Nexus endgame

Oslo Axess listed and Singapore based Nexus Floating Production Ltd (NO: NEXUS) notified the stock exchange on Saturday that it has received a notice of termination of Nexus #2 FPSO turret and mooring system contract from Advanced Production and Loading AS (APL) Plc. Nexus will be reimbursed 3.7 million USD for the termination. APL owns 49.7% of Nexus. APL was acquired by National Oilwell Varco (NYSE: NOV) for 500 million USD from BW Offshore Cyprus Ltd (OSE: BWO, which in turn had acquired it in 2007) in 2010.

Nexus has a checkered history. It was incorporated in 2006 and became publicly traded in 2007 through an IPO at a time of strong optimism at the peak of a cycle and was highly leveraged. Since then it has often tried to renegotiate terms with the bondholders and most recently its bondholders rejected a proposal to turn two residual bond loans of nearly 38 million and over 29 million into conditional 15 million loans subject to restart of the deferred Nexus #2 contract. These loans will mature on March 7th 2012.

A floating production, storage and offloading (FPSO) unit is a vessel used for the processing and storage of oil. Nexus originally used its option for a second FPSO vessel from Samsung Heavy Industries several years ago. Its construction has been delayed number of times as Nexus has struggled to find a customer. The most recent deferral period ends on February 28th 2012. Nexus has an option to terminate the contract with an exposure of the 67 million USD already paid under the contract. In its suggestion to bondholders Nexus was proposing that the conditional 15 million bond loan would be terminated in the event of the Nexus #2 contract being terminated for any reason.

The company’s first and only finished FPSO vessel Nexus #1 was delivered in July 2009. It was finally sold to Centennial. Asset Ltd., an affiliate of Brazilian EBX Group, in late 2009 for approximately 400 million USD. This resulted in a loss of over 250 million. The majority of the proceeds went to debt repayments. Both of the Nexus FPSO starts fall under highly speculative category and since 2009 the company has been pretty much in limbo.

It has long been thought there is great future potential in FPSOs although much of that is yet to be proven. At the moment there are over 150 FPSO vessels in service but most of them are customized for a particular oilfield. Often enough oil companies starting a project see it more prudent to build an FPSO for the lifetime of the field, or choose a drillship or a semisubmersible, once a decision to start production has been made, rather than to try to customize a ready built vessel. Nexus' vessels were intended for use in harsh environment.

The company has cut of all other activities than those related to the Nexus #2 deferred contracts and has had about 0.2 million USD in costs in the last couple of quarters. At the end of third quarter 2011 the company had assets of 1.1 in cash and 1.9 million as a cash reserves for a short term liability. It had a negative equity of 66 million (the bond loans minus the one million plus in cash)

Nexus is due to report quarterly earnings on February 24th. Nexus said in the Q3 interim report that its ability to continue going concern depends on a successful outcome of extending the option period and other work related to developing the Nexus#2-project. In 2008 the company’s market cap was above a billion NOK, now it is couple million.