Prosafe SE

Welcome, everyone, to this Q1 presentation for Prosafe. I'm Reese McNeel, CFO.

So I'll start off the presentation today and then hand over to Jesper, our CEO along the way. I'll start off with a few -- won't go on the disclaimer, which everyone knows about.

I'll start off with a few highlights. I think I'd like to start off first by saying that we are very pleased that we were able to conclude the private placement yesterday.

As we've known and we've communicated to the market over several weeks or months that there was the potential liquidity need going into the later part of this year. And so we're very happy that we were able to close that transaction yesterday and had good support, and there will be a subsequent offering coming for the shareholders who weren't able to participate.

So we're very happy to have that done. And I think that will -- gives us a much clearer runway into what we think is a very improving market.

Coming on a bit to the first quarter itself, we had EBITDA of $6 million negative. I'd like to add though that there was $4 million of mobilization costs, which has been capitalized.

So we'll be actually amortized over the period of the contract. So when I look at that, I look at that at about sort of if I were to say, cash EBITDA equivalent, it would be more like minus 10 and I think that is coming close to, I think, some of the market's expectations here.

Had actually a very good working capital development during the quarter as well. I think that's driven by unwinding of the contracts that we were on in the back half of the year.

So we're collecting out the sort of receivables as our activity level went down into Q1. But also we see that not unexpectedly, as we're ramping up our costs and coming online with these new projects, we see that it takes time to actually see the costs come through to cash.

So we think there's a timing effect here, and the cash balance ended approximately $75 million at the end of the quarter, which was relatively strong. But again, we think there's a timing impact to come there.

We'll come on a bit later to the tender activity. I think Jesper will give kind of a good look into that, but I can give sort of one highlight, which is that we were as -- in line with our expectations, Petrobras actually did come out yesterday with a new 4-year tender.

I think, Jesper, will talk a little bit about that. Operationally, we had one large success from our perspective, not in Q1, but shortly after, which was the Zephyrus.

As everyone knows, we mobilized the Zephyrus from the North Sea to Brazil. We had a target of 1st of May, which was, in our view, also quite aggressive, and we achieved that.

She was actually on hire on the 30th of April, a very good result from our team. And from our perspective, shows, again, our capability to operate well in Brazil as Petrobras is not an easy client, not an easy client to get happy.

It's not easy to get on hire, but we have a strong team there, and I think that we were able to really deliver well on that. So we're very happy with that.

Likewise, in Brazil, we do have the notice off-hire period coming up. She should be starting her off-hire period here very shortly in the coming days for about 30 days for whole cleaning and some compliance works and that's sort of in -- still on track, no big surprises there.

Utilization quite low this quarter. I think that was a transition quarter.

We only had two rigs on hire in the quarter, but again, Zephyrus is now on hire, and we will have Concordia on hire later in the year. So we will see the utilization improving coming into the back half of the year as expected as we get these two vessels to work.

Backlog, nothing new added to backlog this quarter, but again, we had tripled the backlog going into this year. Briefly on the fleet status, and I'll come on to that, I think, on the next slide a little bit more in detail, but I think the highlight kind of on the fleet element is, of course, and on the cost side as Concordia.

We do see that Concordia has had some additional cost coming through from the project. We are, though, quite far along now on that project.

I think we have all the work scopes identified. We have a full new team on board, new project management.

And I think we feel quite confident now that we've hit the range on Concordia in the $25 million to $30 million total kind of cost range. That includes layup cost, operating cost, cost to mobilize the field and CapEx.

We think we'll probably enter the lower range, but we have prudently added some contingency, but we are well on the way. So I think we've -- we believe that we've seen the back end of that, and we have good control of that project now going forward.

But that has presented itself with some negative surprises, unfortunately. But again, we did get Zephyrus on hire, and all the rest is looking quite good, and I think we'll come on to Boreas and Caledonia with Jesper a little bit later.

A positive mention as well, we did -- and I think that's in line with sort of our messaging that we would try to do what we could to secure additional liquidity initiatives. We were able to sell at old gangway that we had from the Regalia for a couple of million dollars.

So we have been working as well to collect out what we can from a cash perspective. I think I addressed Concordia well.

Happy to take questions if there are any questions after on Concordia. Very quickly, again, on the financials, minus $6 million, again, the $4 million mobilization cost, which I think is important to keep in mind.

And we do think that, obviously, the results will improve with Zephyrus sort of coming in and the utilization improving as we move through the latter half of the year. Nothing material from our perspective to address on the balance sheet.

Of course, the interest cost has been increasing. We are not hedged under the current facility.

We're not -- we don't have any hedging facilities. So as the interest rate environment changes, of course, we're susceptible to those interest rate increases, but we still have a very low margin on this facility.

Balance sheet -- happy to say on the balance sheet that we have improved that significantly after the private placement. So the comments around liquidity, risk, potential covenant breach et cetera, I think with the initiatives we have put in place, deferring the Eurus, raising some capital now through the private placement, also selling some assets.

We feel very comfortable now that we have a solid liquidity base going forward. And looking ahead into 2024 and the opportunities there, we think we are now much better placed than we were just a few hours ago, in fact.

Again, very strong working capital development in the quarter, although a lot of it is timing and working capital. So we believe that we will see the cash balance decreasing more substantially as the costs kind of come through.

We have incurred a lot of the costs -- committed a lot of the cost, and it will start to come through before we start to see the revenue from Zephyrus and Concordia coming on. Debt profile.

I'm not going to talk really about that. I think we've talked about that many times.

There's one thing I would like to highlight, though, which is that we are very focused on the tightening market and opportunities to grow the business, opportunities to do acquisitions, opportunities to potentially bare boat in other vessels. And we are proactively going to see what opportunities are out there and how we can discuss both with our lending group and our broader stakeholder group, how we can achieve that because we think there's significant value to unlock by being able to execute some of these transactions.

With that, I think Jesper talking about the positive sort of outlook, we'll hand over to Jesper, who will talk a bit about the market. Jesper?

Thank you, Reese. Thanks a lot.

A quick run-through of the market, starting with, for most, I think, a familiar slide, showing the global overview for the high-spec flotels. And as you can see, it's the familiar story that we have seen supply reduce a bit from the peak that we see increasing demand, and we see quite a bit of volatility in utilization.

And I think that's a bit the story for this segment. There's two things that you see quite some swings in activity and utilization.

And normally, you have a bit of a catch-up effect from time to time as we saw after COVID where it's quiet and then you have a recovery or catch-up effect or catch up, and now we have a quiet 2023, which we then hope, of course, will then be followed by more activity, as you can see, is the statistical trends. And on utilization, other than the small niche with big swings means that often there are situations where the demand supply balance fluctuates.

You have situations oversupply and then more interesting for us, there are also situations where there is undersupply given the small niche and the sensitive balances we are working with. So that's the story from a global point of view.

On the day rate slides, you will find no new data points, which means that we are -- our last public data point is at least 112 for Zephyrus in Brazil. And yes, there is a new tender out, which will give a new data point shortly.

And in the North Sea there, we have only mentioned the last public data points. There are a few other fixtures that are not public to my understanding.

You may dig around to see if you can get some more data points, but we stick to the public and the factual I will not be surprised if they are not too far away. On the demand drivers, looking at the North Sea first, you can first on the left see what I mentioned that you have these typical high activity, low activity and especially low activity followed by high activity on the catch-up effect, which we think will also be the case going forward.

There's no '23, but that will, of course, be relatively low, and then we will see what will come in the coming years. And on that basis, one demand indicator we have included here is the PDO, the investment activity on the Norwegian continental shelf.

And I'm often asked, is there an easy way to translate number of PDOs to timing and size of flotels activity? Not so easy.

You kind of track them on a one-by-one basis. And then that can be execution philosophy, other supply chain limitations or bottlenecks that helps impact the timing.

So that's something you track, but of course, 2022 proved to be an all-time high in Norway in that sense and a very positive indicator of the demand that lies ahead. In Brazil, the activity level is a bit more predictable, and that is because Petrobras used these vessels as part of their planned maintenance.

So you will see a fairly strong correlation with the number of vessels required and the installed base. And as everybody, I think, who follows us and other segments understand, there's quite a positive outlook on the installed base with a number of very large FPSOs being delivered primarily in the Buzios region.

And then I think in Brazil, which is harsh, but not as hard as the North Sea. You have a bit more verity on the supply side.

There's -- I think there's quite a clear technical preference from Petrobras on what they need, which is at least at par with the North Sea, but there's probably more flexibility on the supply side and quite frankly, to meet the demand picture in Brazil, there has to be flexibility on the technical specs. Otherwise, it will not match.

Snapshots on some recent current activity. We have a bit of the tendering snapshot for semi-subs or other solutions.

And in addition to what's on here, there are the ongoing tenders that we track it included on the list, but I think there's also a tender in Canada for '24 -- sorry, '25, Australia for '24. Some of these things may -- our vessels may not be ideally positioned from a geographical point of view for some of these jobs, but it's still important to track as this, of course, absorbs the high end supply on a global basis, and we are after all in the mobile units.

So keeping a good overview of the global development is quite important to understand also how the regional dynamics may come at play. Currently, we have no visible tenders for the North Sea for '23.

Let's see what pops up. And then the second bullet is this right of first refusal agreement on Boreas that we have already received many questions about.

So I'll just touch briefly on that. It's a bit of a slightly unusual situation where we are working with a potential customer to basically build the case for employing the Boreas in '23, into early Q1 '24, no conflict with other '24 jobs for about 8 months is what they're looking at now.

But I think we are -- I think the net -- the gross payment is about $2 million, and we have $200,000 to $300,000 of cost a bit around that. So it's net $1.8 million to us.

There's a limit until mid-June to see if we can formalize something. And I think what we see now is it's not a strong push to formalize this.

So I think our base case is the $1.8 million And then, of course, there's time until mid-June to see how we can further develop this. So it's a bit of an unusual situation, something we have developed bilaterally.

Therefore, it's not a tender or anything. But of course, we like to be involved early to discuss with customers what our acceleration possibilities, what are the scenarios?

What can we do to basically help accelerate production reduce. So we like to that early engagement with customers and try to develop something that is -- that could turn into something.

And that has a bit of a cost to it, of course. But in this respect, also positive income.

We expect there will be another one to two tenders in the North Sea in the coming months. Will it be tomorrow, next month, after summer holidays?

I think it's too early to speculate on. I know the customers are following the market fairly closely to understand what is going on and see when and if they will come to market or enter a more concrete dialogue.

Petrobras, as Reese has already mentioned, released a tender yesterday, I haven't done the full analysis but can see it's a -- I think the bid deadline is end May, fairly large personnel capacity. Spec fairly flexible, a bit in line with last time around, that was unsuccessful by Petrobras and then a delivery, I think it's within less than 6 months from contract, which is fairly tight considering what's available in the market, but I haven't done the full analysis I must admit.

So we still have time until the bidding end May. Then we have something which is slightly unofficial as that we still probably we will improve for transparency.

We had one tender on the list previously, I think. I think it says 4 months, and we understand it may be 3 to 4 months where it looks like a competitor in the North Sea will take that job at rates and implied earnings that I don't think we found attractive enough to commit our last available DP3 vessel in the North Sea.

So we will set a bit on that has been our strategy. And the next two bullets what does it mean for the North Sea supply?

I think it's too early to say something absolute about that. If it's a DP job, so if the other apart from Boreas does one more DP vessel available in the North Sea, if that takes the job, then the Boreas alone.

If you choose to take a vessel from outside the North Sea to take the U.K. job, then basically, there's still two.

So I think it's too early to say something absolute. But of course, it's positive that supply is reducing.

So all good. So overall, I think before handing the baton back to Reese to say about the future, looks optimistic about the future activity.

And we are focused on basically on seeing that we secure the best possible employment for our last available DP vessel. And then, of course, we have the Caledonia.

So we have two vessels available for '24 that is exposed to the market. And on a very sunny day also the Scandinavia, may not be '24, but that's where we are.

Reese?

Thank you, Jesper. The market overview.

And I think that flows well. I think several people have seen this slide already several times.

But again, I think we just started to highlight again at a day rate of about $110,000 in Brazil. That's about the equivalent of a day rate $175,000 in the U.K.

and gives you sort of $22-ish million EBITDA that we have seen historically. We are basically at that level and above.

So we have seen the rates increasing. The last fixture was $112,000 for us in Brazil.

and there was a $190,000 fixture in the North Sea. So we are trending, I think, up in day rates towards that what we believe will be moving to the average and increasing in the future.

So we remain optimistic on that. And as Jesper said, we're maintaining our strategy of seeking sustainable day rates going forward.

We have seen others maybe being willing to go a bit lower on rates, but we think that it's the right strategy here is to continue to seek more sustainable day rates in the market. So a quick summary to wrap it up before we ask questions.

I think first and foremost, again, very pleased that we could close the private placement, very happy that we had good support from our shareholders to do that. We will be out with the subsequent offering, but we have fixed the liquidity situation that we have been discussing for several months, which, for us, is, obviously, I think, allows us to get on with focusing on what is an improving market and getting our last remaining two rigs on good contracts going into 2024.

So with that, I open it up to any questions that the group may have.

Congrats, by the way, on the placement. I have a few questions here.

I think the first one, actually want to touch upon your comments about M&A and the tightening market and that you could potentially work with your stakeholders to see what's possible with the current cap structure and how you can, I guess, take market share in an improving market. But how would you kind of weigh those M&A and bearable style options versus the two newbuilds that you have at your -- I think that would be interesting with some color on.

And I think they have different time horizons. The newbuilds are at the yard.

They're being repaired after some typhoon damage, then there's reactivation. So they have one time frame.

And then we have another -- we would like to have relevant supply and bid for everything that's there. So we have some near term and some a bit longer term.

So it's not an either or. And we do see it's not like there is a whole forest of opportunities.

And then you said some structures, you need basically to get lender approval, other structures you can do without, but we would like to do the optimal structure actually to create value. So there are -- it's not an either or.

So I think it's fair to say that we do pursue different tracks, which we don't see as being conflicting.

Just as a follow-up on that, do you have any preference on acquiring or chartering assets with or without contracts at this point?

Without contracts would be okay for us. We think how the market looks.

I think we are in a good position to market the vessels. I think in Brazil, we have three rigs there.

That's the most of any operator. We have never delayed a delivery to Petrobras.

I think they like our services. So we have a good foothold in the North Sea, with less available supply.

So I think we have a strong marketing position. So I would rather buy a rig and then have exposure than buy a bond with a long track record, to be honest.

Next theme here. I think on the cost or rent on the Concordia, where you said that you had some negative surprises.

Are you able to share a bit more color on that? And I think what I'm really wondering about is if you're doing similar work on another rig in the future, what should we expect then?

I can take that one, I think Concordia is a little bit unique relative to our other vessels. She is coming up on 20 years old.

She's one of the older vessels in our fleet. I think she was working in that harsh environment for some time or has been working in Brazil and in the Caribbean in a quite corrosive environment over some time.

So I think she's in a different place than your risk notice Zephyrus and Boreas, which are sort of more modern and younger vessels. So I don't think we see the same issue.

So I think this is, to some extent, a one-off situation that we've encountered. And I think a little bit of the color, I think there's two large factors driving the cost in all fairness.

One is that, arguably, we underestimated the amount of work that had to be done. So we didn't -- yes, things came up that we weren't expecting when we needed to upgrade or do things on the vessel to get her prepared for the contract in the Gulf of Mexico.

This could have been things that we actually should have known repair issues on the vessel, but also, I think, to some extent, we underestimated the compliance -- certain compliance scopes that need to be done. The second is related, I think, to cost and cost inflation in the region.

So we find ourselves in Curacao, and we find ourselves in a tight sort of market with respect to services to this industry with a lot of other mobilizations and upgrades and reactivations going on. So we have found that actually the cost of doing some of the work in Curacao, whether it's labor that we need to fly in from Europe to do the work or whether it's actually machining of parts or transport, we have found that, that has actually also been quite a lot more costly than we had anticipated.

And final super quick one. Now that you have raised $30 million extra, what's your own estimate, both in amount and time of the liquidity low point going forward?

Yes, I think that's -- well, my first caveat is that it depends very much on what we -- what work and where we achieve for the likes of Boreas and Caledonia. So there is one scenario where we just outlined sort of two scenarios.

There's one scenario where we were able to get some work in 2023 for Boreas, which is not unheard of. We have this option.

Yes, it's not our base case, but we think if you were able to achieve that, have some work with Boreas, for example, in 2023, if you have a job with Boreas in U.K. sector, we think the low point would likely be sometime in Q1, early Q2 next year.

And probably no questions, a very comfortable liquidity position. That is sort of our base cases that based on the current assumptions, there's no issues going forward.

Of course, we're also very keen on securing the best contracts for these vessels. So again, Petrobras out with a tender.

We think there'll be more tenders in Brazil. We have vessels in China that could potentially do that looks in our opinion, to be a bit too far out in time for those vessels that are in China, these current contracts, but we do have the Boreas and there are other opportunities in the market.

We do know that it costs about $20 million to take a rig down there. That's what it cost at Zephyrus.

Boreas probably be the more. So I think we are also -- we want to also be opportunistic and proactive on those tenders.

So depending on exactly how the market moves, you can foresee a scenario, but I see -- of additional capital lead, but I see that as a positive because that means that we have actually been able to secure high-quality contracts looking going forward. But I think our base case assumption is that the $30 million is sufficient to see us through that low point, which will probably be Q1, Q2 next year.

Other questions in the room?

Any on the phone?

I'll check if there's any on the -- there was a few questions on the phone. One was, is the right of use of Safe Boreas as different than what is already on the tender list?

Yes, that's an opportunity which is not listed. It's not a tender.

It's purely bilateral.

Do you see more tenders in the Norway and the North Sea in 2024? And does that make it reasonable to activate Scandi?

I think our view is that 2024 may be very tight on that. But of course, if the market -- she is there and it could happen, but I think it's not in our base case that she is reactivated for 2024.

No. I think you have to look at what is the type of job.

It's a moored vessel. Can you do a [indiscernible] unit?

What is the number of jobs, what is the number of rigs? And what is it -- you can do the different scenarios, but it's not in our base case.

It would be a positive surprise.

Yes. Another question, you expect rig tenders from Petrobras?

Is this adding new rigs or renewing existing contracts?

Our view is that Petrobras will need more rigs to -- at least to become more rigs to Brazil, mainly for Petrobras also for others. So it's -- if you look at -- if we just say bidding 1st June, 30 May, a few short period for concluding a contract and then delivery within 6 months about year-end.

If you look at the contract overview, I don't recall those any contracts that come off contract at year-end. So if it's about that, then it's most likely would be something new that we'll be looking at.

That's my preliminary assessment without having taken a look. But our overview is that more vessels need to come to Brazil to satisfy the activity.

Spec requirements in Brazil, high or low specification? And how do you see that the difference between international players like Equinor versus Petrobras?

I'll keep going. No, it's Petrobras have a preferred spec, which is quite high, but I think they need to display some flexibility, especially on the large FPSOs, you need a high-quality vessel to be efficient.

Then you have the likes of Equinor that normally also, especially for the FPSO would go for a North Sea type vessel for fixed installation could possibly be a bit more flexible. They have the Peregrino, they have Bacalhau.

So yes, we think they'll be there. SBM, Modec also like good quality vessel, but a bit more flexible.

And then you have some of the smaller independents with smaller jobs where I think lower spec vessels can do it. And I think the point here is that it all adds up.

We have seen that -- I wouldn't be surprised to see some attractive fixtures for some of the simpler vessels. So everything absorb supply, whereas our main focus on that market would be the higher echelon, I think.

Good. Thank you, Jesper.

The next one was any new markets opening up Mexico or West Africa? Take that one as well.

No, no. The short answer is no.

I see we see activity in both places, but West Africa probably not for our type of vessels, although on a rare occasion, Mexico has its own structure with some very high spec vessels and some a bit lower spec, and we have some steel that fits the high spec, but they are currently busy in Brazil.

Yes. I do -- I have heard myself people talking about new opportunities with West Africa, for example, South Africa or Namibia, where it's a bit harsher that could be.

But our view on that is that, that is a ways away. They've just done some exploratory drilling.

So accommodation tends to be late cycle. So in some years, potentially, but not -- we don't see that currently on the horizon.

Do you see rates coming up in 2024 for new contracts? Or is there a low visibility for rates?

I think first and foremost, the fixture that is public, which was the $190,000 I think that definitely shows an improvement from what it was in the past. What the exact rates are on the last two tenders, which we understand have issued those have not been made public.

So we're not exactly sure what those rates are, but what we can say is that we have been following our strategy of holding what we believe is a sustainable rate and not wanting to have our last remaining DP vessel on a rate, which we don't feel is sustainable in the market. So we have been holding back and taking that position.

So what that exactly translates into as far as what others are bidding, I think we were a bit unsure. And I think that was it.

One more question here. Yes, can you please comment on how you see competition from walk to work in jackup vessels?

Okay. Yes.

That's a longer story. It's -- so quickly, in Norway, you can only use walk-to-work vessels on unmanned installations, simple installations.

So in Norway, not relevant. And I think generally, you see them used in U.K., you see them in wind and so on, and it's kind of an inflection point when it makes sense.

If you have low POB in a short period then it could make sense. And I think some of the larger jobs that we have predominantly performed in recent years, it's not been a walk-to-work territory.

In Brazil, I think that's testing a bit in that sense. So it depends on the concrete job for many of the jobs we are looking at is not relevant.

And for some of the smaller jobs, it could possibly work. But I think, of course, the key is that the weather criteria has to be fairly benign.

So you're looking for a short summer period of benign conditions. And then the number of people involved is normally quite a lot less than what we are looking at in that sense.

So it's a bit longer story, but that's -- those are some of the headlines.

Okay. And I guess on the jackup space, we have seen there is a jackup working in the two actually, one in the U.K., one in Norway.

So those are accommodation jackups. So I think they have a lower operating cost, but a higher installation cost.

And of course, they can work over the season, but they're a bit more tailored to you cannot work on every type of installation. So there will be a market for those vessels.

We're sure about that, but how that competes with us. We do compete at times.

But other times, it becomes quite clear that's a preferred solution. There's also limited supply in that space today.

I think that was it for the questions. So thank you, everyone, for coming.

Thank you.

And look forward to speaking with you next time.