Good day and welcome to the Odfjell Drilling Q2 2022 investor call. At this time, I would like to turn the conference over to Kjetil Gjersdal, CEO. Please go ahead.
Thank you, and welcome all to this investor conference call for Odfjell Drilling, where we will present the second quarter of 2022. As mentioned, my name is Kjetil Gjersdal, and I am the CEO of Odfjell Drilling. Today, I have with me my CFO, Frode Syslak. I will start, go through the first part of the presentation, and then Frode will cover the Q2 financials. At the end, we will conclude the session with a Q&A. For the sake of good order, we make reference to our disclaimer on page two, and we can then actually move directly over to slide number four, please. I want to start with a little bit of backdrop.
Currently, we have an energy crisis, particularly in Europe, with very high energy prices, and we see a greater focus on energy security. There has been a lack of upstream investment for a long period, and the industry needs to increase investment significantly to compensate for decline of existing fields and to meet the growth in energy demand. All of this provides a strong backdrop for Odfjell Drilling, and we can clearly see that the activity level in our sector is increasing, both in harsh environment and in deepwater areas. Now this is the second quarter where we are presenting as a pure play drilling company after we did the spin-off of Odfjell Technology back in March.
Both companies are now standing firmly on their own feet, and it is a pleasure to present a strong quarter and a positive outlook for Odfjell Drilling here today. For the second quarter of 2022, we had a revenue of $163 million, an EBITDA of $79 million, a leverage ratio of 2.5, and an equity ratio of 56%. Finally, we continue to build order backlog, and presently the backlog value is $1.9 billion, including priced options, but excluding expected bonus and fuel-saving initiatives. We can then move over to slide number five, to our highlights. We had a strong operational performance in this quarter with our own fleet in full operations in Norway. For the company, we see continuing deleveraging.
We have a robust balance sheet and a very sound cash position. On the commercial status, Equinor has exercised further options on Deepsea Stavanger, taking the unit into Q3 2023. We have a significant order backlog with the five-year contract for Deepsea Stavanger with Aker BP, and I will return later in the presentations with more details about that one. The Deepsea Bollsta was recently awarded a contract by Shell in Namibia. In general, we see increased commercial and tender activity both in harsh environment and deepwater market. If you look on the right side of this slide, our recipe for this is that we strongly believe that we have the best rigs in this segment. We have a very strong, competent workforce.
We seek to have the best people in the industry, and we strive every day to have the best culture to match the two above. That is an important sort of strategy for us that we seek to check in on every day. Moving on to slide number six. We continue our strong financial utilization with an average of 99% for our own fleet this quarter. Now, these are strong numbers showing that we have a high predictable uptime. All units have been in operations during the quarter in Norway. Can move on to slide number seven. There is one big news recently that I'm sure that many of you have already noticed. We are very, very pleased with the recent contract award by Aker BP and the long-term corporation that we have under the alliance agreement.
With Aker BP's recent acquisition of Lundin Energy, they have increased their portfolio, and Aker BP is expected to deliver 15 PDOs in Norway this year. With that, they will have a lot of development work in the coming years. We very much look forward to continue to develop our close relationship with them. We believe that the contract is attractive on terms, and particularly given the length of the contract. We do expect that the day rate will be at the ceiling level and also foresee escalations on the ceiling due to inflation.
We also foresee that we will receive performance bonuses and fuel-saving incentives under this contract. The terms and the length of the contract provides a solid foundation for our company as it gives long visibility, which is a good starting point for us when we are entering into future refinancing for the company. This brings us over to slide eight and the overall contract status. With the recent fixtures, this gives the following overview. I'll start at the top here. Deepsea Atlantic is working on the Johan Sverdrup phase III, and has a firm contract until mid-2023 with further options. We have this continued optionality frame agreement together with Equinor, which is highlighted in yellow in the graph.
There are exit possibilities, if we should not agree on new day rates for both Atlantic and Aberdeen. Deepsea Stavanger commenced its well program with Equinor in January and has now firm options into Q3 2023 with Equinor having options until the end of 2024. After that, Stavanger has the five-year contract that I just mentioned on the previous slide. Deepsea Aberdeen concluded its contract with Wintershall in the beginning of May and commenced the Breidablik drilling program for Equinor on eighth of May. Breidablik is a long-term program expected to take the firm operations into Q4 2024. In addition, there are also options tied to the contract, potentially taking the operations into 2026.
Deepsea Mira has been operating for BP, Aker BP on the Norwegian continental shelf in the quarter and is occupied with Aker BP into Q1 2024. There's also further options for Aker BP for use of the rig after that. The Deepsea Atlantic that just finished the well with Neptune and is now headed, I think, started yesterday for Equinor to do a well for them, then back to Neptune for another well. There might be some shorter stops one or two in 2022 for the rig. However, we do see that there is work for us in 2023, and we expect that we're gonna fill up most of 2023. We are also positive that we can get backlog for the rig well into 2024.
Deepsea Bollsta was recently awarded a contract by Shell in Namibia. The expected commencement for this work is middle of Q4 2022. It has a 12 months firm period and a six- month option thereafter. It's Deepsea Mira that is currently located at Hanøytangen, south of Bergen. We are marketing the rig, and I can say that there are interesting leads also for this rig. Finally, we have the Deepsea Hercules, which is currently working for Equinor in Canada. It has firm operations until Q4 2022. When that is completed, Odfjell will take over as manager of Hercules when the rig returns from Canada.
In order to secure work for the Hercules once the upcoming SPS is completed, we have already started operation preparations and are well into marketing of the rig. We can move over to slide number nine and sort of an overview of our backlog. All in all, this provides us with a very solid order backlog. We now have an order backlog of $1 billion. Out of this, $1.4 billion are tied up to firm contracts. The backlog value does not include any expected bonuses or incentive pays, and it does not include any revenue from the managed fleet. Moving over to slide 10 and the outlook. As mentioned, globally, we see high energy prices, energy supply challenges, and unprecedented cash flow generations from E&P companies.
To meet the oil and gas demand growth that is forecasted, substantial new investments are required to compensate for the production decline of existing fields. Also, there has to be done more exploration drilling. The deepwater market has been leading the way up until now, with both utilizations and day rates improving, while harsh environment has been more muted. I have to say it is expected to be so also until the first half of 2023. After that, we see a clear increase in the activity level also for harsh environment. We can then move on to the next slide 11.
In Norway, we do see a significant increase in the submissions of PDOs this year. As the operators look to meet the 2022 submission deadline with regards to the tax regime. This is expected to increase demand for drilling units for development work for the period beyond 2023. We will see in particular for production development work, there is a clear preference by our clients for tier one high spec harsh environment units with low carbon footprint, which fits very well with the ODL fleet and experience that we have in our company. We see increased demand in Norway, and at the same time, we see supply reduction continue in the harsh semi market. This has been driven and is driven by recycling of harsh environment units.
Also units relocating to the international deep water market, as we saw with the case with Deepsea Bollsta and its recent contract award in Namibia. Further, due to regulatory barriers to enter Norway and lack of new build activity, the mobilization of incremental supply to Norway is inherently limited. This may result in demand outpacing available supply in the years to come, particularly related to the tier one rigs. We believe that this might lead to longer term contracts for industry and an upward pressure on day rates in Norway. With that, I would give my word to my CFO, Frode, who will take you through the financials.
Thank you for that, Kjetil. We are starting with the income statement on page 12. The revenue for the own fleet in the quarter was $145 million, while the revenue related to the external fleet was $17 million. EBITDA was $79 million in Q2, which is equal to 48% EBITDA margin for our two reporting segments combined. EBITDA for our own fleet was $79 million, and all four units had more or less full financial utilization operating in Norway. The EBITDA for the external fleet was $2 million, while corporate and other adjustments were -$2 million in Q2. The COVID testing regime was discontinued from 1st of April, and as such, we didn't have the same COVID costs in the second quarter as was the case in the previous quarter.
Another improvement this quarter compared to Q1 was higher bonus and incentive pay and higher financial utilization. For Q2 EBITDA, there was also a positive reclassification effect of $2 million due to long-term lease agreements being entered into for wired drill pipe and continuous circulation system. Note, as for Q1, that following the spin-off of Odfjell Technology, the income statement of Odfjell Drilling shows the discontinued operations separately from the continued operations. The net profit of the continuing operations was $22 million for Q2 and $42 million year- to- date. Moving to page 13 on the balance sheet, we see continued deleveraging of the balance sheet with net interest-bearing debt of $677 million as of June 2022, and a leverage ratio of 2.5.
The company has a robust balance sheet with an equity ratio of 56% based on total assets of approximately $2.3 billion. The cash position is sound at $144 million as of June 2022. Before we open for the Q&A session, let us briefly summarize the quarter on page 14. Generally, it has been a positive quarter for Odfjell Drilling with strong operating performance. We have recently added significant amount of work and backlog in Norway with a five-year contract with Aker BP. We were also awarded a contract for Deepsea Bollsta in Namibia, resulting in reduced available supply in harsh environment markets. We see increasing tender and contracting activity both in harsh and deepwater markets, which provides a strong backdrop for the Odfjell Drilling fleet. We currently have long visibility, but at the same time see further upside potential beyond 2024.
With this, we conclude the presentation and open for Q&A.
Thank you. If you would like to ask a question, please signal by pressing star one on your telephone keypad. If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, press star one to ask a question, and we'll pause for just a moment to allow everyone an opportunity to signal for questions. We'll take our first question from Fredrik Stene with Clarksons Securities. Please go ahead.
Hello, Kjetil and Frode, and congratulations on a strong operational quarter, I must say.
My question relates to your managed business, since you've covered mostly 2022 or you have covered your own fleet for 2022 and actually most of 2023 as well. Everything seemed optimistic for 2023 work, and obviously the Bollsta is going to Namibia and will work there for a year. I was wondering two things. For the Mira, are you looking at opportunities outside the North Sea also for that one? Or do you expect that rig to be in Norway? Second part, if we assume that you have contracted all your four managed rigs, let's just say for simplicity, say, current kind of market day rates, what would you expect the quarterly EBITDA contribution to be from that management or those management deals? Thanks.
Yeah. Okay. Start with the first one. Yes, we are also looking for opportunities in international deep water markets for the Mira, but also in harsher environment areas. I think the most important thing with both the Bollsta and the Mira is to get them as quickly as possible back to work. I mean, this is high spec, high capacity units that should not be quayside at this time. Yes, Fredrik, we are looking both internationally and in harsh areas. When it comes to expected EBITDA, I don't know, Frode, if you want to comment on that.
Yeah, I think the general comment is that the management contracts have terms that are quite customary for these type of contracts. Typically, we receive a low management fee when we're not in operation and a higher management fee in addition to possibly some incentive payments when we are in operation. I don't think we can give guidance or comment specifically on expected EBITDA level from the contracts. I think using the 2021 segment figure, which also only includes Deepsea Yantai, that probably gives you a fair benchmark.
All right. Thank you very much, and, have a good day. Thanks.
Thanks, Fredrik. Yep.
As a reminder, it's star one to ask a question. We do have an additional follow-up from Fredrik Stene. Please go ahead.
Well, hello again. I will use the opportunity to ask about follow-up on the Bollsta contract. With the six-month option that you have there, are you able to give any comments or color on that option? Was it priced, and if so, directionally and potentially, do you have any kind of day rate figure or estimate that you can give on that one? Or will it be up to market dynamics at that time? Sorry.
Fredrik, I have to pass on the option side.
I think we have to leave it with the rig owner to
Yeah
... to comment on specific specifics on the contract. Sorry for that.
That's understandable. I thought I should give it a try anyway, but thanks, guys.
It was a nice try.
Once again, it's star one to ask a question. It appears there are no additional questions at this time, so that does conclude today's call. Thank you for your participation, and you may now disconnect.