In June, Waldorf Production called in the administrators, who are now pondering ways to capitalise on the embattled company’s assets.

The Energy Profits Levy (EPL) and political instability have clearly been a challenge for Waldorf – and other companies in the North Sea. However, it was the combination of this with the decision of Barclays Bank to pull its support that seems to have pushed the company over the edge.

Company management is not blameless. The entry into the US in 2022, followed by an exit the following year suggest a certain amount of uncertainty over what Waldorf was trying to achieve.

Waldorf was backed by Norwegian executives and funded by two Oslo-listed bonds. The bonds provided Waldorf with $300mn and $150mn.

Waldorf Energy Partners Ltd (WEPL) and Waldorf Production Ltd (WPL) entered administration in June. This move saw control of the companies being taken over by Interpath Advisory. On the date Interpath was appointed, Waldorf had only £46,194 in cash.

Having worked 127 hours in the first half of July, Interpath has already racked up a bill of £110,229.

Blame game

Interpath pointed a number of fingers of blame for Waldorf’s fall. The Energy Profits Levy (EPL) was one such factor. The launch of the windfall tax in May 2022 – of an additional 25% – was followed in November 2022 by an additional 10%, taking the headline rate to 75%.

The administrators noted the government had brought the EPL in after Waldorf had purchase various assets. Bringing in this tax, it said, increased cash requirements.

They also cited a decision by Barclays Bank to withdraw an unsecured, non-recourse discounting and receivables facilities in the first quarter of the year from Waldorf. In June, the company said the bank’s facility had “fallen away” and that it aimed to secure a new agreement.

Waldorf’s deal with Barclays had seen the bank agree to manage payments from Shell for oil sales. The agreement allowed Waldorf to draw down 85% of the payments up to six weeks before Shell paid for the crude. Once the receipt was agreed with the customer, the bank would provide 85% of the sum – minus 0.55% per year plus SOFR.

In February, Barclays announced a new policy to focus on decarbonising. The bank said it would impose broader restrictions or enhanced due diligence for upstream oil and gas. It also announced various new restrictions on hydrocarbon lending, with the aim of reducing its “financed emissions”.

Who you know

Lawyers Addleshaw Goddard provided the initial introduction between Interpath and Waldorf. Interpath began providing advice officially in March this year, on liquidity forecasts and contingency planning.

The administrators in turn brought White & Case in to provide advice on environmental liabilities and negotiations with the NSTA and Offshore Petroleum Regulator for Environment & Decommissioning (OPRED). Jones Day provided further advice to Interpath on their appointment as administrators.

Corporate maze

WPL is on the hook for a $150 million bond issued by Waldorf Energy Finance (WEF). It was the failure of a $23mn bond payment, due on June 3, that triggered the move into administration. At the time, Interpath attributed the payment failure to a lack of available liquidity.

Interpath has described these units as HoldCos, noting they do not employ anyone.

The bond is secured by various assets. Most notably, this includes a 20% stake in the Catcher field, which is owned by Waldorf CNS. Other securities linked to the bond include stakes in Bittern and Scolty Crathes.

Waldorf Production UK Ltd (WPUK) is not in administration. It owns another 20% stake in the Catcher field and 29.5% in the Kraken field. WPUK has another $50mn bond payment outstanding. This company was previously Endeavour Energy UK, which Waldorf acquired in October 2019.

Strategic options

Three officials from Interpath were chosen as administrators, Jim Tucker, David Pike and Luke Wiseman. Announcing the appointment, Interpath said it would begin “urgent discussions” with the WEF bondholders on potential options.

Interpath released a report on their plans this month. The aim is to “optimise creditor outcomes” it said, which would involve the sale of WEPL’s stakes.

The advisors have begun a sales process, they said, but there is also the possibility the “rescue of WEPL as a going concern”, in consultation with the bondholders.

The sale of fields would require approval from the North Sea Transition Authority (NSTA). The regulator has notified the administrators that it would only approve a sale if a deal was found for the whole group – no field can be left orphaned.

Interpath said it had begun data collection and review of information on Waldorf’s subsidiaries and assets. It has also compiled a “potential acquirer universe”, which refers to past efforts by Waldorf’s management in 2023.

The aim, the administrator said, was to make payments to secured creditors where possible. Unsecured creditors are unlikely to see any returns. Interpath aims to take decisions on Waldorf’s future on the basis of deemed consent, moving ahead without requiring a vote from creditors.

The administrator did not report on Waldorf’s production. Previously, it had expected to report production of around 23,000 barrels per day for 2023.

Bond business

Part of the deal will involve exchange of bonds. The Interpath report said $30mn of the $150mn bond would be exchanged for new WPUK bonds. WEF issued its original bond in March 2023.

WPUK issued $300mn of bonds in 2021. The principal outstanding was $50mn, which was due to mature in late September this year.

The WEF bond ad hoc group agreed to underwrite the financing of these bonds, pushing out maturity to September 2025. The amount will be repayable as a lump-sum redemption on maturity. The bond group also agreed to provide working capital of $23mn.

Waldorf noted that the bonds would not amortise and would repayable in full, as a bullet on maturity. However, the interest rate is set at 13% – and that is payable quarterly in cash.

Once these moves have been completed, the WEF bond outstanding will be reduced to $120mn, while the WPUK outstanding will increase to $108mn. Both of these are pre-interest amounts.

Waldorf sounded somewhat more positive on its future than the administrators. The company last month said that the agreement would cover its operating and tax liabilities for the next 12 months.

Juggling the numbers

Waldorf’s accounts for 2023 are overdue, according to Companies House. They should have been filed by the end of June.

However, for 2022, it reported revenues of $540mn, although with an overall loss of $454mn. Commenting on that year’s performance, Waldorf had said its performance was strong but that “exceptional items” had driven it into a loss.

In 2022, it was still expanding, having bought into Catcher and Kraken. Despite the windfall tax, Waldorf had its eyes set on carrying out further acquisitions.

The EPL had “led to a significant tax charge”, it said and this had also caused it to take impairments on its assets. The tax saw it take an impairment of $69.6mn on Kraken.

While the company has not filed its 2023 accounts, executives have estimated EPL liabilities of $84mn for the first nine months of that year.

The Armada Kraken FPSO, in which Waldorf participates — *The Armada Kraken FPSO*

Timing turns

In October 2022, the company approved a dividend payment of $76mn to its parent company. The tax hike the next month, deepening the EPL, saw Waldorf enter a “net liability position” – owing more than it owned. The next month, Bloomberg reported Waldorf was seeking to raise as much as $2 billion to bankroll M&A in the North Sea.

Indeed, at a conference in January this year, Waldorf executives were setting out their plans of focusing on M&A as a way forward. It was aiming to sell down stakes in two fields and acquire more assets in the UK.

Aaditya Chintalapati said Waldorf had “substantial tax losses”, of around $900 million. As such, it was only paying a tax rate of 35%, rather than 75%.

The CEO’s comments, at the Pareto Securities E&P Independents Conference, said that it made more sense for Waldorf to be a buyer than a seller.

“Incoming interest is difficult because we find that the most effective way to crystallise the full tax value is for us to be acquirers, buying production that we can get 100% of value for. Somebody who buys you will not get full value for it, there’s always some haircut you would have to take. I don’t think we’re in that position yet,” Chintalapati said in January.

Six months later, the thinking has necessarily changed.

It was a number of factors that brought Waldorf down and it is in this context that the EPL – and political challenges in the UK – are most concerning. Some companies will be able to continue without this additional tax burden, but the windfall charges plus politics plus pressure on banks to tackle emissions reveals a sector that is struggling to find its way forward.

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