Prosafe SE

I think we'll just wait for the last persons in the room. Good morning and welcome to Prosafe's First Quarter 2019 Presentation of Results and Market Updates.

Disclaimer will be familiar to you. So please study that yourself.

The agenda will also be familiar, and I will take us through the highlights and then Stig will cover the rest of the presentation before we will jointly answer any good questions. So highlights for the quarter.

Utilization was high and came in about 62.5%, which is about on par with the fourth quarter last year and almost double that we saw a year ago. Financial results.

EBITDA before nonrecurring items at $25.9 million. And cash healthy, a positive cash flow of $14.7 million in the quarter, which means we have a cash balance of $109 million and then when we add the drilling rights we have under the revolving credit facility of about $155 million, the total liquidity reserve was $264 million.

The quarter was also characterized by high activity. First, as I think, we also included in the last presentation, we won an auction for 3-year contract in Brazil in January.

Now we are more than 3 months later, which is not unusual in Brazil, and we expect that the contract will be formalized during this month. So after the auction, it was followed by technical and financial due diligence by Petrobras, which we performed well.

And then there are the almost customary appeals in Brazil. None of the appeals were against Prosafe, or none of the appeals were against the vessel, Safe Eurus, but as a part of the auction process, we have patiently to await the outcome, and we understand that the appeals are now done.

And therefore, Petrobras are in the final process of finalizing the agreement. When the agreement is finalized and signed off, the vessel will go on hire in Brazil within 150 days.

Safe Scandinavia contract is restructured with a few options into this month, and we expect that to end during this month. The Safe Swift was awarded a contract in the Mediterranean and just saw Equinor exercise 3 options -- 3-month options on the Boreas at Mariner and there are options for them, remainder of 2019 for that vessel.

In addition to the elements mentioned on the screen, I think the Caledonia is currently on hire in the U.K. sector.

And so recently, the Regalia is currently mobilizing as we speak to Shell Scandid field in the U.K. sector, it should be on hire this weekend or early next week.

And the Zephyrus is also mobilizing directly from the Johan Sverdrup field to the U.K. sector to commence its work shortly for BP at the Clair Ridge field.

So a lot of activity, and when we look, as you can see from one of the slides, later that Stig will cover. And in 2019, if we take out Bristolia, which is cold and 2 vessels we have in China, then all our vessels will be working for -- at sometime during 2019, which is quite some time, since we had that degree of activity.

So we are seeing high activity in 2019. I think with that, I would leave the floor to Stig to take us through the other highlights.

Okay. Thank you, Jesper, and good morning, everyone.

So let's start with the financial results that you've all already read, I guess. As Jesper alluded to -- well, let me start by just commenting on -- I've read, I think, most of the reports that came out this morning, and I think the headlines pretty much reflects our own view.

The performance in the quarter is very much in line. And as we say ourselves, we feel that we are on track.

And by that, we mean across the board whether it's financial performance, activity, cost organization and everything. So we feel that Prosafe is on track, when you look at the elements that we can control and manage ourselves.

So as you see, Jesper alluded to, high activity in the quarter, very high utilization. And of course, if you compare the utilization to the same quarter last year, it's twice as high.

But, of course, there has been developments on the day rate side. And if you look at the average day rate in this quarter compared to the same quarter last year, as you see on the slide, we're basically -- it's more than 50% lower than the average in the same quarter last year.

Last year, of course, very much driven by the Safe Scandinavia operating it's Kenz support vessel, so that's not the accommodation, but also other contracts. So that's the picture.

High activity, but, of course the pricing reflecting the industry's sentiment, is perhaps the right way to say it. And that gives us an operating profit in the quarter of USD 24 million, which we think is in line and on track.

Not anything to say regarding depreciations, steady state. I think on the interest cost side, if you compare interest cost to the same quarter last year, you'll see that, that is down, but that's been duly explained before, so I'm not going into the technical details, but, of course, now it's reflecting more the normal level to be expected going forward.

So the long and short of it, is that's how we then ended up after finance and tax with a net loss in the quarter, as you will see on the slide, of USD 28 million. But all in all, on track.

This slide, we always share with the market, but we haven't talked to it for a while, but I wanted to mention this now because just to remind those who may not follow the company very closely, when they look at the revenue side, although we are less transparent now than we used to be in the good old days in terms of the exact day rates, I think this particular quarter, if you look at revenues and take a view that, maybe, the revenues are slightly different to what some of you might have expected. One reason could be the Mariner contract, which we restructured, as you all know, with Equinor last year.

That's been duly explained to the market, but there might be still some different views of what the current day rate is on the Mariner contract for the Boreas. But this is the other element, i.e.

reimbursable or other income. And this is very, very contract-specific and client-specific.

So it's a whole set of different items with also different margins attached. So it's not a zero-sum game, they are raw margins, but the margin picture varies.

And of course, that impacts revenues quarter-on-quarter, as well as EBITDA quarter-on-quarter. And it's, of course, difficult to predict from your side, what it will be and even from our side because as I said, it's contract and client-specific.

But it's important to be aware of this additional element, and I think that's always an element that explains part of the deviations from what the market expects and what we may report in both directions. So that was a reminder.

Moving on to the balance sheet. I think the only thing I would like to highlight is what Jesper already alluded to in his intro.

We are in good shape when it comes to liquidity reserve. And I think in these days, that's the key point.

Operating cash flow in the quarter, as Jesper alluded to, is okay, simply reflecting the direct level, but also the activity level obviously, but the liquidity situation is good. And I think when it comes to the book equity, 22%.

Those of you who focus on that, it's not a particularly high number, but it's also -- we don't have any book equity covenants, so it's kind of good math and there is sort of compliance when it comes to other covenants, just for your information, and we don't see that as a challenge. As you all know, we have a financial runway, and we're in good shape.

And we have time still, to work the market and hope that things will start to improve sometime hence. If we then look at the contract status, again, it was pretty well covered already in the introduction, but -- and it's not news to you, you've seen this before.

We cover this, of course, in the operational update that we send out a couple of weeks before the results. So it's really just giving you the status.

And again, we hope that within not too long, it can be supplemented with at least the Brazil contract for the Eurus, which will be a long-term contracts -- contract, which is important for us, keeping in mind the size of our fleet. Obviously, we need to pursue the strategy where we over time add a mix of long-term contracts with some rigs and then the remaining rigs can typically do the shorter contracts, which is typically what the North Sea normally will provide anyway.

So as I often tend to say when we show this as there is a lot of white space going out to '19 and you can then debate whether that's a risk or a potential upside, and I leave that to you. But obviously our task is to try to fill that white space.

And on that note, let's hope it's opportunities. Outlook.

Well, oil and gas, it's all about oil price. That's where it starts and that's where it ends.

We do not predict our price, of course. This is just showing you the facts.

You already know this. But clearly, the oil price is behaving well.

I think that's a term I've used before. So there is nothing to suggest that the oil price is holding back activity in the industry.

And from what I'm reading, it doesn't seem to be an expectation either, that have to be -- it will change going forward. But as expected, without making predictions, the oil price is not holding back activity.

So that's one important macro indicator. And of course, that fuels what we show on this slide.

The cash flow from the industry, from the oil and gas companies is very strong, even after dividends. And of course, this was one of the -- the negative cash flow was of one of the triggers, I guess, that kind of started the recession already back in 2014.

So now the cash flow is back. Oil price is good, of course, driving the cash flow.

And we also see that it's beginning to flow into activity in certain parts of the -- in the value chain, and it kind of supports an expected higher CapEx level. And of course, we see that from the budget of the oil companies as well.

So again, that's a positive, call it, macro sign. Against that positive backdrop or macro picture, of course, this is our current order backlog.

And now this is looking -- yes, 3 years back, so in that perspective, it's kind of at all-time low. So as I stated before, at the moment, we are hopefully at the bottom, but it's like we're sliding sideways along the bottom, and hopefully, it will be improved within not too long, as Jesper alluded to, by the Eurus contract that will add substantially to it.

But of course, we need much more than that because we, of course, consume a big part of this on a quarterly basis. So against positive macro, order backlog is currently at an all-time low.

If we then look at the key geographical markets that typically are important for Prosafe, again, it's a generally positive outlook. U.K.

When I was young 20 years ago, the whole of North Sea was seen as a sunset industry globally, U.K. in particular.

Now they have production growth in the U.K. A whole bunch of new players coming in, focusing on existing fields and production, driving up recovery rates from the reservoirs.

All positive for the industry and all positive -- should be positive also for a company like Prosafe because existing installations, life extensions, tie-backs, are typically bread-and-butter business for Prosafe in the historic perspective. So what's happening in the U.K.

is generally positive for Prosafe. And as you will note, the majority of the jobs we have also gotten in the recent times is U.K.

So clearly, U.K. has started to pick up before Norway, looking at the North Sea.

But in Norway, it's also very positive. I mean we are top of the range when it comes to exploration success.

Now exploration doesn't, unfortunately, help us in the short term, perhaps in the long term, if it leads to new field developments and lookup jobs. But it's positive as there is a lot of exploration happening.

And again, also, in Norway, you see new players coming in that you are aware of, and that's positive in itself. Because, again, they focus on existing fields and production, which will or may lead to enhanced oil recovery, nearby discoveries, tie-backs, life extensions, et cetera.

So again, positive from market macro point of view. And the same goes to Brazil.

Brazil, most of you follow very closely and most companies talk about Brazil. So I don't need to say much about it, but, of course, there is a lot happening in Brazil.

And a lot of FPSOs coming on stream in the Arsa Hub, maybe not so relevant for us from a hookup point of view, given they are at ship-shape FPSOs and they tend to say aloud and disconnect themselves. However, majority of the work Prosafe do and historically have done in Brazil is maintenance work and life extensions also related to FPSOs.

So again Brazil, key market, positive indications. And of course, if we -- or yes, if we now get the Eurus contract then at least for a period of time we'll then have 3 contracts in Brazil.

And then Mexico, which historically has been the, call it, the third-key market for Prosafe. And as some of you know, at some point in the good old days, we had 7 rigs in Mexico, then 6 and then for many years, 4 and 5 vessels.

It's positive in Mexico that they have the right ambition level. Oil and gas industry is critical to the Mexican economy.

Oil price is good. They have cash flow, they have growth ambitions, and there is a whole bunch of opportunities going forward across the value chain.

Now new players are coming into Mexico as well, and of course, in the future in the long term that could give us opportunities related to field development, et cetera. But of course, in the short term -- short to medium term, what we need to rely on as for Pemex to lead themselves to start demanding more high-end equipment, again, to support all the work they need to do related to its existing fields and production.

And we are more than prepared to support them, and we have people on the ground, as you know. And we are hopeful and the fact that they have now started to offer or give contracts to non-Mexican companies in other parts of the value chain is a positive signal.

So -- and, of course, it -- all this positive macro-end market information fuses into our own business intelligence as well. And of course, this is not -- this is our own science.

So -- and you have all understood that so we may be wrong. But it's positive and it has continued to come up the prospects that is measuring prospects on a global basis per region, as you know.

And the tender activity now is quite high, but we are also saying in the report that we don't really see tangible opportunities certainly in the North Sea in 2019. So given that this picture is 3-year look out, you have to assume that it's kind of 2020 or even 2021-type opportunities that we're talking about.

And that, of course, corresponds to the general guiding that the company is providing that we continue to anticipate, I think it's the right way to say, an improvement from 2020, 2021. But it means that we need the general activity level to come up across the value chain and in all geographical markets.

So all the signs are there, and the question then is timing. And of course, to what extent it will materialize and really work for Prosafe.

But we remain optimistic for the long term. So to sum up, yes, very high activity in the quarter, and I would say for the full year, as Jesper alluded to.

It's been a while since we've had so many vessels operating at the same time. We believe ourselves, performance is on track and by that, we mean across the board.

We have a financial runway. Maybe we should stop talking about the financial runway, but we are in a good shape from the liquidity point of view, so we have time.

And I think we have done what we can. Well, we will never finish, but there has been done a lot inside the company.

So we have control over that. Outlook in our mind is pretty much unchanged.

Question is timing and to what extent. And of course, topic of the day across the value chain is consolidation.

We've been talking about it for a few years. We realize this, and it stays on the agenda.

Of course, it has begun to happen in other parts of the industry, for example, in seismics, interestingly. And you might argue it has to some extent happen even in the accommodation with agreement between Haven and on the jack-up side.

So I guess, with that, we can round off the presentation as such. And Jesper will join me, and we can take questions.

Thank you.

Any questions, yes? Do we need -- I think we -- I can do the -- I can be the mic now.

Magnus Olsvik, Kepler Cheuvreux and Swedbank. Just on the tendering activity.

Know -- have 1 vessel in the North Sea next year. Are any of the tenders currently out there for North Sea 2020 work?

Yes.

And how many?

Cannot say that.

Okay.

Nice try, though.

Had to try. On the -- specifically, on the Scandinavia, which is now becoming idle, how do you see the outlook for her going forward in 2019, 2020, onwards?

Yes, I think on the Scandinavia, as you know, we marketed in 2 segments, so to speak. We have the tender assist capability, which we market in the North Sea and also outside the North Sea where we see some conflicts.

And then secondly, we also used such oil market across as a floater with capability in Norway and U.K. and I think, it's fair to say the Scandinavia, which is aka HD design has, probably, the highest gain weight up-time of any vessel in the accommodation space.

So it's definitely a vessel, which I know clients has a positive view on and which we are marketing.

And then lastly from me on the Westcon dispute, can you remind us on the status? And is it still a 2020 story here?

You're definitely close. Yes, we will see that it -- I think the status is that the preparation of the appeal case is underway.

The court in Bergen has yet to fix the hearing date. I think if I were to guess, it would be around -- the hearing will be completed in 2020.

I think that's my expectation. Whether the court then will finalize its verdict or its judgment in 2020 or whether we go into early 2021, I'm not sure about the exact dates, but it should be -- I think, at least the court process should be a 2020s time.

Okay. Any other questions?

Yes?

Christopher, Carnegie. If you have to stack your vessels currently working in the North Sea, what the typical stacking costs be?

Stacking cost in the North Sea? Well, depends on warm stack, cold stack, semi-cold, lukewarm.

There are -- it's -- you can easily be confused. But to be serious about this, we have now been able to bring costs down to -- the lowest cost we have at the moment is for the Bristolia and that's been sitting cold for quite some time in the North Sea up in Ferguson, and she is below $4,000 a day.

Now if you took just as an example, the Zephyrus in kind of semi-warm situation, so that she wouldn't be entirely cold, but semi-warm. We can bring her down to around $15,000, I guess.

So that's the type of range. But if we want to, we can easily bring the cost down to below $10,000 a day.

So one of many good things about the accommodation is exactly that. We are -- the CapEx requirement compared to, for example, drilling is very moderate.

And number 2 is, we are able to bring down the costs significantly. And one of the reasons, as you know, that we have also chosen the strategy of outsourcing aspect is, of course, to add flexibility in our cost structures, allowing us to quickly act and bring down the costs when we see that rigs are coming off contract.

And I think just to add, it's -- yes, I think generally speaking, we are -- hope, this is a happy kind of an industry sports and how to stack your vessels in the most efficient way. And I think basically, we are getting more confident on going colder and lower cost in our vessels.

If you take the case of the Regalia, which is underway now mobilizing, has been cold for probably 2-plus years. Was cold, needed to complete an SPS.

And I think if you look at total reactivation time from starting reactivation until we are ready with the client, including SPS customer's rights mobilization then we have below 80 days, 70-something days. So that give us some sense on how you go from complete cold SPS and on contract within a reasonable short period of time.

And it's been a while since Eurus appeared at top of the list in Brazil. Is it just Petrobras using a long time?

Or is there any outstanding issues that needs to be resolved before final contract is awarded?

The outstanding issue is signing. And that's basically -- this process in Brazil is not surprising to us, and we have not seen any issues along the way.

We have not had any challenges, and we have not had any appeals against us. We are part of a larger process.

And 3 months, 3-plus months, processing time in Petrobras is not unusual. Of course, we only inform when a contract is formally awarded, but we do not see any issues or challenges or outstanding issues apart from signing.

Can I just -- yes, other questions? I hope to have some more.

But before that, let me just say for a second what we now realize having, I was not reading e-mails just testing the technicalities. So I realized that there were some technical issues at the start of the presentation, but I'm hoping that those of you who are listening and now also via the cyberspace that if you got the last part of the presentation and this Q&A, then you will basically not have missed much.

So I just wanted to say that for the sake of order and apologize. Okay.

Questions? Yes?

My name is Michael Sherman. I'm with [ Reoak].

And I wanted to touch on the political risk in Brazil and Mexico. Of the 2 markets, which one do you prefer if sort of similar opportunities would arise in each country?

I would say, the highest paying one. But, of course, it was a management -- is an -- issue, but I -- as we've seen historically, Mexico had a risk attached to it, as a team has the ability to cancel that contract.

I think we have ways of mitigating that. In Brazil, seems lot as a macro risk, but I think in the accommodation space, I don't think we have seen that spillover from any tangible ways.

I think, hopefully, managing that risk in Mexico will be a challenge for us going forward, and we're working on that. But I think we should be capable of operating from places without any concerns.

Any other questions? Yes, please.

[ Hogan Heed, La Tirada ]. Is it possible to elaborate a little bit on the consolidation point, like are you pursuing something concrete now?

Or what you're working on? And how do you look at industry, 3 years ahead?

I guess it will look quite different now.

I will say about that [indiscernible] of course, it's a very difficult job. I haven't commented so much on it.

But I think, the point is that you're saying is that yes, the industry will look different in 3 years. If you look at the whole drive on the customer side, reducing cost is mirrored by the supplier side.

You can only do so much on a stand-alone basis, there comes a point where you basically have to use inorganic initiative to take it to the next level. Consolidation will definitely happen, and we definitely hope to play an active role in that.

Yes, and if I can only add that more like an anecdote, but I think if you go back to when the deal between Master Marine or Haven, the jack-up and these calls where [indiscernible] vessels were announced. And if you back up 18 months from that point in time, then I think this was one of the joint presentations we had when we said that the landscape would be different in 18 months, and we were right.

It just didn't include Prosafe, unfortunately. But at least it has started.

So -- and we have also said before that you have to assume that this is on the agenda in every company and people are, from time to time, exploring opportunities. So...

Yes.

Working on it.

Any final questions?

Just one final from Christopher, Carnegie. When you presented first quarter, you preannounced some external one-off costs in first quarter, so who do you preannounce some one-off costs for second quarter?

Or are you now completed with the restructuring?

It's a very good question, and for more than one reason, I mean we had this discussion between ourselves almost jokingly a little bit when nonrecurring costs become recurring on a quarterly basis. But it -- we're not alone.

I think it's -- the industry is going through a period where nonrecurring become recurring, but one day, hopefully, it will be over. We cannot guide specifically.

But I think you can expect that there will be some because we continue to look in every corner of the company, turned every stone. We're still in the process of outsourcing most of the offshore crew on the vessels and all of these continuous things will most likely continue to leave to some one-offs also for a period still.

So that's a general guiding, but I won't be precise on numbers.

Okay, no further questions. Thanks for coming.

Thank you.