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Oilfield Services: Transactional Due Diligence: Undisclosed: Quality of Earnings Analysis

A major alternative investment management organization (“the Company”) has developed a diversified investment platform and manages capital for many of the world’s most prominent institutional investors, public and corporate pension funds, endowments, foundations, family offices and high net worth individuals. Founded in 1992, the Company is based in New York with offices in Hong Kong and London.

Opportune professionals were engaged by the Company to provide professional services related to the client’s evaluation of a potential financing involving a marine contractor that provides an integrated offshore construction solution to its customers, including manned diving, pipelay and pipe burial, platform installation and salvage and light well intervention services to the offshore oil and natural gas industry on the U.S. Gulf of Mexico Outer Continental Shelf (OCS), Northeastern U.S., Latin America, Southeast Asia, China, Australia, West Africa, the Middle East and Europe, with a diversified fleet of surface and saturation dive support vessels and construction barges.

Opportune professionals performed comprehensive quality of earnings review procedures over a two-week period, including:

  • Tested and critiqued the 13-week cash flow forecast across multiple countries;
  • Determined normalized run rate for earnings and cash flow;
  • Assessed existence of overstated assets and understated liabilities;
  • Assessed financial systems and internal controls;
  • Evaluated drydock costs and working capital turnover;
  • Evaluated individual vessel project gross margin economics, profitability and utilization levels;
  • Assessed legitimacy of backlog and extent cancellable;
  • Performed detailed contract reviews to determine risk exposure and existence of commitments and contingencies;
  • Evaluated cash management procedures and efficiencies between foreign offices;
  • Performed analysis of critical vendors in light of potential bankruptcy; and
  • Reviewed capital expenditure plan and variance reports for all major capital considerations.

Opportune added value by providing the client with a detailed report documenting the results of our findings that provided sufficient information to make an investment decision. Ultimately, the Company elected not to provide funding to the marine contractor.

Leveraging our Complex Financial Reporting and Enterprise Risk practices, Opportune’s team of seasoned former Big 4 auditors and energy experts bring the experience and tools necessary to evaluate the stability and persistence of a company’s earnings. When assessing the quality of an entity’s earnings, we consider the accounting practices, internal control environment, management experience, capacity to deliver on growth projections, macroeconomic influences and cash flow stability. For more information on how we bring value to quality of earnings analysis and services, CLICK HERE.

Dean Price

PartnerOpportune LLP