Welcome everyone, and thank you for participating in this call with an update on BW Offshore's second quarter 2022. My name is Marco Beenen, and I'm here with CFO Ståle Andreassen, and we will run you through the presentation in this call. Please note our disclaimer on the next slide, and then I'm moving on to slide 3 with the highlights. Barossa is progressing well despite a difficult supply chain landscape. We're now close to 40% complete. We continue our divesting program of the non-core units, and we maintain our dividend commitment with a combination of cash and BW Energy shares at $11 million in this quarter, which implies about 8% dividend yield.
Our EBITDA came in at $76 million, which is about $10 million below last quarter, which is mainly due to a couple of one-off costs and provisions. Nevertheless, we had a solid operating cash flow of $136 million. Moving on to the operational update. Starting with Barossa FPSO project on slide 5. Yeah, first of all, we closed the quarter with 4 million man-hours without any LTIs or any injury, which is very satisfying. Overall, we have good progress, even though the global supply chain situation is challenging with ongoing inflation increases and delivery disruptions due to the geopolitical situation. We have mitigated most of that by locking in almost all procurement scope in monetary sense, while the remaining procurement activities are progressing well.
To ensure timely deliveries, we are working very closely with our subcontractors, our suppliers, and our client together to proactively address any potential disruptions. With the completion of the hull engineering, including the detailed 3-D model, we're further de-risking the hull construction phase we are in right now. All in all, we're maintaining a robust project economics despite the challenging global economic situation we're in. Next slide six. Brief update on our fleet performance. HSE statistics are trending down, but we did record two HPIs, which we followed up with level three investigations, and lessons learned are being implemented through specific actions. The importance of HPIs is that while there are no consequences, it provides a very important opportunity to learn and improve, so we're taking them very seriously.
Fleet uptime is stable around 95%, which is the way the efforts by revenue from the units that are in operation. The next slide, seven. 98% of our backlog is being delivered by our three core FPSOs in operation, plus the Barossa project, that is currently under construction, and this amounts to $7.4 billion backlog, of which 84% is firm. Our flagship Catcher continues to deliver 100% commercial uptime with a production of about 40,000 barrels per day. Adolo produces about 11,000 barrels per day, and we're looking forward to tie in the new production from the Hibiscus/ Ruche development end of Q1 next year, which will increase the revenues through production tariff.
Pioneer in the Gulf of Mexico delivers stable production, and the Chinook field drilling plan for 2023 can be considered as a positive for the future of Pioneer. Moving on to slide 8. We're continuing to accelerate the transition of the fleet through divesting the non-core units, as I said in the highlights. During this quarter, we completed the transaction of Joko Tole to a local Indonesian operator, and we also handed over the ownership and operation of the Yùum K Náab FPSO to our client, Pemex. In quarter three, the operations of Petróleo Nautipa will stop, followed by decommissioning, demobilization, and then recycling. The remaining three units, which are presented on slide 9, deliver only 2% of our backlog, and therefore, we're looking for divestment of these units as well.
We're preparing Athena for recycling in Europe, and our BD efforts are fully focused on the redeployment prospects that we see for BW Opportunity. The current market with high oil price, high steel price, and tight supply chain makes a redeployment alternative quite attractive for smaller developments. These prospects have certainly improved within the dynamics of the market. With that, I'm handing over to Ståle to run you through the financials.
Thank you, Marco. Operating revenues came in at $193 million in the second quarter, and we delivered an EBITDA of $76 million, as you can see. The financial performance on the core fleet, which is Adolo, Catcher, and Pioneer, was solid in the quarter with good commercial uptime and a net contribution that was very similar to what we delivered the last quarter. Contribution from the remaining fleet has been impacted by higher costs due to relatively high maintenance activity in the quarter. In particular on Sendje Berge, where in addition to preparing for startup, we have purchased a significant amount of bunker fuel. The figures were also negatively impacted by certain valuation adjustments we have made on the inventory and provisions made for severance related to those units that are now nearing end of contract term.
Overall, we did end the quarter with an EBITDA, which was slightly below our $80 million EBITDA run rate. Going to the overall income statement. Depreciation reduced from $55 million to approximately $51 million in the second quarter. We now have fully amortized equipment related to an earlier VO for S Bar in Q1, our depreciation has reduced further from Q2. You can see, we reported a gain on sale of assets of $1.6 million in the quarter. This is an accounting technicality as we have reclassified Polvo from held for sale to a financial lease on our balance sheet following signing of the sale and purchase agreement with BW Energy. We have hedged all the floating rate exposure on our loan facilities, and we are well protected against increasing interest rates.
We're also hedging a large portion of our foreign currency exposure on operations and projects, as well as bond debt that we have in NOK. Focus for us is to have visibility on cash flow and not be significantly exposed to macro events outside our control. Net mark-to-market loss on financial instruments for the quarter were $1.9 million. Although we had positive mark-to-market adjustment, mark-to-market adjustments on interest rate hedges this quarter, these were offset by negative mark-to-market adjustments on currency hedges. Other financial items were $10.2 million in the quarter, largely due to revaluation of bond loan denominated in NOK as the US dollar has strengthened throughout the quarter. As previously guided by BW Energy, there were no lifting in the second quarter.
Revenue recognition is based on barrels lifted, this has resulted in a net negative contribution to BW Offshore of $4.8 million, seen here as share of loss from equity accounted investments. When you include taxes, we still delivered a net profit for the period of $12.3 million. Cash flow from operations were $136 million. This does include $70 million from the underlying fleet operation, in addition to $66 million received from our client, Santos, related to Barossa. The core fleet is contributing the bulk of the operating cash flow coming from the fleet, and it's expected that it will do so going forward also. We had, as you can see, net investments of $182 million in the quarter, of which $160 million was related to Barossa.
The remaining cash flow out is to a large extent related to BW Ideol, as they have paid the option fee for their share in the ScotWind license award during Q2. Note, although this is shown on our cash flow, it is being paid directly from Ideol, but due to our ownership, we consolidate all cash flow movements also for BW Ideol. This quarter, we also managed to finally close out the sales transaction for BW Joko Tole, where the unit has been sold to an Indonesian consortium. The transaction supported us generating roughly $52 million in liquidity when including working capital related to that operation. As we continue to find progress on the Barossa project through our joint venture with Itochu, Meiji Shipping, and Macquarie, we injected another $50 million as equity.
At the same time, we funded in $109 million from this joint venture to the Barossa project. We did have surplus cash to a large extent driven by the closing of the Joko Tole transaction. We did reduce our debt beyond regular installments this quarter. $29 million was scheduled installment on the Catcher facility, and we used just under $22 million to purchase back nominally $25 million of convertible bond debt at a discount to par. We also reduced draw on the corporate facility in the quarter with approximately $35 million. As you can see, cash position net to BW Offshore was $237 million end of Q2. Our aim is to create full transparency on the status on funding for Barossa as the structure is only partially consolidated.
We also think it's good to show this overview as progress on fundings. It's a good measure for how you have progress on the project overall. We continue to draw equity and debt through rota based on forward-looking calculations of funding needed for the project. During the second quarter, we drew down another $75 million on the debt facility, and we injected $30 million more equity. Prepayment from Santos continued throughout the quarter. As you can see from this overview, we have received approximately 35% of the total prepayments by end of the second quarter. I just wanna highlight, this doesn't fully reconcile with the project overview slide that Marco showed you earlier. But that is.
The reason for this is that this is a cut-off per Q2, while that slide is more of a snapshot as of the moment. With the closing of the Joko Tole transaction, we continue to reduce our consolidated net position, which stood at just under $530 million in Q2. This is really a result of delivering on the promise of freeing up liquidity from planning the divestments on the non-core part of our fleet. Combined with that, we still get steady cash flow from the core units. Equity ratio was almost unchanged at 35.2%.
Here, I want to highlight again that although we do not consolidate the debt from the Rosa project, we are booking an increase in finance lease liability and a liability for prepaid charter rates, which is expected to reduce equity ratio as this liability goes up now onwards until the FPSO starts operating. At some point, we expect that the equity ratio will trend down somewhat with the building up of this liability. But overall, we continue to prepare and be ready to have the capacity to take on new projects as we have communicated earlier. Gross consolidated debt stood at just under $800 million by Q2. Although we have Barossa or the financing for Barossa structured in a joint venture, we have a transparent debt structure.
Beyond current scheduled amortization on debt, the plan is that we will start addressing maturity on the corporate facilities, as well as the BW Catcher facility sometime during the course of next year ahead of maturity, mid-2024. We will basically aim to stretch these maturities in line with visibility on contracts on the existing fleet. For capital markets debt we have, the plan is to reduce this quite significantly beyond 2024, supported by visibility we have on future cash flow. To sum up the financial slides, we are delivering on divestments on non-core FPSOs. We still have some work to do, but we have been able to accelerate liquidity that we can extract from this unit. We have a solid liquidity by end of Q2 at almost $430 million.
In Q3, we will add another $60 million to this as a standby letter of $60 million has been in place for the YKN contract for, well, throughout the whole duration, and that has now been released in Q3 as part of the FPSO Yùum K Náab now being transferred to Pemex. Having 100% hedge coverage on debt makes us well-protected against increasing interest rates and give visibility on financing costs going forward. All in all, this has allowed us to slowly start addressing some of the bond maturities that we have. As I mentioned earlier, we did purchase back approximately $25 million of convertible bond debt, and this was done at an approximately 30% discount to its nominal value. Lastly, our investor strategy is to balance growth with a stable direct return for our shareholders.
Last quarter, we announced that we would increase our annual dividend, and we decided to add 20 million to our annual dividend for 2022 through dividending out BW Energy shares on top of the cash dividend. We do believe that the model of dividending out BW Energy shares in kind, combined with a cash dividend, provides shareholders with cash as well as flexibility to decide if they want to benefit from the future value creation of BW Energy. In Q3, we will pay out $6.3 million in cash dividend, and we will pay out $5 million through BW Energy shares in kind, which if you take it on an annual basis, implies a dividend yield of approximately 8%. With that, I will hand the word back to Marco.
I continue on slide 19 with a look at the very positive FPSO market. There's a very healthy pipeline of about 25-35 FPSO projects in the planning in between now and 2025. Brazil and West Africa remain the largest markets, but we see also good opportunities in Australia, Southeast Asia, and the Gulf of Mexico. These are areas where we already have presence and experience. At the same time, there's reduced available execution and financing capacity amongst the active FPSO contractors as most of them already have signed up on quite a number of contracts. That allows us to focus on the most solid projects, which meet our investment criteria, and which attracts lenders and equity investors who have become increasingly selective on which projects to support.
That brings me to slide 20, with an update on our progress on the Gato do Mato opportunity in Brazil. This is an opportunity which really meets all the selection criteria for an attractive lease and operate project. Firm lease and operate contract of 80 years. Infrastructure-led project transitioning to gas over time. World-class counterparties led by Shell as the operator. EPCI risk sharing with joint venture partner Saipem. This is an attractive investment opportunity for equity partners. We're now about 3 months in the limited notice to proceed period. The focus so far have been on advancing the engineering and firming up CapEx estimates. Continuous negotiations on final commercial terms and risk allocation in the current inflationary supply chain environment, and to progressing financing.
Further updates on Gato do Mato will come in due course. It's difficult to give exact timelines for closure. Moving on to our progress in the floating wind segment, moving to slide 21. I'm very pleased with the progress BW Ideol is making, converting the prospect pipeline into real floating wind projects. We have now 1 gigawatt of projects under development. For another 3.4 gigawatt, BW Ideol has entered into agreements with leading partners for specific sites and tenders. The latest of such partnership is a partnership with EDF Renewables and Maple Power to bid on 2 Mediterranean floating wind sites. This is the same partnership that's currently tendering for the South Brittany site.
We're very well positioned to win one of the first commercial scale floating wind developments in France, just like we did in Scotland, and that confirms the leading position that BW Ideol has in this floating wind segment. In the meantime, the 30-megawatt EolMed development is progressing with the EPCI phase. This project consists of three 10-megawatt floating wind turbines. EolMed is close to the two Mediterranean sites that I just mentioned, and it will therefore provide very relevant experience for the standard for a commercial scale development in the same area. Other good news in France is that the Floatgen floating wind turbine in operation since 2018 will extend its operation until 2024 now.
On Scotland and ScotWind, the 1-gigawatt Bùth Geal development site NE8 is progressing well with the development studies and, in parallel, BW Ideol is progressing with the development of the Ardersier port in Scotland with the plan to make this a hub for concrete floater manufacturing for the UK floating wind industry. Next slide. A particularly interesting niche for the combination of BW Ideol and BW Offshore is the transition into net zero oil and gas developments using floating winds to provide power to the oil and gas industry. We have now two feasibility studies going on with two major oil companies to prove the technology and feasibility of integrating wind power into oil and gas facilities. Moving on to BW Energy, slide 23, who has presented their quarterly results last week.
As a 27% shareholder in BW Energy, we are very excited about this, the step change in production that we expect for the end of quarter one next year. This will be achieved in Gabon, in the Dussafu license, with production increase on the Tortue field with extra gas lift capacity, and then followed by the first oil of the Hibiscus/Ruche development. When all wells are in production, this is expected to increase production with 30,000 barrels per day. Also in Brazil, with the acquired Golfinho and Camarupim clusters, which are expected to produce about 9,000 barrels per day. Exciting times ahead of us for BW Energy. Summing up, last slide.
The Barossa project is our main delivery focus, and we are navigating around the challenges of disruptions and capacity constraints in the global supply chain system. The project is in good progress. We're continuing with the divestment program of the non-core FPSOs, improving our liquidity position and rationalizing our global organization. The energy
This improves the market outlook for FPSOs with a significant pipeline of prospects between now and 2025. In that environment, we're working hard to bring the Gato do Mato opportunity to a good conclusion, including financing, and we have also full focus on the redeployment of BW Opportunity. In the floating wind segment, we are collaborating with BW Ideol to transform the prospect pipeline in floating wind to real projects, including wind power to oil and gas developments. Last but not least, I confirm our commitment to stable direct return to shareholders similar as previous quarter. With that, I conclude this quarterly update, and I open the floor for questions.
Thank you. Ladies and gentlemen, if you would like to ask a question, please press star followed by one on your telephone keypad now. If you change your mind, please press star followed by two. When preparing to ask a question, please ensure your phone is unmuted locally. Thank you. Our first question comes from Christopher Mølakal from SEB. Please ask your question.
Yes. Good afternoon, gentlemen. This is Christopher Mølakal from SpareBank 1 Markets. Costs in the second quarter were a bit higher than we had assumed. You mentioned that there were one-offs in the quarter also related to the start-up of Sendje Berge. Could you give a bit more detail and also what you expect for third quarter? Will there be any more startup costs also for the current quarter? Thank you.
Morning, maybe I can start on this one. Yeah. You are right. We have the relatively high operating cost in the quarter. As you can see, top line was more or less in line with the previous quarter. It is to a large extent we have had quite a lot of cost in particular related to Sendje Berge due to the repairs ahead of the startup, and as I mentioned, we spent quite a bit of money on buying bunker fuel ahead of startup. That's affected the quarter. We've also done inventory write-down, and we've made provisions for severance related to units that are coming up contracts relatively shortly.
What I mentioned on the call is that a normal run rate should be in the range of $80 million, and I think that should hold going forward. I just wanna emphasize again when you look at our fleet mix, and also in terms of what Marco said, that we're trying to wind up the non-core units. The majority of any cash flow and EBITDA contribution going forward is coming from Catcher, Pioneer, and Adolo. It's almost stayed a little steadily.
This is what I'm saying is going to hold, and it's not affected heavily by what is happening on the rest of the fleet, although we're gonna see some fluctuations due to windup costs going forward on the non-core fleet. I hope that kinda gives a bit more flavor.
Thank you. Just a technical question. You mentioned that in third quarter you will get an additional $60 million of additional liquidity related to performance bonds being released on Yùum K Náab. Just technically, has this previously been booked as a debt on your balance sheet or how should we, you know, just on the bookkeeping part of it?
No, no, it has not. It's a standby letter of credit that's been placed for a year as a guarantee under the contract we had with Pemex. The only thing that's really happened now in Q3 when the contract ended was that this standby letter of credit has expired, and that has freed up additional liquidity. It's basically been a block of $60 million on our liquidity, tagged to our revolver facility for all these years. In Q3 this $60 million are freed up, and we have $60 million additional liquidity that we can use. It has not been booked as a debt or anything. Was that clear?
Yeah. Thank you.
Okay. Yeah.
Our next question comes from Haakon Amundsen from ABG. Please ask the question.
Yeah, good morning, guys. Two questions from me. First on just a follow-up on the EBITDA run rate, because I guess you have a production tariff increase coming on Adolo, and you have some of these legacy units going off. Did I understand you correctly that the net effect of this is to expect a $80 million run rate to persist despite the changes in the fleet?
Yeah. You are correct. There is a tariff rate to Adolo that will come in, but that will only kick in when you start increasing production, which BW Energy has guided for will happen only in early 2023. This doesn't affect us for the rest of the year. When I was talking run rate, I was talking for the next quarters. We do have expectations that Adolo will contribute quite a bit more as production ramps up to the expected production targets that BW Energy has here. Correct.
Yeah. Yeah, understood. The $80 million is for the next couple of quarters, but when Adolo kicks in, if and when it kicks in, can you indicate what the EBITDA run rate will be after that? Because at the same time you have some units that go off that have at least some EBITDA contribution, I guess. How should we think about the run rate, I guess, for 2023 and 2024 then?
I actually have to go back and look at those numbers, Håkon Amundsen. In general, we try not to guide too much on EBITDA. I can give indications of contribution changes to Adolo. I will need to go back and look at my numbers of what that is.
Okay. Thank you. Thank you. My second question is on your potential new FPSO project in Brazil. I just wondered, you have this EPC risk-sharing with Saipem. I just wondered if you can give a short description of how that will be. Will you just basically split the scope 50/50 or according to some share? How will you eliminate risk in a way, and how will it impact the economics on the project? Just to understand that part a little bit better.
All right. I could take this.
You continue.
That's fine. Yeah, I can take. This is a 50/50 JV for the EPC, and in that sense, it's a 50/50 risk-sharing. It's actually quite simple.
All right. Okay. Understood. Thanks.
Yeah.
As a reminder, ladies and gentlemen, if you would like to ask a question, please press star followed by one on your telephone keypad now. When preparing to ask a question, please ensure your phone is unmuted locally. Thank you.
Well, I don't see that we have any more questions on the web either. It's been unusually quiet today. Okay. Well, if there's no questions to the operator and nothing on the web, then I think we can conclude this call. I want to thank everyone for their participation in the call, and wishing you a good rest of the day. Thank you very much.