TEK-Ocean upgrades vessel for multi-billion-dollar offshore energy projects

Having only recently made its ASX debut, TEK-Ocean Group (ASX: T3K) has already applied raised funds to important upgrades for its flagship vessel to complete work for the multi-billion-dollar offshore energy sector.

The integrated services provider is involved in two massive projects in Victoria’s offshore Gippsland Basin – the $12 billion Star of the South offshore wind farm and a $48 billion oil well remediation program.

The company has operated for more than 13 years before listing on the ASX this September after raising $6.6 million through its initial public offering (IPO).

Its aim for listing was to raise funds for vessel upgrades and capital equipment purchases to pursue opportunities in the lucrative decommissioning and renewables markets.

In its recent September quarterly, the company reported the successful installation of a new 60-tonne working capacity crane on its vessel TEK-Ocean Spirit to assist with offshore decommissioning activities and other future marine opportunities. It also recently completed a five-year recertification of the vessel.

“The completion of TEK-Ocean Spirit’s five-year vessel recertification and the installation of a new vessel-mounted offshore crane will place us in an attractive position to address, and tender for identified market opportunities particularly those requiring our heave compensated crane and stable vessel,” TEK-Ocean chairman Brendan Brown said.

“We have several new opportunities in various stages of negotiation, which we anticipate should set us up for a busy coming six to twelve months,” he added.

The vessel will initially be utilised for new work with existing clients in the Bass Strait during November and December, as well as a recently announced installation contract with Subcon Blue Solutions for an artificial reef project.

“The timing of the upgrades has allowed for a successful, safe and efficient execution model for the artificial reef project for which we are proud to be playing an important part, enhancing the local communities, environment and creating and sustaining local jobs,” Mr Brown said.

Offshore Electricity Infrastructure Bill 2021

Coincidentally on the day of TEK-Ocean’s ASX debut, the Offshore Electricity Infrastructure Bill 2021 was introduced into Australian parliament. The Bill intends to regulate the construction, commissioning/decommissioning, operation and maintenance of offshore electricity infrastructure projects.

If passed, the Bill is expected to provide regulatory certainty and approvals pathways necessary to facilitate investment in Australia’s offshore renewables sector, with billions of dollars anticipated to be invested particularly in offshore wind projects.

One of 12 significant offshore renewable projects expected to proceed if this Bill passes is the 2.2-gigawatt Star of the South offshore wind farm proposed off the Victorian coast.

The project is backed by Copenhagen Infrastructure Partners (CIP), one of the world’s largest green energy funds, and plans to supply up to 20% of Victoria’s electricity needs (about 1.2 million homes). It is expected to be Australia’s first and one of the largest proposed wind farms in the Southern Hemisphere.

Work in the offshore Gippsland Basin

The Star of the South project involves the construction of wind turbines to be installed about 7-25km (spaced apart) off Victoria’s south coast and a transmission network of cables and substations to connect the wind farm to an onshore grid connection point at Latrobe Valley.

TEK-Ocean has been involved in the project since 2019 and expects its role to grow as the company is a preferred tender and claims its TEK-Ocean Spirit is the only vessel capable of doing much of the offshore work.

According to the company, the wind turbines proposed for the project are three times bigger than onshore turbines and it expects to be working on the project for the next decade.

In addition, TEK-Ocean has another decade-long project ahead of it in the form of a $48 billion oil well remediation program. This involves a government legislated clean up of 150 old oil wellheads on the seabed in the Gippsland Basin.

Multi-billion-dollar target market

According to the company, an estimated US$40 billion of decommissioning work is forecast to be required on Australian offshore oil and gas infrastructure over the next 30 years, driven by aging assets and heightened regulations.

In addition, the market for offshore wind energy projects is predicted to increase “tenfold from 2018 to 2030 and over fortyfold in 2050”.

The offshore renewable energy market requires substantially similar support services as offshore oil and gas, another of TEK-Ocean’s key markets.

Established business in the energy sector

TEK-Ocean provides integrated services for the offshore energy sector from project feasibility, design, manufacturing, construction, equipment supply, logistics, delivery, field life support and into the growing decommissioning and rehabilitation phase.

Revenue has grown consistently over the decade to a healthy $22.7 million in FY2020, gross profit of $15.3 million and adjusted EBITDA of $4.6 million, indicating the business is performing profitably and well leveraged to the high margins associated with the wind farm and remediation opportunities ahead.

It has its head office, supply base facility and marine terminal stationed in Victoria and a machine shop in Perth, Western Australia.

The company services many leading energy companies such as Chevron, Schlumberger, ExxonMobil, BHP (ASX: BHP), Inpex, Cooper Energy (ASX: COE), Beach Energy (ASX: BPT), Woodside (ASX: WPL) and Baker Hughes.

Its offering includes marine services; logistics and shore-based services; subsea, engineering and project management; and specialist oilfield services including machine shop, workshop and aftermarket service.

COVID-19 challenges

The last two financial years saw revenue steady at around $22 million – down from FY2019’s $28 million but 10% higher than FY2018’s $20 million revenue. The company has attributed the revenue dip to the global pandemic but notes a full pipeline of work for 2021-2022 will see its recently upgraded vessel in high demand.

In its annual report, Mr Brown noted COVID-19’s material impact on activity and investment in the offshore energy project arena.

“The company continued to rise to these challenges as evidenced by successfully completing the Sea-Horse/Tarwhine (SHATWA) decommissioning project in the Bass Strait during the first half of the financial year, ahead of schedule and within budget,” he said.

“This was the Gippsland Basin’s second major decommissioning subsea project following TEK-Ocean’s successful completion of the Blackback decommissioning project in 2019.”

The company also started a long-term logistical and shore-based operations engagement in support of a client’s offshore expansion campaign.

“We look forward to offering our experience and expertise in this logistics space to other Australasian clients contemplating future offshore activity,” Mr Brown said.