Good day and welcome to the Odfjell Drilling Q1 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 Q1 of 2022. This will then be the Q1 report of Odfjell Drilling following the split and the spin-off of Odfjell Technology that we did in March. Today, I will go through the first part of the presentation, and then my CFO, Frode, will cover the financials in part two. Thereafter, we will conclude with a Q&A session at the end. For the sake of good order, we make reference to our disclaimer on page two of the presentation. We can then go over to page three. The agenda for today's call is we will start by giving an introduction to Odfjell Drilling. We will give you a summary of Q1.
We will give you an operational update. We'll then give you financial information and then, a quick summary before we go into the, Q&A session. We now start with an update of the company on slide four. Odfjell Drilling is now a pure-play drilling company with a total fleet of eight high-end drilling units with harsh environment and deepwater capabilities. Out of these eight units, four of them are 100% owned by the group, and the remaining four is on management contract with us. I will work with some more comments on that later. We now employ approximately 1,200 people and remain strongly committed to our, roadmap towards, zero emission drilling. For the Q1 , we are very pleased to inform that we had a revenue of $155 million and an EBITDA of $68 million.
I would say this is a fairly okay quarter, but it was somewhat negatively impacted by COVID costs up until April this quarter. Some pushback that, but a fairly okay quarter. We have a sound cash position of $154 million. We had a leverage ratio of 2.7 and an equity ratio of 54%. I want to highlight that these figures are for the continuing operation in Odfjell Drilling without figures related to the spin-off Odfjell Technology business in the period. Finally, we also continue to build backlog, and the present backlog value is $1.1 billion, including the priced options that we have. Let's move over to slide number five.
We are very pleased to have added three additional rigs to our fleet, namely the Deepsea Bollsta, the Deepsea Mira, and the Hercules. All of these rigs are high spec, harsh environment rigs with deepwater capabilities, and it fits perfectly into our portfolio, and we look very much forward to putting them into operations. We have already taken on the management activities for Bollsta and Mira and are currently marketing them for work in harsh environment market, but also for selected deepwater opportunities. Hercules will finalize its operation in Canada with the current manager before handing over to us upon return in Norway, and this is expected to happen somewhere in the second half of 2022. We can then move over to slide number six.
Although the Mira, Bollsta, and Hercules are new units in our fleet, we are very familiar with both the GVA 7500 and the Moss CS60 rig designs. Now, the GVA 7500 fleet has, through the last decade, become the industry benchmark in efficiency, operability, and the ability to reduce emissions. The Nordkapp rig, being a Moss CS60, has also proven to be a high-performing versatile drilling rig, which is adding value to our clients. We are extremely pleased to be able to extend our fleet with more tier one high potential drilling units. We will use all our experience that we have gained throughout our operations with the GVAs and the CS60 and transfer those over to these new units and cement Odfjell Drilling's position as a high-end harsh and deepwater drilling.
We can continue to slide number 7 and continue a little bit down the same road, talk a little bit about people. Our position of being the preferred harsh environment driller is rooted in our expertise and experience that we've gained over decades in this industry. With this strong fleet in place, we are also very pleased to have a strong organization in place to support both ongoing and the upcoming operations. Having capable rigs is very important, but it only takes you part of the way. You need to have a competent and capable organization and a strong operating culture to become a preferred drilling company.
The fact that we've had all our assets in operations also during the downturn has enabled us not only to keep the current organization but to further develop our support organizations within all disciplines. This has put us in a favorable position to ensure quality mobilizations of the increased fleet. If we move over to slide number 8, we can see that our quality assets, combined with the expertise of our people and strong operating culture, has won us more contracts than any of our competitors. This is something that we are both humble and proud of, and being the preferred partner in harsh environments with strategic alliances with key clients in this segment. We have been successful in building backlog over the last years in a market which has been challenging, we all know that.
We also see that clients have a clear preference for high-capacity sixth-generation units, which fits our profile well. Our core clients are becoming more and more selective on the type of assets they need, combined with the operational philosophy fitting into the strategic parameters, such as within efficiency, reduced emissions, and digitalization initiatives. We remain committed to meet such demands, and we will continue to work together with them to improve standards and exceed expectations. By doing so, we ensure to be in a position of adding valuable backlog to fleet also in the years to come. Moving to slide number 9, a quick summary of the quarter. We successfully spun off Odfjell Technology in March, leaving Odfjell Drilling as a pure-play rig company. We commenced the marketing and management services agreement for Mira and Bollsta.
We secured more work for Deepsea Nordkapp, which now is in firm operation into Q1 2024 for Aker BP. We entered into a management agreement with SFL for the Hercules, and we added more wells to Deepsea Stavanger, which is now firm until Q1 2023 under the frame agreement with Equinor. Moving to slide 10 and the financial utilization of the fleet. We continue to have a strong financial utilization with an average of close to 98% for the quarter for our own fleet. This is actually in line with the five-year historical average utilization. These are strong numbers showing that we have predictable uptime. It's not only a quarter now and a quarter then. This is the average that we have achieved over the last five years, and we are quite satisfied with that.
All units have been operating on the NCS for this quarter. As for the external fleet, we have only had the Deepsea Antares in operation for the Q1 . Slightly lower financial uptime for that rig during this quarter. That was mainly due to several days waiting on weather. The Deepsea Bollsta did operate in Q1, but this was prior to Odfjell Drilling assuming responsibility for the rig. We can then go to slide number 11 and the contract status. The Deepsea Atlantic commenced the Johan Sverdrup phase II contract on January 1, 2022. We expect this program to take approximately a year and a half, subject to the overall efficiency. The Deepsea Stavanger commenced its well program with Equinor in January and has now firm operations into Q1 2023.
Deepsea Stavanger is now enrolled into the master frame agreement with Equinor, and we expect more wells to be added at the back of the current scope on a rolling basis. Deepsea Aberdeen concluded its contract with Wintershall Dea and BP end of April and has now commenced the Breidablikk drilling program for Equinor earlier this May. Breidablikk is a long-term program expected to take firm operations into Q4 2024. In addition, there is option tied to the contract, potentially taking the rig into 2026. Deepsea Nordkapp has been operating for Aker BP since it started and has done so all through the whole quarter. As previously mentioned, this unit is now occupied with Aker BP into Q1 2024.
The Deepsea Antares continues its long-term commitment with Neptune Energy, which has added four more firm wells into the rig's backlog. In addition to shorter programs with PGNiG and OMV, it has been agreed to keep the rig fully occupied for most of 2022. In addition to the firm scope, Neptune still has nine further optional wells under the agreement, which may take the total scope to the end of Q2 2023. The Bollsta and Mira, these rigs are presently being marketed and are currently located at Hanøytangen, just a quick drive from our office here in Bergen. With regards to the Hercules, the rig is currently working for Equinor in Canada and has firm operations there into Q4 2022. As previously mentioned, Odfjell will assume management responsibilities of Hercules after this contract is finalized.
However, we have started marketing the Hercules already. If you go to slide number 12, and the backlog, we now have earnings visibility for $1.1 billion, whereof $0.10 billion are tied to firm contracts. The gap there is referenced to the priced options. This backlog does not include revenue from any of the managed fleet. We can then go to the market outlook on page 13. We would like to say that as a general observation, the high oil price and increased activity level support the demand for the fleet that we have. We note increased appetite for field development and production across markets.
More specifically for the harsh environment market, we see tendering activity with longer lead times, indicating that there's an interest from the oil company, companies to secure capacity going forward. The temporary tax incentive scheme currently being applicable in Norway has increased the investment appetite. As a consequence, we expect an increase in activity level on the NCS in the years to come. I would also like to highlight that we see one particular change, and that is that the improved global demand also has started to attract harsh environment units with deepwater capabilities to move into deepwater areas, and potentially then leaving the harsh environment market, which would lead to an improved supply-demand balance here in the harsh environment market.
This is a clear change that we've seen happen over the latest months, and what we understand from our clients is that these rigs represent an alternative to engage warm, harsh environment units in some deepwater areas instead of reactivating cold deepwater assets. In conclusion, we see a strong positive market for the harsh environment sector, which is also being supported by increased activity in the deepwater markets. With that, I leave the word to you, Frode, for the financial part of the presentation.
Thank you for that, Kjetil. We are starting with the group summary financials on page 15. Following the spin-off of Odfjell Technology, note that the condensed P&L statement of Odfjell Drilling shows the discontinued operations separately from the continuing operations for all periods presented. Profit from discontinued operations is shown as a separate line after the net profit of the continuing operations. For the continuing operations, the group operating revenue was $155 million compared to $115 million in Q1 2021, an increase of $40 million. The increase is primarily due to a revenue recognition effect related to the drilling operations in South Africa, which caused a reduction in revenue in Q1 2021 related to this requirement. Revenue recognition requirements meant that the revenue for the whole contract was recognized in 2020, whereas the cost of transits and demob was recognized in Q1 2021.
Group EBITDA was $68 million in Q1 2022 compared to $36 million in Q1 2021, an increase of $32 million, again, due to the revenue recognition effect in Q1 2021. EBITDA in Q1 2022 is negatively impacted with COVID-related costs of $4 million, including a one-off provision of $2 million for settlement of overtime compensation for COVID testing from first of January 2021 and into 2022. The COVID testing regime was discontinued per first of April. After depreciation, net financial items, and income taxes, the group's continuing operations delivered a net profit of $21 million compared to a loss of $13 million in Q1 2021. The profit from discontinued operations in Q1 2022 was $47 million, which includes a net gain of $37 million related to distribution of Odfjell Technology. Moving to page 16 and the balance sheet for the group.
The group's gross interest-bearing debt was $867 million end of March 2022. This is a marked difference from the last quarter, mainly due to the prepayment of the $150 million drilling services facility in relation to the spin of Odfjell Technology. Cash and cash equivalents end of March 2022 was $154 million. Note that $50 million in cash was distributed as part of Odfjell Technology, meaning that the total cash in Odfjell Drilling was around $200 million immediately prior to the spin-off on March 29, 2022. The balance sheet is also strong. We had an equity ratio of 54% at the end of Q1 based on total assets of $2.3 billion.
If we then turn to page 17 and the summary of the group's cash flow statement, the highlights for this quarter is a net cash from operating activities of $75 million compared to $44 million in Q1 2021. Cash flow from investing activities was -$8 million for the continuing operations and -$59 million related to the discontinued operations. These $59 million include the $50 million in cash that was disposed of as part of Odfjell Technology. Of the cash flow from financing activities, the net cash decrease in the quarter was $19 million, resulting in a sound cash position of $154 million, which is equal to three months of operating revenue for the continuing business. Before we open for the Q&A session, let us briefly summarize the quarter on page 18.
In Q1, we successfully executed the spin of Odfjell Technology , creating value to the shareholders and at the same time focused Odfjell Drilling as a pure play drilling company. This bodes well for the future as we see increased tendering activity and longer contract lead times in the market. More work has been added with Equinor and Aker BP for Deepsea Stavanger and Deepsea Nordkapp. We have commenced management contracts for Mira and Bollsta in Q1, and the management contract for Hercules has recently been entered into as well. Our backlog remains strong, and we also have a good cash position and a solid balance sheet with a low and steadily reducing net debt to EBITDA. This concludes the presentation. Thank you for listening.
Thank you. If you would like to ask a question, please press star one on your telephone keypad. Please ensure the mute function on your phone line is switched off to allow your signal to reach our equipment. If you find your question has already been answered, you may remove yourself from the queue by pressing star two. But again, please press star one to ask a question. We will take the first question from Fredrik Stene from Clarksons Securities.
Hey, guys. Hopefully you can hear me fine and nice to have you on and obviously congratulations on the successful spin-off here. I have two questions for you today, and the first one is relating to your managed rigs, because as you showed, you have, you know, pretty good coverage on your own rigs already. You mentioned that the Bollsta and the Mira would not only be looking for work here in Norway or the North Sea, but I also got the impression that you're bidding them into potential opportunities in deep water, maybe in benign waters instead. I was wondering if you could, you know, maybe give some more color on that.
I'm not saying that you're going to disclose exactly what you're bidding for, but then a bit more around what would be, you know, the threshold in terms of rates and duration for you to take these rigs out of Norway and have them work elsewhere. Also, have you any color on the structure as to how you're getting paid, if and when you get the contract on these, what's your incentives and what can we think of when it comes to economics? That would be very helpful.
I think you know, as I said, we see a clear change, and that's something that we haven't seen before is that there is a clear more interest in harsh environment rigs with deepwater capabilities for international work. That has been totally muted for a long while now, but that has come back. I think when it comes to you know rate levels, I mean this is continued measured of what options do we have. I think we see, as you all know, we see a strong fairly strong deepwater market these days, and it continues to growing stronger as we speak. To go into specific levels and so on, I think I will wait that.
This all needs to make sense. It needs to be something that adds value both to the owners of the rig and to the company and to the project itself. It is, but it is, it's fairly straightforward negotiations with no clients. With regards to sort of the rate setting, this is done by the respective rig owners. We do the marketing and the technical preparations in the tenders, and the owners of the rig set the final rates. We are not involved in that. Is that okay, Fredrik?
Yeah. I take what I can get. Yes, thanks, guys. Just a follow-up on that, when it comes to the rigs here now, you have, you know, four owned rigs, soon four rigs under management. They have, as you've shown, similarities when it comes to design, et cetera. It can be easy to think that some of the kind of end game here for you could be to eventually end up as owners of these rigs. If that were to be the case, have anything changed in relation to how you view potential transactions in terms of, you know, debt financing, bankability, what's required of, you know, backlogs to see something like that happen?
Anything new on that front or anything or any other thoughts that you would like to share with us on potential M&A and consolidation prospects?
I think there's nothing new there. I mean, but we have said, you know, long-term management is not the preferred strategy for us, but it does provide a decent EBITDA contribution at low risk. I think also there's advantages. It adds scale advantages, and it adds synergies for the rest of the fleet. When it comes to consolidation, that is one of the options. There are a number of parameters that they must be right. There must be a sufficient backlog. There must be a right valuation, the right debt level and so on. It is of course key that it is on attractive terms that overall leads to an increased valuation of the company. A lot of stars that needs to be aligned, but that is sort of a bit boring answer there, Fredrik, but that is, that's just the way it is.
That's the way it is. No, I appreciate all your calls, guys. Thank you so much. That's all for me. Yeah.
As a reminder, to ask a question, please press star one. There are no further questions in the queue. Again, ladies and gentlemen, to ask a question, please press star one. Please ensure the mute function on your phone line is switched off to allow your signal to reach our equipment. It's star one to ask a question. As there are no further questions, I would like to hand the call back over to your hosts for any additional or closing remarks. Thank you.
All right. That's it for us then. I want to thank you all for listening in on this first Q1 call, and we look forward to more quarters going forward. Thank you all, and have a good day.
Thank you. That will conclude today's conference call. Thank you for your participation, ladies and gentlemen. You may now disconnect.