Welcome to Odfjell Technology's Q1 presentation. My name is Gert Haugland. I'm the SVP for Finance and Investor Relations in Odfjell Technology. I'm joined by our CEO, Simen Lieungh, and our CFO, Jone Torstensen. You'll find the presentation on our website, and we'll start with Simen talking about the key highlights and the market outlook, backlog, and contract status before Jone goes through the financial figures. We'll conclude with a Q&A session, and you can submit your questions either through the web portal or by using the dial-in numbers. I hand it over to you, Simen, for the first part.
Thank you, Gert, and thank you all for calling into the Q1 presentation. I'll start with just to give you all the reminder of the company's highlight or key numbers regarding size. We are today a company with 2,500 employees. We operate in more than 30 countries, as you see on the map right there. We have a strong balance sheet, and I will come more into the details here. If you can take the next information. On the highlight side, the quarter is in line with Q4 and reflects our steady performance without any major lows or highs. We have an EBITDA of NOK 193 million. We have a revenue of NOK 1.3 billion, and the numbers will be presented more in detail shortly. In the NOK 193 million, this quarter included NOK 4 million in restructuring costs related to our improvement program, which we in detail presented in the previous quarter.
We are on track on that. Operations delivers on historic average levels. Projects & Engineering continue to experience high activity and delivers this quarter strong margins. Well Services delivers consistent revenue, while the shift in product line mix has lowered the margin. It is one of our main targets to get back onto the level of mid-30s regarding the margin level, which we have been historically stable. Stability and consistency might feel like a letdown based on our ambition to grow our business, but in the current market situation, we believe this is absolutely acceptable. We also expect improvements in the second half of the year based on contracts, projects, and new revenue side regarding new contracts. Our priorities will be to focus on margin improvements initiatives while continuing to seek growth opportunities.
Highlights, we had this unfortunate information yesterday that the termination of Brunei work of a contract is unfortunate for us, and we are not allowed to showcase our capabilities and solutions. We worked hard for that contract. A number of opportunities for our concept in South Asia is still there. All is definitely not lost. We have a very good relation with our client. Engineering and operation preparation is very relevant for other opportunities in the region. The financial impact on the 2025 is absolutely minimal, and we will get our cost compensated by the client. On the EBITDA, we actually expected low single-digit effect on the 2026 EBITDA also. This termination is just to give us some more reflection on that. We absolutely have got information from our client that this has nothing to do with what we have done.
It's other parts, other projects that the client had to consider to conclude with a termination. At the same time, we have a very constructive dialogue with the client, and there are more activities in the region. We are positioning us for future operations in a very attractive region for both work over jobs and plug abandonment activities. Powered wire drill pipe project for VOR Energy with expected startup start in 2026 is progressing according to plan. We also did an additional acquisition of 2,000 meters with powered wire drill pipe, so-called five-inch. We are also going to serve for VOR Energy with the earliest startup already later this year. I guess in October, November, we will have a start of that package, which will deliver EBITDA contribution in this year.
We have also been awarded extension of platform for drilling contracts and approved TRS contract for ConocoPhillips in Norway. As we have shown on this chart, we deliver NOK 60 million dividend for the third quarter on row, which equals to a direct yield of approximately 14%. Main exposure in the North Sea and with production operations reducing cyclicality and providing greater earnings visibility. No exposure. We have no exposure to U.S. operations land. Our expectation forward will be relatively stable regarding both operations and the level we are working on today. With that, I take the next slide, Gert. This is in a way the market outlook. We have, as you said, we have a solid backlog. We have kept the level now for several quarters. We expect a higher activity level from Q3 this year. This map shows tenders we are chasing as we speak.
They are typically grouped in different regions. I do not need to go into those regions, but typically the tender value today where we are active is about NOK 8 billion. We expect to take our share of that. We also see that in regions like South America and also Asia-Pacific and also Africa, we see also that there are more to come and we expect more activity within the drilling segment later this year and more into 2026, late 2026. We see definitely a ramp up from major clients that the activity level will increase. We are well positioned for growth in our new regions. We are now well established in Houston. We are working with partnership with another company, which is local in the Gulf of Mexico.
We will not address the land market in the U.S. for us, good reasons, but we certainly are close with several clients, both within oil companies and drilling companies in the Gulf of Mexico and Brazil. We have an optimistic view on the market development in the Americas from Gulf of Mexico and south. We also see that in the future, there might be more activity up in Atlantic Canada, but we do not see that as a kind of immediate development, but there are future projects up there which are under development where we will hopefully take part of those operations following the drilling campaign for one of the biggest projects, bigger projects Equinor are developing up in Atlantic Canada. We are certainly following the drilling market close, serving the semi-submersibles that are going to operate in that region.
We see a very stable and active market in the north with North Sea, Norway, and U.K. This is today compared to the rest of the world. While the rest of the world, especially within drilling, Jacobs Deepwater has a drop in activity level, we see actually a quite high and stable operation for serving oil and gas production, especially in Norway. Of course, driven by the need for increased delivery of hydrocarbons to Europe because of the unfortunate and tragic war with Russia and Ukraine. We also see we have announced that we are building up our capabilities within the plug abandonment market. The market we are targeting here, this is something we will see as a long view. Hold the line.
Simen now?
No problem. Yes.
Very good. Thank you. I just said that the plug abandonment market is something we have a long haul, a long view on. We believe that market will be significant for a company like us in the future. We have special good focus on the European market with the U.K. as the strongest market for the time being. We see also that Norway, Norwegian market will be more present with plug abandonment later this decade. We also have a quite interesting view on the plug abandonment activity in the Gulf of Mexico or what they call now Gulf of America. We have now been invited by a couple of companies to investigate our capabilities for serving tools, plug abandonment tools down hole with some players in that part of the market.
P&A in Gulf of Mexico is coming stronger and we certainly believe that that's going to be a very interesting market down the road. Please take the next. As I said, we have a strong and robust backlog. We are winning a lot of contracts. This part of the slide to the right side shows typically the numbers from big contracts to smaller contracts. Almost every week we are picking up activity and by that also maintaining the backlog where we have had over the last quarters. Just to mark, that NOK 30.1 billion is the backlog from the Brunei termination, which is already taken care of. Still, without that backlog, we have NOK 13.1 billion in backlog, which is a strong message. Within the three divisions, operations, well services, plug, project engineering, you see how that's been split.
It is quite interesting to also see that within P&E, where we have, when we split the company, we had that level, but we have actually almost doubled the level of backlog in the P&E department. Delivering today strong margins, which is actually quite good with a high utilization level. Sorry. Take the next. This is an interesting slide. We are still one of the top performers regarding shareholder return. Over the last 12 months, we have delivered NOK 225 million in dividend. We have established that dividend program, and we have said consistently that we want to have a program which is predictable and stable. Since the listing, we have delivered back to shareholders NOK 225 million.
Today, with the 14% implied annual direct yield, it's quite an impressive level, actually, compared to what has been delivered from our competitors and what we expect in the future. We are absolutely in the high level of actually stand behind our capability of generating cash, doing what we do for growth, and at the same time, deliver significant dividend. This shows a company, a very stable company with a strong balance sheet and operational capabilities. We can take the next. Thank you. Our priorities is, of course, to make sure we are operating safe and effective. I think one of the good things by the termination from Shell in Brunei was that they were very impressed about our performance regarding preparations, safe and secured operations, because this is a new market for us.
It is very unfortunate that the other part of the project could not deliver, but we absolutely got very good feedback on our very consistent and thorough way of planning and executing our part of the project, which actually impressed the client. In all the sadness of losing the contract, I think we have given the people that have done that fantastic job good feedback, which they have absolutely deserved. We are working on track with our improvement program. We said that one of the things that we actually are holding on, we believe we will have a stronger second half of the year regarding performance, financial performance. That is, of course, based on new contracts, establishing new operations, and of course, also the results from our improvement programs, which is very, very important.
We will consistently present how we are developing according to the ambitions in that program. With that, I think I'll leave the word to Jone Torstensen, the CFO. Thank you.
Thank you, Simen. It's a positive start to the year with stable activity for all business area. EBITDA in line with previous quarter, while EBITDA margin is improved due to improved margin in operation and Projects & Engineering. Our improvement program contributes positively in many commercial perspectives, including margin improvement. We expect, as Simen said, this to continue, especially in Q3 and Q4 this year. There has been approximately NOK 4 million in one-off cost in Q1 due to restructuring related to our program, which means that the adjusted EBITDA in Q1 is NOK 197 million.
OTL has a strong balance sheet, which gives us high flexibility to positioning OTL for strategic and profitable growth, both organically and through acquisition in existing and new markets. Next is Well Services. Financial performance is as expected in Q1, with lower activity in the U.K., Europe, Namibia, offset by higher activity in the Middle East. EBITDA level in Q1 is affected negatively due to activity shift from higher profitable product lines to lower profitable product lines. We expect this to improve in Q3 and Q4. There is a high ongoing tender activity now in both existing and new regions. We have successfully secured an extension of the TRS contract with ConocoPhillips and Ekofisk, as well as additional work for Vår Energi using Powered Wire Drill Pipe. The next area is Operations. Good start to the year with stable and predictable revenue, along with improved EBITDA and EBITDA margin.
We expect that this trend will continue in the next quarter, with strong focus to further improve efficiency in our contract portfolio. There are also high tender activity ongoing here globally, both for traditional drilling operation and for P&A projects. The Brunei work of a contract termination will have limited financial impact in 2025. The last one is project engineering. Good start to the year with stable and predictable revenue and improved EBITDA and EBITDA margin level. We expect this trend to continue in the coming quarters, with a strong focus on maintaining the current high utilization level through efficient deliverables in existing order backlog, expansion of client base, and introduction of new service offering. SPS work for key client Odfjell Drilling has been an important element of our development over the last year.
In parallel, we have developed solid positions and contracts within modification and upgrade segment at fixed installation platforms and floating storage units with clients, for example, as Equinor and Aker BP to balance our portfolio. Cash flow is affected by high investments related to contract wins, equipment replacement, and acquisition of 10% of Wheel Well. We expect significant reduction in investments in Q3 and Q4. However, we will, of course, always consider investment in high margin business cases going forward. As expected, the working capital increased by NOK 73 million in Q1. At the end Q1 2025, working capital stands at NOK 353 million, representing 6% of the LTM revenue. We have maintained the dividend level at NOK 60 million in Q1, and available liquidity is NOK 938 million, plus additional NOK 600 million from the bond path agreement. The graph is showing LTM revenue and EBITDA development at forecast since Q1 2022.
Stable and predictable revenue level. For EBITDA, we expect improvement in the LTM EBITDA figures from Q3 2025. Finally, key takeaways. Order backlog remains stable and robust with good revenue visibility. We expect financial improvement from Q3 and Q4. We have a very strong cost discipline approach, and we are on track on our improvement program. Finally, strong commitment to shareholders with consistent dividend payments, delivering on high direct yield, and Odfjell Technology has probably the highest direct yield compared to our peers. It is now time for Q&A.
Yeah, we'll start the Q&A by taking call-in questions, so if there are any.
Thank you, sir. If you'd like to raise a question, please press star one on your telephone keypad. If you change your mind and want to withdraw your question, please press star two. Please ensure your lines are unmuted locally, as you'll be prompted when to ask your question. As a reminder, to join the queue for questions, please press star one on your keypads. Last reminder to ask a question from your keypads. Please press star one. We seem to have no questions today coming from a phone line, so I'll hand back over to you, Gert, to take webcast questions.
Okay, thank you. We have one question regarding the backlog. I think Simen covered it, but the question is if the Brunei contract is taken out of the backlog. As Simen also mentioned, we have taken the Brunei project out of the backlog that we presented today. We also have another question on how many wire drill pipe strings we have targeted to be operational in 2026, and if we can also give a 2025 CAPEX expectation estimate. Let's start with the wire drill pipe. Simen, would you like to cover that one?
You can take it, Gert.
Okay, so we have ongoing wide drill pipe projects on Deepsea Aberdeen and Deepsea NorCap today. Atlantic was ended the summer last year. We have the upcoming projects for ROR starting in the beginning of 2026. Now with a shorter string, the expected startup is in the fall, like Simen mentioned. When it comes to these older wide drill pipe projects, we are expecting the Deepsea NorCap project to end at the end of the year, that it runs out end of Q3, beginning of Q4. When it comes to Deepsea Aberdeen, we have it was, I think the contract was ending now in May, but it's been extended at least to the beginning of next year.
We are very hopeful that we will be able to also utilize that strength for the upcoming project on Trollp, which would give us another 8-12 months' use of that strength. The last part there has not been confirmed, but that is what we are working against. Next year, we should have three strengths working or throughout most of 2026.
True. Good.
When it comes to the 2025 CAPEX expectations.
Yeah. I can say something there, maybe Simen can fill in. There has been a high CAPEX the last four quarters. As I said, we expect a significant reduction from Q3 2025. The CAPEX level is driven by investment in Wheel Well, high margin project, and replacement of equipment. Of course, the level going forward depends on the same things, but we expect a reduction going forward compared to what we have had the last four quarters.
Yeah.
I guess significant reduction.
Yeah. I think we covered most of the CAPEX questions, but for the most, let me see a refresh here. Yes, we have one question regarding the Wheel Well investment and our ambitions and expectations. Can you take that question, Simen?
Yeah. Do you mean the investment in the company?
Yeah.
Yeah. No, we have invested in the company because we truly believe that the technology with the Wheel Well is something that will be a game changer in the future. This is, for us, an important step into the company also to provide our influence of how the technologies should be developed together with the other shareholders. When we see this on the long-term basis, clearly that by both having two power pipes now in production, one is going to start up operations in late this year, and there will be more activity to also develop tools according with the so-called powered pipe. We look at opportunities to develop our own tools to support and to be add-ons to that powered string.
At the same time, we know that over, I would say, close clients and/or competitors will also start to develop new tools to be supported by that new technology. Just to remind that we have offshore-wise, we have a global exclusivity to be the first choice for delivering powered pipe to any client globally offshore, which is also a good thing. When we see this technology will work out, we guess that it will be very attractive to use powered pipe on typical mature fields, which is the biggest market in the next couple of decades. This investment is clearly something we have worked hard to do and are now around the table in the board of directors and can also influence the direction of how the company shall be developed. That is the reason for that.
Okay, thank you. We also have a question on how we see our services within the P&A segments compared to our peers. Do we have all the tools and skills necessary to complete whole projects and for the long duration of the contracts?
I can start to share that. For us, plug abandonment is a long-term market. This will be absolutely more and more important down the road, but it will take many, many years. We realize that on some technology elements, we are not in the front, but we have time to develop and combine what we are, what our, in a way, competitive efforts together with others we can partner up with. We look at the P&A market both with kind of a similarity, some at least a lot of similarities and synergies between slot recovery and plug abandonment. Slot recovery combined with plugging is, of course, a better business case for clients because then you produce more oil and gas. With plug abandonment, it is only plugging and abandonment.
Our set of technologies where we have invested now in companies and solutions so far is filling up our, I would say, completeness of technologies that is going to be used into the P&A market. Where we do not today have the necessary technology or solutions available, we partner up. Some clients actually prefer to use company A for that technology, company B for that technology, and company C for that technology. Some clients like us to kind of put together those solutions into a package. Just to remind the people that view P&A, P&A is definitely not a one-size-fits-all type of business. It is very different from field to field. In one field, you can use these solutions. In other fields, you have to use that solutions and so forth. It is absolutely not a one-size-fits-all, definitely not.
There are the same elements in there, and they need to be combined in a different manner. We also need to differentiate between subsea P&A and surface P&A activities. Subsea means that you need a floater. We are clearly positioned well to also pick up activities for that element while having our sister company Odfjell Drilling having a strong ability to operate semi-submersibles and floaters. We also have that kind of capabilities. There are still things we like to add on to complete our P&A portfolio of tools and technologies, definitely. Where we do not have it today, we will partner with clients or companies that will support with those solutions. Many of the tenders we are doing now, we are working and developing knowledge how to compose a winning strategy with the clients like we did, for example, with Shell down in Brunei.
We also are active in P&A tenders in that region, which is very different from typical P&A activities in the North Sea and very different from activities in the Gulf of Mexico. We are patient. We're going to do P&A activity down the road, but we also look at projects with P&A that will actually get margins, which is acceptable to us, not just volume for the case of volume. We also look at the profitability in those activities. We have the, I would say, the pleasure actually to not to pick and choose, but we actually pick up the targets we believe most in and try to win projects in that direction. That is the situation with P&A.
Thank you. We'll end the Q&A with questions regarding the utilization of our equipment and if we're happy with the current pool of equipment and if we need additional investments. I think I can cover that. We definitely have a very high utilization of most of our equipment currently. It is also part of the background for the high CAPEX that we've seen the last few quarters. Another contributor is, of course, when we're expanding our business outside of what has been our core markets, it means that we need a larger pool of equipment. The high CAPEX we're expecting this year is also very much driven by the powered wire drill pipe projects, which are very high CAPEX type of projects, but they deliver a very high EBITDA also. I think 2025 is going to have a significant higher CAPEX than we're used to.
Without any major high-margin projects, next year would be back to a more normal level, which would be in the NOK 200 million-NOK 250 million range. We are always chasing good projects, and we must be open to invest if the opportunities come along. I think by that, we will conclude today's Q&A session. Please reach out to me if you have additional questions that were not answered today. I thank you all for joining our call and have a good rest of the day. Thank you.
Thank you.