Prosafe SE

To process quarterly presentation. We are not that many in the meeting room today, which is a bit of a pity because it's a good quarter, and the presentation is refreshed.

So hopefully, more people follow online. Disclaimer will be familiar.

It is not refreshed to the same extent as the presentation. Quickly on the highlights before going into ops, passing it on to Reese, getting it back and Reese will round us off in due course.

So quickly on the quarter, a fairly good quarter. High activity, 6 vessels in operation, 77% utilization, which is the highest since 2016 in a third quarter.

Good backlog of $93 million, operations and HSE have been without any major concern. On the numbers, which Reese will go through the details, revenue just above $60 and cash and EBITDA around 24 million and liquidity growing to $74.5 million in the quarter.

And a bit on outlook. The North Sea is still quiet.

It's been for some time. So we do not expect too much North Sea activity next year.

It looks a bit weak. It's, I think, mainly a timing issue.

We have good activity in '22, then it looks weak in '23, and then things are really picking up in '24, which I will come back to. Then I'll probably see something in '23, but I don't expect something very meaty in the North Sea.

And that is a bit unlike the rest of the world, as we have, as you see, maybe 4 of our vessels in the Americas next year. CapEx and modification costs, we will focus on that in the coming months.

If the Safe Zephyrus go to Brazil, that will incur about $10 million CapEx. We have some vessels coming off contract.

We are preparing the Concordia. So that will be a key focus in the coming months and cost us some cash.

And finally on outlook, even though the 2023 market in the North Sea looks very quiet, it doesn't mean that tendering activity is quiet. Customers are very active these days and I would expect that within the coming months, whether it will be this year or early into next year, I don't know, but we will see a conclusion of about 6 contracts for work in 2024 and a bit onwards.

So the key focus in the coming months, see if we can get some more work for 2023, focus on executing the modifications and mobilizations we have to guard our cash. And finally, we have a number of ongoing tenders, which will be concluded in the coming months.

Quick on operations. As I mentioned, 77% utilization, and we can do a quick run-through of the fleet.

The Boreas concluded -- well, commenced and now concluded a short contract in the U.K., where we had 20 or 30 days option called Zephyrus at ETAP in the U.K. with BP.

We expect it to be concluded on the 21st December, and then it may sprint to Brazil, as I will come back to. Caledonia still at Elgin has been there for almost 1.5 years and doing very well and Zephyrus and -- sorry, Eurus and Notos are doing well in Brazil.

No change in that. And the Concordia has now concluded what was very good contract for that DP2 vessel in Trinidad.

And as you can see, utilization of the fleet looks fairly healthy over the past quarters. Quickly on the backlog.

As you can see, it has tripled in the past 12 months, mainly due to the Brazil contracts we have added and now stands around $300 million. The main addition for the quarter was the 11 to 17 months contracts in the U.S.

for Concordia with a day rate around 100 for the firm period, around 110 for the options. And there's a standby rate depending on commencement, but naturally, we hope for the earliest possible commencement from July onwards.

After the end of the quarter, we were first placed in a bit with Petrobras. For those who remember, it's a retender.

The first was canceled because the bids were above Petrobras' budget. It was retendered with an identical specification.

That shows that Petrobras is willing to pay for the specification. There was a bit of savings, so we could reduce the price a bit, but we are first in that and the negotiations are ongoing.

Our main focus is to get the vessel as quickly as we can to Brazil. If it's done in late December, it may miss the Carnival in Rio when it goes there, but hopefully not by much.

And we are in dialogue with Petrobras about the earliest possible commencement, which, of course, is in our interest as we want to keep the maximum commercial flexibility. A quick overview of our contract portfolio focus is on getting work for our 2 vessels in '23, one DP, one moored.

And those are only the -- also the only two available we have for '24 if the Zephyrus goes to Brazil. Zephyrus done around 21st December, we expect, and then it will go to Brazil if we conclude an agreement with Petrobras.

As I mentioned, very busy on tendering activity. Six, I think, contracts to be concluded in the coming months, and we see some customer reaction based on our bid in Brazil and customers realizing that what we have available for '24 is one DP vessel, the Boreas, and then Caledonia and possibly Scandinavia.

Over to Reese.

Thank you, Jesper. Before I go a bit into the details of the financials, I want to say that we have done a bit of a refresh on the presentation.

And I think also people have noticed that we've included a lot more information in some supplementary pages to the presentation. I think a lot of that has been driven by, of course, the increased interest in the company over the past months.

And I think Jesper and I have gotten many questions on many different fronts, and we felt both amongst the management and the Board that it was the right thing to go out and give people a lot more detailed information at this time. This is not something we probably will do every single quarter, but at least a couple of times a year, we'll have the intent to sort of give people, I think, a bit more information around CapEx numbers, contract rates and what we're seeing sort of at the OpEx levels per vessel.

So that's something we'll try to do. And I think also there's the intention going forward to present more at the half year and at the final year and maybe be a little bit more tight on the quarters, just coming out with a presentation rather than sort of the full quarterly report.

But we will continue to deliver, I think, on the financial information and continue to be as transparent as possible, so. I hope everybody finds that beneficial.

In the quarter -- solid quarter, very good quarter, as Jesper mentioned, $24 million in EBITDA for the quarter, largely driven by the utilization, most of the vessels on hire, all the vessels on hire during -- not over the whole period, but during the period. So a very strong quarter and obviously, one of the better ones that we have had for several years.

I would just like to highlight that we do have quite a large portion of, what we call, other income. And I think, to the sort of accountants out there, a big chunk of that in this last quarter was actually, what I call, a gross up of the income statement where we're actually including in revenues, some withholding tax which is then actually also on the expenses side.

So not really much of a margin on that, and that's very much related to the Trinidad Tobago contract which actually ended at the very end of the quarter. So underlying around $50 million of revenue and a little bit of earnings on the other income, but not that much.

Otherwise, on the P&L, no real big surprises in the P&L. As I've talked about a few times before, we do have some taxes that's, again, related to Trinidad.

So I think going forward, we won't see this level of taxes, it was very project related. We do have a large tax loss in Norway and I think we have a very tax-efficient structure.

So I think going forward, the only taxes we see are some minor taxes related to contracts were based on the transfer pricing structure. So I think that is a bit of a one-off that will taper off.

I think otherwise, on the balance sheet, I think we are very happy this quarter to see a little bit of unwinding on the working capital. We'll see that a bit on the next page, but improvement in the actual cash balance, which I think was very favorable.

And I think we will see that through this quarter as well with some of the contracts coming off, the Trinidad contract finishing up at the end of last quarter and in this quarter as well with Boreas coming -- finishing its contracts. So we think we'll see some positive working capital changes now in the fourth quarter.

Otherwise, on the balance sheet, no big surprises. As I mentioned, cash, very happy to see the cash balance going up.

I think if you remember last quarter, actually, we had a good result, but actually pretty flat on the cash and that was largely driven by working capital. But I think we were able to catch some of that up with BP coming through.

And I think we see that issue kind of coming over. So I think we'll see continued good cash generation at least through this quarter.

And a good kind of look there. I think always good to remember that we do have some interest costs, although we have a very favorable financing package.

There is some interest cost that you have to pay and the amortization on the Eurus facility or seller's credit, I guess, is a better term. Net interest-bearing debt and the debt profile, not going to dwell too much on that.

I just always like to remind people that we do have a fair value adjustment in our calculation of net interest-bearing debt of some $14 million, which I think is, from an accounting perspective, something that one may like to add that to the net debt number or not, but we always kind of footnote that. We have a very favorable package from Costco on that financing for the yard, but we just have to keep that in mind.

Otherwise, no big issues. I think we do see interest rates, of course, coming up.

We are unhedged when it comes to our interest rate exposure and actually don't have any hedging lines readily available. So we are a bit subject to the interest rate fluctuations and changes going forward.

But nevertheless, a very small margin on top of the base rate, but that is, obviously, a sensitivity that we are keenly aware of. I think I'll move on and let Jesper talk briefly about the market and then I'll come back in for a bit more on the outlook.

Thanks. Give me three slides and then I'm ready to hand back.

So a bit on the markets. On a global view, I guess, the numbers are quite clearly indicative of a tightening market.

The supply side here, we can see how that is declining slightly with older vessels being scrapped. We are not in an industry that has any big order book or overhang from a supply side.

In terms of demand, the trend is quite clearly increasing. Be mindful that this is a number of vessel years.

So if you're in the North Sea, you often require two vessels to satisfy one demand year. So that is worth keeping in mind.

And then, of course, the utilization rates are moving positively and getting into a territory, which is meaningful also from a rate point of view, if you look at other industries. And if I recall what we pointed to in previous presentations, we see some of the lower spec vessels also winning work, and we can actually see how that's improving here at the brown or grayish line at the bottom that even the lower tier vessels are winning work, which I think is a good sign of how things are presently in our market and what may lie ahead.

A quick look on the North Sea before we take a look at Brazil. I think in the North Sea, as you can see, currently, we have had a -- there was a high period of the previous cycle here.

It has been coming down. Even though it's not so visible, rates are moving up between 100 and 140.

It's been in a long period. But of course, how things are looking, the market is definitely tightening.

On the activity side, we also see a clear increase. What we have done this year is mainly tiebacks, short circle projects, tiebacks in the U.K.

And when we look forward, we also see tiebacks and works related to that. So I wouldn't be surprised if that continues to be an important activity for us.

Brazil is a bit of a more predictable market, I think as we do maintenance -- planned maintenance activity, largely linked to the installed base in Brazil. And we haven't plotted in our latest bit of 112, but that will probably be as high as you have seen from '17 and rates have moved quickly in Brazil.

Interestingly, if you look on the historical activity in Brazil, the peak in '15 and '16 from a flotel or UMS activity level was actually on a lower installed base. So when we see the installed base increasing and increasing with larger FPSOs, it basically underlines our view that there will be more activity and opportunities in Brazil.

And therefore, our focus is, of course, to have more vessels to offer to Petrobras.

We've also been receiving a lot of questions, I think, around what is the earnings potential, and I think that's always a great question to get. And while the past is never a predictor of what the future will be, I think we did do a little bit of work around what has it looked like in the past.

So going through the last sort of cycle, we are in a cyclical business. I think a lot of people think we are sort of entering a new cycle in the sector.

I think we believe the same. And what -- if one is sort of looking at that a little bit holistically what does that mean for us looking on historical patterns.

And what we see is that, going back and looking through history, we see that sort of when we were kind of at the peak, on average, we had vessels making around $40 million of EBITDA, again, on average. We had some peaking out of book, but that was kind of what it was we were in those peak years.

And if we look sort of over the whole -- almost an entire cycle, it's probably not fully the cycle. But getting close, we see that it was around about the 20-ish mark.

So we wanted to kind of give people some indicators, at least also from how we're looking at it. This is sort of what -- has been what is sort of a football field of potential EBITDA per vessel type of range one could look at as the market is picking up.

And we think this is a good football field. One can, of course, debate, is it 20, is it 40, is it 50, but we think this gives people a decent feel.

And I think as well, the number of vessels, we can talk about that. We've put in Scandinavia into the analysis.

One can also say what's happening in Brazil, is it fair to sort of put Eurus a notice in this analysis as only having the rates they have today? Of course, one can discuss that, but our view is that they are on these contracts until '26, '27.

So after that, of course, we will see. Well -- so I'm not saying this is sort of -- this is not from our guidance or what it will be, but I think giving people some metrics that they can look at looking back in time.

So I hope that's informative and gives a bit of a view. Coming back just to wrap up, I think, as Jesper said, it was a very strong quarter.

I think we see that 2022, we are landing in the range of our guidance. I think we will be right at the upper end, which is about 60.

Whether that will be 60 or 62 or 63, we will see, but I think we're right about where we thought we would be, which we're quite happy about. It was a very full year, one of the better years that we've seen in many years.

We've also had really good operations HSE performance throughout that year. So that was quite an achievement coming off of a low base and that's been very positive.

As Jesper said, 2023, looking much lighter than we would like it to be, and that in combination with activities around getting Concordia on a job, which of course, is a cash contributing job over the contract period. There is some upfront loading of the expenses in CapEx.

The same a bit with Zephyrus in Brazil should be in that. And we also have the notice in Eurus hull cleaning, and we will bring forward the SPS for the Eurus so that we only have that vessel off-hire once rather than twice.

So if you put all that into the mix, we also see that 2023 will be a year where we have to have a keen focus on our cash management throughout the year, which we are keenly aware of and also very focused on new opportunities in '23. We see some opportunities, like Jesper said.

We think some opportunities will come, but it is lighter today than what we'd like it to be. But 2024 onwards it's looking good.

And we do have tendering activity and we're quite positive that in the coming months, there will actually be some awards for the time period 2024 and beyond. So overall, looking very positive, and 2023 will be a bit of an in-between year in our view.

So I think we can now hand it over to questions. If there are any questions, maybe take the questions in the room first.

I think there were some questions on the phone as well.

So I have a few questions actually. Partially, I think you answered the first one by saying that you need to have cash management in 2023.

So by that, I conclude that you are going to swipe very much cash in 2023. Is that a fair assumption?

So the question, just for everyone listening in, the question was around cash management and particularly, cash sweep at the end of this year. That's correct.

We did not envision any cash sweep at the end of the year. So the cash sweep mechanism says that all cash shall be swept above $67 million, but on a forward-looking basis.

So if in the future, we see that we will go below the 67% in the 12 months ahead, then there is no sweep. So we do not foresee a sweep at the end of this year even though we do believe the cash will be above.

Yes. I think, Jesper, you mentioned that you had 6 tenders that you expect to be completed over the next few months.

Are you able to give a bit color on region start-up term on those? Just trying to process the idle time there on the other things.

Yes. No.

So all the 6 tenders or the works that we expect will be concluded. All of them are in the North Sea.

There are different things around the world, but the 6 I mentioned are all related to the North Sea, a bit mixed between Norway and U.K. and a bit mixed between duration.

But I think the key we see is that customers are moving early. That's the trend we observed.

And duration is a bit mixed and how do they glue together, overlap, it's a bit more of a complex puzzle.

That means that this is potentially for 2024 work. So there is no '23 work in those time?

That can pop something up in '23 in the coming months, but we don't expect if it does, we'll be very meaty, but most of the chunk for those 6 is '24 and a bit onwards.

Yes. and then final one from me, sorry, everyone.

On the Petrobras tender, you said they kept the spec and they're increasing their budgets. Do you have any idea of how much they've increased the budget, just thinking a theoretical willingness to pay?

Yes, I have an opinion, but it's -- I think if you look at the at the bidding in the tender, which was canceled, I think that would have given Petrobras kind of an idea of what they would have to pay to be in the ballpark. I think you -- that, I would basically go back and take a look at.

Could -- I don't know what their budget is, but of course, I have an idea. And I think how we think about it, it's -- we will see if we made the right choice in '24, we are very optimistic of '20 more in the North Sea and then we're looking at '23.

So we took this job. But in the long term, I think it's important that we're also quite optimistic about Brazil in the long term and also on the North Sea for '25.

So the investment of $10 million is, I think, will be valuable to have that flexibility between the North Sea and where you also see Petrobras focusing on this spec. And I'm quite sure that they have also understood that it may be able to attract the vessel from outside.

So in short, yes, the exact budget, but I guess going back and looking at the bidding history, I will give an indication of what would make sense.

You mentioned earlier that you've seen also activity levels, I think for the lowest big vessels. In those 6 tenders, do you -- are you eyeing an opportunity for Scandinavia?

Yes. That's a good question.

So I think we do see a bit of a pecking order, to be honest, that most customers would like to have a DP vessel in the middle of the summer, and then that may or may not be so attractive. So I think and although we do bid in the Scandinavia, I think there will be a bit of a pecking order where it will come into play, especially when the other alternatives are limited.

I guess it is fair to say that we have had interest though in the Scandinavia with different -- not necessarily for a classic accommodation job, but we have had a few clients looking into the vessel for other uses. So I think the timing is a bit uncertain, but she has picked up some interest.

Yes, she has. Any other questions in the room?

Otherwise, we should check if there's any online. Normally that's more -- any other questions?

No? Yes, go ahead.

In the chart where you are you showing this historical EBITDA rates, which is super interesting, obviously, and looking back at sort of historical highs and extrapolating from that effect, is that all -- is that compared with vessels like 100%? Or are there adjustments that you need to do in order to make it comparable basically to today's fleet?

Yes. So the question was that looking at this slide, whether the vessels are the same sort of comparative vessels?

And the answer is actually, no, they're not 100% comparable vessels because if you go back and look at sort of what our fleet was in the past, it was a bit of an older set of vessels than the fleet we have today. We have now today a more modern fleet.

But nevertheless, we think that the underlying kind of demand driver for the service has not necessarily changed. It's still maintenance work and tie-ins and hookups.

So maybe the spec of the vessel has changed slightly, but we still think that we're -- we had quite a bit of discussion around that, but I think the underlying sort of demand characteristics are quite similar. So we think that that's not really a large need for adjusting as such on the sort of vessel.

So the earning revenues capacity is comparable?

I think so. Yes, we think so.

Yes, I think it's not a big gap there. Maybe you have -- I mean, we can always discuss the margins, I think.

For example, like we're discussing here Zephyrus, you can have it going between the 2 key markets. Maybe that wasn't something in the past that you had so much flexibility on, but yes.

There were a few questions here from the audience. One of the questions was from online.

Moving Zephyrus from the North Sea to Brazil, does that mean -- what does that mean for your view on the market in the North Sea in the longer term?

Yes. No.

I think I said it's a difficult dilemma because we are fairly optimistic of both the North Sea and Brazil in that point. So I guess, the key for us is to keep commercial flexibility of being able to service both markets.

Perhaps it stays in Brazil, who knows in '25. But if there are opportunities in the North Sea, we would like to be able to capture those as well.

The next question from online was around Nova and Vega. Says, do you see some potential words for Petrobras in '23 or '24 to use the Nova or Vega?

Yes. Well, we are at least very keen to have where we have an ongoing dialogue with the yard to basically make sure that we have a competitive offer with a realistic time line.

And now as you saw, they had a bit of damage from a typhoon, which the yard is assessing and then we have to see, okay, what does that mean in terms of delivery time. But we are quite keen to make sure that we have something on the shelves as we expect that Petrobras will have demand also in the coming years.

Another question was, do we see longer contract towards materializing in the North Sea given the expectations?

Yes, that's -- I actually haven't analyzed that, to be honest. But there are some of longer duration and some are more classical standard 5, 6 months jobs.

And I think what our focus is, of course, to ensure that we have the optimum utilization. And that's -- I think that will be key whether you bundle jobs or whether you have one long one.

I think that will be a bit of what is our challenge. But is there any trend on the duration?

I think it's too early to say.

Can we elaborate at all on the discussions around mergers and acquisitions?

No.

Okay. Let's see if there's any other questions coming in?

There was a final question that just came in. Can you elaborate at all on the cost split between expenses between the upgrade and relocation costs being expensed versus capitalized?

I think the best way to refer on that is that people have a quick look at the supplementary information, which we have provided, where we have actually tried to break it down into what we think the day rate CapEx will be coming on to contract and what we think the actual CapEx elements will be. So I think if people want to look into that, they can look at it on to this slide where we have tried our best to break it down, but if there are questions about that, please feel free to reach out.

And for us, it's all cash.

Yes. Yes.

Okay. Very good.

Thank you very much.

Okay. Thank you very much.