Good morning. Welcome and thank you for joining the Saipem first quarter 2022 results presentation. The information furnished on this conference call does not constitute an offer of securities for sale or a solicitation of an offer to purchase any securities in the United States of America or in any other jurisdiction in which such offer or solicitation is not authorized, or to any person to whom it is unlawful to make such offer or solicitation. Any information covered during this conference call is not directed at or accessible by persons located in the United States of America, Australia, Japan and Canada, or any other jurisdictions where such information is not permitted or is restricted pursuant to applicable laws, rules and regulations. If you are a resident or physically located in one of these jurisdictions, please disconnect now from this conference call.
I would now like to hand over to Saipem CEO, Mr. Francesco Caio. Please go ahead, sir.
Good morning, and welcome to Saipem first quarter 2021, 2022 presentation. I'm here with our COO, Alessandro Puliti, and our CFO, Antonio Paccioretti. We also have other colleagues in the room for the Q&A session. In a very short summary, we had a positive start of the year in Q1. EBITDA, as you might have seen from our press release, was EUR 145 million, which is in line with our target for the year, and also confirms the cruising speed of Q4 last year, which as you may recall, excluding the impact of the backlog review, we had an EBITDA of EUR 120 million. Net debt was EUR 1.25 billion, lower than the EUR 1.5 billion of end of the year 2021.
That's a result of both good control in the quarter from operations, but also benefiting from first steps in the financing package from our key shareholders. Sandro Puliti will take you through the details of where we got to in terms of the financing package. Order intake was EUR 2.4 billion, and that gives us a book-to-bill of about 1.2. I think the important point I'd like to emphasize is that confirms the good momentum we see in the market for oil and gas, particularly in offshore, E&C and drilling, as you will have the opportunity to see later in the call. That finally the backlog given that order intake amounts to almost EUR 24 billion, and that including the non-consolidated projects.
A picture overall that give us great confidence in the foundation of our strategic plan that is now well under way in terms of execution. With that introduction, I'd like to hand over to Sandro for an update, as I was saying, both on the financing package and more importantly on the business. Thank you.
Thank you, Francesco. Let's go through immediately the progress we made on the financing package after the 25th of March. As you might recall, and this is an important element, the two main shareholders, Eni and CDP Industria, committed irrevocably to subscribe the rights issue pro rata to their respective stakes. That means 43% of the future capital rise will be covered by them. They paid EUR 646 million as contribution for future share capital increase at the end of March 2022. Eni, EUR 458 million, and CDP Industria, EUR 188 million. Eni portion of the contribution for future capital increase is already authorized to be accounted for as equity, while CDP's contribution is accounted for as debt.
On 31st March, we signed with a pool of eight Italian and international banks, a liquidity facilities of EUR 855 million, which is guaranteed by Eni. On 4th April, we drew down the first tranche of the facilities for an amount of around EUR 680 million. Regarding debt maturities, on 5th April, we repaid a bond of EUR 500 million. At the end of March, the board of directors of SACE, the Italian Export Credit Agency, approved the issuance of a guarantee on the Saipem-SACE facility in the framework of Garanzia Italia that will replace the liquidity facilities guaranteed by Eni. The SACE guarantee will be issued after the relevant ministerial approvals.
Another good news is S&P Global credit rating for Saipem was improved from BB- to BB with positive outlook, removing the company from the negative credit watch. As you can see, the process of the financing package is well underway. The next step will be the shareholders' extraordinary meeting to be held on May 17th, which will be called to resolve, among others, on the share capital reduction to cover the loss of 2021, pursuant to Article 2446 of the Italian Civil Code, and to empower the board of directors to execute the EUR 2 billion rights issue announced on March 25th. Let's move to the contract acquisition of the quarter. As Francesco anticipated, the year had a good start with a positive commercial momentum in the offshore, both drilling and engineering and construction.
In drilling offshore, we announced well over $700 million in two different press releases. The most recent for Saipem 12000 to work with Eni and for two jackups to be employed for a duration of five years in Saudi Arabia. In addition, as you may recall, we announced mid-March a new contract for Scarabeo 8 to work for Aker BP in Norway. Operations are expected to start from end of Q4 this year, upon termination of the works in which Scarabeo 8 is currently engaged. Contract duration is three years for $325 million, plus two options of one-year extension each, with a performance bonus scheme and a mechanism for rate adjustment to market rates from the third year onward.
In engineering and construction offshore, we received earlier this year the notice to proceed for the Scarborough export trunk line in Australia, thanks to our recognized track record in very long trunk lines, leveraging the advantage pipe layer, Castorone. In Guyana, we are continuing our fruitful relationship with ExxonMobil that has assigned a further SURF development in the country after Liza phase II and Payara, the Yellowtail. These two projects together are worth over $1 billion. Looking at the backlog, the stock of IFRS backlog at year-end of last year amounted to EUR 22.7 billion. We had a new acquisition on the quarter for EUR 2.4 billion, with the book-to-bill around 1.2x , resulting in a backlog end of March of EUR 22.2 billion.
The March backlog, including non-consolidated projects of EUR 1.8 billion, amounts to EUR 23.9 billion. In the quarter, there has been a reduction in the engineering and construction onshore backlog that was not offset by the acquisition on new projects. The reduction was triggered by the termination of some contracts subject to condition precedents clauses which did not materialize. This is consistent with our policy of higher commercial selectivity in the onshore engineering and construction business. Just to be clear, the strategic plan presented on 25th March 2022 did not include any contribution from these projects in the economic and financial targets. Regarding Russia, we confirm we are in line with what was communicated on March 25th.
We are actually negotiating, as we speak, with clients and partners, the best available options for our project in the countries in full compliance with the applicable regulation and sanction, preserving the interest of the projects for all the parties. Before handing over to Antonio for the numbers, I would like to touch base on the material and logistic cost escalation in relation to the current geopolitical situation. I was quite explicit on March 25th on how we deal with this at Saipem, but I want to take the chance to provide you some extra color on how it works here when it comes to dealing with such issues. In relation to certain projects, it is worth to mention that we are experiencing positive attitude from several clients in terms of risk allocation.
In particular, these clients, being aware of the current market conditions, where it is challenging to predict both unit rates and also availability of raw material and certain special equipment, are more open to share a portion of the risk with the contractor. The best way to do it is by operating with transparent open book mechanisms during the initial phase of the projects. Of course, also entering FID contracts in order to study the best solution, again, in a fully transparent way with clients, give us the possibility to study with them and decide if and when it is the right time to set a new pricing for lump sum turnkey contracts or to move on with hybrid models.
The ultimate goal is to accelerate the time to first hydrocarbon production for the clients, and we are here indeed to support our clients in achieving this goal. Let me close with few elements on the event that has occurred seven days ago on Saipem 7000, and it was promptly reported to the market. Saipem 7000 incurred into an accident during the periodical lift test, which is usually performed in Norway. After completing dynamic positioning test, the Saipem 7000 was conducting the five-year crane lift test of crane number one, with attendance of the classification society RINA. Nobody was injured during the incident. According to a preliminary assessment, the main block wire of crane number one broke during the test for reason yet to be determined.
The testing load, the two cargo barges, with the main block of said crane were released into the water. The unit, after an initial tilting caused by the load release, promptly returned to a stable position and safe conditions. The assessment carried out so far has not shown any significant structural damage other than those to crane number one. In particular, the integrity of the ship hull is confirmed. Crane number two, which was not involved in the test operations, can be put into service at the end of the precautionary checks that are now in progress. Based on the information available, it is reasonable to expect the Saipem 7000 vessel will be able to return to operation starting from June, even if with a partial use of the lifting capacity. Now I hand over to Antonio for the review of the first quarter financials.
Thank you, Sandro, and good morning, everyone. Starting with group results, revenues increased by 20% year-on-year, driven by E&C offshore and the two drilling businesses whose revenue both increased year-on-year. Q1 revenue were also higher than Q4 last year, which is a tangible sign of the recovery of our activity. For the remainder of the year, we expect to see an acceleration since we project around EUR 6.6 billion of backlog to be executed from April- December. EBITDA adjusted in the quarter was EUR 145 million, a level in line with our expectation of over EUR 500 million for the whole 2022. I must say that this level broadly confirmed the excess speed we had in Q4 2021, where we adjusted where the adjusted EBITDA before backlog review was around EUR 120 million.
Key drivers were the same as revenue. I will enter into more details in the next couple of slides. Adjusted EBITDA margin was around 7.5% despite the backlog review we made in Q4, last part of our backlog with a substantially neutral margin profile. Adjusted EBIT was positive for EUR 14 million, notwithstanding the increase of D&A for around EUR 9 million. Bottom line, our adjusted net result was negative by EUR 85 million. This is the result of the positive adjusted EBIT being more than offset by results from the equity participation, financial charges and taxes. I will share more detail later. Since January 2022, the company has had a new organization based on four business line: Asset Based Services , Energy Carriers, Robotics and Industrialized Solutions, and Sustainable Infrastructures, going beyond the divisional structure.
In order to facilitate the financial markets' understanding on the evolution of the economic and financial performance during 2022, also in the context of the capital increase, the company maintains in continuity with previous years the reporting structures based on offshore E&C construction, E&C, onshore E&C, offshore and onshore drilling. Moving on, results by business, starting with E&C offshore. E&C offshore accounted for revenues of EUR 832 million in the first quarter, with an increase of EUR 275 million year-on-year. Such an increase was mainly driven by activities in the Middle East, where offshore campaigns have started with a significant deployment of our fleet. Adjusted EBITDA was positive for EUR 65 million, with an increase of EUR 57 million versus the first quarter of 2021.
Mainly driven by volume increase and vessel idleness reduction, leading to an adjusted EBITDA margin of 7.8%, a remarkable result. Also considering the dilution coming from certain offshore wind projects, which after the backlog review progressed substantially neutral in terms of margin in Q1. The key driver of this EBITDA was the contribution from oil and gas projects, which progressed well. For the full year 2022, we expect oil and gas activities to support adjusted EBITDA margin. Offshore wind activities are expected to be neutral in terms of margin, with the full year 2022 revenue expected at around EUR 400 million. Moving on to E&C onshore, revenues in Q1 were EUR 863 million and below Q1 of last year.
Looking at the key region, Asia, Pacific, Americas, AU, and Europe posted a growth while Sub-Saharan decrease year- on- year led to a decrease for the whole business segment. Adjusted EBITDA was slightly positive by EUR 10 million versus EUR 43 million in 2021 due to the lower contribution from suspended Mozambique project, which in Q1 2021 was up and running with revenues close to EUR 400 million. Lower profitability from Middle East as a consequence of the revised margin after the backlog review. For the whole year, given the impact of the backlog review on the E&C onshore, certain projects are expected not to generate margins going forward. For this reason, we confirm our prudent expectation of E&C onshore EBITDA margins around breakeven. Let's look at the drilling positive performance in this slide.
Drilling offshore revenue increased by over 65% year-on-year, ending at EUR 129 million in Q1. Volumes increased year-on-year from Saipem 10000 engaged in Egypt, higher Scarabeo 9 utilization in Angola, and the start of the new drilling ship, Santorini in Gulf of Mexico, both for Eni. The adjusted EBITDA almost doubled versus the same period of last year, from EUR 22 million- EUR 40 million. Such a step increase was driven by the revenue growth due to the improved utilization and the operating leverage typical of this business. Adjusted EBITDA margin remained strong with margin at around 31%. The strong adjusted EBITDA of Q1, however, should not be projected throughout the year due to the planned cyclical maintenance for a couple of vessels later in 2022.
Drilling onshore, on the right end of the slide, posted an increase of revenues of over 50% year-on-year, mostly due to the increased utilization in the Middle East and partially in Latin America. For the first quarter, the average rigs optimization rate has been 59%, a good improvement versus 45% in the Q1 2021. Adjusted EBITDA doubled year-on-year in Q1, boosted by revenue increase. The positive trend and further activities improvement in Middle East are expected to continue in 2022 with a restart of certain rig contracts. Drilling offshore and onshore together are expected to improve their total revenues and EBITDA versus 2021, driven by the visible recovery of the markets and the resilience of EBITDA margins. Let's now take a look at the lines below EBITDA in this slide.
D&A slightly increased year- on- year by EUR 9 million, also due to the suspension experienced in the first quarter 2021 for certain vessels in both drilling and E&C offshore due to cyclical maintenance. Financial expenses were EUR 23 million in Q1 2022, or EUR 8 million lower than in Q1 last year, mainly due to the positive impact of Forex exchange differences and hedging costs. All in all, the average cash cost of our debt in the first quarter of 2022 was around 3%. For the remaining quarters of 2022, it will be affected by the costs related to the financial package. The average cost of our debt after the financing package for this year is expected to be around 4%. As you know, this line also includes project hedging costs and some impacts from IFRS 16.
More details are included in the appendix. Results from the equity investment were negative by EUR 43 million. Due to, firstly, the contractual variation for a project in the Far East that determined the recognition of certain activities directly provided by the partners of the relevant JVs. This one-off item has been included in the adjusted EBITDA of the E&C onshore. Secondly, the negative figure is also due to the exchange differences for the project in Russia, which impacted the net equity of the joint ventures. On the right side of the slide, you can see the reported P&L, where the only difference is related to EUR 30 million of special items due to direct COVID-19 costs. Let's look at the evolution of our cash flow and net debt in the fourth quarter. The cash flow evolution before IFRS 16 is highlighted in the light blue shaded area.
Net cash flow from operations before working capital and CapEx was positive by around EUR 40 million due to the positive results of our operating in the quarter. Delta working capital was negative for around EUR 170 million, of which around EUR 100 million is mostly absorption from the backlog review, costs recognized in the last quarter of 2021, and ready to cash out in 2022, which is part of the half billion EUR of absorption we expect in the full year 2022. The remainder cash absorption of around EUR 70 million is the combination of net cash advance payments from clients and to suppliers, lower payables for investment activities, along with cash impact from indirect taxes, partially offset by lower receivables.
CapEx in the quarter amounted to EUR 45 million, a limited number due to the phasing of maintenance and plus renewals expected for the remainder of the year. All these elements led to a net financial position of around EUR 1.4 billion at the end of March, prior to the contribution from Eni for future share capital increase, which has been booked as equity. This confirms the ability and the discipline of the company in managing the cash flow dynamic and maintaining the level of our net debt under control. Considering the above, any contribution of EUR 458 million and the IFRS 16 impact for EUR 295 million, net financial position at the end of March was around EUR 1.25 billion. Looking at the maturity profile and the liquidity, we describe the situation at the end of March 2022.
The chart at the top with bonds and banking facilities shows the maturity profile, excluding CDP contribution of 188 for the future capital increase, which at the end of March 2022 has been booked as debt. When the capital increase is concluded, the amount received by CDP will be converted into equity. At the end of March 2022, we had around EUR 3.7 billion of gross debt, considering around EUR 3.3 billion of bonds and banking facilities, EUR 188 million received from CDP, and around EUR 170 million for accruals. Let's look at the liquidity at the bottom of the slide. Total liquidity amounted to EUR 2.75 billion at the end of Q1, of which EUR 1.4 billion was fully available and EUR 1.35 billion was restricted and mainly related to projects in joint ventures.
It is worth mentioning that after the end of the quarter, on the 5th of April, we repaid EUR 500 million of bonds as well as EUR 100 million of short-term banking facilities. Furthermore, after the signing at the end of March of the loan agreement for the liquidity facility, on the 4th of April, we drew down the entire Tranche A for the amount of EUR 680 million. This is all for the financials. I will hand over to Francesco to close the presentation.
Thank you, Antonio. Thank you, Sandro, for your presentation. As I was saying before, just in summary, a positive start of the year, and I think a further progress in the transformation strategic journey that we've announced in October last year. I think results are also confirming a good momentum in the investment in oil and gas in the market, with positive impact on both commercial and financials, particularly for our offshore activities, which as you know, come with interesting margins. A quick reminder before I open the Q&A session, we have an EGM on May 16th. That would be an important step towards the capital increase, as part of the financing package that we've announced on March 25th. That's a further sign of progress on that front.
Now I'd like to thank you for your attention and, I'm now opening the Q&A session. Just a reminder, I'm here with the heads of the main business units and the commercial director with also Paolo Calcagnini, who's helping us on
Important elements of the financing packages here, available to answer your questions. Thank you very much.
Thank you. This is the conference operator. We will now begin the question-and-answer session. Anyone who wishes to ask a question may press star and one on their touch-tone telephone. To remove yourself from the question queue, please press star and two. Please pick up the receiver when asking questions. Anyone who has a question may press star and one at this time. We will pause for a moment as callers join the queue. The first question is from Alessandro Pozzi with Mediobanca. Please go ahead.
Hi. Good morning, all. A couple of question from me. Certainly today probably the positive surprise was the EBITDA, probably a reflection of a clean quarter and the earnings potential of the group. If of course there's a lot of volatility between quarters and quarters, but if we annualize it, we are, you know, above the guidance. And I was wondering, is this—are we going to see a progress in terms of EBITDA for the next few quarters or this is the EBITDA that the company can deliver for the next quarters up until the year end?
Also the second question is, going back to the opening remarks about the attitude change, I believe, from the clients. I think there is more emphasis on open book commercial strategy and hybrid models. I was wondering whether you've seen a big change in the last few months, and whether that could be the way forward to unlock new contracts.
As far as the first question, we confirm the results we obtained in the first quarter is a good reference for this year, and it's confirmation of our guidance made on the 25th. Anyway, it is important to underline the fact that the EUR 145 million of EBITDA also benefited in addition to the positive, let's say, operation, but also benefited of the contribution of around EUR 35 million due to the technical, accounting techniques, let me say, which moved such an amount from the income from associates, so below EBITDA, to the EBITDA itself. EUR 35 million is the effect that I tried to describe. Sandro?
Okay. Regarding the commercial strategy that has to comply with the current market situation of commodities and services, as I was explaining during the presentation, yes, we are moving toward a more open book approach with the client, especially in the first phase of the project, where together with the field study, with the front-end engineering studies and the main procurement activity for the most important item of the project, we progress on a open book basis with the client. Because at the end of this period, then it is possible at that point in the current market condition to turn the activity into a lump sum turnkey without having excessive risk for the contractors in terms of turnkey lump sum contract.
Also, the client is winning a contractor that is not protecting himself in the turnkey lump sum with excessive contingency to cover for surprises in procurement. This is a sort of a win-win strategy that we are applying with the clients in the last negotiation we are carrying out. I cannot provide you examples because are covered by confidentiality, but this is the line where, in which we are moving along.
I'd like to add that what the team is doing is now applying that notion of being more selective, going from just volume to value, which entails an engagement with clients talking along the lines that Sandro was explaining right now in contrasting and comparing opportunities and costs in a way that at least allocates the proper risk to the various players in the value chain.
All right. Thank you. Just a final one on a technicality. You, I think you booked a part of the contribution from Eni as an equity, but the number of shares outstanding have remained the same. Is that right?
Exactly. I'm just talking about an accounting technique. I mean, since Eni authorized, upon the closing of the liquidity lines, the transformation of the consideration of this payment as equity, it has been booked at the end of March as equity. What has been paid by CDP will be considered equity once the capital increase will be executed.
That is not changing the number of shares outstanding at the end of the year?
Ab-ab-
Okay.
No, absolutely not.
Okay. That's fine. Thank you.
The next question is from Mick Pickup with Barclays. Please go ahead.
Good morning, everybody. Couple questions if I may. Sorry, a clarification here. You talked about something moving from the equity result up into EBITDA. Obviously, that equity result at EUR -43 is a big number, and moving up. Within that equity result, there's a loss in there for Far East projects. Can you just disaggregate what the loss value is within that? Because clearly that's part of the operational performance of the company.
It is not a loss. We are talking about a margin in relation to a project in the Far East, which has been decided together with the clients and the partner. It is a non-consolidated project, which has been decided for certain services to be passed directly to the partners. Therefore, it is a margin that instead it is now to be recognized as above the EBITDA. It is not a loss.
Okay. A follow-up. On the Saipem 7000, clearly, you're indicating she could go back to work with one crane. That crane is the other crane, I assume, is gonna have to be repaired sometime during the year. Do you have a schedule for the Saipem 7000 later in the year to repair it, or will that impact any further projects?
Okay, situation of Saipem 7000, there is a further positive update just coming this morning. Actually, we got permission to lower crane number one on its own pedestal. This will further accelerate the inspection activity and also will allow the Saipem 7000 to quickly access a proper yard to carry out the final inspection and reparation. This was something that yesterday evening when we prepared the press release was not yet official. This is something that came this morning.
What we will do with Saipem 7000 is that we will have an initial, let's say repair period, on a yard, during the month of May, at the end of which the crane, the vessel will have the crane number two, the one that was not involved in the incident, recertified because it was undergoing the same process of crane number one. The vessel will become operational with the crane number two. With crane number two, now we are working with our clients, since we believe that most of the jobs that can be done, that were in the schedule can be done with just one crane.
We are working with our clients on the project schedule and the options to carry out the jobs with the current configuration of the Saipem 7000. Later in the year, when we will have collected all the, let's say, spare parts and we will be ready to carry out the final repair on crane number one, we will undergo to another yard period and put crane number one back in full operation. This will be done, let's say, also, with a timing that will fit the schedule of our client, trying to minimize any problems to the jobs that are now on the schedule of Saipem 7000.
This is the path we see ahead of us on the Saipem 7000.
Thank you. Very clear.
The next question is from Massimo Bonisoli with Equita. Please go ahead.
Good morning. Two question. Sorry for the background noise. The first on E&C offshore margin, if you can give us an indication of the margin of the oil and gas project you have mentioned as responsible for the improvement in EBITDA of the division. The second on Russia, if you can give us some color on the project evolution in the country, and if you believe those projects may continue to be executed and delivered on time under current conditions. Thank you.
In a nutshell, I would say that the return in terms of margin, EBITDA margins, as you have seen, is an important result, even if you. In particular, if we consider that
We do have a couple of projects in the offshore wind with the margin neutral. If we consider the return on oil and gas without such a margin dilution, I would say that we have to increase the EBITDA margin by around 100 basis points. 7.8% to at least 8.5%.
Okay. Regarding Russia project execution now, as stated on the 25th of March, we first of all will be fully compliant with the existing framework. Within this framework and the latest upgrade of the framework assumption, basically the two projects where we are in both Moscow Refinery and Arctic LNG basically they have to see the end of our involvement by May. What we are doing now is we are working with both clients in order to find the and implement the smoothest way to come to this situation. Basically the strategy is to hand over the projects to the client by the month of May.
Clearly, I cannot enter into details that are covered by confidentiality. The strategy basically is this one.
Thank you.
The next question is from Guillaume Delaby with Société Générale. Please go ahead.
Yes, good morning, and thank you for taking my highly politically incorrect question. Basically what surprised me this morning is that you feel extremely relaxed. The tone is much more positive than one month ago. The body language has changed. My question is, what is the main driver of this change? Is it mainly a better economic outlook for new projects? Is it mainly because Francesco, Alessandro, and Antonio now are knowing each other better and start to better work together? Is it because you have a sense of relief after all the hard work you needed to have put over the last few months? What has changed in terms of atmosphere within Saipem over, I would say, the last four or five weeks?
My second question, which is much more specific, is when should we expect to have new reporting segment in the coming. Well, will it be next year? That's it for me. Those are my two questions.
Thank you. Look, perhaps there is a difference between confidence and relaxation. The notion of being relaxed around the place here is not really part of our job. We're in the process of a highly challenging financing package. Believe me, I don't think the sense of relaxation is something that comes with the package here. You know, we work together well, yes, we do, but we're also very aware of the main challenges we have and just the beginning of the journey. You know, perhaps the beauty is in the eye of the beholder.
Maybe you yourself look at Saipem with different eyes, knowing that there is a financing package coming, that the numbers are coming in, and more importantly, that demand is out there in the areas where we know historically we've been good at generating margins. Thanks for clarity and you know hopefully the positive engagement with you guys will continue. I'm very keen to highlight what Sandro and Antonio have already highlighted is that you know there is a challenge here and this is not a walk in the park.
On the second question, in terms of reporting segments, you might have seen that in light of the capital increase, in light of much information we'll have to relay from Saipem, we will continue to report along the previous segments for a few quarters, I believe. We'll come back to when and if changes will be reported, and we'll keep you posted. Thank you.
The next question is from Kevin Roger with Kepler Cheuvreux. Please go ahead.
Yes, good morning. Thanks for taking the question. The first one is related to the offshore drilling business. You recently signed several contracts, of which some of them are for very long term period of time, five years. I was wondering what has pushed
The client to commit himself for such a period of time with you. I was wondering if you can give us a bit of color on the pricing mechanism that you have agreed with the client, how you will revise potentially the pricing, et cetera, for those units that have been secured by the clients? That will be the first question, please.
Okay. Clearly, the main reason behind the offshore drilling business seeing a very good, a very positive increase is the price of the commodity. Both oil and gas clearly are pushing our clients to more drilling, to do more exploration activity, to do more development activities in the oil and gas fields. The drilling rig market, especially the offshore drilling rig market, is really picking up. I would say that some of the clients, they realize that we are at the beginning of a positive cycle, so they like to enter into long-term contracts to give certainties of their cost of operations for the next three, four years. This is the reason.
The pricing review mechanism clearly are covered by confidentiality between ourselves and the client, but certainly it's what we can say that there are mechanisms that are at a certain point, they find a link between the existing daily rate and the average drilling daily rate of the market, making a sort of automatic and previously agreed system to update the daily rate. This is the way it works.
Okay, understood. The second question is related to the onshore drilling. I was wondering if you can update us on the utilization rate of the fleet, because if I'm not missing it, you did not provide the usual slide in your presentation in terms of number of rigs utilization, etc., for offshore and onshore. Also you said at the capital presentation that you were potentially thinking about asset disposal. Onshore drilling business was part of it. I was wondering if there is something new on that, please.
Sure. In terms of fleet utilization, we have in 2022 a very good rate. Basically, the entire offshore fleet is fully booked this year, so we work all the year. This is a very good improvement compared with 2021. Also, we see very good signs on the onshore improving. So we have now a utilization rate of the onshore around 60%. I would say the offshore drilling unit fully booked and onshore around 60%+ of utilization picking up as long as client pushed again by the commodities value are increasing their activity. No, there was another part of the question. Okay.
On the M&A.
On the M&A. Okay. No, sorry. It was
No problem. Too many questions, maybe.
I don't have any further, let's say, update compared to the Capital Day. We still have our target to come to a fully termed sales and purchase agreement for the drilling onshore by end of May, and we are confirming the target.
Sorry for that one, but maybe I missed it. Is it, let's say, if you find an agreement with the potential acquirer, would it be for the entire fleet or for part of the fleet?
No, no. We will be only for onshore drilling activity.
Yeah, the full fleet anyway.
To avoid any doubt, the offshore fleet will remain with the Saipem core business. This is-
Yeah, yeah. Totally understand that. It's just related to the onshore drilling. Basically, if you find an agreement, it will be related to your more than 60 rigs fleet.
Yeah, yeah.
Everything will be included.
Will be-
Yeah, okay.
will be the entire drilling onshore business.
Okay. Perfect. Thanks a lot for that. Thanks.
The next question is from James Thompson with J.P. Morgan. Please go ahead.
Great. Good morning. Thank you very much for the presentation and the answers so far for our gentlemen. A couple from me, if I may. I guess first two are sort of related. You know, Saipem, you clearly laid out a view that the kind of risk profile, if you like, in Saipem is changing, or at least you're trying to change behaviors in the business. Two questions really. One goes back to an earlier one. You know, you talk about kind of a more open book type approach. I mean, is that really a kind of permanent feature, or is it more a kind of temporary factor just because we're seeing so much volatility in kind of raw material pricing at this point in time?
Is that a feature of your business you think is going to now persist? And then secondly, you know, you've walked away from a contract in the E&C onshore division. You know, obviously you've made it clear that you didn't include that in your kind of forecast to 2025. But I was just wondering if you could give us any more colors on what was it in the condition precedent that didn't meet kind of the level that would be required in Saipem? I mean, was this a. You know, is there any more color that you can give us on that which kind of helps us to understand why you've taken that decision and whether that decision can kind of happen again in the future?
Okay. Let's start from the last one. Really we cannot disclose, as you can imagine, the such details, but there-
Mm.
The maximum we can say is that there were condition precedent relevant to condition to be satisfied by the client and not by ourselves, clearly. More than that, we cannot enter into detail. Regarding the risk profile and our strategy, working open book in the first, let's say, in the first stage of the project prior to fixing a turnkey lump sum pricing. Is this temporary or will be permanent?
Certainly this will be a strategy that must be in place until volatility of the market is like the one that we are experiencing, because with the current volatility, there is no, let's say, other option left on the table to have a proper level of risk for the contractor, as I said before, and for the client avoiding the contractor putting extra contingency in his price to cover for the risk. As I said before, this is win-win. Certainly the strategy will remain until we will enter again into a period of predictable inflation, predictable procurement time of material, predictable pricing of raw material and logistics and so on.
I would say that, looking ahead, this strategy will really last for this year and next year for sure.
Okay, thank you.
I also like to add on this risk management issue that you raised, which I agree is central to what we're doing. There are many ways. One is cleaning the ship of the contract. The other one is that you know we mentioned the notion of industrialized solution and standardizing and going to modules. Now working on that, there is no major news to report today. You know that is something that we are working on as a way to mitigating risk and the de-risking the unknown in the projects, working with clients for modular and standardized solution.
Okay, thank you for that. I just had a number of kind of smaller detail points, if I may, just quickly. So, obviously offshore drilling, you've had a very good quarter in terms of order intake. You know, you're pretty much full, as you mentioned, for 2022. I just wondered, I mean, are you out there kind of you know, bidding on 2023, 2024 capacity? Or should we expect offshore drilling to be relatively light, I suppose, for the rest of the year in terms of orders? Would be the first one. Secondly, I mean, was the Saipem 7000 obviously it's great to hear that nobody was injured, but was the vessel meant to be operational in April and May?
Just to see if there's any sort of slippage there. You know, thirdly, I just wondered whether, you know, Saipem was facing any impacts from some of the lockdowns in China at the moment, particularly in Shanghai. I didn't know whether that was potentially any impact on the business at all in the sort of second quarter of this year or not. The final one is you kind of mentioned the 21-for-100 share consolidation. I assume so, but I assume that will happen obviously before the rights issue. We'll be basing any rights issue off 210.12 million shares.
Okay, let's start from the offshore drilling. As we see this market, a market where they will grow in the next years, yes, we are looking maybe to add some unit to our drilling fleet to serve our client. The strategy will be the same, we have been utilized for the Santorini drilling ship, an asset light strategy. We certainly what we are looking is to have a drilling unit in rental to serve the market that is growing. Actually we have clients that are asking us more capacity exactly where you said, 2023, 2024. We are looking to that definitely.
Regarding Saipem 7000, I said yes, we certainly, the vessel cannot operate during the month of April. I would say most of the month of May will be utilized to recertify crane two and to finally assess and start repair to crane number one. But definitely it will be operational in June, and if we can even early May, I would say that we say June to have a bit of safety factor, but it could be even as early as end of May. The lockdown in China for the time being, we do not record any, let's say, any important disruption to our business or even significant disruption to our business.
I give the floor to Antonio for the
For the consolidation.
For the consolidation.
The consolidation we have announced. First of all, it is important to say that nothing has to do with the capital increases, just a technical solution for covering the losses we had at the end of 2021. We have losses after the available reserves of around EUR 1.7 billion out of a share capital of EUR 2 billion. This is the Article 2446 of the Italian Civil Code, which imposes to cover such losses through a reduction of the share capital. The reduction will occur through the reduction of the number of the shares. It is indeed something that will occur before the capital increase, the execution of the rights issues.
It will occur just after the shareholders meetings, which is called to approve such a resolution. We expect to have on the 17th of May the shareholder meeting, and just after a few days after the registration of the resolution, we expect to have the execution of such a consolidation of shares.
Super. Thank you very much for answering all my questions there. I'll hand it over.
Gentlemen, this concludes today's Q&A session. The floor is back to you for any closing remarks.
Thank you very much for your attention, and we will continue to inform the market over the next few quarters. Thank you very much.
Ladies and gentlemen, thank you for joining. The conference is now over. You may disconnect your telephones.