Hello, everyone. Thank you for joining us, and welcome to the Archer third quarter 2026 trading update. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. I will now hand the conference over to Dag Skindlo, CEO at Archer. Please go ahead.
Thank you, Derek. Good morning, and thank you for joining this third quarter trading update. I am Dag Skindlo, CEO of Archer, and I am joined today by CFO, Espen Joranger. We will begin with the key financials and operational developments in the quarter, including backlog and recent contract awards. Let us move to slide two. As a reminder, today's discussion includes forward-looking statements and certain non-GAAP and/or IFRS measurements. These statements involve risks and uncertainties, and actual results may differ materially. Financial figures for 2026 are unaudited. Please refer to the presentation, our annual report, and our public disclosure of further information. With that, let us move to slide three. Let me first briefly remind you of Archer's position and portfolio. Archer is a global energy service company with more than 50 years of operating experience. In 2025, we generated approximately $1.2 billion of revenue and $167 million of EBITDA.
Our operations span Well Services, Land Drilling, Platform Operation, and Renewable Services, with approximately 3,800 employees across 40 locations globally. Our core exposure is to the production-related services within the brownfield part of the value chain, performing well intervention, drilling, and P&A. These are areas where activity is supported by long-term customer requirements and where our combination of operational capabilities, technology, and engineering expertise provides a strong foundation for continued growth. Let us turn to slide four and the key financial highlights for the third quarter. Before I go into the quarterly EBITDA backlog, let me first talk about the disappointing situation regarding higher debt level and pause in shareholder distribution, mainly driven by the Culzean Wind Project. Over time, the cost and delays in this project have grown substantially. Many changes in scope and deliverables have been initiated by the client, driving cost and causing delays from the initial timeline.
Certain of these variation orders have been challenged by the client and remain outstanding. In addition, major welding defects stemming from our fabricator in Greece delayed the project by more than five months and drove up the associated costs significantly, which we now seek to be compensated for. I think we have to be frank and say that we underestimated the complexity and the cost associated with this project, and we have been too optimistic about resolving related commercial issues. We cannot go into details on the amounts, the sequence of events, and timing as we are in commercial positioning and negotiation with clients and subcontractors. However, I can assure you these processes have the highest priority in the organization. On a more positive note, Q3 was another strong quarter for Archer. Revenue was $268 million, while reported EBITDA was $44.2 million, corresponding to an EBITDA margin of 16.5%.
EBITDA before exceptional items was $48.4 million with a margin of 18.1%. Adjusting for a divested workover business in Argentina, EBITDA increased by 8% year-on-year. The quarter includes an adverse EBITDA effect of approximately $3 million from the offshore industrial strike in Norway in July, constituting the majority of the exceptional items in the quarter. Backlog, including options, was $3.8 billion at the end of the quarter. This remains a very strong level and provides substantial earnings and cash flow visibility into 2027 onward. The operational performance of the underlying business remained robust. At the same time, net interest-bearing debt increased during 2026, which brings us to slide five. Net interest-bearing debt ended the quarter at approximately $525 million. The increase during 2026 mainly reflected the late resolution of commercial matters related to the Culzean Wind Project and other planned investments to support recently awarded long-term contracts.
The main project deliveries for Culzean have been completed. However, as mentioned, negotiation with the client concerning material variation orders together with a claim against a subcontractor have taken longer than anticipated and remain unresolved. The timing and amount of any recovery remain uncertain. As we largely have spent the cash flow already, any resolution to these matters would reduce our debt level. At the current leverage level, Archer is subject to restrictions on shareholder distribution under its financing arrangements. Due to the uncertainty regarding timing of recovery, Archer will temporarily pause its shareholder distribution program. This does not change our view of the underlying strength of the business, our immediate priority in cash generation and deleveraging. The board will revisit the shareholder distribution program early 2027 as leverage is expected to reduce and visibility regarding the outstanding commercial matters improves.
Let's move to slide six. We continue to see strong commercial momentum across our core markets. Since Q1, we have increased our backlog by roughly $400 million on a net basis through a series of important contract awards and extensions. As mentioned in our Q2 release, the award in Q3 includes a five-year contract for one additional super-spec drilling rig for YPF and a larger integrated P&A project in the U.K., covering seven platforms and more than 260 wells on a partial operating fee basis. After the end of Q3, we secured a further three-year drilling contract with YPF with a two-year option. The award supports the continued development of rig deployment of rig DLS 163 and adds rig DLS 160 to operation in Vaca Muerta. The estimated contract value is $100 million-$110 million over the full five-year period, including the option years.
We also entered into a strategic, technical, and commercial partnership with AMRTUR in Brunei. The first project is to support AMRTUR's recently awarded five-year wireline service contract with a major operator. This gives Archer an entry point into a new market and a platform for introduction of broader technology and Well Services offering, including solutions relevant to Brunei's mature P&A market. Overall, these awards reinforce our growth position in integrated P&A, Vaca Muerta, and international Well Services. Next slide, please. Our backlog, including options, was approximately $3.8 billion at the end of Q3 and is estimated to represent around $600 million of future EBITDA based on expected revenue and margin profile on the contracted work. The backlog is well distributed across the portfolio. Platform Operation represents close to $1.8 billion, Well Services more than $1 billion, and Land Drilling approximately $900 million.
Integrated P&A contracts account for approximately $800 million across Platform Operation and Well Services. This demonstrates the strategic position we have built and gives us visibility across a growing market where customers increasingly seek broader integrated delivery models. For 2027, the backlog indicates that approximately 80% of expected revenue is already contracted. In addition, we expect further activity from framework agreements and other short-cycle opportunities that are not included in backlog, particularly within Well Services. The key takeaway is that we have strong multi-year earnings visibility and a solid platform for growth and deleveraging. Let's move to slide eight. Land Drilling has turned into an important growth platform for Archer. Activity and oil production in Vaca Muerta continue to increase, supporting demand for efficient modern drilling capacity. Two super-spec rigs have recently commenced operation for YPF.
A third super-spec rig, DLS 177, and the newly contracted DLS 160 are expected to commence operation by the first quarter of 2027. This is expected to increase the number of active drilling rigs from seven at the beginning of 2026 to 12 during 2027. We now have close to $900 million of land rig revenue backlog extending through 2030 onward. The backlog is supported by long-standing relationships with YPF and Pan American Energy and provides strong visibility into future activity and cash generation. Operationally, the business continues to benefit from higher activity, solid utilization, and efficient drilling performance. The additional rigs and long-term contracts further strengthens Archer's position in one of the world's most important unconventional basins. Next slide, please. Turning to the Culzean Wind Project.
Final assembly and tow out to the field have been completed, and offshore commissioning is ongoing. The tow out and commissioning is the responsibility of the client with Archer Wind in a support function with a reimbursable business model. Our focus is to complete the remaining commissioning activities safely and efficiently while continuing to pursue an appropriate commercial solution to the outstanding matters. Following the experience on this project, Archer has decided not to pursue further offshore wind EPC projects and will pursue strategic options for Archer Wind, including partial or full divestments. Next slide, please. We reiterate our financial guidance for 2026. We continue to expect single-digit EBITDA growth for the full year despite the divestment of workover business in southern Argentina. We expect a more favorable business mix to support an EBITDA margin improvement compared with 2025.
EBITDA in the second half of 2026 is expected to be 5%-15% higher than in the first half, reflecting the timing of project starts and the continued ramp-up of contracted activity. Capital expenditure is expected closer to 7% of revenue in 2026, reflecting growth investment required for recently awarded contracts. Over the last three years, capital expenditures has been approximately 5%-6% of revenue on a comparable IFRS basis, excluding the divested workover business. The underlying operation outlook remains strong. Combined with our backlog, this provides confidence in continuing EBITDA growth in 2027 and supports our objective of reducing leverage. With that, we'll open the line for Q&A. Operator, please open the line for questions.
We will now begin the question and answer session. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. We ask that you mute your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Again, that is star one to raise your hand. Please stand by while we compile the Q&A roster. There are no questions at this time. I will now hand the conference over to Dag Skindlo for closing remarks.
Thank you all for joining us today. To summarize this call, we are suspending shareholder distribution following significant working capital build for the Culzean project. This is disappointing. I want to reiterate that this was a one of a kind project and we will not pursue such projects going forward. We will return to our service-oriented business model. However, a key takeaway is that Archer's core services delivering another strong quarter with solid operational execution, year-on-year EBITDA growth in the continuing business and a backlog of $3.8 billion. Recent awards in Vaca Muerta, the U.K. P&A market, and Brunei further strengthens our long-term growth platforms. The increase in net debt requires a clear near-term focus on cash generation and deleveraging. We have therefore paused shareholder distribution in line with the restrictions under our financing agreements.
We intend to revisit the program in early 2027 as leverage is reduced and visibility on the outstanding Culzean commercial matters improves. The underlying businesses remain robust. We reiterate our full-year guidance and our backlog gives us confidence in continued EBITDA growth and deleveraging. With that, thank you for joining us today, and have a good day.
This concludes today's call. Thank you for attending. You may now disconnect.