Earnings Call: Q2 2021

Aug 26, 2021

Good day, and welcome to the Odfjell Drilling Q2 twenty twenty one Investor Call. At this time, I would like to turn the conference over to Erik Knudson. Please go ahead, sir. Thank you, Keith, and welcome to this investor conference call for Auto Drilling, where we present the second quarter of twenty twenty one. My name is Erik Knudsen. I'm Head of Investor Relations in Auto Drilling. CEO, Sima Leung, is currently on travel, but joining by phone and will participate in the Q and A session following the presentation. In addition, our new CFO from September 1, Joonet Thorstensen and VP Finance, Frode Sischwag are also present. I will go through the presentation today, and then Simon and the rest of us will be available for Q and A thereafter. For the sake of good order, we make reference to our disclaimer on Page two of the presentation. Let us move to Page number three. As normal, the agenda for today's call is a short summary of the Q2 twenty twenty one. Then we go on to the segment reporting and ESG. Then we go to financial information. And finally, we make a short summary and then open for Q and A session. Let's move over to Page four and the key financials for this quarter. We delivered a revenue of $233,000,000 and an EBITDA of $85,000,000 in the second quarter. The company had per June 2021, a leverage ratio of 2.7 and an equity ratio of 48%. And the group's total backlog, including priced option, is at $2,400,000,000 at the end of the second quarter. Turning to Page five and the key summary of this quarter. We had strong operational performance across all models. More info about this later on. Equinor has allocated six wells to Deepsatlantic so far year to date, taking firm operations to end of twenty twenty one. Equinor also awarded a three well contract to Deepsat Largo and included the rig in the master frame agreement. An alliance agreement with BP for custom drilling services were signed. And finally, the refi process for Deep Sea Aberdeen and the oil field drilling service facilities were completed early July this year. Moving to Page six and some comments on the financial utilization. This is the Ragnar commenced the Aker BP contract on April 10, and the remaining units have in the second quarter all been operating on the MCS for Equinor, Vintasol, Alka BP and Nepsten. All of our fully owned units have performed with high financial utilization during the last quarter with an average of close to 99%. Yonsei had some issues with the BP early in the quarter affecting the overall financial utilization. If we then move to the contract status for the drilling units on Page seven. As mentioned in the introduction, Deeps Atlantic is now fully booked throughout this year and will start the Johan Sverdrup Phase two contract back to back early in 2022. Deepsest Wagner is currently working for Lundin on a three well contract, which started early July. The unit will direct to return to Akobipi for one more well, which we expect to end in Q4. Commencement of the Equinor three well contract is estimated to be early Q1 of next year, and we expect any open gaps between these contracts to be filled with work. Aberdeen commenced the contract with Wintershall in February, and we expect the rig to be in operations until the start of the Baida rig campaign for Equinor in Q2 next year. Deep Sea Lookup with last option being exercised by Aker BP in March, the rig has now firm contractual period to June 2023. In addition, Aker BP has a twelve month option, which can take unit to June 2024. And then finally, DCI works for Neptune on the Norwegian Continental Shelf on a well based contract. The firm scope is expected to end in Q1 next year, and Neptune has furthermore eight optional wells, which can be added to the program. This brings the total backlog for Modu to SEK 1,400,000,000.0, whereas SEK 400,000,000.0 is priced options. If we then move to Page eight and the Energy segment and Custom Drilling contract status. Custom Drilling continues to add backlog, and we now have 16 platforms in our contract portfolio divided over six clients in both Norwegian and UK Continental Shelf. We are very pleased with the last alliance agreement, which BP UK awarded in the second quarter. This contract secures operations on Clear, Andrew and Clear Ridge to February 2025, plus a two plus two year options. The total backlog for Passenger Drilling is now US1.1 billion whereof $600,000,000 is priced options. Moving to Page nine and Well Services. The Well Services business currently serves more than 200 customers across 20 countries, offering diversified service line within well intervention, tube running, casing drilling and drill to rental. Well Services, Norway is the largest contributor on the revenue side with close to 6060% of the revenue year to date, and the remaining part is evenly split between Europe and Middle East and Asia. Well Services has been affected by COVID-nineteen restrictions in some regions over the last year. We have well observed an increase in operational activity in the Norwegian market and expect in the short to medium term to face an overall increase in activity level for this segment. Moving to Page 10 and the backlog overview. At the June year, the total order backlog was US2.4 billion dollars whereof US1.4 billion dollars is from contracts. For the sake of good order, revenue from frame agreements and call of contracts in Well Services and revenue from Technology and Moodle Management is not included in the backlog figure. Turning to Page 11 and ESG. Odfjell Drilling has a strong focus on ESG, and we issued our first sustainability report for 2020 earlier this year. In short, we have an overall ambition to be net zero emission company by 02/1950. With a milestone of 40% emission reduction in 2026, there are multiple ongoing zero emission cleaning projects on our rigs. For example, a battery hybrid solution has been installed on Deeps Atlantic and similar system will be rolled out on all of our units. For a full presentation of the strategy, reference is made to the 2020 sustainability report published on our website. With regards to the market outlook on Page 12, we continue to see COVID-nineteen delay uncertainty in some market segments despite the oil price recovery. The significant oversupply in the global rig market is currently being addressed through all the recent and ongoing Chapter 11 processes, and we expect further scrapping and market consolidation as a consequence. The harsh environment segment, however, continues to be in balance with a preference by the E and P companies for high spec drilling units, sustainable drilling solutions and efficiency. Furthermore, the tax incentive scheme has increased activity on the Norwegian Continental Shelf and will be important for the activity in the next few years to come. This will have a positive impact for all of our business segments. Let's move over to the financial section and we start with the group summary financials on Page 14. The group operating revenue was US233 million compared to US167 million dollars in Q2 last year. The group EBITDA was US85 million dollars compared to US81 million dollars in Q2 last year. The increase in EBITDA is mainly due to increased EBITDA in the Motor segments, partly offset by decreased EBITDA in the Energy segment. More comments to this will follow on the next slide. Moving to the Motor segment on Page 15. The operating revenue for the Motor segment was USD 160,000,000 compared to USD 118,000,000 in Q2 last year. EBITDA was USD 77,000,000 compared to USD 68,000,000 in Q2 last year. The change is mainly explained by Deepsys Dragons as the rig was in operation most of this quarter while carrying out SBS and preparing for the Total South Africa contract during Q2 last year. Furthermore, we have had satisfactory bonus achievements in this quarter. For the Energy segment on Page 16, the operating revenue was US51 million dollars compared to US32 million The EBITDA was US2 million dollars compared to US5 million dollars in Q2 last year. The decrease is mainly explained by lower financial performance in the Platform Drilling due to reduced incentive payments and also reduced engineering profitability compared to the same quarter last year. Moving on to the Well Services segment on Page 17. The operating revenue was US30 million dollars compared to US24 million dollars in Q2 last year. EBITDA was US7 million dollars same as last quarter last year. The EBITDA margin was 23% this quarter compared to 29% in Q2 last year. Norway and Middle East and Asia markets have maintained a consistent level of profitability. However, the results for the European countries were impacted by the COVID-nineteen pandemic. On Page 18, we have shown the bridge from certain EBIT of the segment to the group consolidated profit before tax by adjusting for eliminations and corporate overhead and net financial items. I will not go further into the details on this slide. And then we go to Page 19 and the balance sheet for the group. The group's gross interest bearing debt was USD 1,100,000,000.0 end of June 20 20 1, and we have no debt maturities before mid-twenty twenty three. We had US137 million dollars in cash and cash equivalents June 2021 and an equity ratio of 48%. If we then turn to Page 20 and the summary of the group's cash flow and some highlights in this quarter. The net cash from operation was US44 million dollars compared to US89 million dollars in Q2 last year. There was a negative change in working capital of $27,000,000 and this was mainly explained by the changes in operational activity for Deep Sea Stavongo this quarter compared to last quarter last year. Investing activities of US29 million dollars in Q2 twenty twenty one were mainly related to CapEx in the MUDU business area, and we furthermore repaid $67,000,000 in bank debt during the quarter. The cash position at the June 2021 was US137 million dollars compared to US154 million dollars in last quarter in second quarter last year. If we summarize the Q2 quarter on Page 21, we see for the Modu, we continue to build backlog and be the preferred partner within harsh environments. We have an attractive harsh environment assets and healthy outlook. On the NG side, we signed a strategic alliance agreement with BP in The UK for platform drilling activities, and we further will focus to develop the service portfolio into new areas. Well Services continued high activity, although the market has been affected by less demand due to COVID-nineteen. And on the financial side, we have earnings visibility through the 2,400,000,000.0 in order backlog. We completed the refinancing before the sovereign, and now we have no debt maturities before mid-twenty twenty three. We continue to repay debt, and we have a sound cash position at the end of the second quarter. This concludes the presentation, and we will now open for Q and A session. Thank Once again, if you would like to ask a question, please signal by pressing star one on your telephone keypad. It appears we have no questions at this time. I'd like to turn the call over to Mr. Knutsen for any additional comments or closing remarks. Okay. Thank you so much for listening in. And if you have any questions, please don't hesitate to contact us. Have a nice afternoon. Thank you. This concludes today's conference. Thank you for your participation. You may now disconnect.