A decision by Norway’s former left-center government to invest in offshore firm Aker Solutions, controlled by Labour Party supporter and industrialist Kjell Inge Røkke, has ultimately led to losses. On Friday, Aker Solutions revealed what many had feared for years: Heavy write-downs tied to its troubled unit Aker Oilfield Services that will likely result in a quarterly loss of around NOK 1.3 billion.
Aker executives chose a hot Friday in the middle of July to break the news, and Aker Solutions’ share price slipped. The Norwegian state owns a 12 percent stake in Aker Solutions after buying into a company that took over what some analysts at the time referred to as “Røkke’s garbage.”
Aker Solutions revealed Friday, in a message to the Oslo Stock Exchange, that it had decided to write down the value of the unit holding the so-called “garbage,” Aker Oilfield Services, by a total of NOK 1.6 billion (USD 266 million). The write-downs are being taken in connection with the process of dividing up Aker Solutions into two separate units.
De-merger plans call for a “new Aker Solutions” to consist from September of the company’s subsea, umbilicals, engineering, and “mmos” (maintenance, modifications and operations). Other operations including drilling technologies, Aker Oilfield Services, process systems, business systems, some financial assets and real estate will remain in the existing Aker Solutions, which will change its name to Akastor ASA to form the Akastor Group, described as an investment company. The restructuring is subject to shareholder approval at an extraordinary meeting set for August 12.
It’s the Aker Oilfield Services unit that’s causing write-downs and looming losses for Aker Solutions and its shareholders including the state, since Norway’s Ministry of Industry and Trade (Næringsdepartementet) ranks as one of Aker Solutions’ biggest shareholders. The former Labour government had agreed, in a hotly contested move at the time, to invest in Aker Solutions back in 2007, in an effort to preserve jobs. When Røkke’s Aker concern later sold Aker Oilfield Services to Aker Solutions in 2009, he was widely accused by investors and analysts of transferring risk tied to Aker Oilfield Services to both Aker Solutions and the state as a major shareholder. Labour’s trade minister in 2009, Sylvia Brustad, was furious but ultimately backed down. She now works for Røkke.
Aker Solutions’ purchase five years ago of the Aker Oilfield Services unit from Røkke’s Aker concern remained controversial. Newspaper Dagens Næringsliv (DN), among others, has reported on how analysts criticized Aker Solutions’ purchase, allegedly under pressure from company patriarch Røkke, because it forced the stocklisted Aker Solutions to take on “enormous” investment obligations.
Among them were the troubled offshore vessels Skandi Aker and Aker Wayfarer, the sinking values of which are reflected in the heavy writedowns revealed Friday. French oil company Total cancelled a contract for the Skandi Aker in June, and Aker Solutions stated in its advisory Friday that the write-downs were tied partly to Total’s contract cancellation and party because of a generally weaker market outlook. DN noted that Aker Oilfield Services has financed equipment on board the vessel, which is owned by stocklisted Dof and chartered out to Aker Oilfield Services.
The vessel’s value is now being written down by NOK 664 million. The Aker Wayfarer’s value is being cut by NOK 662 million. Aker Solutions admitted in its message to the stock exchange Friday that some of the earlier investments in the vessels now have little or no value based on the company’s revised business plan and market prospects. Another NOK 306 million is being written down tied to the goodwill value of Aker Solutions’ Oilfield Services and Marine Assets (OMA), to which Aker Oilfield Services belongs. Aker Oilfield Services also has the Skandi Santos in its fleet and another project on the drawing board.
The after-tax hit on earnings is expected to be around NOK 1.3 billion, Aker Solutions warned on Friday. The actual losses will be taken in current Aker Solutions’ second-quarter results due to be released July 17, before the looming de-merger.
Oslo-based Aker Solutions, which currently employs around 28,000 people worldwide, claimed in its announcement that the “impairments” (write-downs) will not have any effect on “the new Aker Solutions” since Aker Oilfield Services’ troubled assets will be placed in the new Akastor.
“There will be no cash effect, no adverse impact on future funding … and no consequences for the separation of Aker Solutions,” the company claimed. The announcement also noted, though, that 35.2 percent of the share capital in the current Aker Solutions will be transferred to Akastor while 64.8 percent will be handed over to the new Aker Solutions. Aker Solutions shareholders will have the right to swap each share for one share in the new Aker Solutions, and keep their shares tied to the share capital to be transferred to Akastor. It will have fewer assets and less risk, while the price of shares in the current Aker Solutions fell nearly 1 percent on Friday.