Welcome to the BW Offshore Q1 2021 Presentation. Throughout the call, all participants will be in
Good morning, everyone, and welcome to the Q1 2021 presentation of BW Offshore. Listen. My name is Marco Beynen, and I will give you a general update of the quarter. And then we have Stol Andreasen, our CFO, listen. We will renew through the financials.
Going to the please take note of our disclaimer and then going to the highlights. Our Q1 of 2021 was a successful quarter where we finalized listen to transformational agreements for the company. First of all, a very significant FPSO project for the Barossa the gas development in Australia, which increases our backlog to USD 7,000,000,000 And secondly, we positioned ourselves in a a leading position for floating wind development through the acquisition of a majority shareholding in EDL, listen followed by the launch of BW EDL, which is now listed at Euronext Growth. Listen. Furthermore, our fleet delivered a healthy operational cash flow of USD 114,000,000 which justifies the continuation of a cash dividend of $3.5 which will be paid out in the next quarter.
So with these two new agreements and investments, we are on track to deliver on our strategy. Listen. And we focus on 3 areas. 1st, maximizing the value from our FPSO fleet, listen which we will do to the contact extensions and redeployment opportunities we see, as well as in the value creation in cooperation with BW Energy. We're constantly evaluating the opportunities to also sell or recycle the if redeployment opportunities do not materialize.
I will come back to that. Listen. In addition, we're looking for new investments we can make in energy infrastructure, either to long term FPSOs contracts or in the Renewable segment to our new subsidiary BW EDL. Listen. It could also be in other energy infrastructure markets like gas to power, where we could also reapply our this competence as FPSO player.
And then thirdly, more for the future, we're exploring listen. Our position for new adjacent segments for the future like offshore clean fuel production listen or like to like hydrogen or ammonia or carbon capture and storage facilities using our FPSO and floating wind segment competence. We're on track with executing this strategy. We in our FPSO fleet, we generated strong cash flows. Listen.
We extended the contract of ABO and we sold the unit Bergellena for recycling. Listen. With BW Energy, we're looking at increasing the production for Adolo. Listen. We're discussing Volvo for redeployments.
And of course, there is the opportunity to listen capture the upside of all price increases as we saw in the last quarters and over time the future of dividend potential. We invested in FPSO and FPSO infrastructure project Barossa. That contract is now finalized and it adds listen. $4,600,000,000 to BWO's firm contract backlog. It's a 15 year firm contract with 10 years of options listen and with Santos as an investment grade counterparty.
There are more of those opportunities listen. And we are evaluating those very selectively and staying close to our investment the criteria like we did for the Varossa development. And then in renewables, we invested in listen. BW EDO, which is now listed on the Euronext Growth and raised NOK 590,000,000 of capital. Listen.
BWDL is a leading company in floating wind. And we see several the value triggers upcoming in the coming years. As this is an emerging market, Where typically projects needs 4 to 6 years to develop and mature, the amount of capital that's required in this development phases is risk. Then a bit more about Barossa. We're obviously very pleased listen.
With a new contract for the Barossa Gas Development, which is a world class gas condensate fields, which will be this commercialized via the existing Darwin LNG infrastructure. The project is listen. Meeting all our investment criteria when it comes to firm contact duration, 15 years plus options. The investment grade counterparty, the infrastructure the nature of this project, which attracts then in turn infrastructure equity partners. Listen.
And that limits the amount of equity that we have to contribute to $125,000,000 for this project. Listen. The Barossa contract was signed end of March 2021, listen. And we have already made significant progress both in firming up the equity and debt financing listen in addition to the prepayment of the joint venture. But also we have locked in major subcontracts for hull, listen.
Turret mooring and swivel systems, topsides engineering and fabrications and also major vendor packages. Yes. Then a bit more about BW EDO. So we've taken a 53% ownership in BW EDL. And we really looking for a 1 plus 1 listen.
It makes 3 combination where we combine our track record and experience of large CapEx offshore projects listen. With the proven technology of EDO, which during the past 10 years, in addition to competitive technology, It has also developed a very interesting pipeline of projects in projects and partnerships with local utilities. And in particular, in Japan, France, UK and the U. S. Listen.
Together, this has created a floating wind company that is ready to grow. Listen. As explained, we have raised the capital and BWEO has now signed an engineering contract and license agreement for the AOMET project, but has also signed a partnership in a leading utility for the the Britney tender in France and the Flotian wind turbine that in the is installed actually in the same area as where the Britney tender applies to. And that floating wind turbine is performing listen very well since start of operation in 2018. And also this quarter in 2021, the the Performance was exactly outstanding.
The cash position of BW EDL is NOK 51,400,000 listen by the end of March. What you see here is the value profile of floating wind projects. And I want to listen. Emphasize that with the €51,400,000 cash position that BWE deal has, listen. It is in a good position to go through these development phases where the need for Capital is relatively low as explained.
And you see in this graph, these the values goes up obviously after FID when you go into the EPCI phase, which is typically 4 to 6 years out. Listen. Moments where there are opportunities to recycle the capital from the value creation to farm downs makes sense the around FID and also after the EPCI phase when so at COD when operations start. Listen. During this value cycle, cash flow streams will be generated from service agreements and from technology royalties, listen, but also from operations after COD, as I just mentioned.
Listen. And that is then to either partial or full investment from the SPVs. Then moving on to the operational update of the fleet of FPSOs. As mentioned in previous quarter, we experienced a tragic accident in Ivory Coast listen. And that caused that resulted in 2 fatalities, which is obviously a dark chapter from a safety performance perspective.
Listen. But despite that the rest of the fleet did not have any LTIs or HPIs in the Q1. Listen. The Spire accident obviously had also an impact on the fleet uptime as it took a month before we listen fully understood what has happened and we completed the investigation, so that we could assure ourselves that we could restart operations listen again. Zooming into a couple of units.
First of all, the Kedzie production is steady around 55,000 barrels per day. Listen. It seems to be a bit the maximum we can currently produce, given the current water cut that we're facing. Listen. We had some operational interruptions in the gas systems and water injection systems and also some issues with the the ongoing formation of calcium naphtonate in the produced water systems.
But all in all, still a good commercial uptime of 99%. Secondly, Volvo is coming off contract in Brazil Yes. With a redeployment together with BW Energy, she is a good candidate for the Maromba development, given the fact that listen. I already mentioned the accident and the 30 day shutdown. We have now completed the internal investigation, which included involvement of independent external experts.
Listen. And we are now kicking off a change program to address the lessons learned and to take a step back to address the more systemic issues that we identified. Lemberg Alain, she has been sold for recycling in accordance with Hong Kong Convention and also to our own BW Offshore Recycling Standards. We have appointed risk green to ensure strict compliance with these standards, so that we know that these recycling will meet all relevant environmental standards and also safety standards. Listen.
And finally, Umeroa, which now after a decommissioning and a demobilization funding agreement with the New Zealand authorities, Completed a very efficient execution project of disconnection risk and demobilization and she is now on her way to Indonesia and Singapore. Listen. Turning to backlog. Our backlog has received a very significant boost from the listen. Barossa long term lease contract adding $4,600,000,000 to the firm backlog, which now stands around 7,000,000,000 the U.
S. Dollar. Total backlog, including the probable options adds then up to US8.3 billion dollars listen. Probable options, we define as options which we deem very likely to be exercised. Listen.
On the right side of this slide, you see the significance of the Barossa backlog and you see that we have now 84% the of our backlog as firm backlog. The other 3 major contributors to the backlog are BW Catcher, BW Adolo and BW Pioneer as they have relatively long term contracts as well. Listen. This is further visible on this slide, the fleet contract overview. You see Barossa on top and then Quecher Adalo listen.
And Pioneer, you may have picked up in the media that Velco, our client in Gabon for FPSO listen. Petroli and Autipa, they have expressed their interest to replace the listen. With an FSO and make upgrades on their production platforms, which then naturally would mean that the listen. That we will not go into a new contract with Velco for Nautipa beyond September 2022, which is the the expiration date of the current contract. And then likely, Pretoria and Arctica will also be prepared for recycling.
Already talked about Volvo coming off in the end of June. Listen. Yeah. I think then we can move on to the next slide, which is an update on COVID. We're quite pleased that we have managed listen to significantly reduce the cost that we spent on managing COVID, which was mainly related to quarantine the durations of crew and other logistical costs keeping crew in country.
That has all the situation has improved from that perspective. Still, It's a daunting task to really keep units COVID free. We had 3 units affected again in the Q1 of 2021. But we have a very effective response protocol And that reduces the uptime impact on those units. Furthermore, We're taking our lessons learned of 1 year managing COVID into a pandemic management framework, which we have currently in the development.
In the offices, we also see an improvement, both in Singapore and Houston, 2 of our main offices. Things are going much more back to normal. And I also hope that listen. In the Oslo office, we can gradually normalize our operations with more presence in the office. The return to the office in Singapore is, of course, very important in view of the Brosa project and that allowed us to in listen and able to ramp up in accordance with our plan.
With that, I'm handing over to
listen. Okay. Thank you, Marco. And I'll I'll start with an overview of the financials as usual. So as you can see, financially, Q1 has been a strong quarter.
Revenues came in at NOK219 1,000,000, which is almost on par with 4th quarter. Listen. EBITDA came in at SEK 111,000,000 for the quarter. And although we had some downtime on Espoir, as Marco mentioned, listen. Overall, the fleet has delivered quite well.
We had somewhat lower maintenance cost in the quarter and could deliver listen to a solid EBITDA contribution. It's also worth mentioning that the implication of COVID has reduced And with SEK4 1,000,000 a quarter, it is supporting overall better financial performance. Before I go through the financial statement, I just want to highlight that as a result of the finalization of the acquisition and IPO of BW Ideal, where BW Offshore owns just over 53%. It is defined that we will be regarded as having control listen. Our BW IDO from an accounting perspective and as a consequence, we have from Q1 fully consolidated the results of BW IDO and will continue to do so going forward for as long as our ownership positions stay at the current level.
Listen. The overall results of BW IDOL has limited impact on the overall results for BW Offshore. Listen. You can find more details about that in the trading update that they have published on their website. Listen.
So going to the details of the income statement. You can see that we recorded an impairment the midst of SEK 4,200,000 in relation to the recycling of Berge Elena. With the measures we have taken to the Sure. And environmentally safe recycling of the unit. We netted out approximately SEK 16,000,000, which is Taken has resulted in a slightly lower price being achieved for the recycling of the unit.
Listen. And with this, as you can see, we delivered an operating result for the quarter of 41,400,000. Listen. If you move down, you will see again on financial instruments were 22,100,000 in the quarter 1. Listen.
We see now that with activity levels continue to increase, we see interest rates are coming up, and this translates into positive mark to market effects on, In particular, our interest rate swaps that we have in place to hedge our debt portfolio. Other financial items were negative with NOK 2,500,000, which listen due to revaluation of the bond loan we have, which is nominated in NOKX. You will see that our investment in BW Energy gave a positive contribution of SEK 8,300,000 in quarter 1, primarily driven by underlying better results and on the back of recovery in oil prices. Listen. Income tax expense this quarter was positive with SEK 40,300,000.
BW Offshore has had a long standing tax this loss in Australia related to one of the operations that were taken over as a result of the acquisition of Prosea Production. Since 2012, we have had no operations in Australia. And this tax loss that we had, as a result of that, been recognized at 0 value in the balance sheet. But It's a tax loss that can be carried forward indefinitely. It just haven't been recorded with any value as we have had no this operation that any kind of tax where tax profits could have been offset against these tax losses.
Listen. With the firming up of the FPSO contract for Barossa, it's now expected that we can use this, we can offset this tax loss against future profit from that operation. And as a result, we have recognized a deferred tax income response of NOK 48,800,000 in quarter 1. So when you take this out, you will see that underlying taxes from operations were in line with the expectations and previous quarter. So overall, we delivered a net profit for the period of NOK 97 point NOK 2,000,000 in total.
Going to the next slide and the cash flow. As you can see, we started the year with a cash position of SEK 140,000,000. And likewise, as with EBITDA, We also see that the cash flow from operation was good this quarter with SEK140,000,000 when you exclude settlement listen for Sidaudis' Almatius. As you can see here, we paid $43,000,000 to Petrobras listen in quarter 1. This represents a full and final settlement related to the contract we had for the lease of Ciudad De San Mateos.
Listen. And this settles any outstanding related to that. Investments were relatively low in quarter 1. Approximately 2 thirds of this is related to Brosa and mainly engineering activities. But as listen.
I will come back to this will increase in the quarters to come. We completed the transaction with IDOL in quarter 1, and the company was listed under the name of BWI, the all in March. In total, we have, as you can see, invested 72,000,000 when you include listen. As we own a controlling stake and we consolidate the numbers, listen. We have also here included net proceeds from the share issue, which is sitting with the BW IDOL.
Listen. But if you look at the right hand side of this graph, you will see that we have tried to illustrate the cash position being held by IDOL. And although we include their cash position in our consolidated figures, by excluding what's held by them, You can see that BW Offshore net had a cash position of NOK 149,000,000 by end of 1st quarter. Listen. The rest of the figures, I think, are self explanatory, so I will move on to the next slide.
As we closed out the settlement case with Petrobras and we also finalized the transaction with IDR, which in total took out SEK 150,000,000 in liquidity. We've not been able to reduce listen to our net debt in quarter 1, which stood at SEK 931,000,000. And as we ramp up the activity on Barossa listen. In the coming quarters, we shall expect to see that both net debt and leverage ratio will increase from current levels. And as we use last 12 months EBITDA for the leverage ratio, this will also increase when you this draw on new debt for that project.
However, that new debt being supported by the future income we will get from that contract when listen. Equity ratio increased by approximately 3% in Q1, driven by listen. The strong net profit that was delivered, in particular, on the back of the tax adjustment we made, which I explained. Listen. The installment profile on our debt continued to show that we have ample time to plan our financing needs and we have some flexibility as to listen when we need to start addressing our debt maturities.
However, as we have secured a large project in Barossa, we want to listen. We plan ahead and start working our maturities in a structured way to ensure we have good visibility on our liquidity at any time. And as some of you might have seen today, we have announced our intent to issue our 1st senior unsecured green bond. As we have executed on our strategy to create a foothold in the renewable sector, we are now also taking in the step to widen our toolbox of financing alternatives for the company by doing our first green bond. So as you can expect, we have been very busy the last quarter working on finalizing the overall financing for the Barossa project.
Listen. We are now pretty well advanced on a $1,100,000,000 combined construction and post delivery financing for the project. That together with prepayment from the Barossa JV and Equity will fund the construction of this FPSO. Listen. The facility will be a 14 year facility when you include the construction period.
And we've been working with a syndicate of international banks to put this together and expect that we are able to close out the facility in the near term. Listen. At the same time, we're also finalizing agreements with partners for participation in the project. And listen. Although we can't disclose details before agreements are completed and signed, we can say that we're very pleased with enabling these partnerships.
And I think we see this as a sample quality for the Barossa project, listen, where we're able to offer an investment model that offers good long term return for our investors. And worth mentioning also that the partnerships will start at an early phase of the project and partners will invest side by side with BW offshore during construction, which provides access to liquidity and facilitates good funding for the project in during construction. So despite the capital we spent in Q1, we retained almost 300,000,000 in available liquidity listen for BW Offshore. We're still very actively trying to manage our liquidity. Listen.
I mentioned the liquidity outflow related to CDSM and BWIDO, but we On the back of that, we are kind of continuously evaluating cost of holding assets and layup versus the opportunities we have as there is an option value that you need to consider at any given time in terms of how long we will hold units listen before we decide to recycle if the right opportunities doesn't come around. On the existing fleet, listen. We continue to see relatively low levels of life extension CapEx and still see this to be in the range of NOK 25,000,000 for the full year of 2021. And as we've started on the listen. That will be the most important liquidity element to manage going forward.
As Marco mentioned earlier, we're making good progress on looking in significant contracts and packages for the project. And as we're doing so, we will be making milestone payments and spend will the pickup during second half of twenty twenty one. As of today, we estimate we will have a spend listen. And going forward, we will expect spend levels to be high at similar levels for the next the next couple of years, 2022, 2023, and then it will start tapering off as we are getting towards the sail away from the integration yard and will start the process of getting ready for start up during first half of twenty twenty five. Listen.
So with the recent investments in BWI, the oil and securing the contract for Barossa, we believe we have this laid a good foundation for a number of value triggers in the company. And while Borossa provides for long term stable cash flow, listen. BW IDR provides for significant growth potential in a new and fast growing market. And with the strategic activities on track and funding for this well advanced, we have also decided to pay a quarterly dividend of $0.035 Per share to be paid also in Q2. So with that, I'll hand it back to you, Marco.
Yes. Thank you, Stolle. So just summarizing the quarter and looking ahead. COVID-nineteen is still there and it's still very much in the forefront of how we need to and will manage our listen. Operations, keeping everyone safe and making sure that the availability of our production stays in effect.
We continue to deliver stable EBITDA. And also we continue to work on keeping good financial flexibility. BWDL listen is now listed as a platform for offshore floating wind growth and will position and is positioning itself listen strongly for the first floating wind tenders that are upcoming this year. Full focus will be on the Barossa project. We have explained a lot about that transformational project for the company.
And in the meantime, we are still in a window where there are accretive FPSO prospects, listen. Mitchie will very carefully evaluate. And we also expect to see good opportunities in the energy transition listen for BWEO and BW offshore together. With that, I would like to open up for questions.
Listen. Thanks and good morning to you all. I was wondering if you could give an update on Aker Energy. I believe you're 1 or 3 bidders for NFSO there. Listen.
And if you could indicate which vessel you would look to use? And also how keen are you on taking on this project given that you now secure a lot of activity through
roster. Yes, I can answer that question. I don't want to go into listen. Specific prospects. But all I can say is we're evaluating each prospect carefully.
And listen. If we would take on new projects, they have to be really interesting, really worth doing and be equivalent to criteria that we applied to Barossa. Listen. And if not, then we will not do that. So I guess listen.
That's a more generic answer, but probably still answers your question.
Listen. Thank you. And also just touching on the ROSA, could you indicate a bit on the funding cost? I understand that the terms on bank standing or quite favorable for you.
Maybe I can Yes,
Salve, you may take that
the We can't be specific, as you know, but I think you will see that listen. The bank debt is reflecting competitive market terms when that is secured. I think it's overall driven by listen. Just assurance that you have in this project on the counterpart side fully investment grade offtake and the long term gas development, existing LNG terminal that drives the cost of funding down to at least what we think will be shown as to be quite competitive funding cost overall. So And I can also add that the interest from the banking market has been quite significant to partake in this project.
Broadly speaking, we have been in line with previous facilities around 250 basis points or so. Listen.
Is that a fair assumption? Yeah. I think that's a fair assumption to use the same listen. That's for modeling purposes. You're pretty yes, you will be pretty close.
Listen. And final question from me, if I may. BW Energy, the stake you have there, it's now making up a very big part of your market cap. And I guess you're not really getting much the It's not really a proper evaluation. So could you make any indication on how you see that this.
Going forward, how important is it operational to have that ownership stake? And if you were to do some changes there, would it be through dividend in kind or block
listen. I can start, Stol, you may want to add. So I think in general, there are 2 or 3 real listen. Good value triggers for BW Offshore by BW Energy. And one is, of course, the redeployment opportunities in the joint strategy for which the percentage of ownership is not I would say, it's not irrelevant, but there is no this particular number that we have to have, so we can be quite flexible there from that perspective, listen also to the ownership of the group.
Secondly, we see BW Energy as a growth company and we expect listen. The company to grow, which will reflect in a share price development over time, listen as well as the dividend potential. And those are also interesting value triggers for BW Offshore. Listen. But we can be quite flexible, of course, in terms of how we treat that ownership.
And if it would make sense to Reduce that to support other investments that we may want to do as BW Offshore. Yes, then there are the options listen, as you just mentioned. But I think it's too early to be specific. We will consider All those options if the time would come.
Super. Many thanks.
And next question comes from the line of Nick line of Seston Place. Please go ahead. Your line is open.
Hi. Thanks for taking my question. Some listen. Materials costs, including steel, have been going up lately and the yards also seem to have this gotten more busy with ship orders. What exposure do you have to increase in the price of materials and kind of increasing prices from the yards and kind of what's the How much more of that will you sort of lock in, in the next few months versus listen.
To what extent will you have residual exposure to inflation over the few years that the FPSO has built for Barossa?
Yes. Very, very relevant question in view of the indeed increasing commodities. We're aware that impacts would be obviously the Barossa this project, not so much in the ongoing operations in the fleet. But for Barossa, as you could see in the presentation, we have now locked in all our major Almost all our major subcontracts, including the hull, which obviously has the majority of the steel, But also the topsides fabrication contract and the Turrican Mooring and Swivel system. So the subcontracts where steel prices have the most impact are now all signed.
Listen. And basically, we're in a phase where we're locking in very rapidly now all subcontracts, NPOs. Listen. So from that perspective, we're not filling the role anymore for changes in steel price. Listen.
And was there any material difference between the prices you locked in those contracts and what you'd scene in your bid. Yes.
There was some price adjustment in the whole contract. Listen. Yes. So you could see that the steel prices increased from end of last year listen. Let me firm the bar estimates to the current contract signing, which was in listen.
I think it was in May. So yes, there was some impact. But on the overall project value, it's not significant.
Listen. Okay. Thanks a lot for taking my questions.
Thank you.
Listen. We have an online question, which we can take if we're waiting for more questions from listen. On the phone?
Yes. There doesn't seem to be any further questions on the phone at this time.
Okay. So we have a question from Andres Li. And I think this one is for you, Marco. How do you see the possibilities with options listen. For Espoir, Ivorian.
Also, will the accident in Q1 affect the possibility of having that contract extended?
Listen. Yes. Well, so we have a long term, a very long term relationship and good relationship with our client listen. CNR and since the accident, we have worked very closely and very constructively together to recover from this accident, including a safe restart of our operations. We're preparing a shutdown later in the year risk between our client and ourselves.
And for that matter, also not in their willingness to extend another contract as far or another and do another extension of the contract as far as I can judge. The The field itself still has about 10 years of field life, listen. Roughly, as far as we can see, even though the production levels have actually declined. Listen. It will take some investments from our client as well to get to these 10 years.
So the extension of the contract for us. It will also be linked to a broader decision for C and R to actually invest or make some in the field to keep the production going. The current this option period expires end 2022. And typically, what you see is that these agreements, listen. Even though we're already started to discuss it, but the final agreement will take place closer to the expiration date listen of the current option period.
Listen. There's no more questions from sort of online.
No, there seems to be no further questions on the phones at this time.
Listen. Okay. Well, then I think that concludes this call. I want to thank everyone for listen. Thank you.