Prosafe SE

Thank you, and welcome to this fourth quarter 2023 results presentation for Prosafe. My name is Terje Askvig for those of you who don't know me.

I joined Prosafe as the CEO on 1st of November last year. So fairly new into the game, but I'm very excited to have joined Prosafe.

I think I've had -- sort of the first 3 months been really exciting, and I think we have a great company with a very interesting and promising market and future ahead. So today, we'll go through the numbers.

I'll take the market and operations, and Reese will sort of guide us through the numbers when it comes to that. So the highlights for the first quarter is -- first, so some good news.

It's been a fairly quiet quarter to be open about that. I mean -- but we have some good news.

We received declaration of 4 months extension on the Concordia in the U.S. Gulf.

So that means that, that is now then working until on November. They have another 2 months' options.

And we are in discussion to also sort of extend the options, but that is not on. There is a discussion.

But be mindful that the special survey, the SPS for Concordia is due in March 2025. The supply and demand dynamics, I'll come back to here.

But sort of overall, we feel it's a very favorable supply-demand dynamics, both in the North Sea and in the market in general going into '25. '24 is quiet.

So there are some activities. But, of course, as every day that passes, the likelihood of gaining significant work in '24 is diminishing.

So what we see for the North Sea, both in Norway and U.K. is that the operators, they are planning further campaigns.

There was one tender that we announced, was out earlier, and we are no longer in discussion there. I mean we came to a point where we feel there are better opportunity, and especially for the Safe Boreas, in other markets.

So that is where we are on that opportunity. We also see demand for -- in Brazil increasing.

And I'll come back to that later. Operationally, I think we had a good quarter.

So we had good safety performance on all vessels, utilization 50%. And we did the SPS on the Safe Eurus in the quarter and that was basically more or less on budget and on time.

There is some discussion on the timing element with Petrobras there. But it's one of the projects that has been successfully executed by the company.

So we are very happy about that. Financial, Reese will come back to.

But I mean there is no doubt that 2023 is -- or was a disappointing year for Prosafe. And we raised some capital from our shareholders.

Very sort of appreciative of that. So that means that our cash position at year-end is basically $75 million.

And as we said before, that cash position will take us into 2025. I'll come back to that a little bit later as well.

And then looking more closely at the market. So we say that the accommodation market is late cyclical, and we try to guide you a little bit why we say that.

I mean, clearly, the work we do is maintenance and it's hook-up. So that is late cyclical work, and it's work that operators, if the market is good and the oil price is, let's say, above $50, they do the maintenance.

The hook-up work, of course, that's more planned. But if you then compare that to the growth [Audio Gap] there is the late cyclicality, as you see on the left-hand side here.

The dip we had in '23, I think just to take that, when you look at sort of the utilization we had in the past year, the reason for the dip I think we misread sort of the effects of the U.K. windfall tax.

We didn't understand that the U.K. operators did not have any demand in '23.

Actually, that's the first year ever that no accommodation rigs have been working in the U.K. sector.

So that's -- I think that's in a way our bad. That was something we misread going into '23.

And on the right-hand side, we just also try to illustrate this when you compare our market to jack-ups. As you can see, it is trailing.

And our market has gone up 70% plus, while the jack-ups are over up 160%. So we see also -- we'll come back to where we are in the cycle, but we see also that this is sort of underlying the late cyclicality of our business.

This you've seen before. It's sort of where we perceive the current market to be.

So in Brazil, the latest data point we have is above $120,000 per day. Of course, that's on a 365-year basis.

And in North Sea, the market is just over $200,000. That's the latest data points we have.

That would equate to an EBITDA, I think, about $30 million per year if we fix those at those levels today, just to give you an idea. And then we have looked into, again, to give you some further data points also when it comes to the improvement of the market.

So if we look at the backlog, you can see that has increased significantly. This is on the 13 high-end, high-spec vessels, just to be clear on that.

So this is the backlog on those 13 vessels in the overall market. Brazil, obviously, is driving a large part of this.

Likewise, the backlog both in terms of month and in terms of U.S. dollars have increased significantly and also sort of how far ahead we are fixing -- or the market is fixing the vessels.

So I think this is sort of underpinning our view on the market that we are in a promising and increasing market. This is also a well-known graph.

You see here on the right-hand side, this is what Petrobras is saying their demand for FPSOs what that is going forward. Brazil today produces approximately 3 million barrels per day.

Their goal is to increase that to 5 million barrels per day in 2030. And that's also -- then the effect here is 20 additional FPSOs going into that market.

When you talk to operators operating both in Brazil and in Norway or in the North Sea, they say that the corrosion in Brazil due to the humidity, the warm weather is 3 to 5x as high as it is in the North Sea. That's why Petrobras has a rolling system: with every 3 year, they do maintenance with a Floatel or an accommodation vessel on each of their FPSOs.

So we see that demand. We have sort of the -- what we see as the identified demand.

And we also assume that, that will increase going forward. So if you look at sort of our markets, you can slice and dice it many ways.

But one way of looking at it, it is about 23 units. Then, you include the monohulls, you include the jack-ups, that's sort of the wider market we are competing with.

And of those 23 units, today 10 units will be operating in Brazil. And that's going to increase.

But it is a significant -- over 50% of the accommodation vessels are or will be operating in Brazil. So one could look upon that as really like a base load in this market.

This is a longer contract. It's working 365.

And that's now absorbing over 50% of the market. Going then over to more sort of the detail of -- this is the North Sea.

As you can see here, we think that we are in a very favorable position in the North Sea going forward, both in Norway and in the U.K. Currently, there are 2 tenders out.

We think that there will be more business coming into both Norway and U.K. for '25 that is and also beyond '26.

So there is some pent-up demand due to lack of maintenance in the previous years in U.K. and Norway.

So we think that the market, sort of the market dynamics definitely is in our favor here. And as you can see, there is not much available capacity in the high-end side of things.

So this we see that really sort of should give room for increased rates. That's our expectation and that's what we are hoping for going forward.

Again, just to give you some -- put this a little bit into historical context. Here we have sort of shown the rigs or the units that we can compare.

So we've taken out sort of the outliers, the Scandinavia. And so this is on a comparable basis what the EBITDA per vessel has been historically.

And as you can see, this is sort of a -- you can see the earnings capacity. So on average over this period, including the last 4, 5 very weak years, the earnings on average has been $29 million on vessel, EBITDA per vessel.

So that sort of gives an indication of the earning capacity in the market. We also looked at -- we also looked at new building today, realistically, what will the new building cost delivered, say, in Brazil with mobilization and sparing up and everything.

Rough estimate is $350 million. In order to justify that investment, you need over $200,000 per day or an EBITDA of $50 million per year.

So that's sort of, I think, is a very long way from new buildings, let me put it that way. So I think from that perspective that gives us some indication about what the earnings capacity is in our market.

And again, 2023, obviously very disappointing for the company, I think. Not to make excuses, but really one of the reasons is that we misread the U.K.

windfall tax. We thought -- going into the year we thought that the market would pick up, and then the demand was simply not there, so we ended up with a lot of idle vessels.

Here, just to give you an idea about the earnings capacity. On the left-hand side there, the first column is really what would we have made if all the vessels were fixed in the current market.

Today, we would have made an EBITDA of $125 million per year on that basis. Clearly, we have the backlog.

We have vessels that are not fixed. But again, just to illustrate what earnings capacity would have been with the current market.

Then, we looked at the peak and then we said, "Okay, we do have 2 new buildings, options on 2 new buildings in China. What happens if the market improves?

We have a growth case. We put the Scandinavia into work."

And so, then the earnings capacity of that market in the company, market-to-market based on those rates would be $275 million per year. So there is significant earnings capacity.

And that's important to have in mind when we look at the net current debt, which is $345 million. So when the market comes back in a more normalized situation, we do have earnings capacity to cover the outstanding debt.

Yes. Again, just some other more high-level thoughts about what's -- how is our market priced versus new buildings compared to other segments of the market.

In my book, very simplistically, we have 2 sophisticated rigs that can go in Norway. They will cost, as I said, about $350 million per year, 2 of those.

That's 700 million. You have the 2 other new buildings.

Let's say that they are a little bit less, $250 million. So those 4 rigs in total - new building price today is $1.2 billion.

Add in $100 million for the 3 remaining rigs. So sort of the market value, new building parity, for our sort of fleet today is give or take $1.3 billion.

And that compared to sort of the EV today of $450 million, you are basically at 35% how we are priced compared to what new building parity would be. So it's going to be a while until there are contracted new vessels in our segment.

But all I'm saying, there is a significant potential here on value uplift and earnings uplift. Moving on to operations.

As I alluded to initially, Safe Notos and Safe Zephyrus had 100% utilization in the quarter. The Concordia was in the U.S.

Gulf. And as I said, we had additional options declared.

The Safe Eurus had an SPS in the quarter more or less on time, on budget. So we are happy with that project.

And then the Safe Scandinavia is laid up in Norway; it's cold stacked. And while the Safe Boreas and Safe Caledonia are laid up, but warm stacked in Norway and the U.K.

So that's the capacity coming in into the market. Quickly on the backlog.

You see here our backlog -- we haven't -- we have not fixed any vessels in '23. So the backlog is therefore depleting.

We are very optimistic for '25, going into '25, but this is more of a status situation on the backlog. And this is the fleet, how we are employed.

So as you -- we have 4 vessels available for '25, and that's what makes us very excited. We think that the supply-demand dynamics -- we have the -- the Safe Zephyrus is in Brazil.

It's going until the first quarter of '25. That can be prolonged in Brazil or we can move it back to the North Sea.

That's a vessel that is compliant with NCS, so that can go in Norway. So there's a lot of opportunities for Zephyrus.

Of course, there is a mobilization issue here if we do take it back. But this is fairly sort of a binary calculation what makes sense for us.

So we will optimize the Safe Zephyrus. The Eurus and the Notos are going on to Petrobras, unfortunately, at low rates.

There's a history for that. But that was back in the refinancing that those vessels were fixed.

They are what they are. We just have to deliver it.

But that's the potential going forward here. And we have the Concordia.

She is due for dry docking, as I said -- or SPS rather in March next year. So that's something we are dealing with.

And then we have the Boreas and the Caledonia that is available today. So we have a good position into an increasing market going forward.

So with that, Reese, maybe you can take us through the numbers.

Very good. Thank you, Terje.

Reese McNeel, the CFO of Prosafe. I've been with Prosafe about 1.5 years now.

And thank you for dialing into this call and listening to us. On the financial side, running through this briefly.

Obviously, the quarter was impacted by the Eurus SPS. The Eurus was off hire from the 15th of November.

So that had a negative impact, I think, on our -- both on the top line and that flowing through then on to the bottom line. We also had a slight impact from a crane issue on Concordia, where we had a slightly lower day rates through a significant portion of the quarter and incurred, obviously, some additional costs associated with that.

We're happy that both Eurus and -- Eurus is fully back on hire and Concordia has also now had the crane fixed and is back on full hire. So a slight impact from those 2 in the quarter, which leads to a slightly lower EBITDA if you're looking sort of comparable quarter-on-quarter versus the year.

Looking at the income statement, a couple of things to point out here. One, which I would like to highlight, is the mobilization.

Obviously, we incurred substantial mobilizations during 2023. We took the Zephyrus from the North Sea down to Brazil and we also took the Concordia up to the U.S.

Gulf of Mexico. From an accounting perspective, these costs are amortized over the life of the project, but the cash is out today.

So that is actually somewhat a little bit of a negative impact that we will see carrying over into 2024, but it will not have a cash impact as such. Looking at this -- sort of the lines a bit below EBITDA.

If we talk about interest, I think we all know the interest rate environment has gone up. Under our current financing agreement, we are unhedged.

So we have been impacted, of course, during the year by those increasing -- the increasing rate levels. On a more positive note, on the tax side, we successfully resolved a tax case in the U.K., which we're very happy about, a tax case which had been going on for many years.

And we were able to release that provision and derisk the balance sheet in that respect. As Terje has said, I think none of us are super happy about the 2023 results.

I think utilization was a bit lower than we thought. And we had slightly higher costs on the mobilization.

I think that's something that the whole industry has seen, is that costs have been higher in doing these CapEx and mobilizations. But we're very happy that those are behind us, and we have now -- going into the coming quarter, we have all 4 of the vessels fully working.

A bit on the balance sheet. Probably the biggest thing to highlight is working capital and the cash balance.

A cash balance of $75 million, as Terje has said, that -- we strongly believe that gives us a good buffer well into 2025, supported heavily by the equity raise we did in the quarter, $35 million private placement and the subsequent offering. So very good shareholder support there.

Net working capital was also positive. My expectation, I will say, coming into the year was that we'd actually have a bit of a draw.

But it turned out the timing of the SPS on Eurus coming late in the end of the year that we have a larger balance in accounts payable going over the year. So I think a lot of that is actually timing rather than a consistent decrease in sort of working capital need.

But still a positive impact for us going into the year-end. On the cash side, again, the loss was offset largely by the working capital, largely by the increase in payables.

We did have some CapEx in the quarter, again, mostly driven by the Eurus SPS and, of course, the interest, and again, the very positive support which we received from our shareholders in the quarter. So those comments on the financials.

I'll hand it back to Terje to wrap it up.

Thank you, Reese. Yes.

So in summary, I mean, as I said, it's a good performance safety-wise and otherwise for the quarter. 2023 has been a challenging year.

But we are sort of very -- yes, I would say very optimistic going into '25. I think '24 is going to be a little bit of a year in between.

And both sort of the North Sea and Brazil is underlying that. So we really think that we are in upward trend, both in terms of rates and utilization going forward.

So I think I'll leave it at that. And if there are any questions, we can take those.

Reese, you have...

We haven't received any questions from the online audience. So if there's any questions in the room, please feel free.

If not -- yes, please.

Yes. You said 2 tenders in the North Sea.

Does that include the one you said you're not longer being a part?

That's correct.

Okay. And can you say anything if the last one is U.K.

or Norway or...

I think we'll leave it at the North Sea for now. I think that's -- so yes.

Okay.

There are here. Just one second.

I did get a couple of questions through here now. I will read them out for everyone's benefit and -- can you provide any details on Prosafe's day rate and where you think the tender in the North Sea, which you've discussed, will land?

I think that's not something that we are going to comment specifically on, on specific day rates.

No. But what we can say is that we think that for our sake, we can -- there's higher earnings potential elsewhere, let me put it that way.

Concordia. Can you comment on the long-term outlook for Concordia beyond 2024?

Do you see future work requirements in the Gulf of Mexico? Where do you expect Concordia to go after her current project?

The Concordia is a little bit of a special project because she's coming up for SPS. And as we have alluded to in the appendix, there is a significant -- that's going to cost some money.

So we need to look closely at Concordia, whether it -- what we do with her after the SPS. But there is no doubt that, that's a vessel that is -- she is competing in more the U.S.

Gulf, Mexico, Africa, that kind of market. It's not a vessel that will go back to the North Sea.

That's unlikely.

Yes. One further question here regarding the tender in the North Sea.

Can we give any flavor on what happened and rates or specifications?

I think on rates, we will not comment on. On what happened, is basically we came to a point where, as I said, we think we can make more money on other business on that tender, as simple as that.

I think that was it from the online audience. So...

If there are no more questions, then thank you very much all for showing up and also for the online audience who's listening in. We look forward to see you next quarter.