Good day, and Welcome to the Odfjell Drilling Third Quarter 2021 Investor Call. At this time, I would like to turn the conference over to Eirik Knudsen. Please go ahead, sir.
Thank you, sir, and welcome to this investor conference call for Odfjell Drilling, where we will present the third quarter of 2021. My name is Eirik Knudsen. I am Head of Investor Relations in Odfjell Drilling. As usual, Simen Lieungh, CEO, will go through the first part of the presentation today, and then Jone Torstensen, our CFO, will go through the financials in part two. Thereafter, we will have a Q&A session. For the sake of good order, we make reference to our disclaimer on page two of the presentation. I will then leave the word to Simen. Please go ahead.
Thank you, Eirik. Good day to all of you. Thank you for calling in. I'll give you, as usual, the headlines for the performance in Q3 and start with the key summary. We go through the different segments, and Jone will take us through the financials after I'm ready. What I'm gonna do here is just to give you. If you have the presentation, I'll just announce the page and for you to follow. I go to page number four. That's the picture we have used for the last quarters. We have the key numbers for the quarter is $275.27 million for revenue. We have an EBITDA of $88 million. The cash position is still comfortable and improving, so cash $135 million.
The leverage ratio has been again reduced to 2.6x, and we have maintained the backlog about $2.3 billion . The equity ratio is close to 50% now. The company has the same structure with the mobile units providing 85% of the balance sheet. Well services, come back to that, and energy. It's the same structure. Page five, the key summary. We still have, as we see, a strong performance across all rigs. I'll give you more details later. We have during the quarter agreed with Equinor to move Deepsea Stavanger into the same system as we have with Atlantic and now Aberdeen. The continuous optionality with the kind of a rolling into new operations.
We also had the pleasure to agree with Neptune Energy in June the framework for a frame agreement, and we have signed the frame agreement with them for their development in the future. Deepsea Yantai is a rig we do the management of, has performed quite well, so Neptune is quite pleased with the operations. By that, we also hope we can progress more into a more established relation with them. We have also developed an alliance internally with the energy and Odfjell Well Services for P&A campaigns. We are currently bidding P&A campaigns in the U.K., and we see that market segment will maybe now we think gonna be better and that.
That's why we have combined our internal forces also with external partners to provide a complete solution on P&A activity, which we see is a growing market. We also were able to get in the sustainability report, we scored an A. I'll come back to that. Means a lot for us because that type of recognition is significantly more important than it used to be to be competitive in the market. I come a little back to that why and how we did that. Page number six. We see that the message for that page is a very strong uptime performance by about 99% on average, which is great. We never take that for granted.
Good people, good operation, good assets means that we get this. On page seven, we see how now the coverage of the fleet, how that is. Atlantic will start with Sverdrup phase II in January next year, and after that, there's some period options there. We expect that Atlantic will just continue with Equinor in the future. We have seen the potential scope of work for that rig, and we are not really concerned about the engagement. Stavanger is, I would say, unfortunately available just now, has one and a half to two months white space this year until January 1st. Reason being, it's just drilling too fast, well campaigns. That's the negative thing with well campaign.
When you have an efficient machine like this, it's difficult to plan for everything, and we drilled quite effective with Lundin. We have agreed with Lundin to start up again early January, first of January, and then Equinor will take over. Aberdeen again, we are working for Wintershall now, and we will start with Breidablikk in April as a back-to-back to the campaign we do with the Wintershall. Deepsea Nordkapp has contract until 2023. There's an option there. We expect now Aker BP to call the option actually already late this year. Everything in that option is agreed and the scope is agreed. So that's gonna be firm in the close future. The Deepsea Yantai the same.
We have an extension till summer next year and with more options to come and the reason we signed the same agreement was, of course, to make sure that Neptune gets the stability they can kind of roll that rig further into the new programs they have already identified. Again, a quite predictable backlog. The Aberdeen, we know the level of Aberdeen backlog, and it's our job to make that happen, make that potential happen. Moving over to energy platform drilling, we see that they are the same rigs we operate. Equinor, Wintershall Dea, ConocoPhillips, and BP, and Aker BP are the most active ones. We operate 16 rigs and you know, these options are very much based on performance.
If we perform, the options are called. It's a different mechanism in platform drilling compared to the MODUs. So far we are quite okay with operations. We have we are earning bonuses. We are implementing new technologies. Sverdrup is now implementing new technologies to make it more efficient, more automatic drilling controls and so forth. We are continuously developing also the technology and the performance on these assets. We have hunger for more, so if possible, we are fighting for more to operate more assets, and that's quite positive. We also have seen a better market within engineering technology, more projects to come, and we also support our ESG activity, for example, with Oceanwind. Engineering is a significant contribution area for supporting that initiative.
That's gonna be, I guess, I hope, I mean, in the future we'll see more of that, to come, more diversification. Well, services have certainly been through a tough period. I mean, we have been grateful here in Norway that we didn't have too much impact of COVID. It's been tough. I mean, it's definitely not over. We operate in more than 20 countries. We have quite many bases, about 15 bases around the world. We have seen very much up and down, things being postponed, countries shut down, can't move people in or equipment in, can't move people out or equipment out. It's been a struggle for that case. That has also hit the bottom line for that area. Nothing has been canceled but very much postponed.
Things was prepared, been postponed by COVID, start up again, postponed over again. For example, in Asia-Pacific, like Vietnam, Malaysia, Central East Europe, Romania, Middle East, Kuwait, others, it's been very much uncertain. We do believe this is now getting more. As long as you get more vaccine, you get more predictability about operations. We certainly see that things are improving in that connection. On page 10, you see the backlog, 2.3. There's nothing more to say. It's that includes the options. The options are quite. This is the backlog from platform drilling and module. We do not count backlog from engineering or well services because that's more call-offs.
That would be higher if you count that in, but it's not in there, as you perfectly know, I've said that before. The $2.3 billion backlog and more to come gives us predictability into the future. Absolutely. On page 11, I think that what we are quite proud of, I have to say that we have been able to get an A score from the ESG evaluation. This Governance Group is doing that every year. They are evaluating 100s of the biggest listed companies in the Oslo Stock Exchange. Some years ago, we were absolutely at the bottom. We have done a lot since then reporting installation of equipment. You can't really cheat here.
It's impossible. You have to follow the rules. You have to show by KPIs. You have to do kind of a say, do what you have said and perform, measure emissions, implement technology for that, and report it accordingly, according to a structure. We have done that, and we have reached an A score. This is a, in a way, going forward, it's more or less equally important as doing the performance on HSE. ESG and HSE is the key to make a client look good, and they evaluate your performance directly.
They are depending on us doing this to meet their own targets for governments and other stakeholders. I think that this for us at least is the license to operate in the future and to maintain an A will be in the money, but we're gonna make it. We have done significant upgrades of all our assets in the whole value chain to show that we are moving down to zero emission targets. We have a zero emission target in the company, a zero emission drilling, we said three years ago, and that's definitely within range within so very few years. It's important for competition and ourselves. The market outlook on page 12, we just say that it's clearly finally, we believe we see an upswing in the rig market.
That's been said for quite many years. Now we have seen that many years now, seven years plus with very little investments. Finally we see a better gas price, which has gone sky high, and we see oil price onto a level where quite a lot is positive, profitable. We also see that this tax regime in Norway has released much more willingness to invest. There are quite many PDOs, Plans for Development and Operation to be treated in a very few months' time. Even though we believe 2022 is a difficult year. If we look at the local market for MODUs all over the place, 2022 is a different year, a difficult year. 2023, we see an upswing, 2024, 2025, 2026, and maybe quite much longer.
We certainly see that the market will stabilize. Harsh environment has been relatively okay, is gonna be better. The deepwater market has been terrible, is gonna be much better. Doesn't say too much because it's been almost flat, but it's picking up a lot now, and the jack-up market is also following. We're seeing more activity and that's a good thing. That will also generate better rates. There's been a lot of CapEx inflation discussions and consolidation discussions. We have recently read that one of the two major rig players plans to merge at least, which is an interesting move. We believe more to come, and I think finally there will be more balance between the supply and demand. That's the key for a better market.
We believe that clearly the client will clearly prioritize high spec assets, clearly, with a lot of, as much as possible, according to what's mature technology for emission reduction, very important. All the clients we speak to, international, prefer assets, high spec with the right technology, performance on emission and so forth. All that story is told. Everybody is kind of pushed by their own ambitions and also by government requirements. I think that most of the rig owners now will. They don't need to be told what to do. We just do it because we want to do it. That means that we wanna reduce emissions.
That's all the type of conferences that we have been through over the last half year, and everybody talk about this now and somebody talks and acts. I think certainly that to really make the right moves for the installed technologies that to reduce emissions is clearly quite important. Well services the same. We see a better market. We have looked into the crystal ball for the next year and the year after. If we don't get the full new wave of COVID shutdowns, the market looks much better. It's kind of a depending on that too, and with the increased vaccine around the world and kind of more experience with the virus, we believe clearly that the market within OWS is getting better.
The same with energy and engineering technology. As I said, it's actually quite much better now, and we are striving to employ enough people. Like the PSA Norway said, the capacity and competence is the key for safe operations, and that's very true. We see that to make sure we keep a high level of safety and quality, there will be a struggle to get the right resources with the right competencies. After many years of just bleeding and reductions and so forth, now it's back again and including the green shift, we clearly will see a tough job now in the future to get the right resources without going again uncontrolled or cost levels.
To keep the cost level, to create activity, I mean, the best companies with the best activity level or the right focus will probably be the winners. With that, more positive than in a long time, I'll leave the word to Jone for financial updates. Thank you.
Thank you, Simen. Starting with the group summary financials on page 14. Group operating revenue was $227 million compared to $210 million in Q3 2020. Group EBITDA was $88 million compared to $87 million in Q3 2020. The increase in operating revenue is mainly due to increased revenue in the Energy segment from Q3 2020 to Q3 2021. More comments on that in the segment figures. After depreciation, net financial items and income taxes, the group delivered a net profit of $30 million compared to $19 million in Q3 2020. Page 15. MODU segment. Operating revenue for the MODU segment was $153 million compared to $151 million in Q3 2020. EBITDA was $78 million compared to $76 million in Q3 2020.
The change is mainly explained by higher revenue for Deepsea Aberdeen and Deepsea Nordkapp, partly offset by reduced revenue for Deepsea Stavanger and Deepsea Atlantic compared with Q3 2020. Page 16. Energy. Operating revenue was $56 million compared to $42 million in Q3 2020. EBITDA was $4 million compared to $5 million in Q3 2020. The decrease is mainly explained by reduced utilization of the engineering resource base compared with the same quarter last year. EBITDA margin was 7.5% this quarter, which is an improvement compared to previous quarters this year. Page 17. Well Services. Operating revenue was $28 million compared to $24 million in Q3 2020. EBITDA was $8 million, same as Q3 2020. There was an increase in activity in both Norwegian and Middle East market compared to the same period last year.
However, the EBITDA margin was slightly been reduced this quarter due to low margin on product lines compared to last year. Page 18. On this slide, we have shown the bridge from sum EBIT of the segments to the group consolidated profit before tax by adjusting for elimination, corporate overhead, and net financial items. 19. The balance sheet. Group gross interest-bearing debt was approximately $1.1 billion end of September 2021. $135 million in cash end September 2021, and an equity ratio of 49.3% at the end September 2021. If you then turn to page 20 and summary of the group cash flow statement, some highlights in this quarter. Net cash from operation was $60 million compared to $56 million in Q3 2020.
There was a negative change in working capital of $18 million, mainly explained by payment on Social Security and other taxes. The investing activities of $70 million in Q3 mainly related to purchases of fixed assets in MODU. Such CapEx primary relates to green investments and maintenance on all of our MODU units. We paid $42 million in installments on credit facilities and leases. As I said, the cash position at end September was $135 million, compared to $149 million in Q3 2020. To sum up the quarter, MODU continue to build backlog and be a preferred partner in the harsh environment. Attractive harsh environment asset and healthy outlook. For energy, increased activity in platform drilling, focus to develop the service portfolio into new areas. Well services, increased activity in Norway and Middle East. ESG Sustainability Report 2020 scored A by The Governance Group.
Key financials, earning visibility through $3.3 million order backlog, continue to deleverage and have a sound cash position. This concludes our presentation. We will now open for Q&A session.
Thank you. Ladies and gentlemen, if you wish to ask a question at this time, please signal by pressing star one on your telephone keypad. Please make sure the mute function on your phone is switched off to allow your signal to reach our equipment. If you wish to cancel your request, please press star two. Again, please press star one to ask a question. We will pause for just a moment to allow you to signal. I will now take our first question from John Abraham, a private investor. Please go ahead.
What is the plan for dividends?
The plans, we have the same policy with the 30%-50% of net profit. We have still, as we said, we have still the same ambition to pay dividend according to the result after the Q4. That's the ambition and, let's say, we'll see what's gonna happen. That's the ambition we have. Same as we said.
As a reminder, to ask a question, please signal by pressing star one. We have a question from Carl Peterson from ABG. Please go ahead.
Hi, guys. A question regarding consolidation and what we've seen now with Maersk and Noble pairing up. What kind of consolidation do you find to be most likely from your end? Is it a full company consolidation? Would it be taking off some assets from other parties? What's your thoughts around it, and how discussions are progressing with the various partners?
You are deep into the deepest strategic thinking in the company. I can't kind of share with you all the details, but in general, I think, first of all, the merger with Noble and Maersk into Noble Corporation, it makes sense. It looks quite interesting and probably a good way to consolidate. Much better than what happened some years ago. This is a good timing for them. They probably create a strong balance sheet and a strong fleet. They do not compete with us. I expect more of that, really.
I think that within the deepwater and jackup market, there will be more to come, I guess, after other companies also have left chapter eleven. A clean balance sheet can do more kind of a restructuring of the fleet composition, and create a better balance between the supply and demand. The harsh environment where we are mostly working, we certainly see that our company is a small company compared to many others. We have a healthy company, and we have a strong balance sheet, and we do have predictability through a strong backlog. We are quite open for different ways of working, and then you are into the very details how we think. Like I said, we have taken a pragmatic view on things.
We believe we could be consolidated down the road under the right umbrella or terms. We can consolidate under the right umbrella with the right assets and terms. We don't wanna kind of do it just to do it. The good thing with us, we don't need to do anything, and that's an okay position. We certainly are looking for, and that's no secret, we are, we have been looking for some more capacity with the right assets. That has been played around over the last few months, as you also know, in the market. There's not too many of them. The ones that are potentially available, several companies are looking for that kind of capacity, so we are just one of the others.
I'm realistic and how should I say it? We will not kind of buy and raise too much capital, create more debt, dilute existing shareholders, blah, blah. We will not do that. We need to find a balanced way to create values. If we pick up other assets or other things happen, it's gonna be related to value creation. Sounds like everybody say that, but that's true. That's true. If we don't find the right solution, we don't do it. Maybe that. I expect things to happen over the next year, at least. It will be a changed picture in 2022 compared to December 2021.
It's gonna be a different picture in the market.
Your areas of operation, will you be looking beyond your current areas of operations or is it continued in any of your core competencies?
No, it's the harsh environment is a relatively limited market, also with players. It covers, you know, U.K., North Barents, South Africa, Canada. We have been looking at other areas. We have looked at type of potential jackup operations. We have also looked at potential support candidates with management support of deepwater drillship type of operations. We do not have any ambition to jump into the deepwater market now because there are so many of those that have been through chapter, that they are strong and quite strong players traditionally. With the Noble and Maersk, you see a great player of deepwater and jackups. To go head to head with them is definitely not the target for us.
We will try to play our core competence out where we are good and where we see a long program. Within the harsh environment, we certainly see decade plus of okay business, and that's enough for us.
Yeah. Okay. That sounds sufficient for an
Thank you.
Yeah. Thank you.
There are currently no further questions in the queue. As a final reminder, please press star one to ask a question. We have a question from Magnus Scherman from Reorg. Please go ahead.
Yes. Hi. Thank you for taking my question. You mentioned you wouldn't want to raise new money either in shares or new debt. Is that a hard no from your banks and from shareholders that will absolutely not happen? Or if the right opportunity comes along to, say, buy a larger competitor, either within harsh environment or outside, then they would be open to that depending on that. How should we think about that?
I think about it the following way. I think one of the reasons we have survived with no Chapter 11, because we have been very disciplined to do our investments based on contracts and backlog. We do have a cash flow before we do the investments. That goes, for example, with the recent one. If we ever should take, for example, people ask me frequently, will we take the Deepsea Yantai over? Yes, maybe when, if we get a longer and bankable contract, then it's different. If we are able to establish a backlog for certain assets, those assets are certainly more easy to finance than just do it because we want more assets.
It will always be based on creating a reasonably bankable backlog and then act on that based on certain things. We see a bank market extremely difficult these days. We are certainly looking for other instruments to finance what we are doing. We're open for using our share as a value paper. We are open to use other instruments going forward, if you find the right investment case. We don't wanna create any expectations and uncertainty in the investment base that we will start to speculate on things because we believe things are coming. I don't believe it until I see it. That's the kind of a rule we have now, and that's the way we have survived.
We have built our performance and our financial performance on backlog. That's the key. That's why we have gone into alliances. That's why we have entered Aker BP. That's why we entered Equinor. That's why we entered Neptune, for example, Wintershall. We are sitting at the table and knowing what's coming, and then we are more kind of a seat at the table and maybe even negotiate contracts like we had done with Equinor based on the master framework agreements. When we have that map ahead of us, we can start to plan A, B, C, D, and we miss E and F, so we need to find an E and F. That's the thinking. We are a good investment, we'll always be supported.
Okay. Yeah, that makes sense. Thank you.
We have a question from Rune Eliasen from a private investor. Please go ahead. Rune Eliasen, please go ahead. Your line is open.
Hey, if you can hear me, congratulations with yet another solid quarter there, Simen. My question is really, can you add some color on the dividend that you mentioned? You have a strong cash balance, $137 million. You're probably around a net profit this year of $70 million-$80 million. What can investors expect in payouts in Q1 in dividend?
I can't give you that confirmation now, for reasons which I can't unfortunately share with you. As I said, we have been quite open that we will prioritize dividend. We haven't paid dividend in many, many years. I think the last year was 2014. Based on certain outcome of certain strategic discussions for the time being, our ambition is to pay dividend, and that means 30%-40% of net profit. That's what we have said, that's what we agreed with the board, that's the ambition. It depends on certain things that need to be cleared and addressed and cleared. More specifically than that, I can't tell you. I can assure you that the ambition is to share dividend. It is.
Okay. Thank you. Appreciate that. Just a quick follow-up. You're saying that you see the market tightening and inevitable before we see 2023. You'd think that the rates will start climbing. Have you seen any evidence in your ongoing discussions and contract negotiations that that is the case.
Well, currently, I haven't seen any data points giving a higher day rate. I have not done that. The reason being that, you know, but what we see is a longer lead time. We now discuss programs in 2023 and 2024. The lead time before action is longer and longer. That's a good sign. Clients wants to secure assets. You are in a different discussion, right? What is a good sign? Lead times is longer and longer, but the day rates have not been focused or established yet. I expect that the day rates will follow. Longer lead times is followed by higher day rates. That's, at least, has been the history. Why shouldn't it repeat? I mean, gravity works always.
That's a good sign. That goes for many of the players over competition too. It's currently only for high-spec assets in our market. I'm quite sure that within deepwater market, the best six, seven gen assets will go first on high day rates, and then kind of how much will come after. We see the same in harsh environment. We see the same in jackups. Now it's important to show three things, high performance, ESG focus, reduced emissions, and the traditional HSE. That's the key that drives you to the table.
Thank you. Again, solid quarter. Congratulations.
Well, thank you. Thank you so much.
Thank you. As there are no further questions in the queue, I would like to hand the call back over to our speakers for any additional or closing remarks.
Okay. Thank you so much for participating. If you do have any further questions, do not hesitate to contact me or either of us. We wish you all a nice afternoon. Thank you so much.
Thank you for calling in.
Thank you.
Thank you.
This concludes today's conference call. Thank you for your participation. Ladies and gentlemen, you may now disconnect.