Good afternoon, everybody, and welcome to the Odfjell Drilling Q1 2024 results presentation. My name is James Crothers, and I'm the Investor Relations Officer at the company. I'm joined today by our Chief Executive Officer, Kjetil Gjersdal, and our Chief Financial Officer, Frode Syslak. Before we begin, your attention is brought to the important information slide of our presentation, which we would encourage participants to read in full. Note that this presentation is only a summary of the quarter, and a more comprehensive review of the quarter is available separately. Both that report and today's presentations are available on our website, www.odfjelldrilling.com. Our call today will begin with a brief summary of the quarter, with Kjetil taking us through some of the key highlights.
We will then move on to discussing operations during Q1, and then move on to a financial review with Frode. We will then summarize the presentation and close the call. Following the presentation, we'll open the Q&A session, and we invite all participants to submit something, either via telephone line or electronically via the webcast tools which are available. With that, I'll hand over to Kjetil, our CEO, who will take us through the key highlights.
Thank you, James, and good afternoon, everybody. So we had a busy start to the year. A lot of progress has been made across the company. And if we're looking first at our key financial results, you can see that during Q1, we achieved a revenue of $194 million, which is a new record for our company, and an EBITDA of $85 million. Our own fleet achieved a financial utilization of 97% during Q1, and that is despite what has been a tough, tough winter with a lot of weather, in particular in the North Sea. Our balance sheet continues to get stronger and stronger. The leverage ratio has now reduced to 1.8, and our equity ratio is 62%.
As noted previously, we have also repaid the $53 million Samsung yard credit during Q1. As of this quarter, our fleet is now fully booked until 2026, following the exercise of priced options by Equinor for the use of Deepsea Stavanger. We have also made considerable progress on our upcoming SPS programs, with the Deepsea Atlantic now planned to take place in late June, early July. As noted in our report published today, we have increased our CapEx allocation for the three remaining SPS programs, which I will go a little bit deeper into later into the presentation. Lastly, we have declared yet another quarterly dividend of $14.2 million for Q1 2024.
Moving down then into operations, all of our fleet was active during the period, with five of our units operating offshore in Norway and three working offshore Namibia. As per previous quarters, the Deepsea Aberdeen, the Atlantic, and Stavanger were all working with Equinor. The Atlantic and Stavanger were working on Johan Sverdrup Phase 2 and on various exploration projects, while the Aberdeen was working on the Svalin field before moving back to the Breidablikk field towards the end of the period. The Deepsea Nordkapp remained working with Aker BP on the Alvheim development throughout the quarter. The Yantai was working with Neptune Energy and Vår Energi on appraisal and exploration campaign. The Deepsea Mira continued to work with TotalEnergies on exploration campaigns around the Venus discovery, and post-period is moving to new projects in Congo.
It is actually on transit there as we speak. The Deepsea Bollsta was working with Shell throughout Q1 before it begins its SPS program in Namibia during Q2. And I'm sure as many of you are well aware, the Hercules successfully completed the Mopane exploration well, which had a significant discovery being made. Galp Energy, the operator, suggested resources of at least 10 billion, which reiterates the scale opportunity that's being proven in Namibia. As a result of these movements, we are likely to see all of our units no longer drilling offshore Namibia during Q2. The operators are considering the next step for that basin.
But given the potential that has been discovered so far and the likelihood of resources to extend also into South Africa portion of the Orange Basin, we remain very excited about the potential for this area, and it to be, it's good and we believe it's going to be a significant source of demand in a not so distant future in that area. Further, our fleet, as I said, is officially sold out with firm backlog until 2026. The first contract opportunity during that time is the Deepsea Aberdeen in early 2026. The backlog remains strong, with $1 billion of firm contract revenue secured, giving our company an exceptional visibility for cash generation going forward.
As can be seen in the lower chart, on the slide here, the value of the 2025 backlog indicates that we are gradually rolling our fleet over to higher day rates, and marking a significant increase if you compare to 2023 levels. Further contract awards are expected to be secured during 2024, with the company being actively involved in new tenders and contract discussions. Before I move on, just a reminder, all of our backlog figures and contract values are clean day rates, and then there's they don't include any services on top or nor any bonuses on performances and fuel, and so on.
If you look at the market, as we noted in our results statement this morning, we reiterate our view that the market dynamics that we've seen over the past year or so, that they will persist. We also see that there remains a clear preference for Tier 1 units with deepwater capability, which offers a more efficiently and more flexible solution for our clients, and ultimately delivers a lower well cost. Demand also continues to look strong in the medium to long term. Demand from our core area of Norway is set to increase, and new resource discoveries in Namibia and South Africa, we believe could be a driver or quite a significant demand in that basin. Also, as we move towards development drilling.
So ultimately, we believe that the market is in a great state of balance, which ultimately works for both operators and rig owners, and we expect day rates going forward to continue to increase for work beginning around 2025 and 2026. Then also, before I hand over to Frode, I would like to update you on our SPS programs. So currently, we have three SPS programs ahead of us for our own fleet. We have completed the Deepsea Nordkapp at the end of last year. The total cost of that SPS is estimated to be about $40 million. The Deepsea Atlantic SPS will be completed next, and this is now scheduled to begin late June, early July.
This was originally planned to be executed in April, May, but it has slid into to late June, early July. This is due to the fact that the work on Johan Sverdrup field has taken longer than originally anticipated. The scope for the Atlantic SPS that includes multiple upgrades to the unit to prepare it for its planned deepwater campaign in the U.K.. And this will include an increase of the variable deck load capacity, installation of a new ultra-deepwater BOP, and a new control system. And the Atlantic SPS, as I said, originally planned to begin early Q1, but it has not now slid.
And this is also one of the main reasons that we, we see that the cost has increased in combination with also a general cost inflation, but also some changes in scope of work, added new changes to the work. So all of this has resulted in increased cost to complete the SPS and to install the new BOP, which is now the installment of the BOP is now estimated to cost around $50 million. Out of this, $20 million is funded by Equinor. And the average CapEx allocation for the remaining three SPS programs is now estimated to be around $50 million per rig. And with that, I will now pass it on to you, Frode, to take us through the financial review.
Thank you, Kjetil. I will begin with highlights from the profit loss statement on page 11. As can be seen, operating revenue in Q1 2024 was $194 million, compared to $171 million in Q1 2023. Operating revenue for the own fleet in the quarter was $151 million, while the external fleet was $42 million. EBITDA for own fleet was $81 million, a margin of 54%. The EBITDA for the external fleet was $6 million, a margin of 16%. Less corporate overhead and other adjustments, the group EBITDA was $85 million. The company delivered a net profit of $14 million in Q1, reduced from last quarter due to a positive impact of deferred tax assets being recognized in Q4 2023.
Our net profit over the last 12 months was $70 million, and as can be seen, we are trending the right way on last 12 months revenue and EBITDA figures. Moving to page 12 and the balance sheet. We see continuing deleveraging of the balance sheet to a net interest-bearing debt of $575 million as of the end of the quarter, and a leverage ratio now reduced to 1.8. The company has a robust balance sheet with an equity ratio of 62% based on total assets of approx $2.2 billion. The available liquidity is $240 million, including the undrawn RCF of $145 million. As planned, this is reduced from prior quarters as the company in January repaid the five-year seller's credit of $53 million to Samsung related to Deepsea Nordkapp.
We are continuing our consistent generation of operating cash. Q1 produced cash flow from operations of $75 million. Net interest paid was $7 million, and tax paid $5 million. CapEx for the quarter was $27 million. Of this, SPS was $17 million, and the BOP on Atlantic was $9 million. Net cash flow from financing activities was -$69 million. This includes the Q4 dividend payment of $14 million made in Q1. In accordance with our dividend policy, we maintain a dividend payment of $0.06 per share for the quarter, with the last day including dividend rights being 23rd of May, and payment to be made on the 13th of June. This will be the fourth consecutive quarterly dividend payment made after the dividend program was implemented.
The company's ambition, as earlier communicated, is to grow the cash distributions in the medium term, in line with increasing underlying earnings and reducing CapEx commitments. Finally, we wanted to remind stakeholders of an upcoming dilution effect as a result of an issuance of new shares to Akastor under a six-year warrants agreement. This was initially arranged in 2018 in relation to the acquisition of stranded asset, Stena Midmax, now known as Deepsea Nordkapp. These warrants mature on the 31st of May and has a subscription price for Akastor of $0.01 per share. Based on the share price at yesterday's closing, the warrants will result in around 2.7 million shares being issued to Akastor. The exact number of shares, which are issued will depend on the share price on the 30th of May.
The indicative impact at various example share prices is shown on the right-hand side of this slide. With that, I'll pass back to Kjetil, who will summarize the presentation.
Thanks, Frode. Once again, good operational quarter, another which has been busy. Our fleet was fully active, and it performed well. Our balance sheet keeps getting stronger, and we anticipate this trend to continue going forward. Our view of the market is maintained, with supply and demand remaining in balance, but with increasing demand in certain areas, which facilitates for stronger day rates. The fleet is in an early phase of moving from legacy dayrate, which we will soon see impacting our revenue and EBITDA figures, particularly from Q4 2024 and onwards. Finally, with our outlook for the market remaining positive and our business performing well, we have elected to announce a further quarterly dividend of $14.2 million. With that summary, I will pass it on back to you, James, for the Q&A.
Thank you very much, Kjetil and Frode. George, can you please open the Q&A session for us?
Most certainly, sir. Ladies and gentlemen, if you would like to ask an audio question, please do press star one on your telephone keypad and just make sure your mute function is not activated in order to allow you to reach your equipment. Star one for questions. Our very first question is coming from Fredrik Stene, calling from Clarksons Securities. Please go ahead, your line is open.
Hey, Kjetil and team, hopefully you can hear me, okay. I have a couple of questions for you, today, obviously. I wanted to start with current contracting climate. I think in your written report, you allude to potential additional contract awards. This year, you seem to be in active dialogue with some counterparties, and you also mentioned a preference among some operators that they now want to make sure that they are able to keep high tech assets for longer. So, I guess that would result in longer contracts as well. So I guess it's a two-part question. First, what kind of contracts are you considering?
And if you were to see something coming or firm up this year, are we talking about stuff to fill up 2026, or are we talking about new five-year contracts? Any call you can give on that would be helpful. And also, how have other T&Cs beyond day rates developed in your contracting discussions? And I'm thinking about, you know, potential cancellation fees or anything else that protects you as a rig owner. Thanks.
Yeah. I guess, the easy answer to your question, Fredrik, hi, by the way, is, you know, yes, to all above. We are looking into also filling up 2026 and onwards, and there's also interest for, for longer-term work, beyond that, both in Norway but also other places. So, I would say in general, there are quite some exciting requests out there, and, you know, we are pursuing any, all of them, and in particular the ones that we find, interesting. So yeah, hopefully we can, we can revert back with some news, later this year about that. And when it comes to-
On the peak, yeah.
... Yeah, on the terms and conditions, you know, I think you particularly mentioned cancellation rights and so on. I think, you know, the industry standard when it comes to harsh environment and the area that we operate in is pretty straightforward. We feel actually very good protected around those that being reason for various cancellation reasons. Yeah, I think you know what we all see that, what we perceive that, that is terms that we very well can live with and are well protected.
Thank you very much. Second question relates to the SPSs that you're going to go through, Nordkapp being completed. I guess some kind of payments remain, but the work itself seems to be done. Three more rigs over the next 12 months-ish that you own yourself, but also some on the managed rigs. You clearly gave some commentary on how the costs have developed higher costs and pressure on that. The time that you're budgeting seems to be the same, which I guess is good for higher revenue efficiency during those periods. Beyond that, are there any, you know, additional risks related to these SPS schedules going forward?
Do you think that there can be even more cost pressure, or are you starting to lock in some of that CapEx on all of the three rigs? And as a side question to that and relating to risk in particular, you have some of the managed rigs also going onto SPS. How is the risk in those SPSs, you know, split between you and the rig owners? Are you as, you know, exposed to something if something goes wrong during that SPS period, or are you still going to collect your management fee? Thanks.
Yeah. Okay. So, first, we don't see any risk of further cost increase on the Aberdeen and Stavanger. We feel that that is very much under control. I think, you know, what we have seen on Deepsea Atlantic, the Deepsea Atlantic, it has this 15-year SPS now. Obviously, as the older the rigs get, the more demanding these SPSs gets also. We like to maintain our rigs good. We believe that we're gonna have them for many, many years going forward. So it's important for us to use these opportunities to get the rigs in the state that will keep the uptime going forward.
Also, the Atlantic project is far more complex than the other ones, as it includes a lot of upgrades, which will be performed simultaneously with the SPS, with the remaining SPS ports. So that makes that the Atlantic projects is quite special compared to the other ones, which are pretty more straightforward SPSs and such with a lower risk. So, so that I believe was the answer to your first question. The other question was about SPS on our managed rigs, and that is, I mean, the owner of the rigs have the responsibility for so the SPS cost and so on. I want to keep in mind that the SPSs for Bollsta for Mira, these are the first SPSs for these rigs, five-year SPSs.
We saw that in Norway, normally a much easier scope, so I don't see the risk there being particularly high. Of course, doing it in Namibia adds some challenges, but nothing more than we can handle. I also like to note that on the Mira, a lot has been done already on the SPS before the rig left Bergen down to Africa. So, with regards to management fees, with these different fees regulated on the activity level of the rig, and we will still receive our compensation, as we should per the contract that we have with the owners, during that period as well.
Perfect. Thank you so much, Kjetil and team. I'll hand it back and have a good day.
Thank you, Fredrik.
Thank you.
Thank you.
... Ladies and gentlemen, once again, if you have any questions or audio questions, please do press star one at this time. Okay, we do not appear to have any further audio questions coming in at this moment, so I'd like to turn the call over to James to take any questions that were submitted through the webcast. Thank you.
Thanks, George. So we've had a few questions come through on the board. Thank you very much for all these that have been submitted so far. I'll take this question first. So at which day rates do you believe new build, new builds could be considered? Kjetil, maybe that's one for you.
Yeah, that's, that's an interesting question. You know, I think, you know, this has been a lot of talk about that. But if you do some very easy math, you'll be looking at the price around $800 million-$1 billion for a rig. I think, you know, depending on the contract length, you would definitely need a lengthy contract, five years or above. And you, I think you're looking at day rates around $800,000 a day to make that happen, as we see it today. That is due to the fact that, you know, the price of the rig, the lead time, the payment terms, the execution risk, and so on.
So that would be my quick answer today.
Okay. Thank you very much. We have another question here. What revenue and costs hit your gross profit and loss statements when a managed rig does not have work? How much of the BOP upgrade will hit in 2024 CapEx, and when is Deepsea Stavanger scheduled to start the Aker BP job? Maybe we take that last question first. That's probably the easiest to start with.
Yeah.
Kjetil, do you want to talk about that?
Yeah, I can start with the Stavanger. So as for now, Deepsea Stavanger is expected to work for Equinor throughout 2025, and it will then move over to Aker BP in the beginning of 2026, where it will start its five-year contract with Aker BP.
And, uh-
Yeah.
Sorry, go on. Yeah, Frode, do you want to take the next question? The previous two questions: what revenue and costs hit our P&L when a managed rig doesn't have work, and how much of the BOP will be into 2024 CapEx.
Yeah. Yeah, so when a managed rig's not having work, we will have full cost coverage of the personnel and other expenses. However, our daily management fee is reduced when rigs are idle, meaning that the bottom line from the external rig segment will be reduced. But still, we earn a daily management fee, although lower than when the units are in operation. Regarding the BOP, much of that is already paid per Q1, more than 1/2 . The remaining 1/2 of the $50 million is expected paid during 2024.
Brilliant. Thank you. Looking into 2025, when the FPSs are all complete for our own fleet, what's the priority for use of cash flow?
Yeah. As you said, you know, it all depends, you know, on the revenue generation and then hopefully our CapEx commitments goes as planned. This will be the dividend policy will be considered by the board every quarter. But what we see is that, you know, there will be definitely more capacity to do something about that from 2025 and onwards, and maybe even earlier.
Brilliant. Okay, thank you. So we've had a few questions on increasing the size of the fleet. How does the sort of company feel about the idea of doing that, and how should we possibly do that? I suppose is the question.
Yeah. I can. You know, from an industrial point of view, as an industry, you, we still think there's room for consolidation, and we would like to be an active participant in those discussions. As we have repeatedly said, you know, for Odfjell Drilling, any consolidation would need to be accretive on a relative valuation, implied rig values, and so on, and from a free cash flow to equity per share, and as a result, dividend per share perspective. So, you know, there's various ways to do this. We could use the share, for instance. If we're talking about a share deal, the free cash flow to equity per share is a very key metric in that equation.
But, I mean, I think also, you know, if when we talk about M&A, you know, you have to take another perspective, and that is how we see the future of our industry, and it's about taking a strategic approach. So, but, again, we will take a holistic approach, and we will only do something if we believe it adds value to Odfjell Drilling's shareholders.
Okay, thank you very much. We've had, we've had lots of questions coming in, so please do... We probably can't answer all of them. Maybe we'll just take one or two more. If we don't answer your question, please do just send me an email directly. My, my email address is at the bottom of the PowerPoint and, and online as well. So a quick question here is any challenges specifically performing SPSs in Namibia relative to doing them in Norway?
It is a bit more challenging doing it down there logistically wise, and you know, access to yards and key sites and so on. However, you know, the situation that we have with Bolsta now and the white space available to do it allows us to do it in a very controlled way. We believe that we have a good opportunity to do it with cost under control. So, yes, the answer is yes, but we are managing it.
Great, thank you. And, maybe take one more question from the webcast tools, and it's about new builds again. But if we were to order a rig today, how many yards could realistically make a harsh environment semi-sub? And, I suppose, what would it look like?
Okay. No, I mean, actually, you know, I know who used to make them. You know, there's some in Korea, there's some in Singapore, and you have the Chinese. However, if all of them are still willing to do it, I don't know, to be honest. You know, I think that we have not spent a lot of time in exploring new build opportunities, so I don't have any fresh info on from the yards there.
Thank you very much. I said I think we'll probably close the webcast questions for now. If you have any other questions that weren't asked or answered by us on this call, please do just send them on. George, can we just check the phone lines one more time and then perhaps close the call if there's no further questions?
Most certainly, James. So, ladies and gentlemen, if you want to ask a question, do please press star one. So star one on your telephone keypad to ask all your questions. Hey, James, no questions coming in at this time.
Brilliant. Okay. Thank you all for joining, and for your interest in the company. Odfjell Drilling's next conference call and results will be on the 21st of August. If you'd like any more color on today's results or if you do have any other further questions, just please do get in touch, at my email address, which is jcro@odfjelldrilling.com . Thank you very much for joining. George and team, I think you can close the call.
Thank you, James. Ladies and gentlemen, this concludes today's conference. Thank you for your attendance, you may disconnect. Have a good day and goodbye.