Description

Northern Ocean, which owns 2 ultra-deepwater, harsh environment semi-submersible rigs (Bollsta and Mira), will exhibit a spectacular turnaround in free-cash flow, as it goes from zero fleet utilization in Q3 2022 to 100% in Q3 2023. By Q3 2023 its annualized FCF should be around  106 USDm or a FCF yield of 52%!

The current share price of around 11NOK is substantially below the June 2022 level of 16 NOK, as NOL tapped the market in August and December with two cap hikes, (NOK 12.6 and NOK 9.5 respectively, current EV of around 600 USDm is nevertheless slightly below the June 2022 level) increasing the float by 74m shares to 182m. Thereby NOL is now sufficiently funded to mobilize its two rigs. 

Since mid December2022 the 12m+ 6m options of Bollsta with Shell has commenced and in mid Q2 2023 Mira is expected to commence its 300d fix +180d+90d optional for Total in West Africa (firm USD 135m excluding bonus, options and de-mobilization). Thus Q1 2023 will show a 50% fleet utilization and Q3 will be another step change will 100% fleet utilization. 

While by Q3 the cash flow strength should become apparent, the offshore cycle is likely to continue, as declining shale productivity removes the force that killed the offshore market in 2014.

Spare capacity in the oil industry has declined and offshore is very profitable at current prices.

On the other hand, the supply of semis is declining.

Leading to increasing dayrates