Hello, and welcome to the Archer Second Quarter 2023 Earnings Release Call. My name is Alex, and I'll be coordinating the call today. If you'd like to ask a question at the end of the conference call, you may press star followed by one on your telephone keypad. If you'd like to withdraw your question, you may press star followed by two. I'll hand it over to your host, Dag Skindlo, CEO of Archer, to begin. Please go ahead.
Thank you, Alex. Good morning, ladies and gentlemen, and thank you for joining this conference call for the second quarter of 2023. Archer's Chief Financial Officer, Espen Joranger, is joining me on the call today. In today's call, I will touch upon the key highlights and summarize Archer's operation for the second quarter. Espen will thereafter walk us through the financial section and the outlook. Towards the end of the call, we will open the line for questions.
Moving to slide two. I would like to note that the information provided in today's call include forward-looking statements as well as non-GAAP financial measures. Forward-looking statements do not guarantee future performance and involve risks and uncertainties. Actual results may differ materially from projections. Further information about these risks and uncertainties are set forth in the most recent annual report for the year ending 31 December 2022.
Next slide, please. Revenue in the quarter of roughly $295 million represent an increase of 20% year-over-year. This, despite unfavorable movements in foreign exchange rates. I am very pleased to report record level EBITDA for the quarter, driven by growth in well services and improvements in land drilling. We must go back to 2015 when we owned a substantial onshore US business to see similar numbers. Our underlying EBITDA or adjusted EBITDA came in at $31.9 million, which is a year-over-year increase of 52%.
Reported EBITDA for the quarter was $30 million, representing a 54% increase compared to last year. An EBITDA growth of more than 50% from same quarter last year clearly demonstrates our ability to grow, both organically and by accretive M&A.
Reported EBIT for the quarter of $18.4 million, up from $7.7 million same quarter last year, represents an EBIT margin of 6.2%. I will comment more on the contract awards later in the call, but wanted to round off this slide by confirming that on the back of solid quarter and half year financials, our positive view of the market and our contract backlog, we are on track to reach upper range of our financial guidance for 2023.
Slide four, please. As we announced yesterday, Repsol Sinopec has awarded an integrated decommissioning contract to Archer, where we will execute the plug and abandonment of 30 wells in the Fulmar field and two wells in the Halley field.
The contract is fully integrated PNA project, covering the complete work scope, including well engineering, drilling with our mobile drilling rig, and all aspects of well services. We estimate the contract to be roughly $165 million. This estimate exclude project contingencies. Project contingency of this kind of plug and abandonment project is typically between 25% and 25%, but each field is different.
In the execution of PNA projects, unexpected challenges with some of the wells, such as poor well conditions, corroded casing, well restrictions, objects left in the well, and so on, could result in extra work and time. It could just very well be that the total project will generate more than $200 million in revenue.
As we will discuss in greater detail in the following slides, the plug and abandonment of wells is a substantial and growing market. We are aggressively marketing our competence and services to win additional projects. Archer has developed cutting-edge technology within PNA and decommissioning for years. Recent acquisitions have complemented our internal developed service offering, which have resulted in Archer having the broadest and the most advanced PNA tool offering within the industry.
In the North Sea, there are more than 20,000 offshore wells. All of these wells need to be permanently plugged and abandoned. At some point, only a fraction of these wells have already been plugged. Of the total number of wells, more than 11,600 wells are in the UK, making this area the focal point for Archer in the short term.
Repsol alone estimates that they have PNA and decom liabilities in excess, in excess of GBP 4 billion, or between NOK 40 billion and NOK 50 billion. The contract for Repsol can be the beginning of a long commercial relationship. Note that the well cost is typically more than 50% of the total decom expenditures. Also worth to note for the, for the broader audience, the permanent plugging and abandonment of oil and gas wells is an essential activity as the world decarbonize on the road to net zero.
Our goal is to industrialize the PNA process and spearhead innovation to cut operators PNA costs globally. Archer has a significant track record of PNA, and we have, in the last years, completed well PNA on fixed installations such as the Gyda platform, Veslefrikk, and Heimdal in Norway....
Furthermore, we also were the main contract holder for PNA on the well from the Shell Brent Field in the UK. We are extremely proud that Repsol Sinopec has elected Archer and our fully integrated operating model for their plug and abandonment project. The delivery model with integrated drilling and well services, supported by partners, is a step change in how operators permanently plug abandoned oil and gas wells. Archer has worked strategically over several years to develop this fully integrated model, and we are excited that Repsol Sinopec has chosen Archer as its partner.
Next slide, please. Moving to slide five. The Fulmar scope includes removal of existing drilling facility and installation of one of our PNA rigs, Emerald. In addition, we will deploy a broad PNA well services offering to reduce time and cost to plug each well.
The scope of work will be delivered using cutting-edge technology, multi-skilled crews, and industry-leading digital solutions in close collaboration with our partners. This contract will commence immediately. We expect integrated offshore PNA operations to commence in the second half of 2024 or early 2025. Of the total estimated project value, about 70% is directly Archer services, covering engineering, PNA unit, and well services, product and tools.
The remaining scope is subcontracted to Schlumberger and other key partners, as we have signed alliances with key partners to complete the total offering to Repsol Sinopec. The well engineering scope for the contract has already started, while the current schedule is mobilizing of the modular rig, Emerald, for the offshore PNA scope, second half of 2024 or early 2025.
Annual EBITDA contribution from this project, performing the actual offshore PNA of the well, is about $10 to 15 million over annually over a three-year period. The EBITDA is pending, of course, on well conditions and number of days on operations per well. Next slide, please. The permanent plugging and abandonment of oil and gas wells is an essential activity as the world decarbonize on the road to net zero and is a growing market going forward.
The North Sea comprises more than 20,500 wells, of which some 11,600 in the UK, 6,200 in Norway, 270 in Denmark, and 2,100 in the Netherlands. All of these wells have to be permanently plugged and abandoned, as all the fixed installations and the service installation needs to be decommissioned and removed.
It is a massive operation where Archer is well-positioned to take a large market share. The overall spending for PNA and decom is increasing, with annual commitments for PNA services of $2 billion in Europe alone for the next four years, primarily within Archer's core regions. Over the next six years, operators will spend more than $10 billion on PNA and decom services. PNA from fixed installations is a significant market, and there is a stable, high number of projects to be completed in the coming years.
PNA projects from fixed installations constitute around 60% to 70% of the future PNA projects. Archer's backlog, with the recent contract awards, exceeds $260 million for PNA and decom projects for the next four years, and we expect to increase our backlog going forward. Next slide, please.
In the second quarter, revenue within the well services segment continued to increase and ended at $76.5 million, an 11% increase from previous quarter. Fallthrough from increased revenue, combined with margin expansion, led to a 59% increase in EBITDA over the quarter, ending at $13.3 million. During the first half of 2023, we acquired Romar-Abrado and Baker Hughes, or UK Coiled Tubing business, to strengthen our well services division.
We will see further financial benefits of the acquisitions from the third quarter onwards, but already in the second quarter, these operations have contributed meaningfully to the division's overall performance. The increase in our activity is a result of increased demand for our products and services in more areas, as well as contribution from our acquired businesses.
During the quarter, Archer was awarded a 5-year contract for the provision of PNA, fishing, cleaning, and rental services for Vår Energi in Norway. Archer has delivered a high number of fishing, PNA, and soft recovery operations to our customers in the North Sea with great success. This contract is important for Archer, and is a testimony of all the good work that we have done for Vår Energi.
Following the acquisition in the first half of 2023, we are pleased with the fact that we have successfully integrated Romar-Abrado and Baker Hughes UK Coiled Tubing business in the UK into our well services division. Archer announced the acquisition of the Baker Hughes UK Coiled Tubing business early in 2023 and assumed operations from April 4th this year.
Since then, we have successfully transitioned the business and now have a dedicated Archer Coiled Tubing team of more than 40 experienced and skilled employees, performing safe and efficient services in the U.K. During second quarter, we announced the award of a five-year contract for provision of Coiled Tubing and pumping services with Perenco in the U.K. The estimated contract value, based on expected activity level for the commit, the term, is $50 million. Perenco's commitment reflects their confidence in our ability to maintain safe operations and continue our strong service delivery performance.
Next slide, please. Revenue from platform drilling, engineering, and our modular rigs increased to $130 million. When looking at operational revenue, which excludes low margin reimbursable revenue, the increase in the quarter was 4%.
Despite the increase in revenue, EBITDA in the quarter came in at $9.5 million, a reduction of 25% compared to the previous quarter, related to increased number of rigs on standby rates during the quarter, reduced performance incentives, and $0.9 million in downsizing charged in the quarter. Based on our backlog and projects, we are confident that we will rebound and deliver strong results in third quarter and fourth quarter in this segment.
The overall performance was also impacted by the continuing weakening of the NOK against the US dollar in the quarters. Our platform drilling operation was impacted by Peregrino field on standby rates in Brazil and standby rates maintenance stops in Norway.
Topaz had a full operating quarter in second quarter, following the mobilization of the rig in the UK during March, while Emerald is being demobilized and shipped back to Europe following its successful campaign in New Zealand. Apache in the UK, disappointingly, decided to halt all drilling operations in the UK as a protest against the tax policy in the UK. We still hold a contract for six platforms, we are in dialogue with Apache about the future of the platforms. When will they restart drilling or if they will move towards a PNA campaign?
Next slide, please. Our revenue from land drilling continued to grow in the second quarter and ended at $88 million, following a 10% sequential quarterly growth. Fall through from the increased activity, combined with margin expansion, contributed to a 29% increase in EBITDA over the quarter, ending at $9 million.
During second quarter, we incurred $1 million in severance payments in the quarter related to down manning and retirement in the country. Operation in Argentina remains solid, and our overall operations escalated, as we had one additional drilling rig active in the quarter. This, combined with strong operation performance, less downtime and additional performance incentives received, contributed to the solid financial quarter for our land drilling division. However, inflation in Argentina remains very high, and Argentina continued to experience political and financial instability.
With the primary elections underway, the short-term uncertainty has increased. We believe, we believe that the current uncertainty will impact activity and that results will moderate somewhat in the last quarters of 2023. With that, I will hand the words over to Espen.
Thank you, Dag. Looking at slide 10, total revenue in the quarter of $294.9 million represents an increase of $48.3 million, or 20% increase from the same quarter last year, driven by increased activity, mainly in well services and land drilling. With an underlying EBITDA of $31.9 million, our adjusted EBITDA margin ended at 10.8%. After adjusting for exceptional items of $1.9 million in the quarter related to severance payments and downsizing of workforce, EBITDA reported ended at $30 million. This is an increase of $10.5 million or 54% compared to second quarter last year.
As already mentioned, the increase in EBITDA is attributable to general increase in activity, in addition to one-off sales of Seaflex systems for oil tools and disposal of surplus equipment in land drilling. Our net interest expense in second quarter is impacted by the general increase in interest rate levels, as well as the complex refinancing in April, where we, in that period, had excessively high borrowing before we repaid our old facility agreement at the end of April. The debt fees incurred in relation to the refinancing will be amortized over the duration of the loans.
We have singled out this line, line item in the P&L. For second quarter, this amortization of prepaid debt fees amounted to $1.7 million. Other financial items were negatively impacted by adverse non-cash currency movements of $9.9 million.
Charges related to refinancing of the convertible loan of $4.1 million, the reduction in market value of our investment in KLX Energy Services of $1.5 million. Net income for the first quarter ended at negative $16.2 million. Next slide, please. Moving to slide 11, we note that cash and cash equivalents of $67.5 million reduced following the completion of the refinancing during April 2023.
The restricted cash balance of $5.5 million is a reduction compared to year-end 2022 and is explained by the implementation of a guarantee for employee tax for Norwegian employees. Equity of $183.6 million increased by more than $100 million from year-end 2022.
The increase is explained by the private placement of $100 million in March 2023, and the conversion of the subordinated related party loan. Slide 12, please. In the graph to the upper left, we display the development in cash flow from operation, defined as the cash flow from operating activities as reported, adjusted for paid interest and larger disposals in the period, calculated over a 12-month period. The increase is in line with the improvement in our financial performance, following increased activity and improved EBITDA margin.
Our reported net interest-bearing debt ended at $366.7 million at the end of the quarter, following the finalization of the refinancing in second quarter. This figure includes the fees associated with the issuance of new debt.
Adjusting for these prepaid debt fees, the net interest-bearing debt would have been $394.6 million, in line with our guided number for NIBD during first quarter. Next slide, please. We are reiterating our financial guidance for 2023. We are well on track to reaching these key metrics, and we're aiming to end in the upper range of the intervals.
Archer expects solid improvements in financial performance in 2023 compared to 2022 on the back of a strong backlog and market position. Revenues for 2023 is guided to increase by 10% to 20% compared to 2022. EBITDA for 2023 is expected 25% to 35% higher than 2022. CapEx between 3% to 4% of revenue.
We have achieved a strong performance so far in 2023, and we expect further growth in heavy intervention and PNA markets. Our wealth services division will drive growth in the international market. We have secured a key strategic contract for PNA in 2023, which enables further growth to continue delivering on the company strategy. Second half financial performance to exceed first half based on seasonality and fewer operating days in first quarter. Looking beyond 2023, we firmly believe that Archer offers a attractive exposure to a growing energy service market.
The fundamentals and demand are there for a multi-year upcycle, and we have proven that we can grow organically over time, which has resulted in our market leading position and high-end offering. We have proven we can generate robust cash flow in various cycles in the industry, even in downturns.
We have clearly stated strategy to be predominantly exposed to brownfield and PNA. This means we are exposed to less cyclical part of the energy business, and we will be in this business for a well, long time. We are uniquely positioned to capture the growing PNA and decommissioning market, which is destined to grow substantially going forward. Finally, we have proven our ability for accretive bolt-on acquisitions.
There are more opportunities for accretive acquisition in the current market, and we continue to explore these. With that, I will hand the call over to the operator for any questions. Thank you. Alex, will you please open the line for questions?
Thank you. As a reminder, if you'd like to ask a question, you can press Star followed by one on your telephone keypad. If you'd like to remove your question, you may press Star followed by two. Please ensure you're unmuted locally when asking your question. Our first question for today comes from Eric Mulmer, who is a private investor. Eric, your line is now open. Please go ahead.
Thank you. I just wonder, when are you expecting to provide the green numbers on the EPS? Will there be any shareholder return in the near future? The company cannot keep on making losses like this. We need to see green numbers. Thank you.
Thank you for your question. As we diluted on the call earlier, we see quite significant one-time non-cash items that influence our net financials this quarter. We see significant effects for an exchange non-cash losses of our $9.9 million in the quarter. In addition, we also have significant one-time expenses now, net financials related to the refinancing.
Going forward with the estimated forecast guidance that we give, we believe that we will see green numbers, but we are still depending on a higher or continuing on the higher number of EBITDA contribution, and also the volatility on the foreign exchange rates is an uncertainty regarding delivering green numbers.
Yeah. Can I continue my question?
Yes, please.
Thank you. Your competitors, such as Baker Hughes and Schlumberger, they are providing, you know, shareholder return, and, you know, Archer has to do the same at some point. Whatever the excuse may be, the company is there to make money for the shareholders. We need to see, you know, some significant improvements.
Yes, that is our ambition as well, that we will generate shareholder contributions. We are, as we talked about during the presentation, we are looking for further M&A opportunities to grow our business further. The recently announced contract with Repsol Sinopec in the UK for doing integrated PNA services will sort of support the growing activity levels and contribution from operations in order to build a higher EBITDA base going forward. Our strategy is to continue growing, both organically and doing accretive M&A in order to be in position to deliver shareholder contributions.
Okay. Do you think, overall for 2023, we will see, we will see green numbers on the total, or will 2023 also be at a loss?
Based on, on, the market today, it's with the volatility that we, we, we see both, on, the Norwegian, foreign exchange rate and also the situation, as mentioned in, in Argentina, we, we, we cannot sort of guide on, on, net financial, numbers, unfortunately.
Okay. Let's try for one more year. We will see. Thank you.
Thank you.
Thank you. As a reminder, if you'd like to ask a question, you can press star followed by one on your telephone keypad. Okay, at this time, we currently have no further questions. I'll hand back to Dag Skindlo for any further remarks.
Thank you, Alex. And thank you, everyone, for participating today, and we look forward to speaking to you next quarter. Thank you, and have a good day. Thanks.
Thank you for joining today's call. You may now disconnect your lines.