Prosafe SE

Welcome, everyone, to this Q2 2023 Prosafe earnings audiocast. I am Reese McNeel.

I'm the interim CEO and the CFO here at Prosafe, and I would first like to thank everyone for taking the time to join this audiocast today. I would like to start by highlighting some of the key events that we had this past quarter.

It was a very busy quarter for Prosafe on many fronts. Operationally, we were very proud to have successfully mobilized the Zephyrus from the North Sea to Brazil, starting the contract on time.

Likewise, we completed the mobilization of Concordia with her coming on hire. In August, we also successfully completed the hull cleaning for Notos.

So what that has delivered us is obviously improved utilization in the quarter, with having 3 rigs operating during the quarter and now looking into this current quarter with actually 4 rigs finally coming back into play. So a significant amount of operational activity during the quarter, which we're happy that we completed successfully.

Also on the financial side, we had a very busy quarter. We were very happy to have raised capital, and we had strong support from our shareholders, raising $28 million in the quarter to support, by and large, the mobilizations of these rigs on to these new contracts and helping us to improve our utilization and earnings going forward.

Looking a bit ahead, been an increasing amount of tendering activity globally. We have seen, and I will come on to that later in this presentation and I think is a very crucial focus area for us, is that we have seen a significant amount of tenders, both in Brazil, the North Sea and around the world in the past months.

We maintain our focus on achieving sustainable rates in what we see to be a significantly improving market going ahead. Coming quickly to operations.

As I mentioned before, very happy to have gotten our rigs through these mobilizations and on hire, and we saw increasing utilization from 29% in Q1 to 33% this quarter, and we do expect to see the utilization increasing throughout the coming quarters ahead. Backlog has been stable.

We did not have any additions to our backlog in this last quarter. And again, we had significantly improved utilization with Zephyrus and Concordia coming on hire.

And as we see here from our contract overview, we do expect to have actually 4 rigs working throughout the latter half of this year and particularly into next year. Worth noting that Safe Eurus, we have been back and forth with respect to Safe Eurus' SPS or 5-year SPS coming up, has moved.

It was originally early this year. It moved into early next year, and we have finally concluded with Petrobras that, that will be in November and December of this year.

So very happy to say that we are seeing 4 rigs coming on hire and have had a significant amount of work put behind us. Coming quickly to the financials.

For the quarter, again, increase in revenue, both charter income and also other income in the quarter, driven largely by the utilization, but we were also very pleased to have secured a $1.8 million standby fee for the Safe Boreas, which we were able to include as other income. Also very strong operational performance with 100% uptime.

If we -- of course, if we exclude sort of planned off-hire, very strong performance not only from Eurus and Notos but also from Zephyrus, with her coming on to the contract new and operating for the first time in Brazil. So very proud of our operational team there and very good to see the increasing revenue.

On the income side, earnings were impacted by the planned compliance works and obviously, the contract preparations and mobilizations to get on contract. And we do think we will see improved earnings going forward with these compliance works and the extensive contract preparations behind us in this last half of 2023.

Coming on to the balance sheet, again, a similar theme. We've had significant investments.

There were significant CapEx in the quarter, approximately $12 million in CapEx, which we, by and large, financed with our own liquidity but also successfully raised $28 million to support the balance sheet and the liquidity position in the quarter. Operating cash flow.

Operating cash flow remains a key focus area for us. In the quarter, as mentioned, significant CapEx spend and mobilization leading to a lower EBITDA and a significant amount of CapEx.

That was offset in part by improved working capital, which is largely a reflection of the amount of spend that we had in the quarter and a buildup in payables, so we think that is more of a timing issue going forward. But looking ahead, and I think that is a key focus area for us, if we look ahead into 2024 and our liquidity situation, we are extremely focused on securing good contracts in an improving market.

And we actually believe that we will see improved commercial terms from new contracts. We have seen in other parts of our sector in the drilling sector and in others that we have seen increased mobilization fees, increased support from key customers when it comes to how contracts are set up, and we believe and we're very focused on securing the best contracts going forward, which will support not only improved earnings but also support our liquidity picture looking into 2024.

So I'm very conscious that there has been some uncertainty regarding the outlook for 2024, but I'm -- I think our key focus is indeed on getting the best contracts that are out there and on discussing with our clients and securing the best terms we can to support getting on contract. And I am -- and I will come on to that, but with what we see in the market, we are very optimistic that we are able to achieve that and able to continue to support the cash flow into 2024.

With respect to the debt profile, no major changes in our debt profile. We continue to have very favorable financing with a very low spread and no significant amortizations until the end of 2025, so we're very happy to have that in place.

Maybe the most exciting thing to talk about, at least for me, looking ahead is the market and outlook. There's been a very active few months which have passed, and I would like to spend a little bit more time talking about that today.

This is a graph that we have shown here for some time. I think when we look at this, we see that the fleet has been very stable over the past few years, and we see that the demand has been increasing.

It's worth noting that 2023 had a surprisingly slow North Sea market. But what we see going into 2024 is a significant improvement in the markets, both in the North Sea and in Brazil.

So we will see global utilization increasing. We saw a little blip in '23 and we will see that increasing significantly going into 2024.

And if we look at this chart, if you will recall from the last couple of quarters, these data points, particularly with respect to day rates, if you look at the chart, they have been significantly lower. We had data points before in Brazil, I think one of our rigs had the lowest data point with the Zephyrus going down.

And since then, we have seen continued increases in the data points. So there was recent tenders in Brazil, recent awards with Petrobras, which are public.

We saw the Aquarius Brasil securing a day rate at $110,000 a day. That is an in-country rig.

And just as a reminder for everyone, that rig is currently on a rate in the 60s. So going from the $60,000 a day to $110,000 is a substantial improvement in the day rates for a monohull vessel in Brazil.

We also saw semi-submersibles from POSH, which are, again, rigs in-country in Brazil, securing contract with Petrobras at $115,000, again a substantial improvement from the rates that they are on today. And most recently, we saw the compact semi-submersible, the Venus securing a contract at $117,000, which is yet another new high watermark in Brazil for day rates.

So a clear trend in Brazil of increasing day rates, all of these above $100,000 a day, and again, all of them in-country vessels, and I will come on to more specifically what is happening in Brazil a bit later. In the North Sea, we've also seen day rates improving.

We have seen recent awards which we believe to have been around the $180,000, $190,000 mark. Not always completely disclose what the rates are, but we think those are obviously also improving data points even in the North Sea despite sort of the low activity, which we saw in 2023.

Looking a bit more specifically at our 2 core markets. 2023, as mentioned, a little bit slow in the North Sea, but very key to note the development in 2024, which we have now added to this graph.

And we actually see that the supply of available vessels in the North Sea in 2024 is largely taken. So we are sitting with the Boreas and the Caledonia, and we believe that those are largely the only 2 rigs available to support activity in the upcoming summer season in the North Sea, be it the U.K.

or Norway. So we've seen a significant increase in actual work in 2024 versus 2023 in the North Sea.

And when we look a little bit ahead, we also see that there are increasing inquiries and discussions with clients regarding potential further work. That's both on the U.K.

side when it comes to maintenance. We believe that this, particularly 2023, was negatively impacted in the U.K.

by, amongst others, the windfall tax but as well as labor shortages and challenges in the supply chain. We believe that, that is improving and that the operators on the U.K.

side will revisit some of their maintenance plans in the coming years. So we believe strongly that there will be an increase in maintenance activity there.

And we also see clearly already the trend in the Norwegian sector of clients on the back of newly sanctioned projects securing capacity. So we had already seen in previous quarters, Aker BP, in particular, securing rigs into '26 and '27.

And we believe that there will be additional demand in Norway as well, particularly looking into '24 and beyond. So improving North Sea picture, largely sold out in 2024 summer season, particularly when it looks at the high-end vessels.

So we are optimistic with respect to the outlook, particularly in the North Sea. Also very dear to us, as everyone knows, we have taken a very strategic position in Brazil.

We have 3 vessels working in Brazil. We have a large local presence in Brazil and have a large office there and arguably the largest player in Brazil in this segment.

I had the opportunity as well to be offshore in Brazil recently and to visit our teams. And I must say the buzz in Brazil around not only, of course in the accommodation sector, but generally, in the offshore support sector in Brazil is very exciting to see.

And we brought a vessel down, the Zephyrus into Brazil earlier in the year. She's performing extremely well.

Petrobras are very happy with that. And what we have seen in playing out here over the past few weeks is that we have seen all of the in-country supply, which is available accommodation-wise being taken up in tenders.

So we have seen the 2 POSH vessels. While not formally awarded yet, we strongly believe that the 2 POSH vessels will be contracted longer term, again at much higher day rates.

They were in-country. We also see the Aquarius Brasil being contracted longer term.

And we believe that the 2 vessels, the 2 compact semi-submersibles will also be contracted now longer term in Brazil. Where that leaves us is that all of the in-country supply, we believe, in Brazil will be here, in the relatively short term, tied up, and that will leave Petrobras and other players in Brazil with the need to entice and bring into the market additional supply.

We have seen this in the other segments of the offshore space, in particular, in the drilling segment happening as well in Brazil. And typically, we've seen the Floatel demand being slightly delayed a couple of years, potentially 1 or 2 years behind drilling.

We saw this development in drilling last year, and we think this is also coming strongly now in Brazil in our segment. One rig, as I said, 1 rig has been brought down, but we think that there could be easily an additional incremental demand of 2 to 3 rigs going into Brazil.

And when we look at that, we have a good summary here of sort of all the activity that has happened not only basically in Brazil but also the U.K. And we also have seen activity in Australia, where, of course, Floatel International is well positioned with the Triumph.

But we do see that the market globally is tightening. And with additional supply needed in Brazil, we think that we will see rigs moving from most likely the North Sea market back into Brazil on longer-term contracts at increasing rates.

And we are extremely focused, as we have been in the past quarters, on achieving sustainable day rates in this improving market. So we have seen improved utilization, improving day rates, and we expect also to see improving payment terms from our customers.

And we are extremely focused on securing what we believe is a sustainable day rate for our type of assets in this market. And we are very well positioned with Boreas, which is able to work both in the North Sea and Brazil, similar to Zephyrus.

And we have as well the Caledonia that is well positioned for work in the U.K. So we are very optimistic on the market overall and expect to see continued improvements in our earnings utilization and I think generally in the outlook going forward.

So a short recap of the quarter and where we are. As went through, H1 was very busy for us.

I would categorize it as a transition first half. We were bringing rigs onto contracts, repositioning Zephyrus strategically into Brazil.

And we now are reaping the benefits of that with improved utilization, and we will see improved earnings going forward into the second half of 2023. So a very busy quarter but very much sort of a transition first half really for us.

Looking ahead, we do see significant increases in utilization and demand for accommodation vessels going into 2024 and beyond. And that, I think, is particularly in our key focus areas, which is the North Sea and Brazil.

And we are very focused again on securing the best contract possible in 2024 and beyond for our remaining vessels. And we'll have a key focus on securing the liquidity also in that context to making sure we negotiate the best terms we can with our clients.

With that said, there have been a few questions which I have received by e-mail. You're very welcome to share further questions by e-mail, and I will do my best to answer them here.

So with respect to the questions that I have received to date, I had one question, which I received, which was if Safe Boreas wins a tender with Petrobras, what kind of CapEx can we expect to mobilize? I think the best reference point that we have with respect to mobilizing our rigs down to Brazil is actually the Zephyrus.

Zephyrus is actually the sister vessel of Boreas, very similar vessels. And as we have communicated, I think it's communicated here as well in this presentation, the cost of taking Zephyrus from the North Sea down to Brazil was approximately $20 million.

That was the all-in cost, CapEx and mobilization spend. It's worth noting that at the time, Zephyrus was active, fully crewed and just coming off a contract in the North Sea.

So there was probably some cost benefit from that relative to Boreas, but we think that the best reference point is really the Boreas at $20 million. And then we would need to probably add on to there some spend to just reactivate Boreas since at the moment, she is sitting warm in Norway.

A further question which I received here was in most recent tenders, other companies still offered low $100,000 per day while Prosafe was much higher on the tenders. Do you think that there is immediate demand from tenders?

Do you think -- sorry, I have to read a bit more carefully here. Yes.

Do you think that there is demand from Petrobras to see significantly increasing rates, for example, for Safe Boreas? I think I addressed that.

I think what we were expecting basically that the in-country demand in Brazil, those rigs, which are working on Brazil and currently coming off-contract, either this year or next year, it has been our clear expectation that those rigs would take the next jobs. That's what's happened also in drilling and the other parts of the offshore segment in Brazil.

And that is basically what's happened here. It makes sense.

Those rigs are down, don't have high mobilization costs. They're in-country, fully accrued, et cetera.

So it was our clear expectation that they would be taken up first by Petrobras. That has now happened.

And as I mentioned, we strongly believe that we will see increasing day rates and improved terms as Petrobras and others in Brazil seek to attract demand from other regions down to Brazil. A further question with respect to the newbuilds.

How much capital would be required to hand them over from the yard and financing options on the newbuilds? I'm not going to answer that question too directly.

I think we have said several times and we've outlined several times what the current terms are with respect to the takeout of the newbuilds. The newbuilds were also damaged in a typhoon approximately a year ago, and the yard is continuing to conduct the repair works.

And we have continued to have an ongoing dialogue with the yard regarding those 2 newbuilds, and that dialogue includes basically mobilization time line, cost and financing. So I think the best answer to that is that we are working hard on understanding and securing the time line, cost and financing for those newbuilds so that we have -- we're in a good position to market them as the market gets tighter here.

Near-term tenders in the North Sea for 2024? I think as I mentioned as well, we see that the supply in 2024 is largely taken.

Floatel International, amongst others, did indeed secure quite a bit of work in the North Sea in 2024, and we do believe that there will be additional work in 2024. Have not seen it yet materialize into firm tenders, but we -- from discussions with our potential clients, we do think that there will be work coming.

Just looking quickly here at the additional questions which have come in. Yes, 2 questions again.

It's very similarly related to Boreas and Caledonia and the cost of putting them back to work. The question is, can you give a little bit more color on that cost and CapEx?

As mentioned, Boreas, I think I gave some good color on that. Probably the best reference point indeed is Zephyrus, $20 million and probably a little bit extra for mobilization.

Depends very much on who you're working for. If you're working for Petrobras or if you're working for an independent, Petrobras has a very strict contract and compliance terms, which does increase the cost of working for Petrobras.

Other operators in Brazil are more flexible. Likewise, when it comes to sort of financing and contract terms, we believe that there will be an increase in flexibility on contract terms, including potential mobilization fees as the market is significantly tightening.

With respect to Caledonia, indeed, to bring Caledonia back to work, we also need to take her and reactivate her. She is in Scapa Flow in the Orkney Islands.

She is a prime candidate to work in the U.K. in 2024, and we have a very strong mobilization plan which we have outlined.

And again, we are optimistic that in securing work for her, that we would be able to negotiate terms which would support us in getting her back onto contract in the best way possible and to also protect our liquidity. We think that the cost of getting Caledonia back on hire is somewhere in the $5 million to $8 million range.

Nova and Vega. Yes, bidding.

I think it's fair to say that we are very focused on continuing to market the Nova and Vega. Obviously, they are at the yard and need to have repair works.

So we will continue to bid Nova and Vega into tenders. And as mentioned, we're continuing to work with the yard to outline what is the time line, the cost and the financing options to be able to allow us to get those rigs to work.

A couple of other short questions. Working capital development in the second half of the year?

I do think we will see some unwinding of working capital. We have said previously, and I think that's also in the appendix to our slides, that we expect there to be working capital demand of approximately $10 million year-on-year.

I don't think too much has changed on that. We saw a positive working capital development in the first half with the large buildup in payables.

I think we will see some of that unwinding in the second half. But we have -- going the other way, we have seen that our clients, and particularly Petrobras, has been very good in paying us on time.

And so we have been able to manage the working capital actually quite well. So I think that we will continue to manage it within the expectations that we've sort of put in the presentation.

Some further questions with respect to market dynamics here. A specific question regarding North Sea with respect to Floatel.

Was Prosafe bidding in the tenders which were recently awarded to Floatel? I think the clear answer to that is yes.

We are an active participant in the market. And of course, we -- when there are tenders, we do participate in those tenders.

Again though, we are very focused on securing what we believe is sustainable day rates going forward. We believe that rates will increase and utilization will continue to increase.

And we see that playing out now with all of the rigs basically in-country in Brazil being taken up and also with the supply in the North Sea being largely taken for 2024. So we have been very focused actually on getting what we believe is rates that are achievable and are also more sustainable in the longer term.

So we have not been awarded those contracts. They went to Floatel but we indeed did participate, and we lost largely on price.

How are you thinking about the Boreas? What -- some questions here on what day rates do you think you will require to move her from the North Sea or will she remain in the North Sea?

Again, we are very open on where we will take Boreas. We are very focused on getting the best rates and terms that we can.

So if we see that there is a good opportunity for Brazil on rates and terms that makes it worth it and viable, then we are, of course, very open to take her to Brazil. But likewise, if we see that there's a good contract in the North Sea on good terms, then we'll also be very open to keeping her here in the North Sea.

I don't see any additional questions which have came through so I would like to wrap up the call. I would like to thank everyone for taking the time to participate in the call and obviously for taking the time and interest in Prosafe.

Thank you very much.