Time to Invest in Shaky Oil Companies?

Current low oil prices could lead to increased acquisition of distressed offshore companies by offshore investors, shipping and offshore specialist law firm Wikborg Rein reports.

“The prolonged period of low oil prices, combined with reduced investment and contract awards, is taking its toll on oil service companies in the North Sea and elsewhere. For some, this may be a time of opportunity when bargains can be had, generating attractive rewards for cash-rich investors. But it is important to be aware of the risks involved in trying to acquire distressed businesses.

“These days, oil service companies may be in varying stages of distress, ranging from a negative cashflow situation through to default, with a formal court-appointed debt restructuring or bankruptcy process in place. Time is of the essence as the distressed business either has an immediate need for assistance and funding or has already defaulted on its obligations,” Birgitte Karlsen, a partner in the London offices of Wikborg Rein, said.

“If the target company is not listed, the buyer will have significant flexibility as to how to approach and structure an acquisition. The acquisition may include both debt and equity, and new equity may be used to buy back debt at a discount. Good planning and an understanding of the stakeholders’ position, as well as the dynamics of the market, are essential,” Finn Bjørnstad, a partner in Wikborg Rein’s Oslo offices, said.

“Experience shows that the legal implications in many jurisdictions are less predictable and more complicated than expected. Buyers should seek expert legal advice in preparing an effective acquisition strategy with as few surprises as possible,” Bjørnstad added.

“There is currently a definite upside to buying distressed businesses in the offshore sector which the right buyers may be able to exploit, provided they are fully aware of the risks involved before entering into negotiations,” Karlsen said.

Wikborg Rein’s services to the maritime industry include ship, project and lease finance, corporate, contract negotiation, offshore and construction projects, sale and purchase, ship registration, insurance, casualty response, carriage of goods, ship arrest and international dispute resolution.