Welcome and good morning, everyone. Thank you for participating in the third quarter market update of BW Offshore. My name is Marco Beenen, CEO, and our CFO, Ståle Andreassen, joins me in this call. At the end of our update, there will be an opportunity to ask questions via the Q&A function of the webcast, and we will be happy to address these. Starting with our disclaimer, please take note, and then I move on to the highlights. Our main highlight is first gas and receiving day rates with our new flagship BW Opal. This marks the end of the construction phase and the start of operations with cash flow recognition. In early September, we signed the heads of agreement with Equinor for the Bay du Nord FPSO, and the project is progressing towards the start of engineering in early 2026.
We established a joint venture with BW Group to design and build floating desalination units. On the financials, our EBITDA guidance narrowed based on our year-to-date performance and our fourth quarter outlook to the range of $240-$250 million. We continue our predictable shareholder distribution program, similar as previous quarter, and consistent with last year, we will adjust to 50% annual net profit in the fourth quarter. I will continue with an operational update of an exciting quarter, starting with BW Offshore. As just mentioned, we received first gas on 20 September and started to export gas to the Darwin LNG terminal in October. The day rate will increase to 100% at the practical completion milestone once the ongoing commissioning and ramp-up phase is completed.
This is now expected for the first quarter in 2026, and it will be the formal startup of the 15-year contract with 10 years of options, and it is the starting point of our IFRS revenue recognition. In the meantime, we will receive day rates during the entire ramp-up phase, and that's recognized in cash flow, which will be amortized over the contract duration. Our HSE and fleet performance was strong in the quarter, although the fleet delivered just below 99% commercial uptime, which is slightly lower than normal, but this was impacted by three weeks of scheduled maintenance on BW Offshore. On safety performance, our primary focus is on maintaining a strong safety record, and I'm pleased to say that we had zero recordable incidents during this quarter.
The increase in the HPI statistics, high potential incidents in the graph, is due to the reduction of hours exposure post the Barossa wind down, while the 12-month incident count did not change. The ratio trended up, but we did not have an increase in incidents. An update on our backlog and the fleet. The units and operations, now complemented by BW Offshore, deliver strong cash flow based on high commercial uptime, and that underpins a healthy operating cash flow backlog. Similar as in the previous quarter, we report here the backlog in operating cash flow rather than revenue recognition. The operating cash flow backlog stands now at $2.1 billion, where 82% is firm and almost 50% will be delivered before 2029.
As mentioned, BW Offshore production was impacted by a three-week planned maintenance campaign that delivered otherwise high uptime, and also BW Catcher underwent a two-week scheduled maintenance shutdown. However, she still contributed with 100% commercial uptime. I expect Catcher to remain on contract through at least end 2028 and probably a bit beyond. For Pioneer, we are providing the O&M services, operational maintenance services under a five-year contract on a reimbursable basis with production-linked management fees. An update on the Bay du Nord FPSO for Equinor, also mentioned in the highlights. We were very pleased that we were selected as the preferred contractor for the Bay du Nord project offshore Newfoundland and Labrador in Canada, and that was after two years of close collaboration with Equinor.
The pre-feed deliverables we were working on are now completed by mid-September, and Equinor exercised their option for a bridging phase to prepare for feed in early 2026. We hope that Equinor will take an FID and award the contract by end of next year. The base case is a fixed 10-year lease contract with options to extend further, and our current focus is on refining a smart and cost-effective design based on our rapid framework hull solution suitable for specific environmental conditions at the Bay du Nord fields. With that, I hand over to Ståle, who will take you through the financials.
Thank you, Marco. As usual, we start with an overview on EBITDA performance. Third quarter EBITDA was $44 million, driven by strong fleet performance only impacted by a three-week planned maintenance shutdown for FPSO Adorno. The 2025 EBITDA guidance is now set to a range of $240-$250 million, mainly due to the BW Offshore Marco contract timing. Practical completion is now expected first quarter next year, basically delaying revenue recognition. Importantly, this has minimal commercial impact as we already remain on rate and continue to generate cash flow and will do so up until contract start and beyond. When you look ahead into 2026, there is no doubt that EBITDA contribution will increase significantly. BW Offshore, as we mentioned before, will alone contribute over $260 million on an annual basis, with Catcher adding another $160 million and actually a bit above, and Adorno will deliver over $60 million.
Going to the income statement, which reflects overall very stable operations quarter on quarter, you can see that depreciations on the fleet remain unchanged quarter on quarter at $21.4 million, which left us with an EBIT of $22.5 million for Q3. Other financial items reflect evaluation gain on the financial liability on our balance sheet related to BW Offshore, and otherwise there are only smaller changes quarter on quarter. Net profit for the third quarter was $23.3 million, and year-to-date we're now at above $110 million, which translates into an earnings per share for the third quarter of $0.13 and for year-to-date $0.61. Going to the cash flow, I'm pleased to say that the operating cash flow was exceptionally strong in the quarter at $142 million, which includes $67 million from Santos, which by the way now also includes charter hire for September.
It also includes the roughly $11 million settlement from Repsol as they paid for the tender efforts on the FEED engineering and project tender effort we performed for them in previous quarters. Investments of $190 million were primarily related to BW Offshore, as well as the acquisition of FPSO Ngungura. Financing included a $28 million draw from the Brussels Joint Venture to fund ongoing activities on BW Offshore and $15 million in regular amortization on the Catcher loan facility. After dividends and other recurring items, we ended the quarter with a very comfortable strong cash position of $388 million. We continue to be in a net cash position, reflecting our strong balance sheet and, we say, financial stable situation. As you can see, the equity ratio trended more or less flat and stood at a comfortable 30.5% by end of Q3.
We have strengthened our financial flexibility further in the quarter following a, I would say, successful refinancing of the existing revolving credit facility, which had an $86 million limit into a new $220 million facility with maturity fourth quarter 2028. As part of this, we have also made efforts to make amendments to our existing covenants under the senior secured facilities. These amendments are meant to provide more flexibility for us to use prepayment structures by clients on projects, as well as provide more flexibility on shareholder distributions to allow us to be efficient on capital management. I have to commend secured lenders for engaging in a very proactive and collaborative approach, demonstrating that our request was sensible for the long run of the company.
It does allow us to engage constructively on new projects with our clients, and it allows us to manage capital allocation efficiently, as I earlier mentioned. We also reached out to bondholders with a request to amend covenants under BW Offshore 06. We made what we believe is an appropriate proposal to bondholders put together in discussion with our advisor, but bondholders viewed this differently. Although we respect that bondholders wanted a different outcome, we think it was best for all stakeholders not to engage in a dialogue where only one party gets a very favorable outcome. As a result, the overall covenants for the company continue to follow covenant restrictions under the bond, unless changed or until maturity, which is later part of 2028. To make it clear, that means that the overall dividend payout ratio remains unchanged at 50% of net profit.
Liquidity remains very strong, increased from last quarter, driven by the increased liquidity under the new RCF put in place, which remains undrawn as we speak. All our debt is hedged at very competitive rates, and as I mentioned before, we are in a net consolidated cash position, to be exact, $187 million, as shown on the slide for Q3. Our capital allocation framework is built upon a disciplined operating model where cash flow generated by our FPSOs is the foundation. With the way we're operating our fleet, we will have and we will have a continued good visibility on cash flow going forward. We target to grow the FPSO business to new projects and increase free cash flow. We are focusing on maintaining a strong balance sheet, and that means maintaining modest gearing while we look for new ways to expand our liquidity sources.
Ultimately, we target to grow dividends to our shareholders over time. For 2025, this means that our target is and remains to be to pay out 50% of net profit as dividends, while we continue to distribute quarterly dividend based on $0.25 per share annually. With an earnings per share of $0.61 year-to-date, we're already positioned to exceed the minimum distribution for 2025, which looks good in terms of being able to upsize the dividend in Q4. With that, I'll hand it back to Marco.
Yes, thank you, Ståle. We're moving on with an update on the FPSO market. This market remains strong with multiple projects in various stages of maturity led by areas like Brazil, and in Brazil is led by Petrobras, but also Asia and Africa. Australia is also interesting for us. There we can leverage our newly established presence with BW Offshore. From the market outlook presented here, we identified about 12 targets between now and 2030 where our competitive offering applies, and we target one to two contract awards in the next 12-24 months. This could include the Bay du Nord project. Thereafter, we target one project award every other year in line with the strategy update we gave you previous quarter.
As mentioned earlier, the FPSO market has changed with larger and more complex developments, and that shifts from conventional lease and operating models to EPCI in combination with operation and maintenance contracts, or even hybrid contract and finance models. For the lease and operate projects, clients' prepayments are required to enable external financing, as well as shared risk allocation with clients, joint venture partners, and subcontractors. This is a revised approach to risk management with an appropriate risk-reward balance, which suits the size of our company. In this market, we are well positioned for both new-build FPSOs, but also redeployment or conversion projects. As we have with BW Offshore, we have proven that we can deliver premier league FPSOs even in difficult circumstances.
We have access to a high-quality FPSO hull for redeployment following the acquisition of FPSO Ngungura earlier this year, and this will allow for faster and cheaper solutions compared to tanker conversions for those types of projects. We have sufficient investment capacity and a robust delivered balance sheet, as Ståle explained, and we can apply flexible project execution models, which includes strong partnerships to deliver projects that meet our selection criteria. Shifting to the wind market, our subsidiary BWO celebrated its 15-year anniversary in September, and that underlines this pioneering position in this segment. The company is progressing with a floating wind pipeline with more than 70 foundations for the one-gigawatt Buchan project in Scotland and the 250-megawatt AO6 project in France. Also in France, the EOMAT project is now on track for first power at the end of 2025, using the BWO floater technology.
BWO is a 5% owner in this project with partners CARE as operator and also Total Energies. The float-out of those three 10-megawatt turbine foundations was completed this quarter, and integration with the wind turbines is currently ongoing. In Scotland, the Buchan project has submitted the offshore and onshore consent applications and expects to receive the final consent in the third quarter of next year. Earlier this week, we received good news that BWO's fabrication line in France was selected for an EU commission grant of EUR 74 million. The company is currently financed by shareholder loans, and discussions with potential new investors are ongoing. As mentioned in the highlights, we are excited about the potential of a new business segment. BW Offshore and BW Group have established a 50-50 joint venture to design and build floating desalination units, leveraging BWO Water's technology.
BWO Water is a 100% subsidiary of BW Group and a specialist in desalination. Access to fresh water is an emerging global challenge driven by infrastructure delays, climate change, and population growth. The floating desalination unit combines proven technology into a modular, rapid-to-deploy desalination solution, which we will deliver through flexible surface supply models. This is ideal for urgent deployment in response to draws, delays in land-based desalination projects, or other temporary industrial and infrastructure water demand spikes. We see great interest from potential clients worldwide within both municipal but also industrial sectors. This market potential underpins our ambition to develop and operate a sizable multi-regional fleet over time. Our aim now is to deploy our first unit by the end of next year.
Concluding with an outlook with busy times ahead of us, summing up, our focus ahead is, first of all, bringing BWO to practical completion with a contract startup early next year, move the Bay du Nord project forward to FEED, and then followed by a contract award, hopefully. We target our next FPSO project during the next 12 months, and we will look forward, and we will work towards an FID on the first floating desalination unit, sign a supply contract, and then bring it to the market by the end of next year. We will remain focused on an attractive and gradually growing shareholder return program. That concludes the trading update, and we are happy to take the questions that have come in through the webcast.
Okay. We have some questions and comments, so I will just start going through. I think the first one, I'll take a pair for you, Marco. Could you update on the Ngungura? Also, we have renamed it, so if you could clarify if BW Offshore has purchased FPSO and the opportunities we pursued for that unit.
Yeah, that's correct. We renamed the unit because we completed a transaction as announced earlier, and this unit is now available for redeployment. It is really a hull solution for us. We have now a readily available FPSO hull, and that will put us in a competitive position for smaller projects that are based on tanker conversions, where we basically have the hull already ready. We see about three prospects, I would say, where we can use or where we can apply the solution.
Okay. The next one is also around the market. What do you make of the Namibia opportunity? If it's a harsh environment criteria, the Venus bid is already on the way. What does the opportunity set look like for BW Offshore?
Yeah, we're monitoring the Namibia development closely. We're not bidding on the Venus project. There are already three companies working very actively on that opportunity. There are high expectations about the Namibia market. The question is always the timelines. Yeah, we're monitoring that. I think we have a role to play there, also with early production units based on redeployments. It's definitely an area we pay attention to as it develops.
Okay. The next question is, okay, it's related to CapEx for BWO Power. Should we expect any CapEx related to BWO Power in the fourth quarter as well? Or does the CapEx in the third quarter represent the last part? If so, how should we think about maintenance CapEx for the current FPSO fleet going forward? I can respond on this one because as we're getting towards the end of the project, we're also, of course, getting towards the end of the CapEx investments into the unit. There are some contracts to be closed out, so there is some CapEx that will be taken into Q4 as well. You have CapEx, and then you have some timing impact on the cash out, which should be in the magnitude of $30-$40 million gross, which would somewhat be offset also by still some outstanding milestone payments from Santos.
On the fleet in general, no, we do not model with maintenance CapEx on the current fleet. Our contracts are reimbursable in nature, which means we set a budget for the year in agreement with our clients. For what needs to be done, our clients reimburse us plus pay us a margin for doing maintenance on their units. We do not have any additional regular CapEx or maintenance CapEx that we need to forecast or model for on the existing fleet today. I'll move on to the same. Looking at the FPSO client base, your largest rivals have successfully targeted particular clients. Do you have a strategy around clients, or is it more of a geographical focus? You want to start on this part?
Yeah, I can take that. I think our strategy is focused on clients in the first place. We like to continue with clients we have and focus on repeat projects thereafter. We also have a geographical focus, but then even more so from a regulator perspective. We are one of the few FPSO companies that have extensive experience in highly regulated jurisdictions like the U.K., Australia, Gulf of Mexico, and also Canada. That is a differentiator. Naturally, we look at projects in these areas.
Good. Some financially related questions, but I'll take one here. What is the economic impact of BW Offshore delaying practical completion from what was earlier guided to be fourth quarter into first quarter of the next year, in particular in terms of revenue recognition and cash flow timing? Maybe I could start with this one to make sure this is clearly understood how the model works, and you can tap in on this, Marco. When we achieve ready for startup on the unit, we started receiving 60% of the full charter day rate under the contract. We will continue to do so for some time, and then we will eventually ramp up through the next phase and get 85% until we get to what we call practical completion and the formal 15-year contract period starts.
The contract was designed this way to allow us time to build stability in the unit before the formal contract period starts. This is a facility where you can't just switch on, turn on a switch, and then you can expect that everything will run stable and deliver gas with high uptime to the client immediately. It was designed that way to allow some time to do commissioning, testing, and make sure the facility can deliver per the expectations of the client. It's important to note that these cash flows are in addition to the original contract. Per se, there's no negative commercial impact for us by switching or moving practical completion from Q4 this year to Q1 next year because we have paid this as the contract, haven't started the formal 15-year contract period, haven't started.
It will have an impact on EBITDA because we need revenue recognition follows practical completion and the formal contract startup, but it's not a negative for us from a commercial point of view and financial point of view as we're getting paid throughout this whole period. In fact, in addition to what we will be paid under the contract. It's good to clarify that. I'm not sure if there's anything you want to add, Marco, on this particular thing. It is understood in terms of our focus on getting the facility to operate stable before we try to trigger practical completion and the formal contract startup.
Yeah, yeah. No, exactly. I think you explained it clearly, but the key is that we are, since ready for startup, we're actually on rate, and we're producing gas to the client, but it's just irregular, and that's why the contract hasn't started yet. That's as expected, as you explained, yeah.
Okay. Thank you. Given the strong net profit delivered year to date, could you provide some guidance on what you expect for net profit in the fourth quarter and consequently portfolio 2025? We do not guide specifically on net profit, but I think it is reasonable to say that we do not expect net results to change significantly in Q4 versus Q3. I think you can extrapolate on that. We are pleased with being now above $110 million in net profit for the first three quarters, and we expect to build on that also in Q4, which should allow us to be in a good position for adjusting also dividend distributions when we get to Q4. Another question on, can you elaborate on financing activities Q4 and 2026? I think it is pretty easy when it comes to Q4. We have no planned financing activities in the fourth quarter.
For 2026, in terms of activities, those will be the first one is obviously linked to the progress on Bay du Nord. Provided everything goes according to plan and this moves towards FID and contract towards the end of 2026, we will start initiative related to financing for that project. That will be a large planned undertaking that we would kickstart in early 2026 if things go according to plan. Beyond that, we do not have any other larger activities planned. Then we have got a question on how much capital are you going to deploy into the new JV, also BW, Elara, Elara, I presume they are referred. Do you want to say something about this, Marco?
Yeah. As we explained, our target is to have the first unit in operation towards the end of next year. As we explained, I think it was first previous quarter in this segment, these units are, we think the CapEx is somewhere between $60 million-$80 million. We're aiming for the lower end of that range. I mean, that gives you an indication of the capital allocation and then divide it 50/50 with BW Group to put this segment in working basically during 2026.
Okay. I don't see any other new questions coming in. Just give it a refresh.
I'm also checking.
No, that seems to be.
Covered everything.
Seems to be it.
There was a question about customer-based for the floating desalination. I see. I can take that.
Oh, sorry. Yes. Sorry. There. I missed that one. What kind of customer demand are you seeing for the FDU concept, and when could the first contract realistically be signed?
Yeah. As we also explained in the press release, we see obviously a growing market driven by water stress basically in various places in the world, and that's increasing. The particular niche for this solution is for areas where there's both the demand from municipalities but also industrial. The client base can be exactly that. It could be initial players that want to secure their freshwater supply, but it can also be local governments that make sure that there is a quick solution to respond to unexpected events or developing shortages. Particularly that combination is, I think, the ideal part of the market. First contract could be as early as next quarter.
Good. Very good. Dan, am I missing anything, or?
No, I think we're falling to the list. I think we've covered it.
Okay. Good. I didn't see any. Oh, wait, wait. Sorry. Now there was a new one coming in.
Yeah.
Could you give some comments on how you'll manage risks of cost overruns in future FPSO projects? That one is related to project execution, which could be an interesting one to touch upon.
Yeah. As we also explained in previous quarter, this is all about risk management and risk allocation. Certain project execution models carry more risk than others. Even if you price the risk, I think you need to then be realistic about whether these risks are proportional to the size of the company. As I also explained, the CapEx values of these projects have been growing significantly. That means that we just basically need to reduce the overall risk exposure rather than just looking at percentages. Ways to do that is to team up with partners. We are looking at strategic joint ventures such that we can share or basically make the project smaller, share the risk of a project over two parties. Another element is the risk allocation to clients, particular risk that we do not control. Inflationary exposures, commodity pricing risk, etc.
Those are better placed with clients, and most of our clients actually recognize that. Risk allocation to subcontractors, which is similar in nature as joint ventures, where you basically say you carve out pieces of the project and leave the EPC integration of that, including the profits, but also then the risk to those parties. Yeah, that's, I think, the key. Last but not least is, of course, the level of definition that you create before contracts get signed. For instance, the Bay du Nord project with Equinor is a nice example where there's an extensive period.
We've been working on a pre-feed that lasted nine months, and now we're preparing for a feed that will probably take another nine months or even a bit longer, which means by the time this contract is signed, there's a very high level of engineering definition, which de-risked the project both for our clients and for ourselves.
Okay. To try to sum it up, number one, more kind of extensive upfront planning of the project before kickoff to make sure we have a good understanding of the schedule and the cost. Two, both commercial and strategic partnership models where you focus on each other's strengths, and you basically divvy the project up in, I would say, smaller pieces, and three, more subcontracting. You allocate more of the scope directly to subcontractors, which reduces the risk, of course, also the profit margin to us, but it splits it up and gives us better control on the overall commercials of the project. We are just trying to sum it up in a simple way, what you said there. Hopefully, you agree.
Exactly.
Okay. Yeah. That's why we were speaking. I didn't see any new questions come up. I will give it back to you to wrap it up.
Yeah. This concludes our third quarter trading update. I'll thank everyone for participation and interest in BW Offshore. I wish you a good day and a good weekend. Thank you.