Good afternoon, everybody, and welcome to the Odfjell Drilling Q3 2026 results presentation webcast. My name is James Crothers, and I am the Investor Relations Officer of the company. I am joined today by our Chief Executive, Kjetil Gjersdal, and our Chief Financial Officer, Øyvind Nodland. Before we begin, your attention is brought to the important information slide of our presentation, which we would 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 presentation are available on our website, www.odfjelldrilling.com. Today's call will begin with Kjetil taking us through the key highlights before moving on to our operational review. Kjetil will then continue with an overview of the market before handing over to Øyvind, who will go through our financial review.
Kjetil will then summarize the presentation before we open up our Q&A for analysts and investors. As always, the Q&A session will be conducted over both telephone lines and webcast tools, and we always try and get through as many of the questions as possible that are put onto the webcast tools particularly. If I do not answer your question, I will follow up with you directly afterwards as well. We really make an effort to answer all these questions, so we really encourage you to use that feature. With that, I will now pass over to our CEO, Kjetil Gjersdal. Kjetil.
Yeah, thanks, James, and hello, everybody. Q3 is the quarter where we put things behind us, and today, Odfjell Drilling is back to full strength. Aside from the challenges that we experienced early in the quarter, the fleet performed very well during Q3, emphasized by our 98% financial utilization in September. As a result, we generated $130 million of EBITDA from revenue of $265 million, while also achieving a net profit of $56 million. As many of you know, Deepsea Atlantic was offline for much of the quarter due to the equipment handling incident, and some of the rest of our fleet were impacted by a third-party labor conflict during the beginning of the quarter. This resulted in a lower financial utilization for the entire fleet of 89%.
In addition, our balance sheet has remained resilient throughout this period, with our leverage ratio being maintained at 1.6x net debt to EBITDA, and net debt has been reduced to $857 million, while we have maintained available liquidity of $261 million. This is further improved as a result of the $39 million of proceeds from the positive tax case ruling, which was received post-period end. As such, and as a reflection of the position of the company, we are very pleased to announce another increase to our dividend, this time to $0.27 per share, totaling $65 million. Finally, through all of this, we have also had a highly successful period of new contract wins in both the owned and managed fleets, which I will discuss now as a part of our operational review. So, the operational review.
As mentioned, this has been a highly successful period of new contract wins. Firstly, in our own fleet, in the last few months, we have secured over $700 million of new firm backlog. Firstly, the Deepsea Nordkapp, which had one year of options being exercised by Aker BP well in advance of their exercise period, which increased firm backlog coverage for the unit until the end of 2028. Secondly, we secured a major new contract on Deepsea Bergen with Vår Energi. This contract will begin following completion of the Bergen's previous contract with Equinor and includes three years of firm backlog at very strong rates. Following this, Vår Energi have four one-year priced options, which could see the unit booked until early 2035. Finally, post-period, we saw Equinor exercise priced options for two additional wells, increasing the Deepsea Atlantic's firm backlog coverage until late Q4 2027.
After this, Equinor maintains two further priced options for use of the unit. I will say that we are really pleased by all these contracts being secured, which we think emphasizes the interests of our clients in Norway to not only secure supply of high-spec tier 1 rigs, but also emphasizes the increased tightness in our market. That is not all. In our managed fleet, we have also been busy. We have secured two new wells with Okea for the use of Deepsea Yantai, increasing its firm backlog coverage until Q4 2027, while the Deepsea Mira has secured a new contract with Shell in Trinidad and Tobago, adding 150 days of firm contract coverage. As we announced yesterday, we have also added another managed unit to our fleet, the Beacon Pacific. This is an exciting addition to our fleet.
The Beacon Pacific is a unit we know well and is very similar in the design to the Deepsea Yantai, which we have been managing for many years now and know very well. The Deepsea Yantai has proven itself as a quality rig and has been in near constant use since we took over the management of the unit, I would say seven years ago, approximately. We have similar aspirations for the Beacon Pacific, which, as part of our new management agreement, has secured a new contract with Serica Energy until late Q4 2027. Sorry, the contract with Serica. As for this contract, the Beacon Pacific will drill six firm wells for Serica, which are estimated to take 400 days in total, and it will begin in Q3 2027.
After this, Serica has further options to use the rig for another five wells, which are also anticipated to take 400 days. Before its contract begin, Odfjell Drilling will manage the rig as it goes through reactivation and mobilization, and this is a process that has already begun. So we are delighted to have the Beacon Pacific join the Odfjell Drilling fleet and look forward to seeing its progress in the weeks and months to come. Moving on now to our backlog, and as mentioned earlier, despite lower utilization during the quarter, our units still performed well. In particular, the Deepsea Nordkapp and Stavanger once again had excellent quarters, with both achieving 99% financial utilization during the period. This is above our 10-year average of 97% utilization.
With our recent contract awards, all of our rigs are now fully booked until late 2027, with the Deepsea Bergen booked until early 2031. While we have added good contract coverage this quarter, over the next couple of months, we will be looking to be securing more backlog in a market that we believe will continue to strengthen going forward. Speaking of the market, we do believe that both with our own contract awards and those of our peers, supply and demand have tightened even further in the harsh- environment segment. The tier 1 harsh- environment market is now almost entirely booked for 2027 and 2028, with very few assets having availability. With limited new supply likely being added in the near future, we believe this to be highly favorable for our business, and we do repeat our previous statement that new builds remain very unlikely at this stage.
From a demand perspective, we believe that there is a healthy long-term demand in Norway, with operators increasingly looking to secure high-quality rigs for longer time periods, emphasized by both the Deepsea Nordkapp early option exercise and the long-term contract award with Vår Energi for Deepsea Bergen. We do see the increased collaboration between operators on exploration and on developing tight reservoirs as being a positive for Odfjell, for drilling demand going forward. There are more than 100 subsea tieback projects that have been identified on the Norwegian continental shelf. These are in the pipeline over the next decade, and a significant number of these have either already been sanctioned or are approaching FID. If you look to other regions, we believe that future opportunities will come from Canada, increasingly in the U.K. where tier 1 units are in demand.
Namibia and Suriname could also drive demand, particularly as some of these projects in those areas mature around 2027 and 2028. There remains increased interest for deepwater drilling as well as short-term exploration work. Overall, we believe that the current balance between supply and demand is likely to maintain strong day rates and lead to longer-term contracts going forward. With that, I will now pass it on to my CFO Øyvind, to go through the financial review.
Thank you, Kjetil. I will start with a summary of the income statement. Our operating revenue continues to benefit from higher day rates, while it was negatively impacted by off-hire time on Deepsea Atlantic in Q3. Operating revenue in Q3 2026 was $265 million, compared to $234 million in Q3 2025. Operating revenue from our own fleet was $235 million, while the external fleet generated a revenue of $31 million. The reduction in revenue from the owned fleet compared to Q1 is explained mainly by off-hire time related to the incident on Deepsea Atlantic, as well as third-party labor conflict. It is worth noting that in addition to the operating revenue, we have recognized $11 million in other income. This is specified in note 4 in the quarterly report and is related to insurance, which covered increased OPEX on Deepsea Atlantic due to the incident.
For clarity, this other income is not inflating the EBITDA for the quarter. Q3 EBITDA for the owned fleet segment was $127 million, representing a margin of 54%. The EBITDA for the external fleet segment was $6 million, which is a margin of 19%. Less corporate overhead and other adjustments, the group EBITDA was $130 million. The company delivered a net profit from continuing operations of $51 million in Q3. On to our balance sheet development and status, which remains solid. Our net debt is decreasing. Following the increase in debt level in Q4 related to the acquisition of Deepsea Bergen, our net debt is now $857 million, which corresponds to a leverage ratio 1.6x. It should be noted that in our Q2 report for 2026, we reported leverage ratio, including one-off items associated with the Deepsea Atlantic incident insurance claim.
For the purpose of comparison, it has been corrected to 1.6x net debt to EBITDA for today's report and presentation. The equity ratio is partially increased to 56% out of a total assets of approximately $2.6 billion. The available liquidity is $261 million, including undrawn RCF of $216 million. In Q3, we generated $123 million in cash from operations. Net interest paid was $29 million on facilities and leases, including semi-annual interest payments on the bond. Cash flow from investing activities was minus $38 million, whereof $18 million was related to the Deepsea Atlantic incident. $6 million was client-specific upgrades that has or will be fully covered by our customers. Net cash flow from financing activities was minus $11 million, including minor FX adjustments. And we paid $37 million in schedule installments on our bank facilities and leases.
In addition, we made net drawings of $24 million on the revolving credit facilities during the quarter. Dividends paid in Q3 were $60 million and was related to Q2 results. In addition, and as noted earlier in the presentation, estimated total net cash impact from the Deepsea Atlantic incident is fully reflected as of Q3, with the remaining CapEx payments expected to be offset by corresponding insurance proceeds. Although there may still be timing effects going forward, the estimated total net impacts are reflected in this quarter. Post-period, $39 million is received as a result of the positive tax case ruling from Gulating Court of Appeal. Moving on to our dividend. Our focus remains on delivering strong returns to our shareholders.
As such, when comparing our business against our key dividend criteria, and particularly in the light of increased backlog we have secured, we have elected to further increase our dividend to $0.27 per share from $0.20 per share in Q2. Today's dividend translates to a total dividend payment of $64.7 million for the quarter and corresponds to an annualized yield of 9% based on yesterday's close. The shares will trade ex-dividends on the 12th of November, and the payment will be made on or around 25th of November. I will now pass back to Kjetil, who will summarize our presentation.
Well, thanks, everyone. The past two quarters, it has been challenging period for our business, but I think all in all, when we look back, we have handled it well and come out strong. Today, all of our rigs in our own fleet are back to full strength and doing what they do best. This quarter's results still reflect this challenging period, but we have demonstrated that our rigs remain in high demand and are being secured for more work at market-leading rates. Our balance sheet remains strong and our outlook remains excellent, leading us to once again increase our quarterly dividend, this time to $0.27 per share. We are proud of what we have achieved this quarter, and we look forward to what's next. Thank you everybody for listening in and for you, James, to take over.
Thank you. Thank you, Kjetil and Øyvind. As a reminder, if you'd like to ask a question, you can do so either via the telephone line controls or via our webcast tools. Our telephone operator today is George. So George, can you please open the Q&A session on the telephone line, please?
Will do, James. Thank you very much. Ladies and gentlemen, if you wish to ask an audio question, please press star one on your telephone keypad. Just make sure that your line is unmuted to allow you to select your equipment. So, star one for audio. Our very first question today is from Fredrik Stene, calling from Clarksons Securities. Please go ahead. Your line is open.
Hey, Kjetil, Øyvind, James. Hope you are all well. I wanted to touch a bit on the market. Kjetil, you did in the prepared remarks paint a very optimistic picture around market balances in the harsh- environment market, and I definitely agree with your takes. However, kind of on the back of that, in your future contracting efforts, you have to balance something, right? You have to balance the length of a contract, which is a positive thing, and you have to balance that to the day rate of a contract, and the higher the better. But sometimes you aren't able necessarily to get both. With this strong market backdrop, how are you going to go about structuring your contracts to make sure that you continue to have higher visibility, but you're also able to capture the upsides from this strengthening market? Thanks.
Yeah. Thanks, Fredrik. You are right. This is always, do you sort of go long term, maybe accept a bit lower rates, or do you want to sort of gamble and bet that rates will go up? I think, in Odfjell, we are suckers for backlog. We like that a lot, and to secure the majority of our fleet on longer-term contracts at solid day rates will always be a priority for us. This is also related to the strong relationship that we have with key clients, and we do see that working together tighter and for longer adds value in so many ways. That being said, we would also like to have one or two of our assets exposed to some more availability.
I think you will see that we will target to lock in the majority of our fleet for a longer time period, but also have some availability on others to maybe seek some attractive opportunities should they appear.
All right, thank you. I also have a question on the Beacon Pacific, the deal that you announced yesterday. I think the rig was rumored to come into the North Sea a couple of weeks, three weeks back, and now we are seeing it happening. I wanted to maybe touch a bit more on the motivation for you guys to take this rig in. It is more like a Yantai rig spec-wise, and I am sure it will fit very well in the U.K. market. But what is the main priority for you to sort of keep control in a way or a larger part of the North Sea fleet, or was it something else that made you chase this management opportunity, beyond of course management fees?
Yeah. Oh, sure. No, we are bringing a high-spec unit into the U.K. part of the North Sea, at least for now. This is a region where there are a record low of active rigs at the moment, and a fleet which is very much mature. We do actually see increased interest and activity in this region going forward. Although this rig is mobilized towards a specific contract with Serica, we do think that this will be a good strategic move in the long run. As always, we only manage rigs which we could see ourselves owning at one point. This is the sister rig of the Deepsea Yantai, a rig we know very well after operating it for around seven years now. It has proven itself to be a strong and reliable performer. I would say a solid workhorse on the Norwegian continental shelf.
I don't think any client who's had that rig under contract has been disappointed. Rather the opposite, they have been very pleased with how the rig and the crew has performed. Also, I would like to mention an additional managed rig also gives us increased economics in form of scale, spreading out our already low G&A even further to another unit, and it also allows us to entertain a broader client base beyond what we have today. There are several points sort of adding up and leading up to this, Fredrik.
I appreciate the color, Kjetil. Will it be renamed Deepsea Pacific, or is that too early?
We will have to get back on that one. We haven't spent much time on that issue yet.
All right. Thank you so much, all. That's it for me. Have a good day.
Thank you, Fredrik.
Thank you, sir. Ladies and gentlemen, once again, if you have any questions, please press star one. James, we do not appear to have any further audio questions. I would like to call over to you for any questions submitted through web. Thank you.
Thank you. Thank you, George. We have a few questions on the Beacon Pacific, I suppose not surprisingly. Further to Fredrik's question, we have a question here. After reactivation for the U.K. contract, will Beacon Pacific require any material upgrades for Norway eligibility, such as to reach the same level as Deepsea Yantai's specification?
Yeah, I can follow up with that. The short answer is no, it will not require any material upgrades. The reason for that is that this rig was originally built according to Norwegian rules and regulations. However, all this regulatory, it always is a moving target, so there have been some development. So, there will be some upgrades, but by far not material. So, it is a rig that could quite easily been taken into Norway as well.
Thank you. Again, about the Beacon Pacific, about its history, has it ever drilled a well? Who is the owner? How much work is required to get it ready as part of the reactivation program that we're working on?
Yeah, so the owner is the same as Deepsea Yantai. This is CIMC, a Chinese company. The rig has never worked. It's been lying in the yard. It was completed, but it's been idle at the yard for quite some time now. So, it will require a reactivation process and certain upgrades for it to be ready. We have started with this already, and it will take parts of into 2027 before it is ready to leave the yard and start mobilizing to U.K.
Great. Thank you. Can you provide some guidance for CapEx for Q4 and into 2027? For clarity, will any additional CapEx related to the Deepsea Atlantic be covered by insurance beyond the $94 million booked year-to-date?
Thanks, James. I think, well, let's focus on the clarity part of that question. What we have said today is that any additional CapEx related to the Deepsea Atlantic incident is, or remaining cash outflow, so to speak, is expected to be covered by insurance payments in Q4. There may, however, be timing effects going forward, depending on timing of payment of the insurance proceeds.
Great. Thank you. Again, we've had a similar question about CapEx for this quarter. If we could sort of break that down. We've already announced it in the results already, but perhaps, Øyvind, you'd like to talk through it as well.
Yeah. As mentioned, CapEx paid for the quarter was $38 million. $18 million is related to the Deepsea Atlantic incident, which is covered by insurance. $6 million is client-specific projects that are funded by our clients, mostly through lump sum payments. The remaining $14 million is split between regular periodic maintenance of $6 million and recertification of the BOP used on the Deepsea Atlantic, which was $7 million.
Great. Thank you. I suppose a similar question. Well, actually, in response to Deepsea Atlantic, what is the total cash effect of the Deepsea Atlantic incident? Is it now all accounted for?
Well, we say that the total cash effect of the Deepsea Atlantic incident, which was announced in Q2, which is approximately $35 million, where we compare to what it could have been if the incident didn't happen. Most of this is as a result of lost earnings, and we say now that the net cash impact is fully reflected in Q3. As mentioned, any remaining cash outflow is expected to be covered by insurance payments in the future. Also, just as a reminder, there might be timing effects to this.
Great. I'll ask one more question. We're conscious that today's a very busy day with lots of people reporting results. It's, I suppose, maybe one for yourself, Kjetil. The contract with Vår and Deepsea Bergen, there are priced options in that. How does the company view those priced options, and how do we consider them going forward? What do we think that says about the very long-term contract?
Yeah, I think, when we sat down and started negotiating the relationship with Vår, we, both parties, agreed that the intention is that this is going to be a long-term relationship. We also wanted that to be reflected in the contract. Vår Energi has high ambitions, and we want to be part of that. I think that those options are there to sort of incentivize both parties to continue that relationship. I will say that those options are priced at a very healthy level, at least in our mind. We are talking about way into the 500s at the time, when we look at the exchange rate and escalations that will come on. I think, having a rig booked until 2031 with priced options until 2035, we're going to see exceptional cash generation through this life of this contract. We are extremely pleased with that.
Great. Thank you. We'll leave it there. I've seen a few other questions coming through on the webcast, and I'll respond to you all directly on that, and I'll leave you to the rest of your day. Thank you very much to BRR for hosting the call and for George, our operator. Our next report and presentation will be our Q4 reports, which will be in the new year, the dates of which will be published shortly. In the meantime, I'd like to thank you all for listening, and we look forward to speaking to you next in 2027. Thank you very much.