Tidewater Inc

Tidewater is the world's largest owner and operator of offshore support vessels (OSVs), providing essential marine services to the offshore energy industry. Despite a 20% decline in the second quarter, Tidewater remains up 32% year-to-date. The long-term fundamentals are promising as global energy demand will increasingly require new offshore production. With a significant decline in global shipyard capacity and scarce financing for new vessel construction, the effective supply of OSVs is expected to decline materially over the coming decade. This constrained supply, combined with recovering demand, could lead to meaningful increases in vessel utilization and day rates. Tidewater generated approximately $350 million of free cash flow in 2025, and under normalized conditions, this could increase to $500 million to $1 billion, implying a free-cash-flow yield of roughly 15–30%.

Tidewater was one of the significant positive contributors to the Fund’s performance in the first half of 2026, alongside other energy-related holdings. The Fund's energy holdings, including Tidewater, benefited from a surge in oil prices due to geopolitical tensions in the Persian Gulf, which saw prices rise from less than $60 per barrel to over $110. However, in Q2, Tidewater's shares, along with other energy stocks, gave back some gains as oil prices fell to around $70 amid a ceasefire agreement. Despite this volatility, the Fund views the energy sector as well-positioned to benefit from disruptions in Middle Eastern supply and increased investment in energy infrastructure.

Tidewater remains among the strongest contributors to Fund performance year-to-date, providing offshore energy services through the operation of the world’s largest fleet of platform supply vessels. Despite a decline in share prices from recent highs, we believe that the fundamentals supporting Tidewater's business are robust. The need for rebuilding global strategic and industrial oil inventories will take years, creating incremental oil demand. This positions Tidewater favorably in the energy services sector, especially as long-life offshore energy supplies will play a critical role in supporting energy security and supply.

Tidewater, a Texas-based owner of tugboats and offshore supply vessels for the energy industry, was a notable detractor this quarter. The U.S.–Iran ceasefire in June let the air out of energy and shipping stocks, but we believe that the multi-year supply-and-demand outlook for offshore vessels remains favorable.

Tidewater (TDW) increased by ~65% in the first quarter as investors rotated into energy and energy-adjacent stocks. TDW is a marine services firm that operates one of the world’s largest fleets of offshore support vessels (OSVs). The long-term outlook for international and offshore markets is strong, with expected growth in worldwide demand for oil. The OSV market is anticipated to shrink by ~40% over the next decade due to a lack of investment, which could lead to significant pricing moves in favor of TDW. They generated ~$350MM in free-cash-flow in 2025, with potential to reach $500MM-1BB in a normal environment, translating to ~12-25% yields.

Tidewater is positioned to benefit from a significant structural shift in the energy sector, as the demand for offshore oil and gas services is increasing due to geopolitical disruptions and a growing need for energy security. The company has a strong backlog, with a third of major service companies' backlogs now involving gas development, highlighting the rising importance of LNG. The market has begun to recognize the shift in offshore demand, leading to a meaningful repricing of Tidewater's holdings. The current environment presents compelling investment opportunities as the world seeks to diversify energy sources.

Tidewater Inc has emerged as our top contributor due to its strategic acquisition of Wilson Sons Ultratug, which adds 22 vessels to its fleet. This acquisition is expected to generate over $100mm in operating cash flow (EBITDA) in the first year, with a total cash expenditure of approximately $240mm plus $260mm in assumed debt. Post-acquisition, Tidewater will lead its industry with a global fleet of over 220 vessels. We remain enthusiastic about the supply-and-demand outlook for Tidewater’s services, especially in the context of current geopolitical tensions affecting energy logistics.

Tidewater Inc. has the largest fleet of offshore support vessels in the industry and is the oldest and most experienced provider of marine support services to the offshore oil and gas sector. With over 90% of their fleet working internationally, they are well-positioned to benefit from increased offshore drilling activity as oil prices surge. In Q1 2026, Tidewater's earnings surprised significantly, coming in at $4.41 per share against an estimate of just $0.77, reflecting strong demand for their services and enhanced pricing power on day rates due to rising oil prices.

Tidewater has been a notable contributor to our strategy's performance, benefiting from our overweight exposure to energy services. This sector has seen a shift towards disciplined capital expenditure following a decade of excessive spending, which has improved returns on capital. Our analysis indicates that the energy sector is on a capital diet, making investments in growth less justifiable, thus enhancing the profitability of companies like Tidewater. We believe this trend will continue to support Tidewater's performance in the coming periods.

Tidewater has demonstrated its ability to capitalize on market conditions by utilizing its industry-leading balance sheet to acquire assets from distressed sellers at deep discounts. This strategy has allowed Tidewater to upgrade its fleet and generate synergies, positioning the company favorably within the offshore energy services sector. The consolidation in the market, where only a few major companies dominate, enhances Tidewater's prospects for improved supply and pricing discipline, which could positively impact future profitability. The long-term investment thesis for Tidewater remains attractive as it continues to navigate the evolving energy landscape.