Good afternoon, everybody, and welcome to the Odfjell Drilling Q1 2026 results presentation webcast. 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, Ørjan Lunde. Before we begin, your attention is brought to the important information slide of our presentation, which we'd encourage participants to read in full. Note that this presentation is only a summary of the quarter, and the more comprehensive quarterly report should be read separately. Both that report and today's presentations are available on our website www.odfjelldrilling.com. Today's call will follow the traditional structure, with Kjetil taking us through the key highlights before moving on to our operational review.
Kjetil will then continue with an overview of the markets as he sees it today before handing over to Ørjan, who will go through our financial review. Kjetil will then summarize the presentation before we open up our Q&A sessions for analysts and investors. As always, the Q&A session will be conducted over both telephone lines and webcast tools. We try and get through as many of these questions as possible, and if we don't get a chance to go through your individual question, I will make sure that I endeavor to follow up to you directly after the call. We make an effort to answer as many of these questions as possible, so we do encourage you to use this feature. With that, I will pass over to our CEO, Kjetil Gjersdal. Kjetil.
Thank you, James. A very good afternoon, everybody. Today we are reporting what are excellent financial results driven by a really strong operational performance across our fleet. Due to this performance, we generated a particularly strong bonus contribution, which contributed to a total EBITDA of $154 million from revenue of $284 million. In addition, we have further increased our dividend whilst continuing to deleverage our balance sheet. Q1's dividends will now be $0.25, increasing from $0.23 per share. This is the sixth quarter in a row that we have increased our dividend, and this highlights the capability of our fleet to generate significant cash flow. Our leverage ratio is also further reduced to 1.6x net debt to EBITDA, whilst equity ratio has increased to 55%.
Further to this, we remain very comfortable about our contract backlog with our total backlog now sitting at $2.3 billion, $2 billion of which is firm. As we look at new opportunities to add backlog, we believe that the harsh environment market remains very tight, and in particular for high-spec semi-submersibles in Norway and increasingly also in other regions. Finally, as many of you will know already, post period, we experienced an equipment handling incident on Deepsea Atlantic, which resulted in the BOP and riser being dropped to the sea floor and some damage to the rig. As announced, thankfully, the incident did not result in any injury to personnel or cause any impact on the environment. However, it has resulted on the Atlantic being taken off-hire.
This is an unprecedented incident for our company, and if we move to slide seven, I will deep dive into some more details. It is of no surprise to you that we are taking this extremely serious. As soon as the incident occurred and personnel, the rig, and the local environment were confirmed to be safe, my senior management team and I made sure that we were taking all steps possible to bring the rig back to full strength. Our team is now completely focused on meeting this challenge head-on. Within hours of the incident occurring, we had structured multiple teams to work in parallel on progressing different solutions to bring the rig back on hire. Since the incident, we have made good progress in addressing and understanding the challenge ahead of us.
We have located the BOP, and we have started work on recovering it. Our primary focus is on the safe repair of the damaged equipment, compliance to regulatory authorities, and cooperating closely with client and vendors. Investigation as to the cause of the incidents are ongoing, and together with our equipment manufacturers, we will be sure to implement measures and learnings that are developed as a result. In addition to this, we are also progressing other work streams. That includes that we have pushed the button on getting our spare BOP that we have in stock ready as a plan B. This is in case we are not successful with the recovery or repairs with the primary BOP. Another alternative is a combination of these options.
Given the possible scenarios we are considering, we believe it will take three to four months in total before Deepsea Atlantic is ready for operation again. Having the spare BOP ready as an alternative is included in that estimate and is part of de-risking the total timeline. As we move ahead, there can be further findings that improves that estimate, and there can be findings that makes it worse. It remains too early to conclusively state the total financial impact of the incident. However, with the information that we have in hand, the three to four months is an estimate that we believe in. It is worth noting that the company has insurance in place which covers replacement or the repair of the damaged equipment, including some operating cost coverage during the process, which we are working closely with our insurers to progress.
As was stated in my quote in our press release today, this incident really has been a reminder to us all that unforeseen events can happen in our industry. Despite that, I am very pleased with the response of my team, our clients, and the wider industry to the situation. In addition, I want to give credit to my fantastic colleagues. For those who follow Odfjell Drilling, you know that I'm blessed with a highly competent and motivated team who are working day and night on this subject now. I have full confidence that we together will resolve this challenge in the best possible manner. Moving on to the rest of the operational review. Despite what's happened with the Deepsea Atlantic, it's worth noting that Q1 actually was a very strong operational quarter for our business.
All of our units were active in Norway and achieved a financial utilization of 96%. In addition, during Q1, our units performed ahead of expectations and delivered very strong bonuses, further bolstering our EBITDA generation for the quarter. In addition to what we achieved in Q1, it's worth bearing in mind what we have ahead of us. Currently, we retain over $2 billion firm backlog coverage with $300 million of priced option. This backlog means that all of our units have firm contract coverage until at least mid-2027, whereafter our units have priced and unpriced options which extend into 2030 for some units. We take a look at our market review. Last quarter we noted that we believe that the market was becoming tighter, and we maintain this view.
Globally, there has been no meaningful changes to supply, and from a Norwegian contracting perspective, most units which could work in our core area are either fully contracted overseas or in need of significant investments to allow them to operate in the NCS. We see no reason that this should change in the near future, with operational entry barriers into the NCS remaining very high. From a demand perspective, we have also seen continued messages from our client on their intent on arresting production declines by drilling more wells than current levels. Furthermore, we believe that demand will continue to be focused on securing Tier 1 sixth generation harsh environment rigs.
In other regions, we see outstanding tenders for work in Namibia and in the U.K., have seen a notable increase in interest among clients for deepwater drilling, which could further reduce competitive supply. There is further incremental short-term exploration work also available with longer term developments likely to be maturing around 2027, 2028 in line with our own fleet's availability. In summary, I would say that we feel the market is very well balanced between supply and demand and positions our fleet very well for contracting for the future. With that, I will now hand it to you, Ørjan, to go through our financial review.
Thank you, Kjetil. I will start with a summary of the income statement. Our revenues continues to benefit from higher day rates, as well as including the first full quarter of earnings after the acquisition of Deepsea Bergen. Operating revenue in Q1 2026 was $284 million compared to $204 million in Q1 2025. Operating revenue from our own fleet was $254 million, while the external fleet generated revenue of $30 million. The reduction in revenue from the external fleet compared to previous quarters is explained by the transition of Deepsea Bergen from the external fleet to the own fleet segment. Q1 EBITDA for the own fleet segment was $150 million, representing a margin of 59%, which is partly supported by a solid achievement of performance incentives in the quarter.
The EBITDA for the external fleet segment was $6 million, which is a margin of 20%. Less corporate overhead and other adjustments, the group EBITDA was $154 million. The company delivered a net profit of $73 million in Q1. Before I talk about our robust balance sheet on page 13, I would like to mention that on 17th of April, we got a positive court ruling from Gulating Court of Appeal in the Odfjell Offshore tax case. The Norwegian tax authorities have the right to appeal within one month from the ruling. To the balance sheet development and status. Our net debt is decreasing.
Following the increase in debt level in Q4 2025 related to the acquisition of Deepsea Bergen, during Q1 reduced our net debt by $25 million, down to $883 million, which corresponds to a leverage ratio of 1.6x. The equity ratio is marginally up to 55% out of total assets of approximately $2.6 billion. The available liquidity is $295 million, including undrawn RCF of $227 million. Details of the cash flow for Q1 follows on the next slide. In Q1 2026, we generated $123 million in cash from operations, reflective of a negative change in working capital of $27.7 million during the quarter.
The change in working capital is partly explained by the acquisition of Deepsea Bergen, higher day rates on the other units, and mainly by changes in payment terms related to personal taxes and Social Security implemented through changes in Norwegian law effective from 1st of January 2026. Net interest paid was $20 million, which reflects a longer first interest period on parts of our loans due to the refinancing in early December last year. Tax paid was $8 million. Cash flow from investing activities was - $14 million, whereof $4 million was related to periodic maintenance. The remaining $10 million was purchases of fixed assets, whereof $5 million were client-specific upgrades covered by lump sum payments from customers in this or adjacent quarters. Net cash flow from financing activities was $61 million, including minor FX adjustments.
We use our revolving credit facilities to actively manage our liquidity to reduce interest cost, which resulted in making net repayments of $52 million on the RCFs during the quarter. We made $12 million in scheduled installments on our bank facilities and leases. Dividends paid in Q1 were $55 million and was related to Q4 results. On the back of a strong financial result in the first quarter of 2026, a robust balance sheet and cash flow position, we are continuing our upward dividend trajectory by declaring a dividend for Q1 of $0.25 per share, which translates to a total dividend payment of $60 million for the quarter. This corresponds to an annualized yield of 9.5% based on yesterday's close. The shares will trade ex-dividend on 27th of May. Payment will be made on or around 9th of June.
I will now pass back to Kjetil who will summarize our presentation.
Thanks, Ørjan. In summary, Q1 saw Odfjell Drilling delivering excellent financial results following a fantastic operational performance during this quarter. Our market continues to be tight, positioning our fleet well for the years ahead when our fleet comes off contract. Our cash flow generation is well secured due to our strong backlog. Finally, given our market position, our backlog, our results, and our strong balance sheet, we are very pleased to once again increase our dividend for the sixth time in a row. In our annual report for several years now, I have always said that our focus is operations, operations. As we move ahead, this focus will not change. This is an important period to get right. As a team, we are confident that we will get the Deepsea Atlantic back in operation in the best possible way. Thank you very much.
Thank you, Kjetil. As a reminder, if you'd like to ask a question, you can do so either via the telephone line controls or via the webcast tools, which we have available. Our operator today is Francois. Francois, can you please open the telephone lines and open the Q&A session?
Thank you. If you don't know, if you'd like to ask question from your phone lines, please press star one on your telephone keypad and please ensure your lines are unmuted locally as you'll be prompted when to ask your question. We've got a question from Fredrik Stene from Clarksons Securities. Please go ahead.
Kjetil and team, hope you are well. First, congratulations on a very strong operational quarter. You always seem to outperform by around 5%. Hopefully, I'll catch up to that at some point. My question today relates to the Deepsea Atlantic and the incident in April. First, appreciate you guys, you know, giving some guidance, some information on updates today. I think that's helpful, even though you're kind of in a state where you don't know everything just yet. It's important for everyone to get kind of a glimpse into the process on how you're working through this. Kjetil, I think you said or you said that the best estimate for now is somewhere between two and four months based or from the time of the incident.
You also said that it may happen sooner, and it may happen later, depending on how things develop. I was wondering, are you able to share a bit of light on which events or long lead items or, you know, anything that is kind of key to getting this process done. What needs to change in a way if it's going to be faster and what can potentially make it take longer than your initial estimate? Any color on that would be super helpful. Thanks.
Obviously, this is a complicated challenge, Fredrik, with a lot of variable factors, both technical, lead times, et cetera, regulatory authorities involved and so on. We have taken all of that into account and giving our estimate based on the information that we have and it is what we see as a likely outcome and something that we believe in. Obviously, we're very happy that we were able to line up the spare BOP as part of that time estimate, which as I said, I think de-risks the case a lot. Obviously, there will be, you know, what further findings we find on the primary BOP might help improve the situation, it's too early to conclude.
It's I hope you understand, Fredrik, to go into a detailed discussion or explanation about what could help us go better and what could help us take longer. That's all, we can't spend time on that here.
No, that's totally understandable. Just wanted to get like a high level view.
Yeah.
Then my second question as a follow-up, are you able to give some color on how discussions have been with the client around this? I would, you know, assume that they're also keen on getting the rig back to work as soon as possible. There aren't any really, you know, replacement rigs out there, and I would expect that, you know, disregarding this particular event, that they've been happy with the performance of the Deepsea Atlantic. I would assume that they're keen to get it back and drilling again.
Yeah, yeah, absolutely. I want to give credit to both Aker BP and Equinor in this process. We have an excellent cooperation and have received fantastic support so far. All parties are focusing on bringing the rig back in operation as soon as possible. Yeah, that's so far that's been very good.
All right. Thanks. Just one quick one to Ørjan. The ruling from Gulating, can you just remind us what that would mean in dollars in case that ends up being the final ruling?
We have disclosed a Norwegian kroner amount, NOK 307 million, that is sitting on our balance sheet as a receivable right now. If we move forward with a potential positive outcome of the case, those NOK 307 million would be paid to us in addition to some cost coverage and interest during the period.
All right. Thank you so much. Thank you for taking my questions. I'll leave it at that. Have a good day.
Thank you, Fredrik.
There are no further questions from phone line. Handing over to you, James, to take questions from webcast.
Sure. Thank you very much, Francois. Thank you for your questions so far. We have one question here in regards to marketing opportunities. Is there enough expected demand in Norway to keep your entire owned fleet busy in Norway without having to ship them overseas and go international with those units?
Yes, we think there is. When we sort of do a bottoms-up calculations of the opportunities that lie ahead of us, we see a very strong market, and we see a market imbalance or even perhaps lacking a few rigs. Yes, that is definitely a possibility that we can keep them all in Norway. It's also interesting alternatives elsewhere, both in the U.K. and other places. We are watching that one closely as well.
Great. A few questions on M&A as well. Any plans to make acquisitions of more of the rigs or drilling as management of?
Yeah. I have to admit, M&A is not on my top of my agenda these days. I have other things to think about. Yeah, I will stick to what we've said. You know, we did what is now Deepsea Bergen. I think, you know, if we can find the right quality assets, with the right price and with the right backlog, we're definitely interested in pursuing those opportunities.
Great. We've had a few questions as well in regards to how we plan to progress our dividends. Ørjan, do you wanna talk about how we see that?
Yeah. As always, we don't provide guidance on our dividend strategy. I would like to refer to our dividend criteria, which are outlined on slide 16, but it ultimately remains discretionary from quarter to quarter.
Great. One question here in regards to supply of rigs in our sector.
Kjetil, how you sort of see there's some rigs in other yards which are maybe finishing building, I don't know. How do you sort of see supply for rigs in our sector developing?
I think, you know, supply is definitely tightening up and this, it's easy to have a good overview what sort of excess or additional supply that could be entering the market. I think all, sort of, the, either they are far away from here or there is a lot of work that needs to be done with them. There was one contract announcement with Transocean Barents coming back working for Vår Energi. I think, of course we have the Mira in Namibia, which is a candidate. Other candidates, we evaluate that will take a lot longer time to be, sort of, candidates for entering the market.
I reiterate, a market very much in balance. Also, you know, good demand and supply that tightens up.
Great. We've received I can see we've received quite a lot of questions on obviously the Deepsea Atlantic incident. I think it's worth reiterating the comments. You know, we would reiterate the comments we've made in our report and presentation earlier. In general, we'll update the market as appropriate and on any material developments as they progress. At this point, obviously it's hard for us to be too specific as our reports and presentation suggests. One question here though, I think that is worth clarifying, is does the spare BOP in Atlantic meet the operator's requirements? If I recall correctly, it was replaced due to request of the operator. I think it's maybe just worth talking about the spare BOP in our system and how, where that's from and what that is.
The spare BOP is the BOP that we took off the Deepsea Aberdeen when it did its SPS. It, on most, almost all terms it meets the requirements that and it's very similar to the BOP that's actually on Deepsea Atlantic. It will require some modifications, but we have a full overview of that and we have sort of implemented those modifications into the plan, which sort of adds up to the three to four months that we say. Yeah, I would say it's almost fully identical, but will need some modifications particularly on the control system.
Great. Thank you. Again, a few more questions in regards to the cause of the incident, which we obviously can't go into at this point as we're still doing our investigations. Any learnings that we have from those investigations would obviously be implemented onto the rigs to prevent similar scenarios. I think we have one more question. We've had a question if we have any comments on legacy Awilco rigs coming into the markets. We can't cover that really.
I don't have any comments to that. You should talk to RigCo about that.
Yeah.
Yeah.
Great. I think in that case we will, we'll close the call for now. If there are any further questions anyone does come up with, please do get in touch. As I said, we've had, I can see a few questions that have come through on the conference call, and I'll endeavor to contact you directly in regards to those questions as well. Really appreciate everyone's continued interest in the company, and we look forward to speaking again in our Q2 results in August. Thank you very much.