Ladies and gentlemen, thank you for holding, and welcome to the SBM Offshore third quarter 2024 Trading Update Conference Call. At this moment, all participants are in listen-only mode. After the presentation, there will be an opportunity to ask questions. I would like to hand over the conference to Mr. Charles Alby, Investor Relations. Please go ahead.
Thank you, Sandra, and thank you all for joining us today. This call is being recorded and will be available for your replay on the company's website. Today's prepared remarks will be delivered by our CEO, Øivind Tangen, followed by a Q&A session. Before we begin, I would like to point out the disclaimer at the bottom of our press release and remind participants that some of our comments today may include forward-looking statements reflecting SBM Offshore's view of future events. These matters involve risks and uncertainties that could cause our results to materially differ from our forward-looking statements. The risks are included in detail in SBM Offshore's 2023 annual report, which can be found on the company's website. Once again, we will welcome your questions after the conclusion of the prepared remarks. I will now turn the call over to Øivind.
Good morning, and thank you for taking the time to join the SBM Offshore third quarter 2024 trading update call. I am Øivind Tangen, CEO of SBM Offshore, and I'm joined today by our CFO, Douglas Wood. SBM Offshore has delivered strong results for the year-to-date period up to the third quarter, as a result of which we have increased our EBITDA guidance for the year from around $1.3 billion to around $1.9 billion. The increase in guidance is driven by the completion of the sale of FPSO Prosperity to ExxonMobil Guyana on the 7th of November and the expected sale of FPSO Liza Destiny towards the end of the year. We will continue to operate these two units under the Operations and Maintenance Enabling Agreement signed last year with ExxonMobil Guyana, demonstrating the success of this innovative partnership, as shown by the outstanding performance of the vessels in Guyana.
Other important milestones achieved during the last period include the award by TotalEnergies of the FPSO contract for the GranMorgu projects in Suriname, which demonstrates the value of our life cycle offering and the advantage positioning this can give us in the market. The vessel, with an expected production capacity up to 220,000 barrels of oil per day, will be delivered in partnership with Technip Energies and will utilize an all-electric drive to help optimize the emission intensity of the FPSO, in line with our emission zero goal of delivering more carbon-efficient units. And we have completed the sale of 13.5% in FPSO Sepetiba to China Merchants Financial Leasing. On the execution side, the four projects we have under construction are progressing well.
To give a short update, FPSO Almirante Tamandaré has safely arrived in Brazil in October, and our project teams are working on the final commissioning activities, preparing for first oil in early 2025. Once in full production, this unit will be the largest producing FPSO in Brazil and is also the first in Brazil with a Sustainability 1 notation. This certificate recognizes the company's effort in minimizing environmental impacts over the life cycle of the FPSO, from the design through construction and operations. The other two units will be delivered in 2025. The other two units to be delivered in 2025, FPSO Alexandre de Gusmão and FPSO One Guyana, are progressing on integration and commissioning activities as planned. As for FPSO Jaguar, the topsides fabrication has started in Singapore, and the Fast4Ward MPF hulls delivery is expected in the last quarter of 2024. First oil is expected in 2027.
On Fast4Ward MPF hulls, the total number ordered to date under the company's Fast4Ward program stands at nine, with three Fast4Ward-based vessels now in operation, five hulls allocated to projects in construction, of which the last one is assigned to the GranMorgu project in Suriname. And we ordered the ninth hull earlier this year to support our tendering activities. We are optimistic about future market developments, and despite the global yard capacity constraints, we have the optionality and line of sight on a series of further Fast4Ward hulls, which will position us favorably in the coming years to meet future demand. For the lease and operate activities, the fleet uptime stood at 95% at the end of third quarter 2024.
Uptime is a bit lower than normal due to temporary shutdowns on two units, which have both resumed operation successfully, and we expect to be back in line with historical performance by year-end. Safety and care for our colleagues remain the company's top priorities. Year-to-date, the total recordable injury frequency was at 0.10, below our full-year target of a maximum of 0.12. Now, moving on to the financials. Year-to-date, the company's directional revenue stood at $2.838 billion. This is a 28% increase compared with the same period in 2023 and is driven by an improvement in both the lease and operate and the turnkey segments.
Under Lease and Operate, which stood at $1.01 billion in the third quarter of 2024, the 28% increase mainly reflects the contribution of FPSO Prosperity and FPSO Sepetiba, joining the fleet in Q4 2023 and Q1 2024, respectively, a rise in reimbursable activities, as well as the improved contribution from the fleet in Angola following the Sonangol transaction. This was partly offset by the lower revenue generated from FPSO Liza Unity following the sale of the unit and for which we now only see a contribution under the Operations and Maintenance Enabling Agreement. Directional Turnkey revenue also improved to $1.036 billion in the third quarter of 2024 from $835 million in the same period last year, driven by the FPSO Jaguar award and increased brownfield activities, partly offset by a comparatively lower contribution from the construction portfolio as projects approach completion.
Our net debt position stood at $7.3 billion at the end of September 2024, compared to $6.7 billion at the year-end 2023, reflecting the investments in growth. Most of the debt is related to our projects in operation and the funding of the four FPSOs under construction. There is no refinancing risk related to this debt, and all project debt becomes non-recourse in the operating phase. Additionally, the company uses interest rate swaps to substantively hedge interest rate risk. Finally, regarding cash return to shareholders, the EUR 130 million share buyback program is progressing well and was 57% completed on November 13, 2024. This level of cash return would see us distribute a minimum of $1.4 billion over the five years to come.
Based on our existing backlog and the strong market outlook, which should allow us to add additional projects like the latest award for the GranMorgu field development, we fully expect to grow our returns beyond this. To conclude, the company is delivering on its strategy of advancing our core and pioneering more, as evidenced by our strong third-quarter results by securing new material projects like TotalEnergies' contract award for an FPSO as part of the GranMorgu field development project in Suriname, progress on FPSOs under construction according to plan, the successful sale of FPSO Prosperity and the expected sale of FPSO Liza Destiny to ExxonMobil Guyana before year-end 2024, ahead of the end of the maximum lease terms, and the increased guidance of directional revenue to above $6 billion and directional EBITDA to around $1.9 billion. This concludes today's call. Thank you for listening.
Operator, we can now open the call for questions.
Thank you. To ask a question, please press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one and one again. Please stand by while we compile the Q&A roster. We will now take the first question from the line of Luuk Van Beek from Degroof Petercam. Please go ahead.
Good morning. I have two questions. First of all, on the increase in your guidance, if I compare that to my estimate of the contribution of the two FPSOs that you sell, it's a bit more. And you also mentioned in the press release that it's mainly driven by the sale. Can you confirm that there's also an element of better underlying performance in the company that's driving the increase in revenues? And my second question is on the pipeline. There are quite some projects that are nearing completion. You have already gone to new projects. Can you comment on the pipeline that will keep up activity levels in the coming years?
All right. Thank you, Luuk. So let me do the pipeline, and I'll let Douglas talk to the increase in guidance. So I think we've been in every quarter updates, given our view on the outlook. And I think with our value proposition of our Fast4Ward type FPSOs, we see a strong pipeline. And emerging markets like Namibia, we're very pleased, of course, with the award in Suriname and the entry with another top-tier IOC in our client portfolio. We see Brazil being very active. I think you read the same articles as us, so we're looking forward to see how the announced changes in contract structure in Brazil could also open up for more prospects. And of course, Guyana is still a very lively place. So we see good prospect pipeline in the coming three to five years for our Fast4Ward value proposition.
Okay. Good morning, Luuk. So on the guidance, what's driving the increase in the revenue guidance? There's three components. So obviously, the biggest one, as we said by far, is the purchase of the two vessels in Guyana by Exxon. Then certainly to reflect the announcement of the GranMorgu project that we just announced today. So that's included. Plus, there's an element from the completion of the sale of Sepetiba to China Merchants Financial Leasing. I would say one thing to bear in mind is that on GranMorgu, we haven't reached the POC to book margin yet. So that's purely a revenue impact from that. So what's driving really the big driver and more of a driver when it comes to the EBITDA guidance is the purchase by Exxon of the two units.
Can you comment on the underlying performance and is broadly in line with what we said last time?
Okay. Thank you.
Thank you. We will now take the next question from the line of Quirijn Mulder from ING. Please go ahead.
Yeah. Good morning. With regard to your utilization rate of 95%, I have only one question. That's for two units. Had it any impact on your income? Because it was probably planned, and I suspect it was Guyana. But maybe you can elaborate on that?
So it wasn't planned maintenance, so there was an impact. But overall, obviously, not a very material one.
Okay, and that's probably the smaller units then?
They're, yeah, some of the more mature units.
Okay. Perfect. Thank you.
Thank you. We will now take the next question from the line of Jeremy Kincaid from Van Lanschot Kempen. Please go ahead.
Good morning, team. Congratulations on the deal. First question, just following up on the utilization and the uptime. So is that the reason why your guidance for revenue on the lease and operate business was reduced? Or does it also reflect the fact that some vessels are obviously moving out of lease and operate and being sold? If you could quantify those two movements, that would be very helpful. And then the next question for me is just on the comment you made around growing shareholder distributions over the next five years. I was just interested in your thoughts around how you think about a share buyback against the fact that your share price has performed very strongly recently. And do you have a view as to whether or not you'd front-end load more share buybacks or if you'd potentially wait for a future date depending on the share price?
And then just finally, could you provide some commentary on how the accounting of the sale of these two vessels will work, in particular, what the gain on sale will be, and any tax implications? Thanks.
Now, let Douglas address your three points, Jeremy. Thank you for.
So, the first one on the lease and operate revenue, that is really the big driver there is, as you correctly highlighted, is the fact that Prosperity and Destiny will be leading the fleet. So there's obviously an impact because we won't get the charter there. The second one on the returns. So we have guided that we would expect to focus on the buyback when it comes to increasing returns. That remains, I would say, the case despite the fact that the share prices have increased. Obviously, if you look at some of the analysis that we present around the value of the backlog, that analysis suggests that there is more potential just from the backlog alone. And that's before you include things like growth projects like the one that we've announced today in Suriname. And then can you just repeat your last question again for me?
I was just hoping for a bit of clarity on the accounting of the sale of the two FPSOs, in particular, gain on sale and indexed income.
Yeah. Yeah. So they'll be similar to Unity. And I don't have a sort of specific comment on the exact numbers, but similar treatment to how it worked on Unity.
Understood. Thank you very much.
Thank you. We will now take the next question from the line of Mick Pickup from Barclays. Please go ahead.
Good morning, everyone. Sorry if I missed it. I got on a couple of minutes late. Can you just talk about Suriname, please? Obviously, you're going in this with a partner on the construction side in Technip Energies. So what are they bringing to it? Is that modules and access to delivery of those modules? And then secondly, your clients on that project were pretty open earlier this year in saying they just went to the same contractors and asked for copy-paste. So can you tell me how much of this is copy-paste versus Guyana? Obviously, it's electrified and somewhat different. But how was the conversation in signing Suriname relative to what you could bring and they had to take from you?
All right. Mick, good morning. So thank you for your question. So it's a partnership with Technip Energies. They obviously were in that prospect for a long time as the GranMorgu has been a development journey that's been in the making for some while. So we've gone in a partnership that is roughly 50/50 between the two companies. And let's call it or the Technip scope is more topside oriented, and not it is our traditional value proposition on the MPF and the integration. So that's roughly where that scope split sits. And as to what they communicate, there's no technical sort of similarity as such with Guyana. I think what they comment on may be principles of development and setting pace, which plays to, of course, to the Fast4Ward value proposition. And that is that.
But for the choices in specification versus emission optimization, there's no correlation between that. And that's our total philosophy that we adopt in our design. Of course, we always look for deploying technology that we've developed to optimize emission intensity that we have worked on through our emissionZERO program. So we like the decision of an all-electric FPSO.
Okay. And who's handling the integration of the topsides on that? Is that you handling that? Obviously, that's the critical phase of it all. So you're handling the integration, Technip providing modules, and you're doing the whole.
This is a partnership that follows an execution model very much aligned with all our Fast4Ward projects.
Thank you. Cheers.
Thank you. We will now take the next question from the line of Daniel Thompson from BNP Paribas. Please go ahead.
Hi. Good morning. Thanks for taking my questions. I had two, please. The first one on performance incentives. I was just wondering, I mean, we've seen some news reports that Exxon is looking to raise the production on some of the Guyana units further above nameplate capacity. So I'm wondering, does this trigger performance incentives for SBM? And relative to the base margin under your O&M agreement there, how significant are these incentives? And then secondly, just on Guyana and the pace of awards there, are you sort of roughly planning for one award to the market in that country every year? Or do you see sort of maybe two awards in future, given we have competing basins now in Namibia and Suriname? Just wondering what your expectations are there. Thank you.
All right. So the operating agreement has a variety of performance incentives. And the way we work is an integrated organization with Exxon, which allows us to optimize the production throughput of the units, which generates improved performance. And we don't comment on the incentives per se, but it's expected that we deliver optimized performance of the units in the underlying contract, and it doesn't trigger whatever production level is within the operating envelope of the unit, and it's captured by existing contract. It doesn't have any other compensation mechanisms outside of that. So when we do expectations on returns, they are on that expected performance. What it does do on the side note is excellence in performance always driving good positioning for potential future work. So that's an upside though. To the award pacing Guyana, that is strictly very much outside of our remit.
I think ExxonMobil Guyana and ExxonMobil corporate will comment on their ambitions there together with their partners. So I have no further comment on that.
Okay. Understood. Thanks.
Thank you. As a reminder, if you wish to ask a question, please press star one and one. We will now take the next question from the line of André Mulder from Kepler Cheuvreux. Please go ahead.
Good morning. A few questions. Initially, you said that the EBITDA increase of the two sales will be around $500 million. Is that indeed the case? Secondly, can you be a bit more specific on how the split works between Technip and your company on the GranMorgu project? So maybe a rough split in terms of size there. And last one, looking at the development so far in Guyana, the earlier disposals, the fact that they're ordering turnkey units, have there been already any talks on whether One Guyana will also go earlier than planned?
Yeah. Okay. Good morning, André. On EBITDA and the increase in the guidance, I would say the delta between the 1.3 and the 1.9 is mainly explained by the two. In other words, what I'm telling you, it ended up being more than the 500. On the JV on the GranMorgu, you could look at roughly 50/50. Regarding earlier purchases, that's going to be down to Exxon and their partners. We don't have any visibility. One Guyana would have to be purchased by middle of 2027 is the thinking. That's the backstop date.
Okay. And following question on Technip side, you said 50/50. Technip just said that their share will be slightly over EUR 1 billion. That sounds quite low compared to, let's say, a price of around $3 billion for such a unit, dollars.
Yeah. If I'm not mistaken, André, they said it was above, not around. So yeah.
Yep. Okay. Thanks.
Thank you. There are no further questions. I'll hand over back to Øivind Tangen for closing remarks.
Thank you very much for joining the call today and for your time and your questions. If you have any further questions, please contact our IR department directly. Thank you very much and have a great day.
Ladies and gentlemen, this concludes the SBM Offshore Conference Call. You may now disconnect your lines. Thank you for your participation.