Good afternoon all and welcome to the Odfjell Drilling Q1 2023 results call. My name is James Crothers, investor relations officer, and I'm joined today by our Chief Executive Officer, Kjetil Gjersdal, and Chief Financial Officer, Frode Syslak. As you'll have seen from our announcements this morning and today, this has been a busy quarter for us. We're delighted you've joined the call or tuned into the webcast. Your attention is brought to the important information slide of our presentation, which we invite participants to read in full, potentially by downloading from the website. Our call today will be focused largely on our Q1 results with Kjetil and Frode taking you through the key highlights from the quarter. Before Kjetil goes through an operational review, Frode will then review our financials from the period before updating everybody on our ongoing refinancing.
With that, I'll pass over to Kjetil to summarize the quarter.
Thank you, James. Good afternoon, everybody. As many of you have seen from our report issued this morning, this quarter of our business has been focused on several key activities which we will discuss later in this presentation. Looking specifically at how we have operated this quarter however, we are pleased with what has been a strong operational period. Our financial utilization has remained high at 97.9%, largely in line with prior quarters, despite the harsher weather during the winter months that we now experience during the first quarter. We are quite proud of our continuous strong operation which has been very consistent. Also during this period, we have significantly increased our order backlog for the securing future cash flow for the company.
We will discuss a little bit later the LOIs recently signed for the Deepsea Atlantic are something that we are proud of securing. In particular, giving the strong rates which are reflective of the continuously improving market, but also of the value of our company as operators. Summarizing, this has been a good operationally focused quarter for us, positioning the company well for the rest of the year. Moving over to the operational review, also the key financial results. We are delivering good financial results in line with our expectations during the period. We are achieving a revenue $171 million and an EBITDA of $73 million.
This quarter is the first quarter of having two management rigs on contract throughout the whole period. We were pleased to see the impact that this had on our results. We do anticipate all four managed units to be operational by the second half of the year. Our cash position remains strong. It is reduced from prior quarters. This is due to the previously announced Letter of Indemnity, which saw us paying $31 million in regards to a ruling by the Norwegian Tax Administration. We would like to remind shareholders that we regard it to be more likely than not that this will be refunded to us. Net debt remains largely unchanged. However, looking at direct equity ratio and leverage ratio, stakeholders can see that we continue to focus on deleveraging the company.
In summary, our results reflects the robustness of our business and our continued focus on financial discipline and cost control. Our strategy remains focused on preparing our business for the future. If we would then move over to the operational review. First to our backlog. As I said earlier, we've had typically a busy quarter operationally, but if you look at our own fleet in the backlog, the Deepsea Atlantic, Deepsea Aberdeen, and Deepsea Stavanger were all on contract with Equinor during the period, working on the Johan Sverdrup Phase 2 fields, the Breidablik and the Stavanger on various exploration drilling projects along the coast of Norway. The Deepsea Nordkapp remained on contract with Aker BP, working at the Alvheim area.
As you can see, our own fleet has a firm backlog now secure until the end of 2023, and for some of our rigs, significantly beyond this. If we look towards our managed fleet, the Deepsea Antares was briefly idle at the beginning of the year at the yard, but has since been working with Vår Energi during the majority of the quarter. The Deepsea Bollsta completed its first period of operation since we've taken over the unit and was working with Shell offshore Namibia. The Deepsea Bollsta is currently contracted to remain in Namibia for much of the rest of the year. The Deepsea Mira is currently en route to Namibia.
I believe it's currently sailing down the west coast of Africa. We are preparing for the upcoming commencement with TotalEnergies for the Mira. The Hercules remains on Hanøytangen, where it's undergoing its previously announced SPS and the preparation for its planned contract with ExxonMobil during Q2. As some of you might have noticed, we had a very fresh press release sent out today announcing that the Hercules will begin a contract in Namibia directly followed by its Canadian operations. Quite happy to announce that earlier today. We will move on to a little bit in-depth info about the Deepsea Atlantic LOIs. This was of course, a key development during the quarter for us.
This will see the Deepsea Atlantic operating in the North Sea for a cumulative period of 23 months at a combined value, total contract value of $290 million. It's important to note this, that this total contract value does not include integrated services, upgrades, or mobilization fees. Further to the contract value, we also agreed that there will be provisions for additional performance bonuses and fuel incentives. Further to this 23 month firm period, there are also four higher priced one well options, and there are three additional unpriced optional periods of approximately one year each at the back end of this contract. What all this means is that as a result of this, we could see the Deepsea Atlantic fully signed up between its upcoming SPS program through to its next one in 2029.
This is something that we're quite pleased with. This is an excellent result for our company, and will deliver increased and predictable cash flow from the unit in the foreseeable future. As a result of the length, requirements, and value of this contract, we have taken the decision together with the client to upgrade the Deepsea Atlantic with a new subsea blowout preventer, BOP. This will increase the capability and value of the unit over ahead of a busy operational period for its crew. This new BOP will cost $40 million, which will be partly funded by way of an interest-free contribution of $20 million from the client, which will be deductible over the next five years, beginning in 2024.
Now with this BOP change, we will now have similar BOP equipment on all of our three GVA rigs. And we also have an additional BOP for us to use in SPS rotation programs. This is part of our sort of strategical technical handling of these units going forward. In addition to that backlog, I would also like to mention the recently announced six months of additional firm backlog on the Deepsea Aberdeen, extending the firm backlog to second quarter 2025. The scope is on Svalin, is the name of this project. The Svalin scope is slotted in from Q4 2023, with the effect of increased day rates during this period compared to the originally planned Breidablik contract. Okay.
Then we will look about at the market, tuning into how we see the outlook for the sector. Just to start with that, we remain positive in our views about the market. Supply and demand dynamics, which we have seen throughout much of this year, that remains, which is creating opportunities for us and also impacting day rates positively. As mentioned, our LOIs for the Deepsea Atlantic point to a strengthening market, and we see that this trend is continuing. In Norway and in the U.K., we continue to see a steady flow of tender opportunities, which we believe would uniquely suit our fleet. We do continue to see a preference from operators for Tier 1 units, which provide more efficient and predictable operations.
However, as many as you will know, we have seen a number of Tier 1 units leaving Norway for international opportunities, which is of course affecting the overall supply demand picture. On that point, from our perspective, we also seen multiple new opportunities in West Africa, Australia, Brazil, and Canada. These are providing strong alternatives for our rigs to be deployed into. In Namibia, particularly, we have seen more discoveries from operators which point to new hydrocarbon province openings. This region will be very exciting to see what comes out of that during 23 operations and testing operations going on there. We have seen the supply for Tier 1 semi-subs reducing slowly and demand increasing. This is resulting in a strengthening, yet still sensible market.
We are seeing bid discipline amongst drillers. This is evidenced by the chart on the left here, which shows a concentration of similar bids. To summarize, although there is some short-term volatility now and then, we do see a continuously improving market, and we do see a potential shortage of Tier 1 rigs, maybe as early as 2024, but definitely in 2025. With that, I will now pass over to you, Frode, who will take us through our financials results from the quarter before updating you all on our refinancing.
Thank you, Kjetil. I will begin with the earn income statement. As can be seen, operating revenue for the group was $171 million compared to $155 million in Q1 2022. As regards to the segment, operating revenue for the own fleet in the quarter was $134 million, while the external fleet was $36 million, reflecting increased activity for the external fleet. EBITDA was $73 million in Q1 2023, whereof EBITDA for the own fleet was $70 million. The EBITDA for the external fleet was $5 million, while corporate and other adjustments was $2 million negative in the quarter.
Moving to page 12 on the balance sheet, we see continued deleveraging on the balance sheet with net interest bearing debt largely unchanged as of the end of the quarter, and a reduced leverage ratio of 2.4 on net debt to EBITDA basis. The company is robust with an equity ratio of 55% based on total assets of $2.2 billion and a sound cash position of $138 million after the one-off tax indemnity payment of $31 million made in Q1. Turning to our cash flow and CapEx on page 13, you can see that the total CapEx in Q1 was $14 million. Approximately $4 million of total CapEx is related to the new BOP on Deepsea Atlantic.
A further $3 million has been spent on Green Rig initiatives across the group. A further $2 million has been incurred as part of our planned SPS programs. We also record various fleet CapEx of $5 million in total. Before we conclude the financial section, I wanted to just briefly touch on our refinancing process. As we have guided earlier, the company fully intends to refinance well in advance of maturity dates. We are following our plan and making material progress on the topic with well-advanced discussions with lenders. We have keen interest from existing as well as new banks. In addition to a significant portion of our financing anticipated to be bank debt, we are also looking into diversifying the debt capital sources.
As you know, we continue to enjoy strong credit metrics with a continued focus on deleveraging and with a stronger and stronger order backlog, driving further cash flow visibility. We of course look forward to providing further color on the refinancing in due course. With that, I would like to pass back to Kjetil for a quick wrap-up.
Thank you, Frode. To go to the summary slide. In summary, this quarter has been strong operationally and has driven positive financial results. We've had a number of key highlights during the quarter, including the Deepsea Atlantic and Deepsea Stavanger, and with the later announcement of Deepsea Aberdeen and Hercules. We look forward to the impact of this contract win, contract wins beginning to impact our balance sheets with dayrate across our fleet increasing. Looking ahead, we remain very well-placed to drive further stakeholder value and look forward to updating on some of our key workflows, in particular our planned refinancing in due course. With that summary, I will now pass it back to you, James, to wrap up and open up the Q&A.
Thank you. Thank you very much, both. With that, I'll pass back to our operator, Kevin. Kevin, hopefully, you can help us with the Q&A.
Certainly. If you do have a question over the phone, please signal by pressing star one on your telephone keypad. Please ensure that the mute function of your telephone is switched off to allow your signal to reach our equipment. Again, it is star one to ask a question. Our first question on the phones comes from Fredrik Stene of Clarksons Securities.
Hey, Kjetil and team. Good quarter. I have 2 questions for you today. First, on the Atlantic and the BOP that you're installing there. Firmly committed until mid 2026 now with the new contract from late Q1. When you had these discussions with Equinor about the upgrade for this BOP, is that also based on now increased likelihood of or probability that these options that are tied to the contract, or sorry, tied to the rig will be exercised if it's a longer-term decision than just from 2024 to mid 2026?
Well, Fredrik, first of all, I think we never said that these discussions were with Equinor. But the discussions we have with with these clients that we are discussing these LOIs with, you know, we the BOP has been a part of those discussions. You know, the technical requirements that our clients have for the upcoming projects, we agreed that it could be or it was a good idea to take a move in this direction. The sort of technical spec on the on this BOP is to some extent required for some of the operations that our client have upcoming.
Okay. No, thanks. Yeah, I was just reading the fleet status report. Just looking at the name Equinor and that happened to come as part of that. Second question, turning to the Hercules. The contract here in Namibia, which will be the destination after Canada, it's not, you know, too long, just over 100 days.
Mm.
The commentary that you've had around Namibia with the Deepsea Mira and the Deepsea Bollsta from beforehand, there seems to be quite a lot of possibilities here to keep these rigs working for longer. At this stage, are you having that kind of visibility on the Hercules as well? I guess where I'm going is what's the likelihood of this rig returning to Norway after this shorter contract? Or do you think that it's more likely that it will stay in Namibia for the foreseeable future?
Yeah. I think it's what I can say it's it's possible that both things can happen. We do have discussions with the client in Namibia for further work. They do have plans, and they do have ambitions for further work out of the scope announced today. However, that has not been firmed up in any way. Sort of 23 is a year where we will get a lot of answers from that region. I think, you know, there will be a lot of exploration drilling.
There will be a lot of testing and once these results come up, you know, I think a lot of the operators will make decisions for further scope in Namibia going forward. We do see, also see that there are opportunities for taking rigs back to Norway. I guess, Fredrik, now my answer is that, you know, we're keeping all options open and we will continue to pursue the opportunities that we like the most.
Perfect. Just a follow-up on that, before I stop there. One of your peers that also have harsh environment semi-sub exposure was, you know, saying that the rate or mobilization or total contract value is required to take rigs back into Norway now that they've first been moved out would be substantial. Do you have any call that you can give on kind of what rate would be needed to take rigs back to the MTS at this point? Are we looking at, you know, similar rates as what these rigs are earning now? Or are we looking at a step up well into the 400s or even closer to 500s to really be incentivized to move them?
As a reminder, if you do have a question, please signal by pressing star one on your telephone keypad. Oh, pardon. We have a question come in from Tommy Johansen of SB1 Markets.
Yes, good afternoon. Can I just ask on the recent talks with oil companies where we've seen the oil price drop, a bit market turmoil, are you seeing or expect to see any changes in tendering, like delays, et cetera, or is it pretty much the same as three to six months ago?
Please stand by, ladies and gentlemen. We're experiencing a momentary interruption in today's conference. Please stand by. We'll be back with you in just a second.
Thanks very much. James, believe you're back on the line. James, maybe we can continue the Q&A.
Sorry about that, guys. I think we might have cut off at the end of our question, but perhaps we could go to the next question operator. Hello? Are you there, Kevin? Right. Can you hear us again? Right. Can you Apologies. Can you hear us again now on the, on the line? Hi. We're back on the Zoom call. Can you hear us again now?
Yes. Thanks, James. We're just, Kevin is just joining us, and we'll be back in a minute. Kevin, if we could have the next question, please.
Certainly. Thank you very much. We had a question from Tommy Johansen. Please go ahead, Tommy.
Yes. Thank you. My question was regarding an E&P company's behavior given the recent drop in oil price and market turmoil. Are you seeing any changes there compared to over, say, the last 3-6 months in tendering? Are you seeing any delays or expect to see any, or is it pretty much the same? Thank you.
Yeah. I would say it's pretty much the same. It's not like it's on and off or... It's more a constant flow of interest. Of course, these projects have some lead time and so on. I won't say that we've seen any clear trend that is declining due to the drop in oil price. No.
Okay. Thank you. Regarding both you and some of your peers have pretty busy SPS schedules going forward, can you just talk a little bit about how you expect that to impact the market, and also what you see as the main risk, regarding your SPS schedule?
Sorry, Tommy. Could you repeat that? It was a bit blurry on the line.
Yes. It was regarding the SPS schedule. Both you and some of your peers have pretty busy SPS schedules going forward. If you could talk a little bit about how you expect that to impact the market, and also what you see as the main risk regarding your SPS schedule. Thank you.
Yeah. We've been working quite a while for preparing our SPSs. We have started way much earlier due to the pure right intensity and the schedule that we have ahead of us. We are actually quite comfortable. We aim to have overview of all the work packages and POs in place quite some time before the rig reaches quayside. That takes down the risks in this project.
What I would say, you know, if you were to approach this in a more, I would say the way we used to do it, 10, 15 years ago, where you took the rig to quayside and opened up and started checking the equipment, then you will have a problem in this market. There is definitely longer lead times on critical parts, and there's definitely price increase on the same, I would say between 35% and 65%. We do need to approach these SPSs with a different tactics than you have before. If you do that, we feel comfortable that we are able to handle the risk and execution of these projects.
Perfect. That's all from me. Thank you.
We can go back to Fredrik Stene of Clarksons Securities.
Again, guys, I think the line dropped on my last follow-up with regards to the rigs that were that has gone out of Norway. Just wanted your opinion or color on what you think will be required to see these rigs come back to Norway. Do you think, you know, you would have moved them at a similar rate as we're seeing now in where they're working in the, call it, semi-harsh or benign environments? Or do you think that they need to see a step up, you know, well above $400,000, maybe even closer to $500,000 per day to incentivize capacity to return to the NCS?
I won't use specific numbers, Fredrik, but of course, you want to see long contracts at a decent day rate level. I mean, they need to at least match, perhaps be better than the ones that are available internationally before it can get attracted to take it home. I would like to say, you know, the Norwegian market, we have a long and good relationship with some key clients here and of course it is, it's natural for us to have conversations around their needs and what they see going forward.
You know, if you have a rig with an AOC in place, it's quite easy to take it out, but it's also quite easy to take it back. But it needs to be a strong contract, it needs to be competitive contracts. We won't sort of come back just for coming back. It needs to be something that makes sense, for our business.
Right. Thank you very much.
Thanks.
Once again, it is star one if you do have a telephone question. As we have no further questions on the phone, I will hand the call back to James for any webcast questions.
Thank you very much. We'll turn to this question first. The external fleet is increasing with some high spec assets. Can you put some more color on how these deals, how are they structured, and how are you thinking about these rigs in the long term? I suppose from the same submitter, how does the company see the future of offshore drilling as a company? Is there room for consolidation on the NCS?
Yeah, this is Ole. I can talk to the first part of that question. With regards to economics from these external fleet management contracts, there is a combination of fixed daily fee, which is relatively low during non-operational phases, but it's increasing significantly during operational phases. With addition to that, there are certain EBITDA or performance related incentives. As regards to purchase options in these contracts, there are no explicit purchase options available for the company.
Great. Thank you. The next question, do you expect the banks to allow for a dividend following a refinancing that still has the banks in the capital structure?
I think this is a topic that we need to revert with more details on, at a later stage. With the strength of the company, we do certainly expect, flexibility, to an extent with regards to dividend payments, going forward.
Okay, great. Thank you. We have no further submitted questions. So with that, perhaps I'll close the call. Thank you for everyone for joining the call and for your continued interest in the company. If you have any further questions or would like to get in touch, please do so. Get in touch with me directly using my email address as shown on our presentation or via the websites. As a reminder, our next interaction will be the AGM on the 20th of June, and our Q2 half yearly report will be on the 23rd of August. I look forward to speaking to many of you then. Thank you. Thank you everyone for joining the call and for remaining for the technical difficulties as well. Thank you operators.
You can close the call now. Thank you very much.