Tidewater Inc. (TDW) Earnings Call Transcript & Summary

All right. Good afternoon, everyone. My name is Brian Weber, and thank you for joining us today. Obviously, there's a lot going on, so I appreciate it -- we all appreciate you being here. I'm joined alongside Bob Robotti, CIO of Robotti & Company; Larry Rigdon, Chairman of the Board of Tidewater; and CEO, Quintin Kneen, the CEO of Tidewater. And so just a reminder that this presentation is for informational purposes only and should not be construed as a solicitation. Some of the information was thus obtained from third-party sources. And while considered factual, we offer no guarantees of its accuracy. Investing in securities includes risks, including loss of capital, obviously the generic -- basic [indiscernible]. Also, Robotti & Company owns 5% of the shares outstanding of Tidewater. If you have any questions throughout this, just either message me through the chat or you can also e-mail [email protected]. We're checking both frequently. And with that, I will turn it over to Bob Robotti.

Thank you, Brian. Thank you all for joining us today. I want to remind everybody to have your iPads on mute. So therefore, later on, we'll open it up, and you'll have opportunity to ask questions. So I kind of want to start off by saying, I went back through my e-mails that I had and I looked at March and how the world changes, right? And so at the beginning of March, I sent an e-mail to Jason and Quintin said, "Okay. So based on 2019 results and based on the things that you're seeing for 2020, [indiscernible] cash would be $100 million after -- it's before the sale of assets. So of course, the world changed quickly. It was already changing the beginning of that month. But it does, I think, indicate the potential earnings power of the business, and that's a key element. And I also want to give a bigger, longer-term time horizon, right, because we're all stuck in the current situation, and we think that, that's the new norm. And I don't think it is the new norm. This is an interesting industry. I've invested in it for 40 years, and I think that the opportunity today provided by the Tidewater shares is significant, obviously. I own over 5% of the company and have -- eating my own cooking, and my money's invested in that position. So we're really fortunate to have with us Quintin and Larry. Last year, we were there in person together, we could all get together. I guess this opportunity here people can more easily get to the meeting. It didn't take us much time for transit for them to come from Houston to New York, but we offset -- we don't get to see each other in person and see the -- when Quintin squints and when Larry flinches when Quintin says something, say oh, that was an interesting comment. Anyway, with that, I want to turn it over to Quintin. Thanks so much for being here.

Well, Bob, first of all, thank you for hosting. It's great to get these opportunities to meet with you and your shareholders. We always want to make sure that we're accessible to our shareholder group. As demonstrated by having Larry on with me, my Board is also willing to participate in these exercises. So look forward to the questions, and I look forward to talking about Tidewater.

Great. Thanks. Can you, I guess, maybe just start with a quick -- like where are we today and kind of what do you think -- what does 2020 look like? And more importantly, what are the next couple of years like? What's the opportunity of Tidewater today? And what do you see in front of you?

Well, it's certainly been a challenging year in 2020. And as you illustrated, when we first began thinking about 2020, we were very optimistic that we were getting into a point where we were going to be able to push day rates much higher than they had been in the past 5 years. And in fact, I saw real tangible evidence in the monthly numbers in the fourth quarter of '19 and even in the first quarter of '20 where month-over-month, utilization numbers and day rates were starting to increase. And then it was getting fun. And as you pointed out, there's so much operating leverage in this company. Once the boats are accrued, any additional day rate drops right to the bottom line. And there's certainly some incremental taxes here or there, but for the most part, there's a significant amount of operating leverage in this business. And so we were getting into that momentum of continuing improvement month-over-month and really in every region of the world. Now obviously, no one planned on the pandemic, and we had to readjust our formula in the second quarter to figure out again how are we going to deal with the pandemic and how are we going to reset our business. My sense is that the worst of the pandemic pullback is behind us from pure demand activity. In fact, I will tell you that I see increasing tender activity week-over-week over the past month. And the outlook, in my mind, for the second half of '21 is beginning to feel really good. I don't think we're going to be back at that same point that I talked about in the end of 2009 (sic) [ 2019 ], beginning of '20 until we get into the latter part of '21, maybe the first part of '22. But the increase in activity via tender activity gives me confidence that the worst of this pandemic pullback is behind us. Now that's the demand side. But what happens, and even for us, I mean, I've got 17 boats on the sideline right now that are ready to go. And I'm not the only one. I've got other people with boats ready to go. So even though the -- I see demand increasing, there's a bunch of boats on the sideline that are going to be impacting day rates over the, call it, next 6 to 9 months as we kind of push through this oversupply, the shadow of oversupply. And then as we get into '22, I think we're going to see some nice improvements. So that's a quick snapshot of how I see supply and demand today.

Good. Could you actually go a little bit to supply? And what do you see? It's only been 1 year. Has there been any decrement in terms of supply given last year? I imagine had probably some impact on vessels that weren't working, the likelihood of them coming back to work. But as you say, there's this new supply availability that's relatively ready to go that will take really little cost and be easy to bring back into the market that needs to be absorbed before supply/demand really does start to potentially balance out and there's ability to raise rates.

Yes. Absolutely. So I see that the boats that didn't go back to work before this pandemic hit us in the second quarter of last year are probably never going back to work. And I'm starting to see more indications that other operators around the world are beginning to either abandon their vessels or scrap them entirely. There's a bit of a struggle on the scrap side just because the value from scrapping vessels is very low. There's a propensity for people to just to abandon their vessels as opposed to truly scrap them. So when you do vessel counts globally through vessel registration services or companies like IHS or otherwise, you start to -- you don't really see the decrease in vessel count that you might expect. But what I'm hearing from all of our major competitors is that people, once they get their restructurings behind them, are first taking a whack at their idle fleet. So we're starting to see even some of the U.S. competitors have recently come out of a bankruptcy focus on getting their idle boats scrapped. And so maybe 18% to 20% of the boats out there today are greater than 20 years old, okay? And that's a slight improvement from where we were maybe 2 or 3 years ago, and I see that beginning to tighten up as we go to '22. Right now, any boat that I have that's over 20 years old, I struggle to put to work, quite frankly. And so -- and I've been scrapping most of the boats really over 15 years of age or getting rid of them, getting them out of the industry one way or the other. I'm starting to see others follow suit. You saw Bourbon do some sales and some auctions. They've also announced that they've got 100 other vessels that they want to dispose of. I'm hearing the same rumblings as some of the companies in the North Sea and in the U.S. So we may see the scrap activity increase as we go through '21. But the real shadow oversupply are those boats that have just recently gone on hire as opposed to all the boats that are still on the rolls of vessel registries around the world.

So do you disclose that? Do you specifically say what's the cost of the vessels that you have out of service tied up? How much -- because that's a component of costs that are out there that has nothing to do with contributing in terms of the active fleet. And somehow, it seems to me by delineating that, maybe you push everybody else in the industry to delineate how much money are they spending to keep around the optionality that's becoming less and less optional.

Yes, we do. We talked about it on the calls. And I don't think, in the past, we've separately identified it as a line item on the P&L, but we talk about it because it's a significant amount. Now in years like '20, it's even more significant because what ends up happening is when your fleet gets reshuffled, like you do when, call it, 25% of your boats go off hire, you got this frictional unemployment where you're taking your boats, you're moving them to a layup location. In the sense of the pandemic, we couldn't get people off the boats, right? And so it's still -- you still have cost that you're incurring because you can't get people off the boat. And so once that logistical infrastructure settles down -- or gets back to normal, rather, or the difficulty's settled down and the boats are in their layup position, we should see that number come down substantially. When we think about the cost per day of a boat in layup, we're trying to get it into that $400-a-day range. In certain times during 2020, it was averaging over $1,000 a day, okay? And now that is the frictional unemployment piece. And so once that normalizes out, you're getting down to a number that's $400 a day. But even at $400 a day, you're looking at $6 million to $12 million a year, depending on how much you got in layup, of cost that you're just burning, hoping that option premium that you're paying on keeping that boat is going to pay off. And the reality is, I think the economics have shown for the past 5 to 6 years, it doesn't pay off for the older boats. And so people are starting to see that math, and they're starting to realize that, okay, maybe it's time to throw in the towel on these vessels and eventually get them into the breaker yards. One other dynamic that we've seen in 2020 is -- because we've been in a struggle for the past 5 years, 5 or 6 years now, but other shipping industries in 2020 got hammered, whether it was cruise ships, others that found themselves in an immediate state of oversupply. They are also scrapping those. So those scrap values that you can get today are almost half of what they were 1.5 years ago. And so the economics just got a little bit worse. And therefore, people are holding on -- they hold on to boats a little bit longer than they should.

And so, of course, it becomes a question, how about yourself? Because it does seem as and you're saying that it's half what you could have scrapped it for last year, you're not paying the cost to keep it around, and it's really not going to come back, go off work so...

I'm getting rid of them no matter what, yes. I have no issue getting rid of them. I -- we scrap more boats than anybody else. And again, to me, this is a return-on-capital game, not how-many-boats-do-you-own type of game. Unfortunately, there's a lot of shipowners just love vessel counts. And historically, the shipping industry have been filled with personalities that want to own the largest fleet as opposed to the most profitable fleet. So for me, it doesn't change my mind. It just means I'm getting less than I had hoped for from these oversupplies, excess inventory that I have.

Maybe you can comment a little bit about -- there definitely has been some activity, right? I'm reminded of you and John Gellert and Bob Bugbee were all speakers at -- hosted by Clarksons. And one of those players is not at the table anymore. So he took a speculative bet, got into the business in Hermitage. And so it's gone away. And of course, it's interesting, I think because a bank's [indiscernible]. And so banks haven't foreclosed and taken back assets yet. So -- and could you -- what do you see things like that? And what impact and what opportunities does that create for Tidewater?

Well, the struggle with the industry is that even though companies go bankrupt, the boats don't go away. The stack stones may change on the boat, and the names may change. But the reality is the boats are still out there, and you have to deal and contend with that. But what we are seeing are the banks getting more aggressive. Even over the last couple of years, we've seen banks be willing to take less than the part of their loan. So in the situation that you just mentioned, the bank in question ended up taking the boats. And 10 of them -- 10 decent boats at about, I think, approximately about $8 million piece, and that's a good indication that people are willing to take a haircut to get them -- the industry a little bit more corrected. And my hope is that we'll continue to see that as we go through. Because once those values get corrected, consolidation can occur.

Consolidation, of course, is a key opportunity that really hasn't come to pass. And of course, in certain cases, it's also a geographic issue. Are there certain markets that really have kind of the capability at some point in the foreseeable future to have consolidation and yet end up, therefore, with a reasonable number of competitors who, therefore, can do something about getting return on their capital as opposed to just subsidizing the oil companies?

Absolutely. Yes, there's been a huge transfer, in the past 5 years, of value from the oil service companies, in particular, boat companies to the E&P companies and national oil companies. It's -- the industry is naturally fragmented because low barriers to entry, relatively low capital cost for the boats. And again, we also have a consolidated group of customers that end up playing the larger supplier group against one another, okay? And there's a tendency to do that around the world. And E&P companies and national oil companies are quite adroit to fostering that type of competition. But the reality is that consolidation is the path out of this hell that we are in, okay? And scope and scale are important in this commoditized industry. And we can do that by looking at certain areas of the world where we see the outlook as stable to growing and a vessel base that can be reasonably well consolidated. Now the North Sea is an opportunity, in my mind, because it's not as fragmented as some areas like Southeast Asia and it's got a decent profitability, relatively low restrictions to operating, low taxation. So to me, that's a nice area to foster consolidation. I think the U.S. market is also good, and like consolidation, principally in the larger boat market. So I can see the consolidation happening in those areas. Other areas of the world, I think there's going to be opportunities as well. I mean I still generally believe that Africa as a continent, I mean, Africa as both West Africa and East Africa are going to be good markets over the next 10 years. And it's still right now quite fragmented, and there's a low-end market in certain geographies within Africa that it's difficult to consolidate because you just can't get the profitability of the boats high enough to justify the consolidation. But there's definitely opportunities. I see Angola as one of those opportunities, we feel. In that same scenario that you referenced, Bob, we picked up 11 smaller boats for work in West Africa, principally Angola. And we'll continue to look for tuck-in acquisitions of that sort to do what you can in an otherwise commoditized market to have some defensive pricing arrangement.

But of course, it seems that even the offshore drilling business has had more consolidation than the offshore boat business.

Absolutely.

You really haven't seen anything. And so yes...

Yes. There's -- obviously, we have, of course, right? But there's not a significant amount. And we're definitely -- listen, myself and Larry and the Board as a whole, we're looking for opportunities to scale up, right? But of course, many of the targets have toxic levels of debt, and you can't do it. The rig company, they're floating iron as well. They're day-rate-utilization businesses. They were naturally a bit more consolidated going into it. And my belief is that we're going to see a real good example of how consolidation can make a difference when the rig companies can mature through their restructuring process. And hopefully, watchful people will make the natural association with the vessel companies, and we'll begin to see more consolidation on the vessel side.

So you specifically mentioned the U.S. Gulf business is an opportunity for consolidation. I don't see that. Where do you see that? How does that happen?

Well, right now, the market in the large boat market in the U.S. Gulf of Mexico is fairly consolidated. There's probably half a dozen significant players in that market. As -- and the area of opportunity that I see for those boats is not necessarily in the U.S. Gulf of Mexico, but in the Southern Caribbean area, so Trinidad, Suriname, Guyana. But in order to operate in those areas for those fields in the Southern Caribbean, you've got to have essentially Jones Act-style boat, which is your high mud capacity, large deck and space boat. That's what they're looking for. So I think consolidation in the U.S. market, but what I really mean is consolidation of the large boat markets operated out of the U.S. Gulf of Mexico to help position yourselves in an emerging growth area, which is at Southern Caribbean.

And I guess we chatted about that the other day, and you mentioned historically, you have 8 high-end boats in the Gulf of Mexico. And of course, today, you've been able to reposition them and get profitable employment outside of the U.S. Gulf or the majority of those now. So therefore, it's that broader market, I guess, that you're participating in. And therefore, there's actually been a pickup in demand as the geographic areas broadened out more than there is supply consolidation or those other things that could accelerate a better environment for the U.S. and related businesses.

That's correct. In that pocket and in the large boat market in the kind of the sphere of Gulf of Mexico, Caribbean, it's been an improvement in demand in a relatively remote area. And when you're in a relatively remote area, you also further restrict the number of players that can transit down there because they don't have the infrastructure to do so.

Right. So it seems to me part of the problem, though, is even the restructuring -- so Hornbeck comes out but still has significant amount of debt associated with it. So therefore, it doesn't provide an opportunity consolidation or makes consolidation troubled. And of course, Bourbon's structuring, what the vessel value, say, the other day, their fleet's worth $500 million, and is their debt now down to $1.4 billion? So therefore, there's no equity value, there's no consolidation opportunity, and it would seem as if the banks there are kind of in it for long haul, almost. So as opposed to a transitory owner you might hope for, that's a long way to go. And so the restructurings that have, to date, occurred almost are impediments to consolidation. Do you see the same thing? And then do you see any way around that?

So yes. And let me add, there was another U.S. vessel company that went through restructuring in 2018, and they just got recently downgraded to default status on the extent of -- maybe not completely default status. But as a result, there's real questions about the equity value in that enterprise as well. But yes, in an industry that is going through the challenge that we've all been going through in the past 5 years, the real answer today is limited to no leverage. Now this is a capital-intensive industry, and it will benefit from leverage, but you have to get past this period of unprofitability because, right now, what happens is every time you have a discussion with a potential partner, it becomes a fight between the debt holders and the equity holders as to who's going to get what. And it just never seems to work out.

Well, my observation will be the problem is in the past that the debt holders think they can have their cake and eat it too and not come out with $200 million in debt, we can get paid off and they just don't the equity. It turns out by having any debt is clearly an impediment and is not serviceable. So it's a poor formula by financial engineers who are betting on a recovery in the business and when it doesn't happen, can't handle the debt even if it's reduced then at modest levels.

I agree.

Because consolidation really seems like such an opportunity, especially as you say, in certain markets where -- but there are limited players. The idea that you would introduce a player and a competitor and take out cost in the process is a formula for success. And until that can kind of happen, that's an impediment to every industry player.

Absolutely. This is a scalable opportunity because of the operating leverage that we talked about before, right? We've got to capitalize on technology, right? Now all you need to do, you just need to add boats. Add boats, add water and you can grow this thing substantially. And the reality is there's more value to get created by these owners of companies that are just barely profitable by eliminating their G&A, which you can do through a scalable platform like Tidewater's than they'll ever get on their own. They'll never see the recovery that they believe exists. And so it will play out. Of course, it takes longer to play out than I would prefer.

Right. Right. There's a question that's come up that I really think is an accurate problem with the oil and gas business. And I don't want you to fall into it, and you've said some things. So occasionally, there's a reference here, free cash flows last year, the company generated $40 million. And occasionally, you may classify it as free cash flow, but we all know that's really not free cash flow in that, right? I thought the ultimate example of that were onshore fracking companies would say, "Oh, we're trading at this multiple of EBITDA." Well, EBITDA is not a relevant financial metric for you because the depreciation you have and those assets quickly decline, and therefore, you have to spend money. So that's a poor metric. And so it's really -- there is cash flow. You did -- now you're at a point where debt and equity are about at parity at $100 million. But of course, the free cash flow in an oil and gas business with the depleting, declining assets really is also spending enough money to maintain the asset base at the same production level of an oil and gas company or the asset at the same level. And so you and the entire industry may generate cash, but your assets are not being renewed. They are depleting and declining. And therefore, they are aging. So it's not free cash flow but still cash flow and important. So I know 1 or 2 people will have kind of identified that. And so that's just phraseology. Although sometimes, how you phrase things in your mind is also important because you may think of it the wrong way. I know you think of it the right way, but -- yes.

Right. Well, yes. Well, let me assure you and your investors as well that I think of it from a full-cost perspective, that the cost of the replacement of the assets as well as the just general cash flow on a regular basis. But it gets incremental, right? There was a period of time in the 2016, 2017 time frame that you weren't even trying to cover drydocks. You were just trying to cover op costs, right? And that was your goal, right? Now we're past that point. We're not just covering op costs, we're covering G&A. Now -- and that was seen a couple of years ago. Now you're not just covering op costs and G&A, but you're covering cost of drydock, too. But we can't -- and at that point, you're kind of covering the tax book definition of free cash flow, right? But the reality is you've got to replace your fleet, right? And right now, even the depreciation values that you see on companies like Tidewater is not the replacement cost because all these boats have been marked down to 25% of their original value, right? So you've got to start again thinking about it, what is the true replacement cost, return on capital that you got to shoot for? And what rate -- day rate do you need to get in order to make sure that you have an industry? So it is not lost on me, but it's just -- there is the textbook definitions and the definitions for us. And so...

Larry, you seemed to lean forward like you had a thought, you wanted to say something. Because otherwise we're monopolizing the conversation, and isn't the intent of this is really to make it interactive and productive? And were you -- or no, you were just listening intently to what Quintin had to say?

The only thing I had that came to mind, Bob, as we were going through this discussion was the banks really are holding back consolidation and they're also holding back scrapping. They're sitting there with mortgages and interest in vessels, and they're not willing or not readily willing to allow operators that know they need to scrap vessels to take those actions because the banks are not convinced that the optionality isn't worth it, particularly if the banks aren't having to fund the layup costs on those vessels. And then later, they very well can screw up the recovery by providing funding to drydock those vessels and bring them back into the market. So I view the banks, particularly in Europe, as being a significant issue in our ultimate recovery. It will eventually happen, but the banks are, I feel, are definitely guilty of slowing this process.

Yes, yes. Well, I do know for sure, Kristian Siem in Siem Offshore last year talked about that, specifically said the banks are hurting their own interests. They are keeping these people competing with each other, subsidizing that process. The assets are deteriorating. They're getting further underwater in their obligation. So they are hurting everyone, including themselves. But that doesn't mean they're going to change their pattern, unfortunately.

Well, of course, he is now part of that whole process today.

That's right. That's right. He's hoping to have that done this month. Does anybody else -- Brian, do you have anybody that have other questions? Anybody else? Can...

Yes, yes, yes.

Okay. Okay.

I guess, about, I guess, on the renewal -- like in terms of the renewable opportunity, is there an opportunity on the renewable side of the business? But I guess they perceive it to be less so with the existing fleet. So how does Tidewater approach the segment? What skill set is needed compared to traditional OSV business?

Okay. So we've been watching the offshore businesses have developed really beginning about 2011 in the North Sea and been very focused on it. The core competencies and the skill set necessary to run offshore wind vessels is no different than it is offshore hydrocarbon-oriented vessels. It's the ability to manage the construction of the vessels, the ability to crew and train mariners. It's the ability to relate with energy companies one form or another. So the core competencies is no different. And I look for opportunities in the offshore wind space all the time. Unfortunately, like any shipping industry, they tend to get oversupply from time to time. And I will tell you, there's so much capital rushing into the offshore space today that the returns are not as good as I see on the hydrocarbon side. But I do see a future in growing the business with exposure to the offshore wind business. We -- about 5% of our business today, even with our existing vessels, are done supporting wind farm installation activities as well as just basic operations.

I think Kristian Siem wants to comment.

[Operator Instructions]

Yes, sure. Can you hear me?

Yes, Kristian.

Yes. Well, I'm happy to give some comments. I'm glad that you're focusing on consolidation because I'm of the firm belief that without consolidation, it doesn't help to fix the balance sheet of all the OSV companies in the world, which is happening. It's happened in America largely with the Chapter 11 mechanism, which we don't have in Europe. So it's much tougher for us Europeans, but we are finding a way through. We, take an example, Siem Offshore, we have put the plan to the banks. The plan is logically put together, and it's been now accepted by all the banks and bond holders in principle. So hopefully soon, that will be documented. But we still have then the Brazilians, BNDES and Banco do Brasil, who are pretending that they don't understand. They understand perfectly well. They're just smarter than everybody else in the world, and they are full of clerks who don't want to take any decisions. And let's assume that hopefully we get through this process fairly soon. But I'm saying to our people in Siem Offshore, let's get it done so that the work can start because that's -- when work starts, that's when we have to focus on the consolidation. And without consolidation, I don't see any future in this business. And you talking about, Quintin, about scrapping 20-year-old vessels. Reality is that the surplus of vessels, much younger, is such that we need consolidation to see light in the tunnel within a reasonable time space here. On the banks, I think some very valid comments have been made on the banks. And I think we need to accept that the banks consist of account officers, workout groups who are very clever people, very narrow-minded in their view. They're not looking at the industry. They're not looking at the bank's overall interest. They're looking at their specific task of being as almost as destructive as possible in order to get their banks benefit a little bit better than it otherwise would come out. And what we are all suffering from, including, of course, the banks themselves is that you don't have a management in the banks who actually take that overall view, and therefore, make some decisions. Norway is a very good example of that because they are so heavily involved in OSVs and there are so few banks, and I don't see anybody taking charge of doing the [ whole thing ]. It's not even on their agenda when they get to the office in the morning. They leave it to the workout groups to find a way forward. Look at Solstad, I think it took the best of 1.5 years for the banks to work it out together without the strong leadership of senior management in the banks. Now as the banks become owners and lenders, they don't know how to -- or they're not prepared or they don't organize for actually dealing with an ownership role in these companies. They continue just to deal with the lending side. And therefore, it is extremely difficult to get consolidation to happen. We are in the higher end, so the larger vessels. I think consolidation in a meaningful way on the lower end, smaller vessels, there are so many there that it takes much more to actually have an impact. But on the upper end, it -- we could make some impact by taking charge together. And I have -- I don't think I've experienced in my lifetime a situation where the required course of action is so obvious -- is actually obvious when you talk to the banks. They all agree with it, but nothing happens. And that is a very exceptional situation. And what can we do to actually break through of this impasse? And we are talking a lot about it internally, and we'd like to talk to you about it. I've called you, Quintin and the -- I've met with people in the Tidewater before and other American companies because I felt that in Norway, the mentality of ownership by the sole owner in each company has -- so important that they didn't really think beyond control. Solstad's a good example. We had talks with them several times before the market collapsed, and they thought it was a great idea to get together, but they needed not only control, they needed 51%. And of course, in the merger, if they have 51% and we have 40%, then the public has, at best, 10%. So we would no longer be a public company. It's a -- and there, of course, the Solstad, I believe, today, they have only a few percent left. So it's much better to have a smaller interest and share it with others than to have control of nothing. And that's where they ended up. On your -- yes?

Yes. No, I just, I think just for the purpose of time, I think we probably -- we appreciate the insight, Kristian, but I think we probably should move on to some other questions.

Well, Kristian did -- when I did invite Kristian, Kristian did say, "Oh, do you want a panel discussion?" And so maybe the follow-up to this is we can get Quintin and we can get Kristian, both people in a month, I guess, the discussion will be done. One of the things that Kristian mentioned was vessel sizes because you -- so do you have a reason you can think about there's a consolidation opportunities in the geography, and therefore, you can improve the situation [indiscernible] vessels.

You're breaking up. I can't hear you properly.

Can you hear me? [indiscernible] Am I assuming the question I'm asking, which is, in the meantime, when [ Tom Ring ] ran the company, you guys were a PSV company. That's all you wanted was PSVs and some had other vessels and you didn't want to be in that business. How do you feel about OSV business and the vessel classification and opportunities? And are you just in one niche? Are you in all other niches? And because that's potentially an impediment to consolidation if you're looking at something and like, but that's a limited number of people to do that with. How do you think about vessels and classifications and opportunities there?

You got partly garbled, but I think I got the question. Let me -- correct me if I'm answering the wrong question, but we are very happy to discuss with anyone a consolidation of any segment of our fleet. We have 3 segments -- 3 main segments. We have construction vessels. We have PSVs, and we have anchor handlers. And if we could talk to somebody on anchor handlers alone, that's fine. The point is consolidation. And whatever it takes to get people together into a consolidation, we are open-minded.

Quintin, how does Tidewater see it? What do you think about vessel classifications, opportunities, narrow, broad, et cetera?

Bob, that was to me?

Yes.

Yes. First of all, it's always great to have Kristian on, and I welcome the opportunity to do a panel discussion at any time. And Kristian and I and Larry, we're a consistent voice on the fact that consolidation is important. And I'll take it a step further and say, it's not just about consolidation. It's about withdrawing and controlling capacity, and that's what we have to do in this market. We, as a point in the value chain, whether it's on the renewable side or the hydrocarbon side, are not significant enough to make or break the decision. We are suffering because we are oversupplied. And there's a lot of work out there that is still getting done today and that you can get done in a much more profitable level in a company that has a high degree of operating leverage with the right amount of consolidation and withdrawn capacity. As it relates to vessel classifications and the scope of vessel activities that Tidewater looks to take on, we're not at all restricted. I mean we're generally focused on offshore energy-related vessel activities. We have crew boats. We have those smaller, what I would call -- we call them Alicats. We picked up 11 earlier this week -- earlier this year. We've got some large anchor handlers, not as large as Kristian's, but we have some also large construction support vessels. So to me, if it's floating iron, energy-related, companies like Tidewater or -- and Kristian's companies as well, all have the ability to manage these assets. Collectively managing these assets, there's a consolidation or cooperation in the -- in a legally appropriate way will allow us to withdraw capacities and hit up rates. And that's what we have to do.

Brian, do you have any other questions? Have you guys got anything?

Yes. So someone asked -- they wanted to ask about the cost on average to discover oil offshore versus fracking in onshore. Does this impact kind of future demand? More of like a general question.

It does, for sure. I mean I sense that the land market in the U.S., so the terrestrial-base-type of oil plays, they have not proven to be profitable at the previous levels. My expectation is we're going to see a shift of activity from the U.S. land to offshore globally around the world, quite frankly. I'm already starting to see that. So I started to see that even as late as end of 2019, but the reality is the U.S. threshold supply is going to be with us, I think it's just going to be with us at a much-diminished level going forward.

So Quintin, I do want to follow up on -- one of the things that Kristian says, it's not getting rid of old vessels. It's as important because almost every class is oversupplied. So in geographies and in classes, there are too many vessels. And so controlling the number of competitors in the market are -- is the key obviously a quicker way to get to profitability as opposed to everyone hoping that [indiscernible] and that the capable banks go back to work. And that's been, of course, the upward basis that everybody's factored to date under. And that's obviously why consolidation would be a positive because it would accelerate that process and not have to wait for the supply to shrink, the demand to grow, but to be able to manage the supply intelligently and provide and work only vessels that are needed in the marketplace that beget returns on those vessels. You said it. So is that correct that, that's your total agreement on that concept?

Yes. Completely agree. I mean this was not a complicated industry from that perspective. We have an oversupply situation with a highly fragmented owner group, and these owners don't want to let go of their boats because that lets go of their job. The capital providers and all these companies are fighting them amongst themselves as to who gets the $0.10 on the dollar that these boats are now worth today. If they would all step back and realize that if you were to throw all the vessel companies in a particular region together and manage the capacity, scrap the older stuff, withdraw capacity on the larger tonnage, you would jack-up rates quite quickly in this market, and you would be extremely profitable. But again, there's this prisoner's dilemma that nobody wants to take that bite, no one wants to take the hit today, even though all this economic theory that we're talking about has been playing out nicely over the past 6 years and continue to play out. Unfortunately, these are long-lived assets. And this correction period that is required is quite long.

It's a little bit interesting that it hasn't happened in the U.S., given that 2 of the companies really are controlled by shareholders who restructured the company, therefore, have economic interests, interest in control. The European companies really are controlled by a family who wants to keep control and have been able to do that, and that's an impediment for kind of transactions. So you would have -- I would have thought that there's some possibility the U.S. ownership of companies who would have accelerated that process of consolidation, but maybe more...

I think that would be -- I mean, it's something about human nature, right, in the sense that people aren't worried about growing the size of the pie. They're worried about growing their little piece, okay? And so what we really need to do as an industry is grow the size of the pie by increasing the profitability, by controlling and withdrawing capacity, but that's a long-run payoff that people just haven't been able to buy off on or whatever it is. The same reason that you see these companies going to Chapter 11 in the U.S. and coming out with still the toxic levels of debt. It doesn't make any sense.

I forgot what I was going to ask. Sorry.

Well, we have a question coming in, in the queue. So I'll ask it. Is keeping the Jones Act business a hindrance to consolidation internationally? [Operator Instructions]

It's -- the Jones Act business brings with it restrictions and the ability to issue freely tradable common shares. And so in order to do an equity-based consolidation in that story, we have to work around those restrictions. Now I will tell you that most of the people that we've talked to on consolidation, that's not the problem. We have Jones Act warrants that trade today. And once they get into the hands of a U.S. holder, they convert naturally into a regular common share. So the Jones Act restriction is something that we have to be mindful of. But in all the discussions I've had in the 5 to 6 years of this downturn, it's never been that a hell of a deal. It's always been the price or a relative value trade in a situation, but it's something that we have to be aware of and consider.

But it has happened in the past, Quintin. I can say that every time we, as European, came to talk to the legacy companies of Tidewater, Gulf and so forth, we met the management team sitting at the other side of the table not saying anything except one thing, we have Jones Act at 70% U.S. ownership. And that was the sort of their defense from doing anything. That's my experience that we have with...

Yes. I can't speak to the prior discussions on that. But what I can say is that if you want to come talk to me today and you're willing to take Jones Act warrants, I'd love to have a conversation.

Actually, where does that stand on to the registered shares that are in the name of foreign owners? And are there still 2 million unconverted warrants that are out there and soon to be in the hands of foreign owners? And I guess the foreign owner probably isn't such the foreign owner it is an offshore fund from a U.S. entity is considered a foreign owner for Jones Act purpose. So on a natural basis, have you -- over time, I imagine there's a migration in the shareholder base more and more U.S. citizens. And so what -- where are you in the process?

So as of the September 30, I'll use that as the latest calendar date since obviously we had some movement since then, but that's a recent update to have a conversation about. We've continually moved down the Jones Act warrants. They were in the tens of millions, about 10 million, on a consolidated basis, pro forma GulfMark, Tidewater. They're now well below 2 million. And my sense is we'll continue to work it down. What happens is 2 things. Owners that are actually U.S. citizens can submit the right documentation to be classified as U.S. citizens, work through that paperwork requirement, and they end up getting those shares converted. And then there's the other transition of people that are foreign holders selling to U.S. owners that ends up getting converted. So generally, the tendency is that more shares get held by U.S. holders over time.

Bob, I might comment that our Jones Act position is really pretty insignificant to the total today. So if there was a right consolidation effort and we had to look at exiting the Jones Act, that's something we could do. The worst detriment would be the good U.S. flag vessels that we have today that probably have a premium because they're Jones Act assets. We would lose that premium by converting them to foreign flag when we exit the Jones Act. But that -- a larger transaction is not something that we wouldn't seriously look at if the entire deal made sense. So I don't think the Jones Act, on either side, what Quintin talked about or looking at the point of view of exiting the Jones Act, is an impossibility. It just has some costs associated that would have to be considered in any transaction that we did.

No. Absolutely right. Either side of it can work. You just have to factor in the cost. And then to our point earlier in the conversation, a lot of the Jones Act vessels are not really doing Jones Act work today. They're doing work in the Southern Caribbean and in other areas where, if they were foreign flag, it wouldn't make a difference. But it's the capability of the vessel that holds.

Right. But you are keeping the optionality by keeping the Jones Act and by, therefore, crewing it with U.S. crews, and therefore, as you say, incurring the incremental cost on those 5 vessels, keeping that optionality, but probably over time, more will migrate into that marketplace. And so therefore, I see what Larry is saying is if you made that, there's a cost savings advantage, there's potentially the sale of other vessels that are [indiscernible]. It's not a huge number, and therefore, that can be achievable. And it's a number that kind of might spin into an equation that would make sense.

Absolutely. Yes.

Absolutely.

Thank you. Other questions?

We can just open it up, I guess, at this point, right? So if people want to just unmute themselves, if you have anything in mind.

Anybody can unmute themselves and -- Quintin, what haven't we asked? Larry, what haven't we asked that's significant and relevant that you want to remind us of that we should keep in mind?

Two's things that we're really focused on as we go through '21, Bob, is demonstrating the complete scalability of our industry. When I think about scalability, I think about how many boats we could run at what low of G&A price, okay? Because to me, that's the -- the cost leader in this industry should be the one dominating and consolidating, leveraging off the technologies and the economies of scale. And we're going to continue to do that as we continue to grow the business through, hopefully, consolidation in the future. But we've been a real seller of boats. So some of the free cash flow discussion we had earlier, it was generated by the sale of boats. We're winding down that process, right? We're getting down to what I would say is a core fleet that can work almost in any market. And so the flip side of that is the proceeds from the disposal of vessels won't be as significant in '21 as it was in '20. So that's another point to consider.

Quintin, this is David Eidelman. I -- we've talked a lot about consolidation and supply. And I'm interested in, if oil prices rise after the coronavirus goes away to whatever number, $65, $75, et cetera, do you see demand for offshore drilling and the services you provide going up over time, staying the same over the, let's say, over the next 5 years, or is it some that's slowly declining but if consolidation is right, you could still make money under those circumstances?

So I see a growing -- I mean, the outlook that I have for the remainder of '21 is increasing vessel activity just based on the tender activity from majors and supermajors today. So my belief is that we're going to see an improving level of utilization of assets around the world as we go through '21. And once we burn off that oversupply that we talked about, those boats that are ready to go back to work, we'll start seeing improvements in day rates as well, okay? And so my belief is that the future is quite optimistic for the offshore vessel industry and offshore drilling activity over the next 5 years. There is the larger thought and thread of moving away from hydrocarbons on a long-term basis. But quite frankly, we have -- that trend line may be downward sloping, but we're well above that trend line today. So I see us stepping nicely up over the next 5 years, and then we'll figure out what happens energy-transition-wise and if it has an impact on demand.

Although that's a dangerous question. You have them thinking, "Oh well, price will go up," and we don't need to consolidate, just wait for that to happen.

That's the problem that you run into. The best time to do the deals is now. Because, unfortunately, optimism that a lot of shipowners have is they see this operating leverage, they know about it, and once the industry comes back, they just want to reap the profits for themselves. But the reality is, for the past 6 years, more of them have gone bankrupt than we've seen in the history of this industry. So consolidation is still the key. Unfortunately, the optimism of an improving market always tends to get people focused on staying solo.

But there's an access to capital and concern about leverage given where it is because this environment could stay for another year or 2 or 3.

Absolutely.

You have -- right. And you have your debt maturity coming up not so far into the future. Otherwise, I would imagine you would, at $8 million a copy potentially have bought a couple of vessels from -- who was it, DSN, who, therefore, foreclosed in the Hermitage assets, right? So those assets probably are at an interesting price point, but coming up with cash to do that is problematic a little bit today.

Yes. Timing's everything, right? And scale is important, too. But yes, absolutely. There's real reasons to be optimistic that the consolidation will begin to occur in earnest as we go through '21 and '22 because everybody has hit the wall and -- through the pandemic. Most companies hit the wall through the pandemic. And I think it's forcing them to throw in the towel when, previously, they would have not done that.

We're at the 1-hour mark, Bob. Do you want to just -- like should we keep going? Or you guys -- or do you guys just want to open it up for like one last question?

Yes. Does anybody else have any questions? I'm sure -- it's safe to say that Quintin and Larry don't have to catch a plane. And so therefore, we can probably corral them for another 10 minutes if we have questions for them.

I could talk about the business for hours.

Well, if you want to fill some time and if Brian will let me speak for another minute, it sounds like we all agree in that consolidation is required. Quintin thinks that, that will improve going forward. And therefore, the demand will come. And I don't disagree with that. However, it's not enough to take up the excess supply. So therefore, consolidation is fundamental. We also know that the banks have a huge influence and ability to help the consolidation happening. So what do we collectively do as an industry to wake up the banks or to get banks to actually begin to act at the senior level? Have you thought about that, Quintin? And is there something we ought to do as an industry together to sit down with the senior decision makers in the bank to get them to think like we do and actually work with us on a program?

The answer is similar to the answer that -- of the 1980s, which is everyone has to pool their assets together, stop trying to take an incremental benefit from their particular fleet or their particular vessel category, throw the assets into a control group, manage that control group for the profitability of the whole, and so the profits are going there. There's more money and value in doing that than there is everybody fighting for their nickels and dimes around the world. Now when I talk to the banks, and I've talked to senior people at the European banks as well, no one is not willing to throw in their boats to a pool of assets to manage. But that is where we have to get to. We have to get to a point everyone agrees that we're all going to share in the risk of the upside of this business.

So Quintin, but I thought part of the problem was, right, the problem in the '90s -- in the early -- in the late '80s to early '90s was that MARAD had guaranteed all the staff. And so MARAD was an impediment to consolidation because the banks were, "We're going to get our money back to the government." And eventually, that solved it. And so now I understand the problem. Isn't that the problem that the European government still are guaranteeing a number of those European banks? And so there's a guarantee process. That sounds to me like if Kristian is talking about going to someone who's the decision maker who could make a change, isn't that the place you need to go to? You need to go to that institution to say, stop guaranteeing those loans, force those banks to do something because the banks won't do it, and they probably have some capability because, otherwise, they're, well, we're covered on a piece of what we have. Isn't that a problem?

It's the same dynamics. It's not MARAD, it's GIEK or the other companies around the world. So the stakeholders are isolated and 2 or 3 steps are on [indiscernible]...

Right. Is that...

I know that the GIEK's guarantee and exposure is fronted through the banks. So GIEK, I would say, in Norway and in Europe for GIEK, plays a huge role and is the largest creditor, effectively. They are the ones that agree with us more, and they are 100% on board when it comes to the need for consolidation. But for GIEK to implement and put the pressure on has to be done through the banks. Therefore, we had to get the banks on board. And that's why I'm saying, I think -- you talk -- I talk to a lot of these banks also like you do, Quintin. I see that they all agree with the logic. And the logic is so obvious. That is not problem. The problem is the banks to actually start doing their job and acting and taking some decisions. And that is where we have to animate them to get to that point. And I'm not quite sure how we make it happen.

I mean a case in point is the episode that we talked about in the U.S. back in the first half of 2020. There were 21 boats up for auction. We put in an equity bid on 10 of the better assets out there. And equity bids weren't be accepted. Well, this shouldn't be a cash market today. This should be an equity market today. Everybody throws in their equity. Everyone puts it under common control. We withdraw capacity. We reap the rewards of an operating -- a high degree of operating leverage, and we share the profits. But again, there's so many prisoner's dilemmas involved in this, whether it's the vessel owners themselves or the credit versus equity holders that seems to get bogged down.

I was personally and directly involved in the early '80s in the politics of finally getting the U.S. government to make good on their guarantees. And until they stepped in and allowed the banks to foreclose because, politically, they were -- the U.S. Maritime Administration simply said, don't worry, we're guaranteeing it. Just wait. It's going to get better. Well, when it didn't and the entire industry had been driven into terrible straits, the U.S. government, because of some politics that were applied, finally responded and allowed that debt to be cleared. Unfortunately, and I'm not an international expert, I certainly know little about Norway in the big picture, but I think politically, it's a huge issue in Norway for the Norwegian government to actually allow these vessels and the debt still associated with them after the restructuring to be made good by the Norwegian government because the reality is once they made that move for the OSV industry, there would be huge amounts of money standing in line from the drilling industry to also have Norway make good on those guarantees. And at some point, when you start drawing down the sovereign wealth fund to make good on debt you guarantee, I don't think that the 4 million people in Norway would find that particularly politically pleasing.

A guarantee is what it is, and it's an obligation that they're sitting on. And the management of the GIEK is very pragmatic and professional team. So therefore, I am venturing the statement that I don't think GIEK is the problem, interestingly enough, quite different from your experience, Larry, there in the early '80s and the U.S. government. So -- and we have experienced that already. Our ally, if you like, among all the creditors has been GIEK. And GIEK is fighting with the banks to actually take the right decisions. So I'm back to my question. Think about it again. And think about what we, as an industry, ought to do going forward to get the focus of senior people in the bank to take the necessary decisions. That's my last word today.

All right. With that, I guess, it's a good time to wrap it up. Well, I thank everyone for coming. It was -- given, I guess, the circumstances, it worked out. Any other follow-up questions or anything like that, feel free to reach out to me or Bob or anyone else from the Robotti team. Thanks, everyone.

Yes. Thank you, Quintin. Thank you, Larry. Appreciate your time. I appreciate you sharing your thoughts with us. Always interesting, and we do appreciate, even though I'm a pain in the ass shareholder sometime, but you know I have the company's interest at heart. And we have a very common view and expectation on what we're looking for. So thank you.

Thank you very much.

Thanks, Larry. Thanks, Quintin.

Bye, guys.

Thank you all. Take care. Bye-bye.