zaratan, which due to her flag, trade and
ownership, is required to have coverage in Japan and is limited to
$500 million. The 13 P&I Associations that comprise the
International Group insure approximately 90% of the world’s
commercial tonnage and have entered into a pooling agreement to
reinsure each association’s liabilities. The International Group’s
website states that the Pool provides a mechanism for sharing all
claims in excess of US$10 million up to, currently, approximately
US$ 3.2 billion. In case of an ‘overspill’ claim, which would fall
back on the collective membership and on the total limitation of
the liability of group membership, that amount may go up to
approximately US$ 8.2 billion. As a member of a P&I
Association, which is a member of the International Group, we are
subject to calls payable to the associations
based on our claim records as well as the claim records of all
other members of the individual associations and members of the
shipping pool of P&I Associations comprising the International
Group.
Permits and Authorizations
We are required by various governmental and quasi-governmental
agencies to obtain certain permits, licenses and certificates with
respect to our vessels. The kinds of permits, licenses and
certificates required depend upon several factors, including the
commodity transported, the waters in which the vessel operates, the
nationality of the vessel’s crew and the age of a vessel. We
believe that we have obtained all permits, licenses and
certificates currently required to permit our vessels to operate.
Additional laws and regulations, environmental or otherwise, may be
adopted which could limit our ability to do business or increase
the cost of us doing business.
Sustainability Initiatives
We aim to uphold and advance a set of principles and practices
regarding Environmental, Social and Governance (“ESG”) matters and
have developed, adopted, and implemented ESG initiatives within our
operations and business culture. In adopting these initiatives, our
primary goals are to reduce the environmental impact of our
operations, create a safe and healthy work environment, both at sea
and onshore, and engage in responsible corporate governance
practices. Our Board of Directors, which includes six independent
members, oversees our ESG strategy, evaluates and adopts ESG
initiatives including those relating to sustainability and climate
change, assesses ESG risks and opportunities, and promotes
responsible ESG practices within our Company. In August 2021, we
published our second comprehensive sustainability report, which was
prepared in accordance with the Sustainability Accounting Standards
Board (SASB) Marine Transportation standard, and which disclosed
our ESG performance in 2020. The sustainability report is available
on our website at www.eneti-inc.com The information included on our
website is not incorporated by reference into this annual
report.
ESG initiatives we have undertaken include, among
others:
•Signing
the Call to Action for Shipping Decarbonization, pledging to offer
net zero emission shipping services by 2030, measure carbon
intensity and assess climate alignment of our vessels on an annual
basis, develop and improve digital and other management tools to
measure greenhouse gas emissions from the full supply chain to
compare activities and optimize operations.
•Our
continuing membership in:
▪The
International Seafarers’ Welfare and Assistance Network
(ISWAN)
▪Marine
Anti-Corruption Network (MACN)
•Aligning
our internal policies with certain UN Sustainable Development Goals
relating to work and economic growth, climate action, and life
below water.
•Supporting
the principles of the Sea Cargo Charter.
•Creating
a direct reporting line from our environmental compliance audit and
training team (SECAT) to our Board of Directors.
•Signing
the Neptune Declaration on Seafarer Wellbeing and Crew
Change.
•Committing
to responsible ship recycling in accordance with the Hong Kong
Convention and conducted in compliance with the IMO Convention for
the Safe and Environmentally Sound Recycling of Ships.
C.Organizational
Structure
Eneti Inc. is a company incorporated under the laws of the Marshall
Islands. We own our vessels through separate wholly-owned
subsidiaries that are incorporated in the United Kingdom and Japan.
Please see Exhibit 8.1 to this annual report for a list of our
current subsidiaries.
D.Property,
Plants and Equipment
Our only material physical assets consist of our vessels which are
owned through our separate wholly owned subsidiaries.
For a description of our fleet, see “Item 4. Information on the
Company—B. Business Overview—Our Fleet.”
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ITEM 4A. |
UNRESOLVED STAFF COMMENTS |
None.
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ITEM 5. |
OPERATING AND FINANCIAL REVIEW AND PROSPECTS |
A.Operating
Results
The following presentation of management’s discussion and analysis
of results of operations and financial condition should be read in
conjunction with our consolidated financial statements, including
the notes thereto.
In addition to the Analysis of Operations discussion based on U.S.
GAAP as reported results, the following includes a supplemental
Analysis of Operations discussion reflecting unaudited pro forma
financial information, prepared in accordance with Article 11 of
Regulation S-X.
The unaudited pro forma combined financial information is based on
the historical financial information of Eneti Inc. and Seajacks and
gives pro forma effect to (i) our August 12, 2021 acquisition of
Seajacks (the “Acquisition”), after which Seajacks became a
wholly-owned subsidiary of Eneti, (ii) the completion of Eneti’s
exit from the drybulk industry, and (iii) borrowings under our
newly issued $71 million of redeemable notes, and the issuance of
7.5 million of ordinary shares and 0.7 million of preferred shares
used to partially finance the acquisition.
Seajacks had a March 31 fiscal year end, and the Combined Group
will retain a December 31 year end, as such the following periods
are presented.
The unaudited pro forma combined statement of operations for the
fiscal year ended December 31, 2021 combines Eneti’s audited
consolidated statement of operations for the year ended December
31, 2021 with the unaudited consolidated statement of comprehensive
income of Seajacks for the twelve months ended December 31, 2021
and is presented as if the Acquisition occurred on January 1,
2020.
The unaudited pro forma combined statement of operations for the
fiscal year ended December 31, 2020 combines Eneti’s audited
consolidated statement of operations for the year ended December
31, 2020 with the audited consolidated statement of comprehensive
income of Seajacks for the fiscal year ended March 31, 2021 and is
presented as if the Acquisition occurred on January 1,
2020.
The estimated fair values of certain assets and liabilities have
been determined with the assistance of a third-party valuation
firm. Fair values reported are provisional as of December 31, 2021.
They may be adjusted during the measurement period, which shall not
exceed one year from the acquisition date, to reflect new
information obtained about facts and circumstances that existed as
of the acquisition date.
The unaudited pro forma combined financial information is not
intended to represent or be indicative of our consolidated results
of operations or our financial position that would have been
reported if the Acquisition, share issue, and borrowings had been
completed as of the dates presented, and should not be taken as
representative of the future consolidated results of operations or
financial position of Eneti. The unaudited pro forma combined
financial information does not represent any operating efficiencies
and cost savings that we may achieve with respect to the combined
companies. The unaudited pro forma combined financial information
should be read in conjunction with the historical consolidated
financial information and accompanying notes.
Overview
Eneti (the “Company”) announced on August 3, 2020 its intention to
transition away from the business of dry bulk commodity
transportation and towards marine-based renewable energy including
investing in the next generation of wind turbine installation
vessels. During July 2021, the Company completed its exit from the
business of dry bulk commodity transportation.
In August 2021, Eneti completed its acquisition of Atlantis
Investorco Limited, the parent of Seajacks International Limited,
after which Seajacks became a wholly-owned subsidiary of Eneti. The
Company is focused on the offshore wind and
marine-based renewable energy industry and has invested in the next
generation of WTIVs. The Company operates five WTIVs, which in
addition to wind farm installation can perform maintenance,
construction, decommissioning and other tasks within the offshore
industry. The Company typically operates its five WTIVs
(collectively “our fleet”) on modified time charters, which
provides a fixed and stable cash flow for a known period of time,
and often places risks, such as weather downtime, on the
charterer’s account.
The Company marine energy business is managed as a single operating
segment.
Important Financial and Operational Terms and Concepts
We use a variety of financial and operational terms and concepts.
These include the following:
Hire rate.
The basic payment from the charterer for the use of the
vessel.
Revenues. Revenues
primarily include revenues from time charters, wind farm
construction, mobilization and demobilization fees and revenues
related to vessel construction supervision. Revenues are affected
by hire rates and the number of days a vessel
operates.
Vessel operating costs. For
our vessels, we are responsible for vessel operating costs, which
include crewing, repairs and maintenance, insurance, stores, lube
oils and communication expenses.
Drydocking. We
periodically drydock each of our owned vessels for inspection,
repairs and maintenance and any modifications to comply with
industry certification or governmental requirements. Generally,
each vessel is drydocked every 30 months to 60 months. We
capitalize a substantial portion of the costs incurred during
drydocking and amortize those costs on a straight-line basis from
the completion of a drydocking to the estimated completion of the
next drydocking. We immediately expense costs for routine repairs
and maintenance performed during drydocking that do not improve or
extend the useful lives of the assets. The number of drydockings
undertaken in a given period and the nature of the work performed
determine the level of drydocking expenditures.
Depreciation. Depreciation
expense typically consists of:
•charges
related to the depreciation of the historical cost of our owned
vessels (less an estimated residual value) over the estimated
useful lives of the vessels;
•charges
related to the amortization of drydocking expenditures over the
estimated number of years to the next scheduled drydocking;
and
•amortization
of assets under finance lease.
Revenue days. Revenue
days are the total number of calendar days we owned our vessels
during a period, less the total number of off-hire days during the
period associated with repairs or drydockings. Consequently,
revenue days represent the total number of days available for the
vessel to earn revenue. Idle days, which are days when a vessel is
available to earn revenue, yet is not employed, are included in
revenue days. We use revenue days to show changes in net vessel
revenues between periods.
Operating days. Operating
days are the total number of available days in a period with
respect to the owned vessels, before deducting available days due
to off-hire days and days in drydock. Operating days is a
measurement that is only applicable to our owned vessels, not our
chartered-in vessels.
Off-hire. Time
a vessel is not available for service due primarily to scheduled
and unscheduled repairs or drydockings.
Non-GAAP Financial Measures
To supplement our financial information presented in accordance
with accounting principles generally accepted in the United
States, or GAAP, management uses certain “non-GAAP financial
measures” as such term is defined in Regulation G promulgated by
the SEC. Generally, a non-GAAP financial measure is a numerical
measure of a company’s operating performance, financial position or
cash flows that excludes or includes amounts that are included in,
or excluded from, the most directly comparable measure calculated
and presented in accordance with GAAP. Management believes the
presentation of these measures provides investors with greater
transparency and supplemental data relating to our financial
condition and results of operations, and therefore a more complete
understanding of factors affecting our business than GAAP measures
alone. In addition, management believes the presentation of
these matters is useful to investors for period-to-period
comparison
of results as the items may reflect certain unique and/or
non-operating items such as asset sales, write-offs, contract
termination costs or items outside of management’s
control.
Earnings before interest, taxes, depreciation and amortization, or
EBITDA, adjusted net loss and related per share amounts, as well as
adjusted EBITDA are non-GAAP financial measures that we believe
provide investors with a means of evaluating and understanding how
our management evaluates our operating performance. These
non-GAAP financial measures should not be considered in isolation
from, as substitutes for, nor superior to financial measures
prepared in accordance with GAAP.
Reconciliations of EBITDA as determined in accordance with U.S.
GAAP for the years ended December 31, 2021, 2020, and 2019, as well
as reconciliations of adjusted net income or loss and related per
share amounts and adjusted EBITDA in accordance with U.S. GAAP for
the years ended December 31, 2021 and 2020 are provided
below.
EBITDA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31, |
In thousands |
|
2021 |
|
2020 |
|
2019 |
|
Net income (loss) |
|
$ |
20,227 |
|
|
$ |
(671,983) |
|
|
$ |
44,654 |
|
|
Adjustments: |
|
|
|
|
|
|
|
Net interest expense |
|
8,425 |
|
|
29,853 |
|
|
42,887 |
|
|
Depreciation and amortization
(1)
|
|
30,591 |
|
|
62,441 |
|
|
70,775 |
|
|
Income tax (benefit) expense |
|
344 |
|
|
— |
|
|
— |
|
|
EBITDA |
|
$ |
59,587 |
|
|
$ |
(579,689) |
|
|
$ |
158,316 |
|
|
(1)
Includes depreciation, amortization of deferred financing costs and
restricted stock amortization.
Adjusted net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31, |
|
2021 |
|
2020 |
|
|
|
In thousands, except per share amounts |
Amount |
|
Per share |
|
Amount |
|
Per share |
|
|
|
|
|
Net income (loss) |
$ |
20,227 |
|
|
$ |
1.24 |
|
|
$ |
(671,983) |
|
|
$ |
(70.85) |
|
|
|
|
|
|
Adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
Gain on bargain purchase of Seajacks |
(57,436) |
|
|
(3.53) |
|
|
— |
|
|
— |
|
|
|
|
|
|
Transaction costs |
49,564 |
|
|
3.04 |
|
|
— |
|
|
— |
|
|
|
|
|
|
(Gain) loss / write down on assets held for sale |
(22,732) |
|
|
(1.40) |
|
|
495,413 |
|
|
52.24 |
|
|
|
|
|
|
Write off of deferred financing cost |
7,196 |
|
|
0.44 |
|
|
3,088 |
|
|
0.33 |
|
|
|
|
|
|
Total adjustments |
(23,408) |
|
|
(1.45) |
|
|
498,501 |
|
|
52.57 |
|
|
|
|
|
|
Adjusted net loss |
$ |
(3,181) |
|
|
$ |
(0.21) |
|
|
$ |
(173,482) |
|
|
$ |
(18.28) |
|
|
|
|
|
|
Adjusted EBITDA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended
December 31, |
In thousands |
|
2021 |
|
2020 |
Net income (loss) |
|
$ |
20,227 |
|
|
$ |
(671,983) |
|
Impact of Adjustments |
|
(23,408) |
|
|
498,501 |
|
Adjusted net income (loss) |
|
(3,181) |
|
|
(173,482) |
|
Add Back: |
|
|
|
|
Net interest expense |
|
8,425 |
|
|
29,853 |
|
Depreciation and amortization
(1)
|
|
17,467 |
|
|
59,353 |
|
Income tax (benefit) expense |
|
344 |
|
|
— |
|
Adjusted EBITDA |
|
$ |
23,055 |
|
|
$ |
(84,276) |
|
(1)
Includes depreciation, amortization of deferred financing costs and
restricted stock amortization.
Executive Summary for the Year Ended December 31, 2021
Our year ended December 31, 2021 results include the impact of
Seajacks from August 12, 2021 (the date the acquisition was
completed) through December 31, 2021. Since the completion of the
acquisition, our operations are primarily those of Seajacks as we
completed our exit from the dry bulk sector of the shipping
industry in July 2021.
For 2021, our GAAP net income was $20.2 million, or $1.24 per
diluted share, including:
•a
gain on bargain purchase of Seajacks of $57.4 million, or $3.53 per
diluted share;
•transaction
costs of approximately $49.6 million, or $3.04 per diluted share
related to the acquisition of Seajacks;
•a
gain on vessels sold of approximately $22.7 million, or $1.40 per
diluted share;
•the
write-off of $7.2 million, or $0.44 per diluted share, of deferred
financing costs on repaid credit facilities related to certain
vessels that have been sold; and
•a
gain of approximately $3.5 million and cash dividend income of $0.9
million, or $0.27 per diluted share, from our equity investment in
Scorpio Tankers Inc.
For 2020, our GAAP net loss was $672.0 million, or $70.85 per
diluted share, including a write-down on assets sold and classified
as held for sale of approximately $495.4 million, or $52.24 per
diluted share; a loss of approximately $106.5 million and cash
dividend income of $1.1 million, or $11.11 per diluted share, from
our equity investment in Scorpio Tankers Inc. and a write-off of
approximately $3.1 million, or $0.33 per diluted share, of deferred
financing costs on the credit facilities related to repaid debt on
vessels that have been sold.
Total revenues for 2021 and 2020 were $144.0 million and $163.7
million, respectively. For 2021 and 2020, EBITDA was $59.6 million
and a loss of $579.7 million, respectively (see Non-GAAP Financial
Measures above).
For 2021, our adjusted net loss was $3.2 million, or $0.21 adjusted
per diluted share, which excludes the impact of a gain on bargain
purchase of Seajacks of $57.4 million, transaction costs of
approximately $49.6 million related to the acquisition of Seajacks,
a gain on vessels sold of approximately $22.7 million which is
primarily the result of an increase in the fair value of common
shares of Star Bulk Carriers Corp. (“Star Bulk”) and Eagle Bulk
Shipping Inc. (“Eagle”) received as a portion of the consideration
for the sale of certain of our vessels to Star Bulk and Eagle and
the write-off of deferred financing costs on the related credit
facilities of $7.2 million. Adjusted EBITDA for 2021 was $23.1
million (see Non-GAAP Financial Measures above).
For 2020, our adjusted net loss was $173.5 million, or $18.28
adjusted per diluted share, which excludes the impact of the
write-down of assets of approximately $495.4 million and the
write-off of deferred financing costs on credit facilities related
to sold vessels of approximately $3.1 million. Adjusted EBITDA for
the twelve months of 2020 was a loss of $84.3 million (see Non-GAAP
Financial Measures above).
Results for the Year Ended December 31, 2021 Compared to the
Results Year Ended December 31, 2020
We exited the dry bulk sector of the shipping industry in July 2021
and completed its acquisition of Seajacks on August 12, 2021. Since
the completion of the Acquisition, our operations are primarily
those of Seajacks.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
|
2021 |
|
2020 |
|
Change |
|
Change % |
Revenue: |
|
|
|
|
|
|
|
|
Revenue |
|
$ |
144,033 |
|
|
$ |
163,732 |
|
|
$ |
(19,699) |
|
|
(12) |
% |
Operating expenses: |
|
|
|
|
|
|
|
|
Voyage expenses |
|
17,562 |
|
|
10,009 |
|
|
7,553 |
|
|
75 |
% |
Vessel operating and project costs |
|
52,505 |
|
|
92,806 |
|
|
(40,301) |
|
|
(43) |
% |
Charterhire expense |
|
34,001 |
|
|
21,107 |
|
|
12,894 |
|
|
61 |
% |
|
|
|
|
|
|
|
|
|
Vessel depreciation |
|
10,190 |
|
|
48,369 |
|
|
(38,179) |
|
|
(79) |
% |
General and administrative expenses |
|
83,954 |
|
|
25,671 |
|
|
58,283 |
|
|
227 |
% |
(Gain) loss / write-down on assets sold or held for
sale |
|
(22,732) |
|
|
495,413 |
|
|
(518,145) |
|
|
(105) |
% |
Total operating expenses |
|
175,480 |
|
|
693,375 |
|
|
(517,895) |
|
|
(75) |
% |
Operating loss |
|
(31,447) |
|
|
(529,643) |
|
|
498,196 |
|
|
(94) |
% |
Since the completion of the Acquisition, revenue consisted
primarily of revenues generated by the Seajacks Scylla’s
transportation and installation services for an offshore wind farm
project in China, the Seajacks Zaratan installation of foundations
at the Akita offshore wind farm, and maintenance on offshore wind
turbines and gas production platforms in the Southern North Sea,
which amounted to $41.9 million. We also recognized revenue of
$102.1 million related to the dry bulk business, compared to $163.7
million in 2020. The decrease is due to the exit of operations in
this business line, as we sold the last of our dry bulk vessels in
July 2021.
Voyage expenses relate only to our dry bulk operations and
increased year over year because the vessels were not in any pools
during 2021 despite the sale of our drybulk fleet.
Vessel operating and project costs decreased by 43% in 2021
compared to 2020 due to the reduction of our dry bulk fleet year
from the prior year until we exited the dry bulk sector in July
2021. Since the acquisition of Seajacks, the expense also includes
costs incurred to perform our obligation for each project (“project
costs”).
Charterhire expense increased in 2021, as we fulfilled our
obligation to perform on fixed voyages while we sold our drybulk
fleet.
2021 vessel depreciation includes only depreciation on the five
WTIVs acquired in the Seajacks acquisition. The prior year includes
depreciation on our dry bulk vessel fleet. No depreciation expense
was recognized for these vessels in 2021 as they were classified as
held for sale.
General and administrative expenses include transaction costs of
approximately $49.6 million during 2021. The remainder of the
increase is due to the additional costs from the acquisition of
Seajacks.
During 2021, we recorded a gain on vessels sold of approximately
$22.7 million, which is primarily the result of an increase in the
fair value of common shares of Star Bulk and Eagle received as a
portion of the consideration for the sale of certain of our vessels
to Star Bulk and Eagle.
In addition to the above Analysis of Operations discussion based on
U.S. GAAP as reported results, the following is a supplemental
Analysis of Operations discussion reflecting unaudited pro forma
financial information.
The unaudited pro forma combined statement of operations for the
fiscal year ended December 31, 2020 combines Eneti’s audited
consolidated statement of operations for the year ended December
31, 2020 with the audited consolidated statement of comprehensive
income of Seajacks for the fiscal year ended March 31, 2021 and is
presented as if the Acquisition occurred on January 1,
2020.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Eneti
Twelve Months Ended December 31, 2020 |
|
Seajacks
Twelve Months Ended March 31, 2021 |
|
Exit from Dry Bulk Business |
|
Policy Alignment and Pro Forma Adjustments |
|
2020
Combined Pro Forma |
Revenue: |
|
|
|
|
|
|
|
|
|
|
Revenue |
|
$ |
163,732 |
|
|
$ |
42,755 |
|
|
$ |
(163,732) |
|
|
$ |
— |
|
|
$ |
42,755 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
Voyage expenses |
|
10,009 |
|
|
— |
|
|
(10,009) |
|
|
— |
|
|
— |
|
Vessel operating and project costs |
|
92,806 |
|
|
36,293 |
|
|
(92,806) |
|
|
1,042 |
|
|
37,335 |
|
Charterhire expense |
|
21,107 |
|
|
— |
|
|
(21,107) |
|
|
— |
|
|
— |
|
Vessel depreciation |
|
48,369 |
|
|
30,721 |
|
|
(48,369) |
|
|
(4,643) |
|
|
26,078 |
|
Impairment of long lived assets |
|
— |
|
|
289,125 |
|
|
— |
|
|
— |
|
|
289,125 |
|
Amortization of intangibles |
|
— |
|
|
5,332 |
|
|
— |
|
|
(5,332) |
|
|
— |
|
General and administrative expenses |
|
25,671 |
|
|
11,167 |
|
|
(5,607) |
|
|
51,006 |
|
|
82,237 |
|
(Gain) loss / write-down on assets sold or held for
sale |
|
495,413 |
|
|
— |
|
|
(495,413) |
|
|
— |
|
|
— |
|
Total operating expenses |
|
693,375 |
|
|
372,638 |
|
|
(673,311) |
|
|
42,073 |
|
|
434,775 |
|
Operating (loss) gain |
|
(529,643) |
|
|
(329,883) |
|
|
509,579 |
|
|
(42,073) |
|
|
(392,020) |
|
The unaudited pro forma condensed combined statement of operations
for the twelve months ended December 31, 2021 combines Eneti’s
statement of operations for the year ended December 31, 2021 with
the unaudited consolidated statement of comprehensive income of
Seajacks for the period from January 1, 2021 through the date of
acquisition is presented as if the acquisition occurred on January
1, 2020.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Eneti
Twelve Months Ended December 31, 2021 |
|
Seajacks
January 1 - August 12, 2021 |
|
Exit from Dry Bulk Business |
|
Policy Alignment and Pro Forma Adjustments |
|
2021
Combined Pro Forma |
Revenue: |
|
|
|
|
|
|
|
|
|
|
Revenue |
|
$ |
144,033 |
|
|
$ |
172,031 |
|
|
$ |
(98,291) |
|
|
$ |
— |
|
|
$ |
217,773 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
Voyage expenses |
|
17,562 |
|
|
— |
|
|
(17,562) |
|
|
— |
|
|
— |
|
Vessel operating and project costs |
|
52,505 |
|
|
57,865 |
|
|
(24,273) |
|
|
— |
|
|
86,097 |
|
Charterhire expense |
|
34,001 |
|
|
— |
|
|
(34,001) |
|
|
— |
|
|
— |
|
Vessel depreciation |
|
10,190 |
|
|
17,982 |
|
|
— |
|
|
(3,393) |
|
|
24,779 |
|
General and administrative expenses |
|
83,954 |
|
|
9,725 |
|
|
(1,733) |
|
|
(49,113) |
|
|
42,833 |
|
(Gain) loss / write-down on assets sold or held for
sale |
|
(22,732) |
|
|
— |
|
|
22,732 |
|
|
— |
|
|
— |
|
Total operating expenses |
|
175,480 |
|
|
85,572 |
|
|
(54,837) |
|
-54837 |
(52,506) |
|
|
153,709 |
|
Operating gain (loss) |
|
(31,447) |
|
|
86,459 |
|
|
(43,454) |
|
|
52,506 |
|
|
64,064 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unaudited Pro Forma Combined Statement of Operations for the Twelve
Months Ended December 31, |
|
|
|
|
2021 |
|
2020 |
|
Change |
|
Change % |
Revenue: |
|
|
|
|
|
|
|
|
Revenue |
|
$ |
217,773 |
|
|
$ |
42,755 |
|
|
$ |
175,018 |
|
|
409 |
% |
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vessel operating and project costs |
|
86,097 |
|
|
37,335 |
|
|
48,762 |
|
|
131 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vessel depreciation |
|
24,779 |
|
|
26,078 |
|
|
(1,299) |
|
|
(5) |
% |
General and administrative expenses |
|
42,833 |
|
|
82,237 |
|
|
(39,404) |
|
|
(48) |
% |
Impairment of long lived assets |
|
— |
|
|
289,125 |
|
|
(289,125) |
|
|
(100) |
% |
Total operating expenses |
|
153,709 |
|
|
434,775 |
|
|
(281,066) |
|
|
(65) |
% |
Operating gain (loss) |
|
64,064 |
|
|
(392,020) |
|
|
456,084 |
|
|
116 |
% |
2021 pro forma combined revenues consists of a termination fee
relating to the cancellation of a contract for transportation
services in Taiwan, transportation and installation services for an
offshore wind farm project in China, installing foundations at the
Akita offshore wind farm in Japan, and maintenance on offshore wind
turbines and gas production platforms in the Southern North Sea. We
also generated revenues through our supervision for the
construction of a externally owned new building. For all of 2020,
the Seajacks Zaratan, Seajacks Hydra, Seajacks Leviathan and
Seajacks Kraken were idle due to the outbreak of COVID-19 and low
price of oil and gas which limited maintenance on gas production
platforms.
The increase in pro forma combined vessel operating and project
costs was due primarily to the increase in fleet utilization year
over year, as well as the Seajacks Scylla and Seajacks Zaratan
operating in the harsh conditions of the Asia Pacific, which led to
an increase in maintenance costs. Project costs also increased
related to the project at the Akita offshore wind farm and the
expensing of all project costs related to the cancellation of the
transportation services contract.
Vessel depreciation decreased slightly year over year due to the
impairment of vessels recorded in 2020.
General and administrative expenses decreased from 2020 to 2021,
due to the acquisition related transaction costs recorded in 2020.
Excluding transaction costs, general and administrative expenses
would have increased in 2021 from 2020, due to an increase in
onshore headcount associated with the expected increase in
projects, higher bonuses and an increase in professional and audit
fees related to the acquisition.
Long lived assets were impaired during the twelve months ended
December 31, 2020 due in part to the outbreak and prolonged impact
of COVID-19 which reduced the utilization of vessels in employment
across the sector and as such was reflected in the cash flow
projections.
Results for the Year Ended December 31,
2020 Compared to the Year Ended December 31,
2019
For a discussion of our results for the
year ended December 31, 2020 compared to the year ended December
31, 2019, please see “Item 5 - Operating and Financial Review and
Prospects - A. Operating Results - Results for the Year Ended
December 31, 2020 Compared to the Year Ended December 31, 2019”
contained in our annual report on Form 20-F for the year ended
December 31, 2020, filed with the SEC on March 8,
2021.
B.Liquidity
and Capital Resources
Our primary source of funds for our short-term and long-term
liquidity needs will be the cash flows generated from our vessels,
which primarily operate on time charter which give us a fixed and
stable cash flow for a known period of time, and often places
risks, such as weather downtime, on the charterer’s
account.
At December 31, 2021, cash and cash equivalents totaled $154.0
million. We believe that our current cash and cash equivalents
balance and operating cash flows, our ability to sell our
investment in Scorpio Tankers, the new $175.0 Million Credit
Facility, as well as our access to credit markets will be
sufficient to meet our short-term and long-term liquidity needs for
the next 12 months from the date of this annual report, which are
primarily comprised of debt repayment obligations (see
Liquidity Risk
section of Note 1,
Organization and Basis of Presentation,
to the consolidated financial statements).
Cash Flow
Operating Activities
The table below summarizes the effect of the major components of
operating cash flow.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
(in thousands) |
|
2021 |
|
2020 |
|
2019 |
Net income (loss) |
|
$ |
20,227 |
|
|
$ |
(671,983) |
|
|
$ |
44,654 |
|
Adjustment to reconcile net income (loss) to net cash provided by
(used in) operating activities: |
|
(60,792) |
|
|
574,061 |
|
|
(15,997) |
|
Related party balances |
|
7,880 |
|
|
9,314 |
|
|
2,993 |
|
Effect of changes in other working capital and operating assets and
liabilities |
|
40,927 |
|
|
49,773 |
|
|
2,230 |
|
Net cash provided by (used in) operating activities |
|
$ |
8,242 |
|
|
$ |
(38,835) |
|
|
$ |
33,880 |
|
The cash flow provided by operating activities for 2021 reflects
the reduced revenue earned during the period as we exited the
drybulk sector of the shipping industry and transitioned to the
offshore wind and marine-based renewable energy industry and
transaction costs related to the Seajacks acquisition. Our non-cash
items include the gain on bargain purchase of Seajacks, a gain on
vessels sold, unrealized gains on investments, vessel depreciation,
amortization of restricted stock and amortization of deferred
financing costs.
Investing Activities
Net cash provided by investing activities of $550.4 million during
2021 primarily reflects the proceeds received from the sale of our
drybulk fleet, in the form of cash or common shares of Eagle or
Star Bulk, which were sold during the period, and cash acquired as
part of our acquisition of Seajacks.
Financing Activities
Net cash used financing activities of $488.6 million primarily
reflects the repayments of long term debt related to the sale of
vessels offset by net proceeds from our issuance of
stock.
Equity Issuances
In June 2020, the Company issued approximately 4.7 million shares
(which includes the exercise in full of the underwriters’ option to
purchase additional shares) of its common stock, par value $0.01
per share, at $18.46 per share in an underwritten public offering.
Scorpio Services Holding Limited, a related party to the Company,
purchased 950,000 common shares in the offering at the public
offering price. The Company received approximately $82.3 million of
net proceeds from the issuance.
In November 2021, the Company issued approximately 19.4 million
shares of its common stock, par value $0.01 per share, at $9.00 per
share in an underwritten public offering. Scorpio Holdings Limited,
a related party to the Company, purchased approximately 3.7 million
common shares in the offering at the public offering price. In
addition, Robert Bugbee (the Company’s President) and a
non-executive director purchased 222,222 and 11,111 common shares,
respectively, at the public offering price. The Company received
approximately $165.9 million of net proceeds from the
issuance.
Share Repurchase Program
In January 2019, the Company’s Board of Directors authorized a
Securities Repurchase Program to purchase up to an aggregate of
$50.0 million of the Company’s securities (the “Program”). During
the fourth quarter of 2020, we repurchased approximately 1.1
million shares of our common stock, at an average cost of $15.52
per share. We subsequently repurchased approximately 76,000 shares
of our common stock at an average cost of $18.40 per share during
2021. These repurchases, totaling $18.1 million, were made under
the Program and funded from available cash resources. As of April
11, 2022, the Company had $31.9 million authorized remaining
available under the Program.
Dividend
During 2021, our Board of Directors also declared and we paid a
quarterly cash dividend totaling $0.12 per share in the aggregate,
or approximately $1.7 million in the aggregate.
In February 2022, our Board of Directors declared a quarterly cash
dividend of $0.01 per share, paid to all shareholders of record as
of March 7, 2022 on March 15, 2022 for approximately $0.4 million
in the aggregate.
Credit Facilities
As of December 31, 2021, we had $140.7 million of outstanding
borrowings under the credit agreements described below as shown in
the following table (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2021 |
|
April 11, 2022 |
|
|
Amount outstanding |
|
Amount outstanding |
|
|
$60.0 Million ING Revolving Credit Facility
(1)
|
|
$ |
— |
|
|
$ |
25,000 |
|
|
|
$87.7 Million Subordinated Debt |
|
87,650 |
|
|
— |
|
|
|
$70.7 Million Redeemable Notes |
|
53,015 |
|
|
53,015 |
|
|
|
$175.0 Million Credit Facility |
|
— |
|
|
— |
|
|
|
Total |
|
$ |
140,665 |
|
|
$ |
78,015 |
|
|
|
(1) ING issued performance bond guarantees of approximately $16.5
million as of April 11, 2022, reducing the amount available under
the credit facility by the same amount.
Financial Covenants under the Agreements Governing our
Indebtedness
Our credit facilities discussed above, have, among other things,
the following financial covenants, as amended or waived, the most
stringent of which require us to maintain:
•Minimum
liquidity of not less than $30.0 million, of which $15.0 million
must be cash.
•The
ratio of net debt to adjusted earnings before interest, taxes,
depreciation and amortization (“EBITDA”) calculated on a trailing
four quarter basis of no greater than 2.50 to 1.00.
•The
ratio of adjusted EBITDA to finance charges calculated on a
trailing four quarter basis of at least 5.00 to 1.00.
•Solvency
(equity divided by total assets) shall not be less than
50%.
•Minimum
fair value of the collateral for the $60.0 Million ING Loan
Facility, such that the aggregate fair value of the vessels
collateralizing the credit facility be at least 200% of the
aggregate commitment amount under such credit facility, or, if we
do not meet these thresholds, to prepay a portion of the loan and
cancel such available commitments or provide additional security to
eliminate the shortfall.
Our credit facilities set out above have, among other things, the
following restrictive covenants which would restrict our ability
to:
•incur
additional indebtedness;
•sell
the collateral vessel, if applicable;
•make
additional investments or acquisitions;
•pay
dividends; or
•effect
a change of control of us.
A violation of any of the financial covenants contained in our
credit facilities and financing obligations described above may
constitute an event of default under all of our credit facilities
and financing obligations, which, unless cured within the grace
period set forth under the credit facility or financing obligation,
if applicable, or waived or modified by our lenders, provides our
lenders with the right to, among other things, require us to post
additional collateral, enhance our equity and liquidity, increase
our interest payments, pay down our indebtedness to a level where
we are in compliance with the financial covenants in the agreements
governing our indebtedness, sell vessels in our fleet, reclassify
our indebtedness as current liabilities, accelerate our
indebtedness, and foreclose their liens on our vessels and the
other assets securing the credit facilities and financing
obligations, which would impair our ability to continue to conduct
our business.
In addition, our credit facilities and finance leases contain
subjective acceleration clauses under which the debt could become
due and payable in the event of a material adverse change in our
business.
Furthermore, our credit facilities and financing obligations
contain a cross-default provision that may be triggered by a
default under one of our other credit facilities and financing
obligations. A cross-default provision means that a default on one
loan or financing obligation would result in a default on certain
of our other loans and financing obligations. Because of the
presence of cross-default provisions in certain of our credit
facilities and financing obligations, the refusal of any one lender
under our credit facilities and financing obligations to grant or
extend a waiver could result in certain of our indebtedness being
accelerated, even if our other lenders under our credit facilities
and financing obligations have waived covenant defaults under the
respective credit facilities and financing obligations. If our
secured indebtedness is accelerated in full or in part, it would be
very difficult in the current financing environment for us to
refinance our debt or obtain additional financing and we could lose
our vessels and other assets securing our credit facilities and
financing obligations if our lenders foreclose their liens, which
would adversely affect our ability to conduct our
business.
Moreover, in connection with any waivers of or amendments to our
credit facilities and financing obligations that we have obtained,
or may obtain in the future, our lenders may impose additional
operating and financial restrictions on us or modify the terms of
our existing credit facilities and financing obligations. These
restrictions may further restrict our ability to, among other
things, pay dividends, make capital expenditures or incur
additional indebtedness, including through the issuance of
guarantees. In addition, our lenders may require the payment of
additional fees, require prepayment of a portion of our
indebtedness to them, accelerate the amortization schedule for our
indebtedness and increase the interest rates they charge us on our
outstanding indebtedness.
As of December 31, 2021, we were in compliance with all of the
financial covenants contained in the credit facilities and
financing obligations that we had entered into as of that
date.
Please see Note 10,
Debt,
to our consolidated financial statements for additional information
about our credit facilities and financing obligations.
$60.0 Million ING Revolving Credit Facility
As part of the Seajacks transaction, we entered into a $60.0
million senior secured non-amortizing revolving credit facility
from ING Bank N.V. The credit facility, which includes sub-limits
for performance bonds, and is subject to other conditions for full
availability, has a final maturity of August 2022 and bears
interest at LIBOR plus a margin of 2.45% per annum.
The $60.0 Million ING Loan Facility is secured by, among other
things: a first priority mortgage over the relevant collateralized
vessels; a first priority assignment of earnings, and insurances
from the mortgaged vessels for the facility; a pledge of the
earnings account of the mortgaged vessels for the facility; and a
pledge of the equity interests of each vessel owning subsidiary
under the facility.
In March 2022, we drew down $25.0 million of the available
facility.
$87.7 Million Subordinated Debt
As part of the Seajacks transaction, we assumed $87.7 million of
subordinated, non-amortizing debt due in September 2022 and owed to
financial institutions with guarantees provided by the Sellers,
which bears interest at 1.0% until November 30, 2021, 5.5% from
December 1, 2021 and 8.0% from January 1, 2022.
In February 2022, we repaid the debt facility in its
entirety.
$70.7 Million Redeemable Notes
As part of the Seajacks transaction, we issued subordinated
redeemable notes totaling $70.7 million, with a final maturity of
March 31, 2023 and which bear interest at 5.5% until December 31,
2021 and 8.0% afterwards.
In December 2021, we repaid $17.7 million of the
notes.
$175.0 Million Credit Facility
In March 2022, we entered into an agreement with DNB Capital LLC,
Societe Generale, Citibank N.A., Credit Agricole Corporate and
Investment Bank and Credit Industriel et Commercial for a five-year
credit facility of $175 million (the “Credit
Facility”).
The Credit Facility consists of three tranches: (i) a $75 million
Green Term Loan (the “Term Loan”), (ii) up to $75 million Revolving
Loans (the “Revolving Loans”), and (iii) up to $25 million
revolving tranche for the issuance of letters of credit,
performance bonds and other guarantees (the “Letters of Credit”).
The Credit Facility has a final maturity date of five years from
the signing date, up to 100% of the amounts available under the
Revolving Loans may be drawn in Euros and up to 50% of the amounts
available under the Letters of Credit may be issued in Euros. The
Term Loan tranche (once qualified as a green loan) bears interest
at Term SOFR (along with a credit adjustment spread depending on
duration of interest period) plus a margin of 3.05% per annum, the
Revolving Loans tranche bears interest at Term SOFR (along with a
credit adjustment spread depending on duration of interest period)
plus a margin of 3.15% per annum, and the Letters of Credit tranche
bears fees of 3.15% per annum. The amount available for drawing
under the Revolving Loans is based upon 50% of contracted cash
flows on a forward looking 30 months basis. The terms and
conditions of the Credit Facility are similar to those set forth in
the similar credit facilities of this type. The green loan
accreditation process is supported by second party opinions from
The Governance Group AS of Norway.
Performance Bonds
Under certain circumstances, we issue either advance payment or
performance bonds upon signing a wind turbine installation
contract. An advance payment bond protects the money being advanced
to us by the client at the start of the project. The bond will
protect the client for the full advanced amount should Seajacks
default on the agreement. A performance bond can be issued to the
client as a guarantee against us meeting the obligations specified
in the contract. As of April 11, 2022 there are approximately $32.7
million of bonds issued.
New Buildings
We are currently under contract with Daewoo Shipbuilding and Marine
Engineering for the construction of two next-generation offshore
WTIVs. The aggregate contract price is approximately $654.7
million, of which $33.0 million has been paid. The vessels are
expected to be delivered in the third quarter of 2024 and second
quarter of 2025, respectively. The estimated future payment dates
and amounts are as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
DSME1 |
|
DSME2 |
2022 |
$ |
33,036 |
|
|
$ |
32,440 |
|
2023 |
66,072 |
|
|
32,441 |
|
2024 |
198,217 |
|
|
64,882 |
|
2025 |
— |
|
|
194,644 |
|
|
$ |
297,325 |
|
|
$ |
324,407 |
|
COVID-19
Since the beginning of the calendar year 2020, the ongoing outbreak
of the novel coronavirus (COVID-19) that originated in China in
December 2019 and that has spread to most developed nations of the
world has resulted in numerous actions taken by governments and
governmental agencies in an attempt to mitigate the spread of the
virus. These measures have resulted in a significant reduction in
global economic activity and extreme volatility in the global
financial and commodities markets. Future charter rates remain
highly dependent on the duration and continuing impact of the
COVID-19 pandemic. When these measures and the resulting economic
impact will end and what the long-term impact of such measures on
the global economy will be are not known at this time. The COVID-19
outbreak continues to rapidly evolve, with periods of improvement
followed by periods of higher infection rates, along with the
development of new disease variants, such as the Delta and Omicron
variants, in various geographical areas throughout the world. As a
result, the extent to which COVID-19 will impact the Company’s
results of operations and financial condition will depend on future
developments, which are highly uncertain and cannot be
predicted.
C.Research
and Development, Patents and Licenses, Etc.
Not applicable
D.Trend
Information
See “Item 4. Information on the Company - B. Business Overview -
Industry and Market Conditions.”
E.Critical
Accounting Estimates
The audited annual consolidated financial statements are prepared
in conformity with U.S. GAAP and, accordingly, include certain
amounts that are based on management’s best estimates and
judgments. On a regular basis, management reviews the accounting
policies, assumptions, estimates and judgments to ensure that our
consolidated financial statements are presented fairly and in
accordance with U.S. GAAP. Our estimates are based on historical
experience and on our future expectations that we believe are
reasonable. The combination of these factors forms the basis for
making judgements about the carrying values of assets and
liabilities that are not readily apparent from other sources. We
believe that the following are the more critical accounting
estimates used in the preparation of our consolidated financial
statements that involve a higher degree of uncertainty and
judgement, which could have a significant impact on our future
consolidated results of operations and financial position. Because
of the uncertainty inherent in such estimates, actual results may
differ from these estimates.
Income Taxes
The Company is registered in the Marshall Islands and is not
subject to income taxes in the U.S. The Company operates through
its Seajacks business in several countries. The Company’s annual
tax positions are based on taxable income, statutory rates,
transfer pricing assumptions, tax planning opportunities and the
interpretation of the tax laws in the various jurisdictions of its
operations.
Such positions require significant judgment and the use of
estimates and assumptions regarding significant future events such
as the amount, timing and tax characterization of certain
transactions, changes in tax laws and treaties, and the timing and
amount of profitability in each location in any given year.
Additionally, certain of our entities enter into agreements with
other of our entities to provide specialized services and equipment
to their operations. However, in some jurisdictions the
interpretation of tax laws relating to the pricing of transactions
between related parties could potentially result in tax authorities
asserting additional tax liabilities with no offsetting tax
recovery in other jurisdictions.
The Company’s tax filings are subject to regular audits by the tax
authorities. These audits may result in assessments for additional
taxes that are resolved with the authorities or, potentially,
through the courts. Due to the uncertain and complex application of
tax regulations, the ultimate resolution of audits may result in
liabilities that could be materially different from these
estimates. In such an event, the Company will record additional tax
expense or tax benefit in the period in which such resolution
occurs.
The Company recognized deferred tax assets in relation to tax
losses incurred in current and past years. The Company reviewed the
carrying amount of deferred tax assets at the reporting date and
assessed if sufficient taxable profits will be available to allow
all of the deferred tax asset to be utilized. To assess the
availability of future taxable profits, management estimates future
revenues and costs, capital allowances and tax planning
opportunities. The Company critically reviews supporting evidence
for recognition of deferred tax assets and assesses the probability
of future profits that will be generated, including from confirmed
contracts, resulting in projected taxable profits over the next
three years. Changes in tax laws, applicable tax rates and market
factors affecting expected future revenue and operating expenses
may impact the future profitability and actual outcome may differ
from the estimates and judgements made which could result in part
of the deferred tax asset to remain unutilized. After consideration
of all the information available, including its historical
operating losses over the last three years, management believes
that sufficient uncertainty exists with respect to future
realization of deferred tax assets and therefore has established a
full valuation allowance. The Company expects to continue to
maintain a full valuation allowance until it can sustain a level of
profitability that demonstrates its ability to realize these
assets.
Impairment of Long-lived Assets
Vessels, intangible assets and other long-lived assets are carried
at cost less accumulated depreciation and impairment (if
applicable). We estimate the useful lives and salvage values of our
assets based on historical data of similar assets. Our long-lived
assets could become impaired if our operating plans or business
environment changes. We review our long-lived assets, including
definite-lived intangible and right-of-use assets, for impairment
when events or changes in circumstances indicate that their net
book value may not be recovered over their remaining service lives.
Indicators of possible impairment may include significant declines
in activity levels in regions where specific assets or groups of
assets are located, extended periods of idle use, declining revenue
or cash flow, business obsolescence, asset damage, or overall
changes in general market conditions. Whenever possible impairment
is indicated, we do a recovery analysis comparing the carrying
value of the assets or asset group to the sum of the estimated
undiscounted future cash flows expected from use, plus salvage
value, less the costs of the subsequent disposition of the assets.
If impairment is still indicated, we compare the fair value of the
assets to their carrying amount, and recognize an impairment loss
for the amount by which the carrying value exceeds the fair
value.
|
|
|
|
|
|
ITEM 6. |
DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES |
A.Directors
and Senior Management
Set forth below are the names, ages and positions of our directors
and executive officers. Our Board of Directors is elected annually
on a staggered basis, and each director elected holds office for a
three-year term or until their successor shall
have been duly elected and qualified, except in the event of their
death, resignation, removal or the earlier termination of their
term of office. Our Class A directors will serve for a term
expiring at the 2023 annual meeting of shareholders, our Class B
directors will serve for a term expiring at the 2024 annual meeting
of shareholders, and our Class C directors will serve for a
term expiring at the 2022 annual meeting of shareholders. Officers
are elected from time to time by vote of our Board of Directors and
hold office until a successor is elected. The business address of
each of our directors and executive officers listed below is Eneti
Inc., 9, Boulevard Charles III, MC 98000 Monaco.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name |
|
Age |
|
Position |
Emanuele A. Lauro |
|
43 |
|
|
Chairman, Class A Director and Chief Executive Officer |
Robert Bugbee |
|
61 |
|
|
Class B Director and President |
Cameron Mackey |
|
53 |
|
|
Chief Operating Officer |
Filippo Lauro |
|
45 |
|
|
Vice President |
Hugh Baker |
|
54 |
|
|
Chief Financial Officer |
Monica Pahwa |
|
52 |
|
|
Secretary |
Einar Michael Steimler |
|
73 |
|
|
Class B Director |
Roberto Giorgi |
|
71 |
|
|
Class A Director |
Christian M. Gut |
|
42 |
|
|
Class C Director |
Thomas Ostrander |
|
71 |
|
|
Class A Director |
James B. Nish |
|
63 |
|
|
Class C Director |
Berit Ledel Henriksen
|
|
68 |
|
|
Class B Director |
Peter Niklai |
|
48 |
|
|
Class C Director |
Hiroshi Tachigami |
|
52 |
|
|
Class A Director |
On February 25, 2022, Ms. Fan Yang resigned as Secretary of the
Company. On March 28, 2022, Ms. Monica Pahwa was appointed as
Secretary of the Company.
Pursuant to the Shareholders Agreement discussed below under
“Arrangement or Understanding with Major Shareholders”, on August
12, 2021, we increased the size of our Board from eight to ten
members, and to fill the newly created vacancies, appointed Peter
Niklai and Hiroshi Tachigami to serve as Class C and Class A
Directors respectively, effective as of the same date. Our Board
has determined that Mr. Niklai and Mr. Tachigami are “independent
directors” as such term is defined under the Securities Exchange
Act of 1934, as amended, and the New York Stock Exchange Listing
Manual.
Biographical information concerning the directors and executive
officers listed above is set forth below.
Emanuele A. Lauro, Chairman and
Chief Executive Officer
Emanuele Lauro joined the Scorpio group of companies in 2003 and
has continued to serve there in a senior management position since
2004. He is the founder, Chairman and Chief Executive Officer of
Scorpio Tankers since its initial public offering in April 2010.
Mr. Emanuele Lauro also founded and serves as Chairman and Chief
Executive Officer of the Company, which was formed in 2013. Over
the course of the last several years, he has founded and developed
several ventures such as the Scorpio Pools, which became a leading
ship manager of more than 250 vessels in the international markets.
Mr. Emanuele Lauro also founded Scorpio Logistics, which owns and
operates specialized assets engaged in the transshipment of dry
cargo commodities and invests in coastal transportation and port
infrastructure developments in Asia and Africa since 2007. He is
the President of the Monaco Chamber of Shipping and is also a
member of the Advisory Board of Fordham University. Mr. Emanuele
Lauro served as director of the Standard Protection and Indemnity
Club from 2013 to 2019, and as director and Chief Executive Officer
of Hermitage Offshore Services Ltd. (OTC: HOFSQ) between 2018 and
2021. He has a degree in international business from the European
Business School, London. Mr. Emanuele Lauro is the brother of our
Vice President, Mr. Filippo Lauro.
Robert Bugbee, President
and Director
Robert Bugbee, the Company’s co-founder, has served as a Class B
Director since April 2013 and as President since July 2013. He has
more than 36 years of experience in the shipping industry. Mr.
Bugbee has also served as President and Director of Scorpio Tankers
since its initial public offering in April 2010 and of Hermitage
Offshore Services Ltd. between
December 2018 and June 2021. He joined Scorpio in March 2009 and
has continued to serve there in a senior management position. Prior
to joining Scorpio, Mr. Bugbee was a partner at Ospraie Management
LLP between 2007 and 2008, a company which advises and invests in
commodities and basic industries. From 1995 to 2007, he was
employed at OMI Corporation, or OMI, a NYSE-listed tanker company
sold in 2007. While at OMI, Mr. Bugbee served as President from
January 2002 until the sale of the company, and before that served
as Executive Vice President since January 2001, Chief Operating
Officer since March 2000 and Senior Vice President from August 1995
to June 1998. Prior to this, he was employed by Gotaas-Larsen
Shipping Corporation since 1984. During this time, Mr. Bugbee took
a two year sabbatical from 1987 for the M.I.B. Program at the
Norwegian School for Economics and Business Administration in
Bergen. He has a B.A. (Honors) from London University.
Cameron Mackey, Chief
Operating Officer
Cameron Mackey has served as the Company’s Chief Operating Officer
since July 2013. Mr. Mackey has also served as Chief Operating
Officer of Scorpio Tankers, since its initial public offering in
April 2010 and as a Director since May 2013, and as Chief Operating
Officer of Hermitage Offshore Services Ltd. between December 2018
and June 2021 and as a director since July 2019. He joined Scorpio
in March 2009, where he continues to serve in a senior management
position. Prior to joining Scorpio, Mr. Mackey was an equity and
commodity analyst at Ospraie Management LLC from 2007 to 2008.
Prior to that, he was Senior Vice President of OMI Marine Services
LLC from 2004 to 2007, where he was also in Business Development
from 2002 to 2004. Mr. Mackey has been employed in the shipping
industry since 1994 and, earlier in his career, was employed in
unlicensed and licensed positions in the merchant navy, primarily
on tankers in the international fleet of Mobil Oil Corporation,
where he held the qualification of Master Mariner. He has an M.B.A.
from the Sloan School of Management at the Massachusetts Institute
of Technology, a B.S. from the Massachusetts Maritime Academy and a
B.A. from Princeton University.
Filippo Lauro,
Vice President
Filippo Lauro has served as an executive officer of the Company
with the title of Vice President since June 2016. He has also
served as Vice President of Scorpio Tankers since May 2015, and of
Hermitage Offshore Services Ltd. between December 2018 and June
2021. Mr. Filippo Lauro joined Scorpio in 2010 and has continued to
serve there in a senior management position. Prior to joining
Scorpio, he was the founder of and held senior executive roles in
several private companies, primarily active in real estate, golf
courses and resorts development. Mr. Filippo Lauro is the brother
of our Chairman and Chief Executive Officer, Mr. Emanuele
Lauro.
Hugh Baker, Chief
Financial Officer
Hugh Baker has served as our Chief Financial Officer since July
2013. Mr. Baker has also been employed by Scorpio Tankers since
2012 focusing on business development and finance. For three years
before joining Scorpio, Mr. Baker was a Managing Director in the
investment banking team at Evercore Partners in New York,
concentrating on the shipping industry. Prior to Evercore, he was
the Head of Shipping at HSH Nordbank in New York and was previously
a Managing Director in the ship finance team at ING Bank in London.
Prior to banking, Mr. Baker worked in commercial roles for
Greek-owned shipping companies in London. Mr. Baker has a BA from
the London School of Economics and a MSc in Shipping, Trade &
Finance from Cass Business School. Mr. Baker is a Fellow of the
Institute of Chartered Shipbrokers.
Monica Pahwa,
Secretary
Ms. Monica Pahwa has served as our Secretary since March 2022. Ms.
Pahwa also serves as Secretary of Scorpio Tankers. Ms. Pahwa
started her career working with law firms and moved to becoming a
full time company secretary in 2002. Prior to joining the Company,
Ms. Pahwa headed the company secretarial functions of various
professional firms before moving in-house in 2011 to EMI Music. Ms.
Pahwa joined Clarion Events as Group Company Secretary in 2013
where she served on a range of global subsidiary boards. Ms. Pahwa
has a strong interest in sustainability and has completed a course
in Sustainable Business Strategy at Harvard Business
School.
Einar Michael Steimler, Director
Einar Michael Steimler has served as our Class B Director since the
closing of our initial public offering in December 2013 and is our
lead independent director. Mr. Steimler has also served as a
director of DHT Holdings Inc. (NYSE:DHT), where he is also the
Chairman of the Nominating and Corporate Governance Committee and a
member of the Compensation Committee. Mr. Steimler has over 48
years of experience in the shipping industry. In 2000, he was
instrumental in the formation of Tanker (UK) Agencies, the
commercial agent to Tankers International. He served as its Chief
Executive Officer
until the end of 2007, and subsequently as its Chairman until 2011.
From 1998 to 2010, Mr. Steimler served as a Director of Euronav NV
(EURN:EN Brussels). He has been involved in both sale and purchase
and chartering brokerage in the tanker, gas and chemical sectors
and was a founder of Stemoco, a Norwegian ship brokerage firm. He
graduated from the Norwegian School of Business Management in 1973
with a degree in Economics.
Roberto Giorgi, Director
Roberto Giorgi has served as a Class A Director of the Company
since the closing of its initial public offering in December 2013.
In addition, Mr. Giorgi has served as Chairman of Fraser Yachts’
Advisory Committee since January 2020, where he also served as
Chairman between September 2014 and December 2019, and as a
committee member of Skuld P&I Club between 2013 and 2021. He is
also an independent director of the Société d’Exploitation des
Ports de Monaco, which provides commercial and technical management
to the ports of the principality of Monaco. From 2014 to 2015, Mr.
Giorgi served as Honorary President and member of the Group
Executive of V.Ships, the world’s largest ship management company.
From 1988 to 2014, he held various roles within V.Ships, including
President of V.Ships Ship Management, Managing Director of V.Ships
New York, head of V.Ships Leisure in the cruise sector, and head of
V.Ship’s ship management operation from its Monaco office. From
2008 to 2010, Mr. Giorgi also served as President of InterManager,
the international trade association for third-party and in-house
ship managers, whose members between them are responsible for
approximately 3,700 ships and more than 200,000 crew members. Prior
to joining the V.Ships Group, he attended the San Giorgio Nautical
College in Genoa (1964 - 1969) and sailed from Deck Cadet to First
Officer with Navigazione Alta Italia, Italian Line and Sitmar
Cruises. Before joining the merchant marine, he spent one year
(1970/71) in the Naval Academy of Leghorn and sailed with the
Italian Navy as Lieutenant.
Christian
M. Gut, Director
Christian M. Gut has served as our Class C Director since the
closing of our initial public offering in December 2013. He is the
co-founder and co-manager of Luxembourg based Millennia SICAV-RAIF,
a consumer credit strategies specialist, and of its sub-fund P2P
Lending Fund launched in 2018. Mr. Gut started his professional
career at ThyssenKrupp Technologies AG (as it then was) in Essen,
Germany in 2002. He later joined Singapore based EABC Pte Ltd., or
EABC, in 2003 where he served as Director from 2006 to 2018. EABC’s
services comprised market intelligence and strategy, sales
promotion and support to project management in selected Asia
Pacific countries, principally Australia. Furthermore, Mr. Gut was
a co-founder and a former co-manager of the Stellar Energy Fund,
launched in Singapore in 2006, which invested in fossil and
renewable energy focused private companies in Asia, Middle East and
Europe with exposure on the following industries: oil trading and
bunkering, gas E&P, solar, geothermal and power generating heat
plants. Mr. Gut has a Bachelor’s degree in international business
from the European Business School in London.
Thomas Ostrander,
Director
Thomas Ostrander has served as our Class A director since January
2016. From 2013 to 2015, Mr. Ostrander served as Chief Financial
Officer of U.S. Alliance Paper Inc., a privately held business
involved in consumer tissue converting and marketing in the eastern
half of the United States. From 2011 to 2013, he served as a
Managing Director at GCA Savvian, a global investment bank. From
2006 to 2008, Mr. Ostrander served as a Managing Director and
Sector Head in the Industrial Group at Banc of America Securities.
From 1989 to 2006, he held various roles within Citigroup (legacy
Salomon Brothers), where he was most recently Chairman of the
Global Industrial Group for North America. Prior to that, he was
the Co-Head then Head of the Global Industrial Group for North
America and the Co-Head of the Global Industrial Group. From 1976
to 1989, he served in various roles, including as a Managing
Director, and he was a member of the board of directors of New York
based Kidder Peabody & Co., where he also was Co-Founder and
Co-Head of Equity Capital Markets. Furthermore, Mr. Ostrander was a
Director of Westmoreland Coal Company for over 12 years, where he
served as Chairman of the Corporate Governance Committee and was a
member of the Audit, Compensation and Benefits, Finance and
Nominating Committees. Mr. Ostrander has an MBA from Harvard
Business School and an AB from the University of Michigan in
Economics and Accounting.
James B. Nish,
Director
James B. Nish has served as our Class C director since January
2016. Mr. Nish has over 31 years of experience in investment
banking, serving clients across a variety of international
industrial markets. Since 2015, he has served as a board member and
Chairman of the Audit Committee of Gibraltar Industries, Inc.
(NASDAQ: ROCK), a manufacturer of products serving the renewable
energy, growing and processing, home improvement, and
infrastructure markets, and was also appointed as Chairman of its
Capital Structure and Asset Management Committee in 2018. Mr. Nish
has also served as a board member of Alert360, a private company
that provides security alarm monitoring and related home automation
services to subscribers in the United States, since 2014 and as
Chairman of the Audit Committee since 2020. From 2008 to 2012, he
was Group Head of
Middle Corporate Investment Banking at J.P. Morgan. From 1986 to
2008, Mr. Nish served as Co-Chairman of the Investment Banking
Commitment Committee and Group Head of the General Industries Group
of Bear Stearns & Co. Inc., where he organized and managed
investment banking coverage of a diversified group of industrial
companies. Mr. Nish is a Certified Public Accountant and Adjunct
Professor in both the Undergraduate Business School and MBA
Programs at Baruch College, Zicklin School of Business in New York
and at Pace University, Lubin School of Business in New York, where
he teaches a number of courses in both the Accounting and Finance
departments. Mr. Nish has an MBA from the Wharton School at the
University of Pennsylvania and a BS from the State University of
New York at Buffalo in Accounting and Business.
Berit Ledel Henriksen,
Director
Berit Ledel Henriksen has served as our Class B Director since
February 2019. Ms. Henriksen has extensive experience from the
banking and finance industries. She serves as a director of Ferd
Holding AS, a Norwegian investment company that manages a broad
portfolio of privately owned and Nordic listed companies.
Furthermore, Ms. Henriksen also serves on the board of directors of
three other privately held companies in Norway, and on the
Nomination Committees of Equinor ASA and Norsk Hydro ASA, two
Norwegian listed companies. She is also a member of Norsk Hydro
ASA’s Corporate Assembly. From 1985 to 2017, Ms. Henriksen held a
range of management positions at DNB, Norway’s largest financial
services group, where she focused on shipping, energy and other
international industries. Ms. Henriksen most recently served as
DNB’s Executive Vice President and Global Head of Energy (Power
& Renewables and Oil & Gas), and was Head of DNB Americas
in New York between 1998 and 2004. She also previously held various
other bank related board positions. Ms. Henriksen has an MBA from
the Ivey Business School at the University of Western Ontario, and
a BSc from the Dalhousie University in Halifax,
Canada.
Peter Niklai,
Director
Peter Niklai has served as our Class C Director since August 2021.
Mr. Niklai has 20 years of board experience across multiple
industries and regions. He joined INCJ (then known as Innovation
Network Corporation of Japan), an investment partnership between
the Government of Japan and over 20 major Japanese corporations, in
2012. Mr. Niklai joined JIC Capital, Ltd., a sister fund of INCJ,
in November 2020, following its establishment in September 2020,
and has since remained on secondment to INCJ, where he serves as a
Managing Director, responsible for investing in and overseeing the
governance of portfolio companies. He is a board member of Ambry
Genetics, a genetic testing company based in the United States. Mr.
Niklai’s other recent board experience includes Aguas Nuevas, a
Chilean water utilities provider, between 2018 and 2020, and AGS, a
water utilities provider operating in Portugal and Brazil, between
2017 and 2020, as well as Chaucer Foods, a freeze-dried food
products company based in the United Kingdom, between 2018 and
2020. Before joining INCJ in 2012, Mr. Niklai spent four years in
M&A, finance, and operations roles in the education sector at
Berlitz Corporation and Shane Corporation Japan. Earlier in his
career, he also worked at Credit Suisse Securities Japan in an
institutional sales/research role and as a management consultant at
IT Convergence and Ernst & Young Consulting Japan (currently
Qunie). Mr. Niklai holds an MBA degree from London Business School,
a Postgraduate degree in Economics from Nihon University, and an
Undergraduate degree in Economics and Management from Corvinus
University in Budapest.
Hiroshi Tachigami,
Director
Hiroshi Tachigami has served as our Class A Director since August
2021. Mr. Tachigami has 29 years of experience working for Marubeni
Corporation, a major Japanese integrated trading and investment
business conglomerate. He currently serves as a General Manager of
Marubeni’s Power Business Dept—III, which focuses on power
generation and renewable energy generation worldwide, and on the
board of a number of portfolio companies in the renewable energy
sector across principally the United States, South America and
Europe. Since joining Marubeni Corporation in 1992, Mr. Tachigami
has focused on investments in the power and energy sector. From
2017 to 2019, he was based in Singapore, serving as Executive Vice
President of Senoko Energy Pte. Ltd. and then as President and CEO
of Marubeni Asian Power Singapore Pte. Ltd., engaged in the
marketing and development of power projects in the Asia Pacific
region. Prior to this, between 2013 and 2017, Mr. Tachigami was the
President, and currently serves as a director, of Marubeni
Europower Ltd., focusing on the marketing and development of power
projects in Europe. Earlier in his career, he was based in New York
between 1997 and 2006, working on the marketing and development of
power projects in North America, Central America and South America
at Marubeni Power International, Inc. Mr. Tachigami has a
bachelor’s degree from the University of Tokyo and has participated
in Harvard Business School’s Program for Leadership
Development.
Arrangement or Understanding with Major Shareholders
In connection with the Seajacks Transaction, pursuant to the
Shareholders’ Agreement, dated as of August 12, 2021 (the
“Shareholders Agreement”), by and between Eneti Inc., Marubeni
Corporation (“Marubeni”), INCJ, Ltd. (“INCJ”), Mitsui
O.S.K. Lines, Ltd. (“MOL”), and Scorpio Services Holding Limited
(“SSH”), for a period of seven years commencing on the Completion
Date (as defined in the Shareholders Agreement), as long as each of
Marubeni and INCJ each beneficially own at least 2,500,000 common
shares of the Company, each of Marubeni and INCJ has the right to
designate one nominee for appointment or election to the Board of
the Company. Either Marubeni or INCJ (but not both) has the right
to transfer its right to designate one nominee for appointment or
election to the Board of the Company to MOL such that MOL, instead
of Marubeni or INCJ, will have the right to designate one nominee
for appointment or election to the Board.
Furthermore, for a period of seven years commencing at the
Completion Date, Marubeni, INCJ, MOL, and SSH have agreed to vote
their Common Shares in accordance with the recommendations of the
Board, or any committee thereof, with respect to the appointment of
any director recommended by the Board or any committee (including
the Marubeni and INCJ nominees to the Board); provided that the
number of directors related to SSH or any of its affiliates does
not exceed two directors at any given time. Additionally, each of
Marubeni, INCJ, and MOL have agreed to vote their Common Shares in
support of any increase in the authorized share capital of the
Company as recommended by the Board, including a majority of the
independent directors; provided that such shareholder is entitled
pursuant to the Shareholders Agreement to nominate at least one
director to the Board.
B.Compensation
Each of our non-employee directors receive cash compensation in the
aggregate amount of $60,000 annually, plus either (i) an additional
fee of $10,000 per year for each committee on which a director
serves or (ii) an additional fee of $20,000 per year for each
committee for which a director serves as Chairman. In addition, our
lead independent director receives an additional fee of $20,000 per
year. All actual expenses incurred while acting in their capacity
as a director are reimbursed. For each board or committee meeting
the non-employee director attends, the director receives $2,000.
There are no material post-employment benefits for our executive
officers or directors. By law, our employees in Monaco are
entitled to a one-time payment of up to two months’ salary upon
retirement if they meet certain minimum service requirements. For
the year ended December 31, 2021, we paid an aggregate compensation
to our directors and senior management of approximately $34.9
million, including approximately $30.0 million due to provisions in
the employment contracts triggered by the acquisition of Seajacks.
The Company was required to incur these costs at the time of the
transaction in order to avoid adverse U.S. tax consequences. The
U.S. senior executive officers receiving these payments have agreed
not to receive salaries for a period of three years and bonuses for
a period of four years.
Executive Officers
We have employment agreements with the majority of our executive
officers. These employment agreements remain in effect until
terminated in accordance with their terms upon no less than 24
months’ prior written notice. Pursuant to the terms of their
respective employment agreements, our executive officers are
prohibited from disclosing or unlawfully using any of our material
confidential information.
Upon a change in control of us, the annual bonus provided under the
employment agreement becomes a fixed bonus of between 150% and 250%
of the executive’s base salary, depending on the terms of the
employment agreement applicable to each executive.
Any such executive may be entitled to receive upon termination an
assurance bonus equal to such fixed bonus and an immediate lump-sum
payment in an amount equal to up to three times the sum of the
executive’s then current base salary and the assurance bonus. If an
executive’s employment is terminated for cause or voluntarily by
the employee, he shall not be entitled to any salary, benefits or
reimbursements beyond those accrued through the date of his
termination, unless he voluntarily terminated his employment in
connection with certain conditions. Those conditions include a
change in control combined with a significant geographic relocation
of his office, a material diminution of his duties and
responsibilities, and other conditions identified in the employment
agreement.
We believe that it is important to align the interests of our
directors and management with that of our shareholders. In this
regard, we have determined that it will generally be beneficial to
us and to our shareholders for our directors and management to have
a stake in our long-term performance. We expect a meaningful
component of our compensation package for our directors and
management to consist of equity interests in us in order to provide
them on an on-going basis with a meaningful percentage of ownership
in us.
Equity Incentive Plan
Our Board of Directors has adopted an equity incentive plan, which
we refer to as the Equity Incentive Plan, under which directors,
officers and employees of us and our subsidiaries, as well as
employees of affiliated companies are eligible to
receive incentive stock options and non-qualified stock options,
stock appreciation rights, restricted stock, restricted stock units
and unrestricted common shares. As of April 11, 2022, we had
reserved a total of 2,002,531 common shares, for issuance under the
Equity Incentive Plan, subject to adjustment for changes in
capitalization as provided in the Equity Incentive Plan. Our Equity
Incentive Plan is administered by our Compensation
Committee.
Under the terms of the Equity Incentive Plan, stock options and
stock appreciation rights granted under the Equity Incentive Plan
will have an exercise price equal to the fair market value of a
common share on the date of grant, unless otherwise determined by
the plan administrator, but in no event will the exercise price be
less than the fair market value of a common share on the date of
grant. Options and stock appreciation rights will be exercisable at
times and under conditions as determined by the plan administrator,
but in no event will they be exercisable later than ten years from
the date of grant.
The plan administrator may grant shares of restricted stock and
awards of restricted stock units subject to vesting, forfeiture and
other terms and conditions as determined by the plan
administrator.
Adjustments may be made to outstanding awards in the event of a
corporate transaction or change in capitalization or other
extraordinary event. In the event of a “change in control” (as
defined in the Equity Incentive Plan), unless otherwise provided by
the plan administrator in an award agreement, awards then
outstanding will become fully vested and exercisable in
full.
Our Board of Directors may amend or terminate the Equity Incentive
Plan and may amend outstanding awards, provided that no such
amendment or termination may be made that would materially impair
any rights, or materially increase any obligations, of a grantee
under an outstanding award. Shareholder approval of Equity
Incentive Plan amendments will be required under certain
circumstances. Unless terminated earlier by our Board of Directors,
the Equity Incentive Plan will expire ten years from the date the
Equity Incentive Plan is adopted.
On October 25, 2021, we granted 813,000 restricted shares with an
aggregate fair value of $13.4 million to our officers, employees
and SSH employees pursuant to the Equity Incentive Plan. These
awards will vest in three equal annual installments beginning on
October 2, 2023.
On October 8, 2021, we granted 45,000 restricted shares with an
aggregate fair value of $1.1 million to our independent directors
pursuant to the Equity Incentive Plan. These awards will vest in
three equal annual installments beginning on June 16,
2022.
On November 9, 2020, we granted 395,000 restricted shares with an
aggregate fair value of $5.2 million to our officers, employees and
SSH employees pursuant to the Equity Incentive Plan. These awards
will vest in three equal annual installments beginning on June 6,
2022.
On June 26, 2020, we granted 30,000 restricted shares with an
aggregate fair value of $0.5 million to our independent directors
pursuant to the Equity Incentive Plan. These awards will vest in
three equal annual installments beginning on June 16,
2021.
On July 22, 2019, we granted 109,070 restricted shares with an
aggregate fair value of $7.3 million to our officers, employees and
SSH employees pursuant to the Equity Incentive Plan. These awards
will vest in three equal annual installments beginning on May 24,
2021.
On June 5, 2019, we granted 18,000 restricted shares with an
aggregate fair value of $0.8 million to our independent directors
pursuant to the Equity Incentive Plan. These awards will vest in
three equal annual installments beginning on the first anniversary
of the date of grant.
Compensation cost is recognized on a straight-line basis over the
requisite service period for each separately vesting portion of the
award as if the award was, in-substance, multiple awards. Please
see Note 9,
Equity Incentive Plan,
to our Consolidated Financial Statements included herein for
additional information.
C.Board
Practices
Our Board of Directors currently consists of ten directors, eight
of whom have been determined by our Board of Directors to be
independent under the rules of the NYSE and the rules and
regulations of the SEC. Mr. Steimler is our lead independent
director. Our Board of Directors has an Audit Committee, a
Nominating and Corporate Governance Committee and a Compensation
Committee. Our Audit Committee is comprised of Messrs. Ostrander,
Nish and Giorgi. Our Nominating and Corporate Governance Committee
and our Compensation Committee are comprised of Messrs. Steimler,
Giorgi and Gut. The Audit Committee, which operates under a
charter, among other things, reviews our external financial
reporting, engages our external auditors and oversees our internal
audit activities, procedures and the adequacy of our internal
controls. In addition, provided that no member of the Audit
Committee has a material interest in such transaction, the Audit
Committee is responsible for reviewing transactions that we may
enter into in the future with other members of Scorpio that our
Board of Directors believes may present potential conflicts of
interests between us and Scorpio. The Nominating and Corporate
Governance Committee is responsible for recommending to the Board
of Directors nominees for director and directors for appointment to
board committees and advising the board with regard to corporate
governance practices. Our shareholders may also nominate directors
in accordance with procedures set forth in our bylaws. The
Compensation Committee oversees our equity incentive plan and
recommends director and senior employee compensation.
D.Employees
For the year ended December 31, 2021, we had 276 full time
equivalents (excluding our executive officers) and for the years
ended December 31, 2020 and 2019 we had seven full time equivalents
(excluding our executive officers).
Our executive officers are employed by us and our support staff is
provided by SSH pursuant to the Administrative Services Agreement.
Our technical manager, SSM, is responsible for identifying,
screening and recruiting, directly or through a crewing agent, the
officers and all other crew members for our vessels that are
employed by our vessel-owning subsidiaries.
E.Share
ownership
The common shares beneficially owned by our directors and our
executive officers are disclosed in “Item 7. Major Shareholders and
Related Party Transactions—A. Major Shareholders.”
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ITEM 7. |
MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS. |
A.Major
shareholders.
The following table sets forth information regarding beneficial
ownership of our common shares for (i) owners of more than five
percent of our common shares and (ii) our directors and executive
officers, of which we are aware as of April 11, 2022. All of our
shareholders, including the shareholders listed in the table below,
are entitled to one vote for each share of our common stock
held.
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Name |
|
No. of Shares |
|
|
% Owned
(1)
|
Scorpio Holdings Limited |
|
7,492,485 |
|
(2) |
|
|
18.9 |
% |
Marubeni Offshore Power Limited |
|
3,402,578 |
|
(3) |
|
|
8.6 |
% |
INCJ, Ltd. |
|
3,692,320 |
|
(3) |
|
|
9.3 |
% |
Directors and executive officers as a group |
|
2,453,740 |
|
|
|
6.2 |
% |
____________________
(1)Calculated
based on 39,741,204 common shares outstanding as of April 11,
2022.
(2)This
information is derived from a Schedule 13D/A filed with the SEC on
November 11, 2021 by Scorpio Holdings Limited, Scorpio Services
Holding Limited, and Ms. Annalisa Lolli-Ghetti. Ms. Annalisa
Lolli-Ghetti may be deemed to be the ultimate beneficial owner of
these shares by virtue of being the majority shareholder of Scorpio
Holdings Limited. Emanuele Lauro, our Chairman, Director and Chief
Executive Officer, Robert Bugbee, our Director and President, and
Cameron Mackey, our Chief Operating Officer, own 10%, 10% and 7% of
Scorpio Holdings Limited, respectively.
(3)This
information is derived from Schedule 13D/A filed with the SEC on
November 11, 2021.
As of April 11, 2022, we had 118 shareholders of record, 38 of
which were located in the United States and held an aggregate of
30,839,485 shares of our common stock, representing 77.6% of our
outstanding common shares. However, one of
the U.S. shareholders of record is Cede & Co., a nominee of The
Depository Trust Company, which held 30,329,442 shares of our
common stock, as of that date. Accordingly, we believe that the
shares held by Cede & Co. include common shares beneficially
owned by holders in the United States and non-U.S. beneficial
owners. We are not aware of any arrangements the operation of which
may at a subsequent date result in our change of
control.
B.Related
Party Transactions
Management of Our Fleet
Commercial and Technical Management Agreements - Master
Agreement
Our drybulk vessels have been commercially managed by SCM and
technically managed by SSM pursuant to the Master Agreement, which
may be terminated by either party upon 24 months’ notice, unless
terminated earlier in accordance with its terms. In the event of a
sale of one or more drybulk vessels, a notice period of three
months and a payment equal to three months of management fees will
apply, provided that the termination does not amount to a change of
control, including a sale of all or substantially all drybulk
vessels, in which case a payment equal to 24 months of management
fees will apply as was the case in the fourth quarter of 2020, when
the our Board of Directors authorized us, as part of our transition
to a sustainable future, to sell our remaining drybulk vessels and
exit the drybulk sector during 2021. This fee was considered as
part of our assessment of the fair value less cost to sell of our
remaining fleet, and is therefore included in the captions
"Loss/write down on assets held for sale-related party" in the
Consolidated Statements of Operations, and "Assets held for sale"
in the Consolidated Balance Sheet.
SCM’s commercial management services have included securing
employment for our drybulk vessels in the spot market or on time
charters. SCM has also managed the Scorpio Pools (spot
market-oriented vessel pools) including the Scorpio Ultramax Pool,
the Scorpio Kamsarmax Pool and the currently inactive Scorpio
Capesize Pool in which most of our owned, finance leased and time
chartered-in drybulk vessels were employed and from which a
significant portion of our revenue was generated. For commercial
management of any of our drybulk vessels that does not operate in
one of these pools, we paid SCM a daily fee of $300 per vessel,
plus a 1.75% commission on the gross revenues per charter fixture.
The Scorpio Ultramax Pool and Scorpio Kamsarmax Pool participants,
including us and third-party owners of similar vessels, paid SCM a
pool management fee of $300 per vessel per day, plus a 1.75%
commission on the gross revenues per charter fixture.
SSM’s technical management services have included providing
technical support, such as arranging the hiring of qualified
officers and crew, supervising the maintenance and performance of
drybulk vessels, purchasing supplies, spare parts and new
equipment, arranging and supervising drydocking and repairs, and
monitoring regulatory and classification society compliance and
customer standards. We paid SSM an annual fee of $160,000 plus
charges for certain itemized services per drybulk vessel to provide
technical management services for each of our owned or finance
leased drybulk vessels. In addition, representatives of SSM,
including certain subcontractors, previously provided us with
construction supervisory services while our drybulk vessels were
being constructed in shipyards. For these services, we compensated
SSM for its direct expenses, which varied between $200,000 and
$500,000 per vessel. Please see “Item 7. Major Shareholders and
Related Party Transactions—B. Related Party Transactions—Commercial
and Technical Management Agreements” for additional
information.
Technical Support Agreement
On October 20, 2021, we entered into a technical support agreement
with Scorpio Ship Management S.A.M. (“SSM”), a related party,
pursuant to which SSM provides technical advice and services to us
in connection with the construction of our newbuilding WTIV at
Daewoo. In consideration for these services, we paid SSM a fee of
$671,200, and thereafter, will pay a monthly fee in the amount of
$41,667.
Administrative Services Agreement
Effective September 21, 2021, we entered into the Amendment No. 1
to Administrative Services Agreement with SSH, a related party, for
the provision of administrative staff, office space and accounting,
legal compliance, financial and information technology services for
which we reimburse SSH for the direct and indirect expenses
incurred while providing such services. The services provided to us
by SSH may be sub-contracted to other entities.
In addition, SSH has agreed with us not to own any vessels engaged
in seabed preparation, transportation, installation, operation and
maintenance activities related to offshore wind turbines so long as
the Amended Administrative Services Agreement is in full force and
effect. The agreement may be terminated by either party providing
three (3) months’ notice.
Other Related Party Transactions
For the year ended December 31, 2021, we paid an aggregate $30.0
million to our senior management due to provisions in the
employment contracts triggered by the acquisition of Seajacks. The
Company was required to incur these costs at the time of the
transaction in order to avoid adverse U.S. tax consequences. The
U.S. senior executive officers receiving these payments have agreed
not to receive salaries for a period of three years and bonuses for
a period of four years.
During the year ended 2021, the Company transferred the existing
lease finance arrangements of the SBI Tango, SBI Echo, and SBI
Hermes, Ultramax bulk carriers, and SBI Rumba and SBI Samba,
Kamsarmax bulk carriers built in 2015, to affiliates of Scorpio
Holdings Limited (“SHL”) for consideration of $16
million.
During the year ended December 31, 2020, the Company time-chartered
out four Kamsarmax vessels to the Scorpio Kamsarmax Pool for a
period of 24-27 months at rates linked to the BPI. The related
income is recorded as Vessel Revenues in the Consolidated
Statements of Operations.
In October 2018, the Company invested $100.0 million in Scorpio
Tankers for approximately 54.1 million (which was subsequently
adjusted to 5.4 million shares after a one-for-ten reverse stock
split effected by Scorpio Tankers on January 18, 2019), or 10.9%
(as of October 12, 2018),
of Scorpio Tankers’ issued and outstanding common shares. The
investment was part of a larger $337.0 million equity raise by
Scorpio Tankers through a public offering of its common shares.
Scorpio Tankers is a large international shipping company
incorporated in the Republic of the Marshall Islands engaged in
seaborne transportation of refined petroleum products.
The Company and Scorpio Tankers have a number of common
shareholders. They also share a number of
directors and officers, including Mr. Emanuele Lauro who serves as
the Chairman and Chief Executive Officer of both companies, Mr.
Robert Bugbee, who serves as President and a Director of both
companies, Mr. Cameron Mackey, who serves as Chief Operating
Officer of both companies, and Mr. Filippo Lauro, who serves as
Vice President of both companies. In October 2019, the Company’s
Board of Directors declared a one-time special stock dividend to
the shareholders of the Company of an aggregate of approximately
one million shares of common stock of Scorpio Tankers. Following
the payment of the special dividend, the Company continued to own
approximately 4.4 million common shares of Scorpio Tankers. In May
2020, the Company sold 2.25 million shares of Scorpio Tankers for
aggregate net proceeds of approximately $42.7 million. The Company
continues to own approximately 2.16 million common shares of
Scorpio Tankers. There are no other significant transactions
between the Company and Scorpio Tankers.
Representatives of SSM, including certain
subcontractors, provide supervisory services during drydocking of
our drybulk vessels, for which they were compensated.
The fees of certain consultants and the salaries of certain SUK
employees are allocated to us for services performed for
us.
We paid a related party port agent for
supply and logistical services for our drybulk vessels, which are
charged as vessel operating costs.
We paid a related bunker supplier for bunkers used by our drybulk
vessels, which were charged as voyage expenses.
We pay a related party travel service
provider for travel services, such as flights, which are charged as
general and administrative services.
As part of the Seajacks transaction, we issued subordinated
redeemable notes totaling $70.7 million, with a final maturity of
March 31, 2023 and which bear interest at 5.5% until December 31,
2021 and 8.0% afterwards, to the former owners of Seajacks, who, in
the aggregate, currently hold approximately 8.2 million common
shares of the Company.
The Company also assumed $87.7 million of subordinated,
non-amortizing debt due in September 2022 and owed to financial
institutions with guarantees provided by the former owners of
Seajacks to whom the Company paid a fee of 0.3% of the outstanding
balance through November 2021 and 5.0% afterwards.
Please see Note 16,
Related Party Transactions,
to our consolidated financial statements for additional information
about our related party transactions.
Related Party Balances
For the years ended December 31, 2021, 2020 and 2019, we had
the following transactions with related parties, which have been
included in the Consolidated Statements of Operations (amounts in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31, |
|
2021 |
|
2020 |
|
2019 |
Vessel revenue |
|
|
|
|
|
Scorpio Kamsarmax Pool |
$ |
10,754 |
|
|
$ |
48,930 |
|
|
$ |
69,368 |
|
Scorpio Ultramax Pool |
5,638 |
|
|
81,683 |
|
|
133,655 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total vessel revenue |
|