Welcome to the BW Offshore Q4 2020 presentation. Throughout the call, all participants will be in listen mode only, and afterwards there will be a question and answer session. Speakers, please begin.
Good morning, everyone. Welcome to the fourth quarter 2020 trading update of BW Offshore. My name is Marco Beenen, and I'm here with our CFO, Ståle Andreassen, to talk you through the presentation. I will cover the general part, and Ståle will run you through more details of the financials. I apologize that once more we have to do this update in a rather impersonal format, as in a conference call. We obviously prefer to have a more personal interaction with our audience, but unfortunately, that's still not possible, and hopefully this will change in the course of this year. I want to ask your attention for the disclaimer. Please take note. I want to start this presentation with an update of the tragic accident which occurred on our FPSO Espoir Ivoirien on January 14th this year.
This unit is located offshore Ivory Coast and is operated by us for CNR International. The accident occurred around half past one in one of the cargo tanks, which was isolated for repair and maintenance. Crude oil leaked inside the tank during a planned de-isolation activity, and this resulted in two personnel suffering fatal injuries. Immediately after the incident, we have started an initial investigation, which has resulted in some immediate corrective actions. Together with the client, we have worked towards a restart of the operation last week, 13th of February. Phase II of the investigation, a comprehensive internal investigation, which is led by an independent investigator, is currently ongoing with the aim to establish the root causes of the accident, and also the generic causes that have allowed these root causes to exist.
This investigation will be concluded next month, and it will lead to corrective actions to fix these root causes, and also for recommendations to the wider global organizations with changes to address these generic causes. I can assure you that this accident has been a true shock for the whole organization of BW Offshore, and we are very committed to learn from this accident to ensure that it can never happen again in our operations, nor in operations of others. We are committed to share our learning with our clients and partners and colleagues. With that, I continue to the next slide, which covers the highlights of 2020 and the fourth quarter. 2020 was obviously a challenging year from an operational perspective due to the COVID pandemic, and forced us logically to focus on protecting our people and our operations. Despite that, the year has been financially solid.
Our operational financial results have been good, actually, with EBITDA results of $436 million and operating cash flow of $387 million. For the quarter, it meant an EBITDA of $92 million and an operating cash flow of $90 million. We decided to make further impairments during the fourth quarter in the fleet, about $60 million, and inventory impairment of about $22 million. Ståle will explain to you a bit more further down in this presentation. Another event was the Abo contract extension, which extended the contract till end of this year, with options beyond that, very much in line with the expectations. While we were focusing on keeping our operations going through the pandemic, we have very much focused as well on positioning ourselves for the other side of this pandemic. We have progressed our positioning for FPSO tenders for large FPSO projects.
We also focused on positioning ourselves in the emerging floating wind market, and we have created a new floating wind company called BW Ideol, based on an investment in Ideol. I'll come back to this topic as well further later in this presentation. Moving on to the next slide, operational update, and then starting with COVID. The impact of COVID, it is still a challenge to keep all our units COVID-free. In the fourth quarter, we did not have any impact. No units were impacted. However, this quarter, both in January and in February, we had one unit that was infected. It concerns Polvo in Brazil and Abo in Nigeria.
During the year, we managed to reduce our COVID cost, and that is mainly because of the full implementation of PCR testing allows us to reduce the requirements for quarantine, and also somewhat better mobility allows us to reduce the amount of crew that we need to keep in country, which also reduced the crew cost. We reduced from about $4 million mid-2020 towards $2 million a month during the quarter four of last year. We think that is also the level where we will continue, or we will stay on that level during 2021 till this pandemic goes away through the vaccinations. On fleet performance and HSE performance, we had a challenging third quarter, but in the fourth quarter, we recovered our uptime and trending in the right direction again. Similar for HSE, you do see that the statistics are trending upwards, which is obviously undesirable.
There are two contributing factors there. One is more how the statistics works. We implemented a new definition in accordance with IOGP, and that allows us to better benchmark industry-wide. It results in that you divide by less man-hours. Instead of 24 hours per day, you divide by 12 hours per day per person. That obviously has an impact on the statistics, but also in absolute terms, we have seen more incidents developing over the last nine to six months. We are investigating that. We want to understand what the impact of COVID is towards this, but we also want to understand if there's any relation with the accident we saw on Espoir. Moving on to the next slide, with a short update on some of our units. Catcher, first of all. We have seen some operational interruptions in the fourth quarter, which affected the uptime.
However, it did not affect the commercial uptime, and the reason is that the downtime and reduced production as a consequence were mainly related to a plant shutdown to remove calcium carbonate out of produced water systems. Calcium carbonate is a substance that comes with the well fluids. We're trying to solve this problem, working together with our client who operates the reservoir, finding the right chemical dosing solutions to reduce or eliminate these impacts to our produced water systems. It's not super straightforward. It's a trial-and-error process. We're continuing to optimize that and to reduce the impact of this substance. I discussed already the Abo extension. Then for Umuroa, previous quarter, we announced that we did find a last-minute solution with the New Zealand government to pay for our cost for staying in country and working with them on the abandonment of the Tui field.
That means that now our disconnection costs are covered, and this is progressing well. We're planning now to complete the disconnection late April, early May, and then demobilize the unit from New Zealand to Singapore. Next slide shows the fleet contract overview. A familiar picture for you, I'm sure. Not much changes, but what is worth notifying, although we did communicate that before, is that the client of Polvo, client PetroRio, has decided to not exercise their option to continue. This contract will now end by the mid of this year, and then we will start decommissioning, disconnection, and then demobilization to a Brazil yard, where we then can start preparations for a potential redeployment to the Maromba field operated by BW Energy. We're also looking at our layup fleet, where we do see value in redeploying a unit like BW Opportunity and also Umuroa.
We're also thinking that the current number is more than what we need, and it starts to make sense to consider the sale of some units and/or recycling. Moving on to the next slide, also familiar for you. We see the backlog, which provides long-term financial visibility. About $4 billion at the end of Q4, with a firm backlog of $2.6 billion. That's about 62% of the total, meaning the options cover about 37%. With options, we mean here not all options that we have under the contract, but only those where we have a very high confidence that they will be exercised by our clients because the field is performing well, and the field life is still further out than the durations of the firm contract. There is a very high probability that these options will indeed be exercised.
Last operational update is from BW Energy. The highlights of Q4 are that they have completed two liftings successfully, and their average production during Q4 was about 13,500 bbl per day. They're now preparing for 2021 to start a drilling campaign, which starts with an exploration well for the Hibiscus extension, and then continue with completing the Tortue phase II development. Remember, this was stopped when the pandemic broke out. Instead of four wells, only two wells were hooked up to the BW Adolo FPSO, and they have now the intent to complete this, which will increase the production for BW Adolo, and that has a positive impact on the revenues generated by BW Adolo as well. All this, of course, is subject to the COVID-19 situation, as you, I'm sure, understand. There was also a successful capital raise, which took place in January of $75 million.
That reduced BWO's ownership to just above 35% ownership now, which corresponds to NOK 13 per BWO share, linked to a market cap of BW Energy today of about $719 million. That concludes the operational update, and I'm moving on to strategy and outlook, slide 13. We have looked at the strategy going forward during 2020, and this will now consist of two parallel tracks. First, we remain committed to our FPSO business as our core business, but in parallel, we are also positioning ourselves to capture energy transition opportunities in adjacent business areas. Both tracks need to deliver to three clear financial objectives. First, a predictable return of our equity in the investment of about 50%, needs to generate long-term cash flow visibility, and it needs to reduce our cost of capital. We focus on three areas of value contribution. I'm now on slide 14.
First of all, contract extensions and redeployments of our existing fleet and value creation from and with BW Energy. Then for those units where we don't see redeployment opportunities, we will consider the sale or recycling process. New investments we will make in floating energy infrastructure projects, and that could be FPSOs for large field developments on long-term fixed income contracts, but it could as well be large-scale floating wind developments or even other floating power production projects, like for instance, Gas-to-Power. Then third, we're also studying where we should position ourselves for the future further out. Particular with a focus on the opportunities for offshore clean fuel production from renewable energy and how we could combine that with large-scale floating wind developments. Moving to the next slide.
As we communicated earlier, we are looking at FPSO investments for those large-scale oil field developments with long-term contracts and with investment-grade counterparties, and based on cooperation with equity partners jointly owning and financing those new assets. Regarding BW Ideol, as announced on Wednesday, we are investing in Ideol to take a leading position in the emerging floating wind market. With this move, we are creating what we like to call a floating wind champion by combining four decades of BW Offshore's deepwater experience with Ideol's technology and their pipeline of projects in this new market. BW Ideol will be our vehicle to target and develop our projects on a global basis. Our ambition is to consolidate all our floating wind offshore activities over time in BW Ideol.
Thirdly, we have been working on a joint venture with Invenergy, and we have managed to agree on heads of terms with them. Invenergy is a U.S.-based renewable and utility company that has already developed more than 27 GW of operational projects across Americas, Europe, and Asia. Coupling a leading developer of a land-based renewable player together with BW Offshore as an established offshore production player makes a lot of sense from a strategic perspective, when you look at actually developing floating wind business. We're building already on our already existing Invenergy relationships through the BW Group, and more specifically, the successful FSRU project that Invenergy together with BW LNG. The mandate of this cooperation is quite clear. It is for BWO and Invenergy to jointly bid for floating wind assets in the ScotWind leasing round that is upcoming in the coming months. Moving to the next slide.
As an update with regard to our new FPSO project, FID, which we target in the first half of 2021. I believe we are on track, and we are progressing our financing accordingly. We've now matured our partnership with global infrastructure equity investors, and we're firming up our debt financing. We want to make sure that we have both our equity as the debt financing in place prior to taking such an FID. Furthermore, we are ensuring project execution preparedness based on the Catcher project experience, selecting the same suppliers and yards as we did with that project, which was executed successfully. Also by further detailing the engineering work we have done in the past years on our RapidFramework hull, which will be the basis for such large scale FPSO project. Moving on to slide 17, explaining a bit more about the investment of Ideol.
This slide very much summarizes the presentation we already gave on Wednesday about this investment. In short, we are creating a global integrated floating offshore wind company, and we call it BW Ideol. This growth and value creation in BW Ideol will be accelerated by BW Offshore as an industrial partner. We're targeting an involvement of about 10 GW of projects by 2030. The aim is now to list BW Ideol on Euronext Growth before the end of next month, with BW Offshore as the anchor investor, and we expect to own about 50% after the capital raise. Both BW Offshore and the Ideol founders, which includes the CEO, will remain the long-term owners in this new company. More news about this process will follow in due course. With that, I want to hand over to Ståle to bring you to the financials.
Okay. Thank you, Marco. I'll now move on with the financials. From an operational point of view, 2020 has been challenging, as Marco mentioned earlier. The financial situation for the company remains really robust. We see the steadiness of our revenues are our EBITDA and operating cash flow for the full year of 2020 compared to previous year. It does prove how resilient the lease business model is in a challenging market. Revenues overall full year came in at $886 million, which is $6 million below 2019. Our EBITDA, when you adjust for inventory impairment, came in approximately 15% below 2019 figures.
The overall EBITDA form for 2020 has been affected by the extra spend or the investments we have made to manage COVID, to keep our units in operation, but we also had some shutdowns throughout the year, as well as that CSE ended the contract in Q3 2020. Going to the quarter on slide 20. Operating revenues increased by 10% to $223 million in the Q4, while EBITDA, when you adjust for inventory impairment, increased by 60% to $140 million. Overall, we're seeing better financial performance from the fleet as we've been able to take measures to reduce COVID quarter-on-quarter, in combination with more mobilization of the crew, as Marco Beenen mentioned earlier. Also now we have contribution from Sendje Berge that started lease on production in October, and we have contributions from Umuroa as a result of the contract with the Zealand government.
On top of this, we closed the negotiation for additional funding for 2020 related to Espoir in Q4. This was recognized in the same quarter and gave us a positive EBITDA impact of approximately $10 million. In Q4, we reviewed our inventory on the FPSO fleet. The inventory we have consists of a mix of high-value items and a significant number of smaller value items which are relatively high turnover and is similar to consumables. From 2021 onwards, we have decided that we will recognize such small value items as operating expenses when they're purchased. Consequently, we have decided to write off all small value inventory items in Q4. In addition to this, we have also chosen to write off all inventory on units that are in layup, which in total resulted in one-off impairment of $22 million in Q4.
It's worth noting that this change in principle is not expected to have any impact on fleet EBITDA going forward. Moving to slide 21 and the income statement. I'll take you through the main items. EBITDA after impairment came in at $91.9 million. In Q4, we recorded an impairment on our FPSO fleet of $59.6 million. The impairment affected the units Berge Helene, Snorre A Centre, and Snorre Explorer. This is the second round of impairments on our FPSOs this year. The impairments in quarter four was driven by that we're still projecting a market where there will be less opportunities for redeployment of older units than we predicted 12 months ago. The market for older units or redeployments, as we see it, mostly is a fit for more marginal developments.
Although we see oil prices that can be back up and much higher than we need to compare this on our fleet back in Q1, we think the market for these kind of redeployments continue to be uncertain. As Marco mentioned earlier, we have several units that have come off contract or some are coming off contract shortly as expected. With limited possibilities to redeploy all of these units over the next few years, the impairments do reflect that we are considering certain of these units to be recycled in the near future. Looking at the operating result, that came in at - $30 million for the quarter. Our net interest expenses were in line with previous quarter.
While for Q4, we had a gain on financial instrument of $23.2 million, which was predominantly a result of positive mark-to-market adjustment on our FX hedges and our interest rate swaps, as both we've seen a weakening of the U.S. dollar relative to Norwegian kroner, and that we see that U.S. dollar swap rates have increased quarter-on-quarter. Other financial items were negative by $11.7 million, predominantly due to revaluation of bond loan which is still nominated in NOK. Other share profit or loss from equity account investments, we had a negative impact of $2.8 million, which is the impact from the ownership we have in BW Energy. Overall, the result for the quarter came in at - $43 million. Moving to next slide and the cash flow review. We started the quarter with $142 million in total.
Operating cash flow for the quarter was USD 90 million which is 10% better than quarter three. This is despite the fact that the additional revenues I referred to on Espoir would not be paid before Q1 and has not been captured in the current operating cash flow number. We continue to see limited investments on the fleet with overall $7 million in the quarter, while we continue to reduce on our debt. We overall reduced our debt to USD 54 million in Q4. USD 29 million of this was scheduled installments on our facilities, while the remaining $ 25 million was repayments within under the corporate facilities. As in today's environment, we basically get zero interest from having surplus cash on hand. We're very focused on minimizing working capital by repaying on the RCF as often and as much as we can.
When we take into account that we paid approximately $13 million in interest, we paid $6 million in dividends and $12 million under the preference share arrangement we have with RVTL. We had a cash position of $140 million by end of the year. Go to the next slide and the balance sheet. Our balance sheet at the end of 2020 continues to be solid. We have a steady strong cash flow from the fleet, and we have used that to continue to reduce our net debt. If you compare the net debt we had in Q1 after we have spun off and listed separately BW Energy until end of the year, we have reduced our net debt by approximately 13%. The leverage ratio continues to trend at 2.1x when you look at last 12 months EBITDA over net debt.
I would say the important part here is that this leverage ratio. The contribution from the fleet, it continues to give us flexibility to leverage as part of creating new accretive business. As we have an intent to secure new FPSO projects in particular in the near term, as also highlighted by Marco. The equity ratio decreased by 1% and stood at 36.5% by end of Q4, and is predominantly driven by the impairments we recorded in Q4. Going to the next slide 24, taking a look at the installment profile. You can see that the profile shows that we have ample time to plan our financing needs, and we have flexibility to time the market as we have no significant debt maturities for the next couple of years.
We will continue to amortize on our loan facilities with approximately $120 million per year for the next couple of years. As you can see on the back end, we start getting into maturities on our bonds in 2023 and 2024. Our intent is at the right time, we will work on the maturities, and we will stretch this, and we will refinance both loan facilities and bonds at the right time. Going to the next slide. We've said it before, and we continuously reiterate that we think it's important to maintain financial flexibility to ensure we have capacity to be agile when market opportunities are there, and have capacity to create growth for the longer term. As Marco mentioned, we are progressing well to secure a new FPSO project in the first half of 2021.
We have spent a lot of time maturing our relationships with a limited number of global infrastructure equity investors. What's important is that these investors are investors that understand our business. They have an approach to project opportunities we are looking at, which will allow them to co-invest with us from the time a project is secured as opposed to later. This does provide us with early access to equity and facilitates risk-sharing during the project phase. Not only that, it also supports our capacity to grow as it reduces equity required from the adoption for each project, and it does support us in recycling our capital from projects during the project phase and free up liquidity earlier as compared to previous projects what the BW Offshore has done.
Although we have no significant debt maturities for a couple of years, we will continue to explore how we can manage maturities early and how we can free up liquidity from the existing fleet. It is expected that some of the units will continue to provide significant free cash flow for a number of years to come. Lastly on this, I would want to emphasize that as a large shareholder, and as Marco mentioned, a large shareholder in BW Energy, we do have significant value on our balance sheet in a company that we believe will continue to grow in a very disciplined way and have significant dividend cash flow or dividend capacity, sorry. This is capacity that can be used for growth opportunities or returned back to shareholders if and when received by BW Offshore. Our liquidity continued to be robust.
We had $370 million by the end of the quarter, of which $230 million is coming from our revolving credit facility. We continue to be very focused on actively managing our liquidity. We have a number of things that we're focusing on. You see we have limited planned free capex in 2021 on the existing fleet with only $25 million planned spend when you exclude any new potential projects. We have come to the end when it comes to settlement for São Mateus, and we expect that the $40 million settlement, which we have highlighted some time, will be settled and paid well within the end of the first half of 2021. As Marco referred to and has been announced a couple of days ago, we do plan to invest EUR 60 million, which is equivalent to just over $70 million in the transaction for Ideol.
As we're aiming for the transaction to close and have the company BW Ideol listed by end of March, this will be liquidity that will be utilized within the first quarter of 2021. Lastly, when it comes to our shareholder returns, we continue to pay dividends with $0.035 per share being paid in Q1 2021, and we continue to stay behind our plan of paying an annual dividend of $25 million. When you look at the various transactions of the last 12 months, when you include the dividend in kind in relation to the BW Energy IPO, the buyback program, and the dividends we paid. We have returned $135 million to our shareholders over the last 12 months.
As mentioned a little bit earlier, our progress on work with partners, both for FPSO projects and now also going forward through Ideol, we believe is a model that will help us enhance our asset returns. It will allow us to progress our intent to invest in accretive projects and opportunities, which we think over time will help us lower our cost of capital. It will increase value per dollar spent, and the fact that it will allow us for earlier recycling of capital can give growth potential to our already announced annual dividend over time. With that, I'll hand it back to you, Marco, for a summary and outlook.
Thank you, Ståle. Then I will conclude with a summary and outlook. As you are well aware, COVID-19 is still affecting everyone's personal life as well as the business, and this is no different for BW Offshore. We are prepared to deal with this as we have been doing in 2020. I'm confident that it will not impact our EBITDA. We will be able to continue to deliver a stable EBITDA performance. We can build on our strong financial flexibility that we have created over the years, which allows us to progress new and accretive FPSO prospects.
In parallel, through our combination with Ideol, we're now creating this new integrated floating wind company, and we're setting it up straight away correctly to make sure we can grow this with the right capital and the right cost of capital by listing BW Ideol next month on the Euronext Growth. That concludes this presentation, but Ståle and I are happy to take your questions.
Thank you. If you wish to ask an audio question, please press zero one on your telephone keypad. If you wish to withdraw from your question, please do so by pressing zero two to cancel. Once again, please press zero one on your telephone keypad if you wish to ask an audio question. There'll be a brief pause as we wait for questions to be registered. There appears to be no audio questions at this current moment in time, so I'll hand back to the speakers.
Okay. We have a question that's come in via the web. The question is, are you considering any buybacks in 2021? I'm not sure, Marco, do you want to handle that one?
No, you can take it, Ståle. That's fine.
Well, yeah. No, I think we haven't discussed it. We have been very focused on the transaction related to Ideol and on progressing on our ambition to secure a new FPSO project in the first half of 2021. Again, depends on what will happen going forward. We have good liquidity overall, and would just look at it in terms of development on the project side on whether buybacks would be appropriate.
Yeah. What I can add is I think we're very committed to the dividend that we have been paying past quarters. We intend to continue with that in the coming quarters. Indeed, share buyback is, I think, a bit more particular and depends on a lot of factors whether that would actually make sense. As we announced, we're also focusing now on making some interesting investments in both the FPSO segment and the floating wind segments. It's probably not the immediate thing to do right now. Are there any further questions?
There is no more questions on the web. I guess maybe if the moderator can check if there's any more or any questions coming in by the phone.
Just as a quick reminder, if you wish to ask an audio question, please press zero one. There currently is no questions registered for the audio question. Oh, apologies. There's one question registered. Comes from Fredrik Lund from Carnegie. Please go ahead.
Hi. Good morning. I was just wondering if you could comment on how you see competition for new FPSO projects. Both SBM and MODEC have taken on a lot of work the last couple of years, I guess there are capacity constraints as well.
Yeah. Good morning, Fredrik. That's correct. I think we have quite clear views on the competitive situation. I think you pointed, you stated correctly, in the past years, particularly 2018, 2019, competition has taken on a lot of projects, and that has definitely taken a lot of their both execution and financial capacity. Then some other competitors are not in the financial situation to compete. As we said earlier, the reason we were also very focused in 2020 to target an FID in 2021 is because we actually see a window of opportunity where competition is reduced and strong counterparty clients are still investing in large projects where they're interested in lease.
That has partly to do with they have to reconsider the way they allocate their capital, and lease has become a lot more interesting for them, even for longer term projects, which you didn't see necessarily in the past years. I think we have a great window here where we see more attractive projects than we have seen in the past, and we see less competition than we have seen in the past. That's exactly the window of opportunity that we're trying to capture and that we have been working on last year to deliver on.
That's great. In terms of the value chain, obviously it hasn't been much inflation, but there hasn't been any changes over the last year with COVID, and I guess both sub-suppliers and yards would have a fairly good capacity these days.
Yeah. That's correct. Maybe not as extreme as we've seen in other global crises like after 2008, et cetera, and maybe after 2015. The fact is that there haven't been many projects being awarded during 2020. Obviously that puts pressure on the supply chain, and so it's definitely, again, from that perspective as well, a good window to invest and to engage with the supply chain market right now. We're still a bit in the pandemic, but everyone can see that we're getting out of it. Our strategy has always been, as soon as this pandemic is over, we need to be ready to strike immediately, and go forward and take the opportunities that come after such pandemic. Yeah, supply chain is one of those elements.
We have a question from the web, which you can take, which is a question coming from [Nick Lenene] from[audio distortion ] . He's asking, "For BW Ideol, what is the expected mix of profit contribution from technology licensing versus EPC work versus long-term ownership of floating wind assets?
Yeah, that's a question that's not so easy to answer because it really depends on which timeframe. Are you talking next five years, next 10 years, next 20 years? I think in the shorter term, it will be more on technology, and EPCI supply of floaters. In the longer term, for sure, it will be much more about the co-ownership of floating wind farms in consortia. It takes time to develop these. Obviously, it takes a couple of years after winning acreage to develop the plans and then build and then install and produce. That part is further out, but will be the most significant part over time, for sure.
At the moment, I don't have any more. There's no more web questions from the web.
There appears to be no further registered questions from the audio. Okay. In that case, I'll hand back to the speakers for any other remarks.
Okay. Well, yeah, I think this ends the presentation and this Q4 update. Thanks for your attention, and I'm wishing you a very good day today.