Good afternoon, everybody, and welcome to the Odfjell Drilling Q4 2023 and preliminary full year results presentation. My name is James Crothers, and I'm an Investor Relations Officer at the company, and I'm joined today by our Chief Executive Officer, Kjetil Gjersdal, our Chief Financial Officer, Frode Syslak, and our Chief Technology Officer, Håkon Klepsvik. Before we begin, your attention is brought to the important information slide of our presentation, which we would invite you to read in full. Note that this presentation is only a summary of the quarter, and the more comprehensive quarterly report should be read separately.
Our call today will begin with a brief summary of the quarter, with Kjetil taking us through some of the key highlights before we then move on to discuss our operations during the quarter, and Håkon will then give us a brief update on the SPS program before we move on to our, the financial review with Frode. We will then summarize the presentation and close the call. Following the presentation, we will open the Q&A session and invite all participants to submit a question either via the telephone line or electronically via the webcast tools which are available. With that, I'll pass on to Kjetil, who will take us through the key highlights. Over to you.
Thank you, James, and a very good afternoon, everybody. Q4 was another busy quarter for our company, with many strong achievements. Looking first at our key financial results, you can see that during Q4, we achieved a revenue of $192 million, adding up to a total revenue for the year of $732 million. The EBITDA for the quarter was $83 million, resulting in a EBITDA for the full year of $329 million, which is a 7% increase compared to 2022. Our own fleet achieved a financial utilization of 94.5% during Q4. This was impacted by an unplanned downtime event on Deepsea Stavanger. This was a technical issue related to the top drive of the rig.
It is, it's a one-time occurrence, and all in all, it had a negative EBITDA effect of approximately $4 million. This is including all, both off-hire cost and equipment cost related to that incident. All in all, it's, I think it's another good set of numbers for our company, which would have been, of course, even stronger without the downtime that we saw on Deepsea Stavanger. And as you can see, on all metrics, we have improved compared to 2022. Also, during the quarter, we were able to secure further contract backlog on three of our four own units, resulting in us ending the year with $2 billion of firm backlog and a total order backlog of $2.1 billion.
Finally, we would also like to mention that we have carried out what we think is something quite impressive with the Deepsea Nordkapp, where we achieved the SPS certificate renewal while entirely at sea and during full operations of the rig, and our CTO, Håkon, will briefly talk about this later on in the presentation. Lastly, we have declared another quarterly dividend of $14.2 million for Q4 2023, which will be paid to shareholders on March 14th. Then we move on to our operations. I think we can start by saying that we, we remain in a, in a very confident position. All of our owned and managed fleet were on contract during the period, and as you can see from our own fleet backlog chart, this is set to continue for some time.
Nine months worth of priced options for the Deepsea Stavanger, which remains outstanding. I want to note that this is something that we expect will be exercised. Our own fleet is now entirely sold out until 2026, with the Deepsea Stavanger and Deepsea Nordkapp having firm backlog until 2027, and the Deepsea Atlantic enjoying firm backlog until first half of 2026. In addition to our firm backlog, we have strong unpriced option coverage across our fleet, which could see our units in operation until past 2029, and we have deliberately chosen for these options to be unpriced, as we believe the market will continue to improve. This also gives us an option to pursue other opportunities if we feel that we are not able to agree on decent levels with our current customers.
So we think that this is a very enviable position to be in, and we believe that it reflects the operators wanting to secure our Tier 1 units and the capabilities that we have in our company. Further, I will skip the details for each rig, but on a notable difference this quarter for our own fleet was that the Deepsea Aberdeen moved from Breidablikk to the Svalin field at an increased day rate, where it will continue before returning to complete the further wells on the Breidablikk field on the previously agreed contract. And before I move further on, we once again want to highlight the value of the contracts which we secured during 2023, as we have done in the box, as you can see on the bottom of the page here.
We think that this new standard contract reflects the value of the Tier 1 rigs that we have and what we're able to secure. With the Deepsea Nordkapp contract most recently, which we believe is at a very much a leading edge day rate. Just as a reminder to listeners, all of the contract values detailed here in and in our previous press releases, these are clean values. They do not include integrated services, performance, and fuel incentives, which all comes on top of that contract value. Finally, I'd like to take a moment to appreciate all the hard work done by our team for securing the backlog coverage that we have.
As we discussed on our last quarterly result call and in subsequent investor conference that we've attended this year, our fleet moves on from the legacy contract values that were entered into during COVID years. We will gradually roll over to market rates, and particularly so from 2025. We believe that this is an extremely exciting proposition for our stakeholders going forward. Then we will look at the market and the market outlook. As we noted in our result statement this morning, we reiterate the view that the market dynamics will likely persist in the medium to long term. The chart that you can see here shows two things. Firstly, there clearly remains a preference among operators for Tier 1 harsh environment semis.
We have evidenced this time, and again, that the higher performance units give additional flexibility and operability, which deliver lower total well costs for our clients. As you can see from the chart here, utilization rates for Tier 1 units between 2018 and current have rarely dropped below 80%. It's also worth recognizing that during the same period, the Odfjell Drilling fleet was fully contracted. The second thing to note is that demand continues to increase as we look ahead to 2025 and 2026, and this is when our fleet begins to have some availability again. As we know, supply side is highly unlikely to change. However, demand is expected to increase.
What is encouraging to note is that this demand seems to be increasing in the North Sea and is not necessarily driven by or requiring exploration success for more demand. We continue to watch development also in places such as Namibia, which could further increase. Namibia remains a very interesting region for us, and we are all aware of the recent discovery that has been announced down there. Of note, we've had new inquiries from potential clients and are also in firm discussions with clients who are looking for rigs in that region. With that, I will now pass over to our CTO, Håkon, to take you through an update on our SPS schedule, as well as CapEx for the year ahead.
Thank you, Kjetil. We are now in the middle of conducting our fleet SPS program, both for the owned and managed fleet. As Kjetil mentioned, we were pleased to receive the renewed class and statutory certificate for Deepsea Aberdeen, Deepsea Nordkapp, at the end of last year. This was done without the rig going off location and in close cooperation with our BP's drilling alliance, where we managed to secure a high financial utilization through the whole SPS period. To our knowledge, this is the first North Sea rig ever to conduct the main SPS offshore.
We do not see that we will be able to complete all future certificate renewals offshore, but the offshore SPS scheme and dedicated SPS organization that we presented on this call last year has enabled all inspections and testing to be done offshore, hence we significantly reduce the project risk with this model. So the Deepsea Nordkapp offshore certificate renewal is mainly a result of no major or unexpected findings during the inspection, and also demonstrating the high quality of the rig and the crew together with the robust maintenance system. So the Deepsea Nordkapp was conducted in line with the estimated CapEx spending, and about 50% of the total CapEx was paid out per year-end 2023. The next Odfjell owned unit due for certificate renewal is Deepsea Atlantic.
The majority of the SPS inspections and tasks has been conducted offshore, as for Nordkapp, and without any unexpected findings, but the rig will require a yard stay, planned for early summer this year. The yard stay will partly be to conduct the remaining SPS scope and also installation of the new BOP and control system, combined with other deepwater-
... upgrade requirements for the upcoming West of Shetland work next year. So this combined project has eliminated the need for a separate deepwater upgrade project, prior to mobilization next year. The Deepsea Aberdeen is the next rig in line after Atlantic, with certificates due later this year, and Deepsea Stavanger is due next summer. So both, also Aberdeen is currently performing offshore inspections as per plan, and Stavanger is due to start quite soon. So related to the CapEx allocation for the remaining fleet, we have seen some effects of inflation, and we've also seen some effects of rig wear and tear, and opportunities to invest proactively, to avoid any future downtime or issues. But we don't see any material deviations from earlier estimates on the SPS.
All in all, we remain on track for our SPS plans going forward. With that, I think Frode will continue with the financials.
Thank you, Håkon. I'll begin with the income statement on page 10. As can be seen, operating revenue in Q4 2023 was $192 million, compared to $167 million for the same quarter last year. Operating revenue for the own fleet in the quarter was $147 million, while the external fleet was $44 million. EBITDA for the own fleet segment was $79 million, and a margin of 54%, while the EBITDA for the external fleet was $7 million, with a margin of 17%. Less corporate overhead and other adjustments, the group EBITDA was $83 million. As Kjetil said, the impact from the downtime on Deepsea Stavanger was approximately $4 million, including the increased equipment and personnel costs incurred to rectify the equipment failure. The company delivered a net profit of $24 million in Q4.
For the year, the net result was $222 million, including the reversal of the impairment losses of $163 million from Q3. Moving to page 11 and the balance sheet. We see continuing deleveraging of the balance, with net interest bearing debt of $582 million, excluding leasing liabilities as of the end of the quarter, and we had a leverage ratio of 2.0. The company has a robust balance sheet with an equity ratio of 60%, based on total assets of approx $2.3 billion. The available liquidity is strong at $294 million, including the fully undrawn RCF of $165 million. After the balance date, the company has, in January 2024, repaid the five-year seller's credit of $54 million to Samsung related to Deepsea Nordkapp. Q4 produced strong cash flow from operations of $90 million.
Net interest paid was $23 million, mainly related to payment of half-yearly interest on the bond loan. As comparison, net interest paid for the full year was $56 million. CapEx for the quarter was $14 million, and financial investments, $2 million. Net cash flow from our financing activities was -$44 million, including the dividend payment of $14 million made in Q4. Full year CapEx was $54 million, net of grants of $13 million from the NOx Fund. Of the CapEx paid in 2023, $31 million is related to SPSs, and $18 million is related to the new BOP on Deepsea Atlantic. Moving to page 13 and the dividend. Fully in accordance with our dividend policy, we maintain a dividend payment of $0.06 per share for the quarter. Dividends are declared in U.S.
dollars, whereas actual NOK payments per share will be determined based on the Norges Bank exchange rate at the last day, including rights, being 29th of February. Payment date is set to 14th of March. Combined with our Q2 and Q3 dividend, Odfjell Drilling returned $43 million to shareholders for 2023. The company's ambition is to grow the cash distributions in the medium term, in line with increasing underlying earnings and reduced CapEx commitments. With that, I'll pass you back to Kjetil to summarize the presentation.
Thank you, Frode. So as we said before, this has been another busy quarter for the company and our business. Our fleet has been fully active and has performed well, minus the Stavanger incident, and this has resulted in a strong financial results. We achieved the first ever SPS performed entirely at sea and during operation, and also achieved full utilization from the unit while we did it. We recovered record revenue generation, as we have higher value contracts ahead of us with over $2 billion of firm backlog. So with our market outlook for remaining positive, particularly in the medium and long term for our business, we have elected to announce a further quarterly dividend of $14.2 million.
With that, I think we pass it back to you, James, and open up for the Q&A.
... Thank you very much. Thank you, Kjetil, and the rest of the team. Operator, you can open the questions, the Q&As.
Thank you very much, sir. Ladies and gentlemen, if you wish to ask an audio question, please press star one on your telephone keypad. That is, star one on your telephone keypad. Thank you. Our first question today is coming from Fredrik Stene of Clarksons Securities. Please go ahead, sir.
Hey, Kjetil and team. Hope all is well, and thanks for taking my question or questions, I would say. I'll start with my regular question. You guys have now booked up most of the fleet in 2024 and 2025, and on some rigs even beyond that. Good cash flows, etc. And with your managed fleet, there will always be this question whether or not you're looking to, you know, consolidate more to potentially be able to recontract something that you own before 2026. And I think last week there was also an Upstream article suggesting that you were hunting for more capacity.
So, I just wanted to revisit this theme, as I always do, to see if there's any new thinking on your part, and how you would go about an acquisition if you were to do something like that.
Yeah. Thank you, Fredrik. And yeah, just to be clear, I'm gonna again be sort of repetitive, boring here, Fredrik. But we still think there is definitely room for more consolidation in the industry. There's a lot of deals that makes industrial sense out there. And we do want to be an active participant in this discussion. So we are exploring, you know, what's out there. But again, I have to repeat, for Odfjell Drilling, any consolidation would need to be to make strategic sense, and it needs to be accretive, be viewed as accretive for our shareholders. And it's worth remembering, however, that our forward revenue projections from our book day rates will lead to increased revenue regardless.
But we follow everything closely, Fredrik, and we'll update everybody if we have any news on the subject.
Yeah. Well, thank you, Kjetil. I think it would... Not that I expected, you know, too much news, but it would be, if you suddenly announce something, I would hate myself for not having, having asked. Then just, three quick ones after, dividends. You say your ambition is to grow that with time. Is it fair to assume that that might be a 2025 second half event then, when, when all the SPS are done, or do you think it can happen sooner?
I think that could easily happen sooner. But we do want to de-risk the CapEx commitments and the SPSs a little bit further, but I don't think we need to see all four SPSs complete prior to a dividend increase. Also, can I add that it's important-
Okay
... that we are consistent, you know, that we are consistent on dividends going forward. That's also important for us.
Yes. So you would, you know, steadily increase it rather than having it be volatile, is my understanding?
Correct. Yeah.
Yeah. Perfect, and final one. On the managed fleet, you have higher margins now than before, around 17%. Is that something you think you will be able to keep at that level or is kind of a reversion to around 15% sensible, and this was more of a one-off thing?
I think Q4 for the external fleet is a good, good sort of quarter to annualize all units in operation. We have earlier estimated a full year EBITDA contribution of around $30 million from the external fleet segment. And I think, yeah, the $7 million in Q4, that equates to 28 on annual basis. So it's— I think it's more or less in line with what we expect. Of course-
Super. That's all from me.
Yeah. Yeah, of course, so certainly all four units are in operation. Yeah.
Thank you much, sir.
Thank you so much for taking my questions.
Thank you, sir.
Bye.
Ladies and gentlemen, once again, as a reminder, if you have any questions, please press star one at this time. We do not appear to have any further audio questions coming in at this time, so I'll turn the call back over to James to take any questions submitted by web. Thank you.
Thank you. Thank you, George. So we've had a few questions on here, which is great. Thank you very much for sending those in. One of the first question here, I suppose, speaks to capital allocation. So will all excess cash be distributed to shareholders, or are you open for M&A? And from the same shareholder, are you planning to pay down debt further, or will you sustain the leverage you have now?
Yeah, we can start with the second question. Because we did a full refinancing of the company last year, we have a scheduled installment profile now for the current debt. Our leverage is declining quarter by quarter, not only because we are doing installments, but also due to the fact that our rolling 12 months EBITDA is continually increasing. I think we're very comfortable with the debt level we have now at 2x net debt to EBITDA. In a couple of years' time, you could probably argue that the debt level is too low. So there is for sure re-leveraging capacity to be done. I think medium to long term is probably right to be between 1 and 2 in terms of leverage ratio.
It all is a function of also the market outlook and the contract backlog we have entered into at any given time.
Thanks very much.
Yeah, second question was related to basically the capital allocation policy. As we have said, we definitely have an ambition to increase the dividends going forward. We have increasing free cash flow from the contracts we have already entered into. CapEx commitments are reducing going forward, and the SPS are de-risked one by one. So there is an ambition to increase dividends. And on the M&A question, I think we just need to repeat the answer we have given before. It needs to make strategic sense, and it needs to be accretive for shareholders.
Thank you very much. I believe we've got another question on the, on the phone line. George, do you wanna open that, that line?
Most, most certainly, sir. We have a question now coming from Truls Olsen, calling from Fearnley Securities. Please go ahead, sir.
Thank you. Kjetil, Frode, James. Hi, guys. Just a quick question from me, and this relates down to going down to West African Namibia. Can you talk a bit about what kind of demand you guys are seeing there in terms... I mean, it seems to be a sort of a typical short-term market exploration driving. Is there any color on how that looks and looking into 2025, 2026 as well? And yeah, feel free to elaborate.
Yeah. Hi, Truls. No, I can elaborate a little. I mean, I think, you know, we can, we can firmly establish, you know, there's, there's been some fantastic discoveries being made, made in that region. And there are operators continues to join that region and, and we are, in middle of operations that will sort of, paint that picture, clearer going forward. You know, when it comes to, you know, the, the longer term, that need, rig need, in that region, you know, that, will, and, and potentially when it comes to, to, setting anything into production, that is a timing question, which, which is, is of course, up to, to the operators. But we do see more clients joining that region.
There's more new clients that's gonna start operation down there, and I think it's very much a region that is sort of in continuous development. Yet to see sort of longer term commitments being made. But we like it and we like what we see there, and we see clients that are very interesting in continue operating down there.
Yeah. Thank you.
Thank you much, sir. We now have a follow-up question from Fredrik Stene of Clarksons Securities. Please go ahead.
Again, just super quick. Did you use the RCF or cash on hand to pay the seller's credits in January?
Sorry, yeah, the January sellers credit. We made a small drawing on the RCF in January to repay the $54 million to Samsung.
Perfect. Thanks.
Thank you, Mr. Stene. We don't have any further audio questions at this time. I'll turn the call back over to James with the web questions. Thank you.
Thank you very much. So, this is probably one for, for Håkon. So just to clarify on the SPS program, the Nordkapp did not require a yard stay, but the next three semi-submersibles do require a yard stay. What are the costs and duration savings of the SPS done entirely offshore? Or I suppose, put in a different way, what's the benefit of doing it offshore?
Yeah. Like, there is no absolutes on yard stay or not, but the philosophy we have implemented is that we would like to do all the inspection and get the status of the rig offshore. And then on a case-to-case basis, we are seeing if a yard stay is required or not. And the benefit of that is, of course, to be predictable, such that if a yard stay is required, we could plan it in much more detail than previously, with a much clearer scope and a predictable execution. And we are also, as we are developing now, we are developing a more and more-
... advanced toolbox such that we can do more and more activities actually offshore. So this is a philosophy in the making, in the development, but I think we have got the full effect on Nordkapp , and I think we will see a full effects also on future yard stays. But typically, Atlantic now, where we will go to a yard stay is partly because the project is not only an SPS, it's also an upgrade project for the future clients and mobilization. And of course, then we have a benefit of combining these two. And for the last two rigs, we are evaluating based on the findings and the progress, how a yard stay typically will look like, and how and when it will be done.
But it's all based on the same philosophy that we do a thorough inspection offshore. For the cost, we of course see that cost is also linked to the scope, and we see no major findings on the rigs we are in progress. It is somewhat more costly to send individual persons offshore, but we see we benefit a lot by not having a large yard stay, and of course, that we can keep the rig on rate. So there are mainly on predictability, and also, of course, time of hire is of more important than the actual cost of conducting the SPS. There are some effects, but there are some plus and minuses there.
Thank you. Thank you, Håkon. We have, we have a number of questions on the same topic, and I think one here summarizes it quite, quite well. I suppose, what are the, what are the key metrics, which are which determine whether a potential deal is accretive or not for the company?
Now, as said, it needs to be make strategic sense. I think in determining whether the deal is accretive, enterprise value over EBITDA multiples is of interest. And of course, dividend potential per share over time is also a key key determinant in evaluating whether a deal is accretive.
Thank you. I think we'll probably take maybe one or maybe two more questions, but we'll take one here. Regarding your comments on Namibia, a drill ship has operated there as well as other harsh environment semi-submersibles that you manage. Could you elaborate on what type of rig is best suited for this market, in your opinion? Thank you.
Yeah, I can comment on that. I was also, I just visited Namibia recently, and then got to look a bit deeper into this. What is clear to us is that the bigger, high-spec semi-subs have definitely proven their worth for full year operations down there. We saw this during winter season, where we were able to work through harsh weather conditions while drillship had to halt operations. So, so we think, big semis, like, like we have, is very well suited down there.
And you know, it's also interesting when you see, given the proximity to South Africa and the need for semi-subs in that area, it sort of gives the operators a good tool to have units like this, which they can have a flexible operation philosophy around. So we're very, very confident in the semi-subs in Namibia and the future for them there.
Great. I think that summarizes it. I think we've had a number of calls, and I think we've answered most of the questions that have come in. So I think we can wrap up the call. Our our next quarterly report will be on the nineteenth of of Sorry, on the fifteenth of May. And we look forward to hearing and speaking to many of you then. I think for now, we can close the call.