Good day, and welcome to Odfjell Technology's Q3 report 2026. All participants are in listening-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask questions on the phone, you will need to press star 11 on your telephone keypad, and you should hear an automated message advising you that your hand is raised. To withdraw your questions, please press star 11 again. Alternatively, you may submit questions via the webcast. Please be advised that today's conference is being recorded. I will now hand you over to Eirik Knudsen. Please go ahead.
Thank you, and good morning, and welcome to Odfjell Technology's result for this third quarter of 2026. My name is Eirik Knudsen, the CFO, and together with me, I have Simen Lieungh, CEO. The presentation is also on our website. Simen will cover the first part, the market, the backlog, and also the dividend. Then I will go through the financials, and finally, we close out with questions. Then I will leave the word to you, Simen.
Thank you, Eirik. Welcome to the call. I am going to go through, as usual, through the top lines and the headlines and development of the quarter. Q3 confirms for us a step-up in earnings level. EBITDA was NOK 241 million, up 90% from the same quarter as last year, with a margin of 17.2%. We are quite pleased to see that we have been able to keep that 17 level, and that has been a target for us to increase the margins, and in this, of course, then the acquisition of Kaseum and Razor played a role. They contributed by NOK 34 million in the quarter. We have said many times we have a strong cash flow focus. Operating cash flow was NOK 200 million, a free cash flow, NOK 108 million after CapEx and lease payments.
Our cash balance increased by approximately a little less than NOK 100 million in the quarter. I am happy to say that we have resumed the quarterly dividend payment. We gave a warning or information about that some quarters ago that we would pause it, and now we are back on track, and we are distributing NOK 1.52 per share, meaning NOK 60 million in total, the same level as it was before we paused the dividend. We were extremely happy that we finally won the Odfjell tax case that finally concluded in our favor. 6th of October, just after the Q3 cutoff, we received NOK 149 million, which is now on top of the cash we are actually presenting. The leverage ratio continues to be reduced. It is now 1.2 times, and the order backlog stands at NOK 11.5 billion, including the options on platform drilling.
Come a little back to that. Regarding market, there is no change in our view on the market since the last quarter. 2026 is a stable market. We certainly see that the dynamics around us will give a stronger market in general within hydrocarbons, gas, oil in 2027 and onwards. Our priorities have not changed. We never guide numbers, but we can say that we are quite optimistic about what we see around us. Of course, there is a lot of uncertainties. There are, as you all know, dynamics back and forth with the conflicts and ups and downs on the oil price and speculations east, west, and center. But we feel that we have a steady course. We see a significant ramp-up in the deepwater market in 2027. That is confirmed by the main drillers.
The deepwater market is a very good indicator for how the oil companies are prioritizing their spend. I would guess overview at this is that we see, which is an important KPI for us, is the number of rigs active in the market, and we certainly see that is coming up. North Sea is stable and strong. We see now, heard from the oil companies, the majors in the North Sea, they are working together on explorations activities, and it is a very stable and trustful source of energy to Europe, which has been recognized by everybody, and the plans are clearly from those that operate in that segment to increase and maintain production. Middle East, we have knock wood, I always do that. So far, we have, of course, seen some slowdown in the region, meaning Kuwait, Saudi Arabia, because of the uncertainties and the conflicts.
So far, we have not seen the big impact on our activity, but still there are some slowdowns and less, I would say, activity in some areas. So we have had some impact on what our expectations. But when this thing, or hopefully in the future, come down, we certainly see that the Middle East, including Saudi here, will be a significant area for ramping up more activities within the type of Well Services intervention activities. Plug and abandonment is something that will come. It is part of our structural story. We have clearly focusing on positioning ourselves by technologies, cooperations with companies to position us also for plug and abandonment. But at the same time, we see, as I said, a massive focus from clients to also increase and maintain production.
Plug and abandonment will be a part of it, and we think it is going to be a much stronger element in the development of the oil and gas sector, especially on mature fields, due to several things. Requirements for closing down old fields, to do more environmental, obviously, cleanup of fields or wells that are leaking. Governments are now pushing quite clearly in that direction, but it will be a combination with plug and abandonment, slot recoveries, and production. We kind of see that we balance our efforts into that picture, and kind of not saying that we are going to do only plug and abandonment. We are going to do plug and abandonment also, on top of the regular services. I said many times that we will not step into those new activities without knowing that we actually are earning money. We will not go for the volume.
We go for the margin and the healthy projects. For the market future, I think I can say that we have finally now been able to establish a trustworthy organization in Houston to serve Gulf of Mexico and South America, meaning Guyana, Suriname, and Brazil. The organization there are established. We have moved equipment over to the Gulf, and especially within the Razor, we hope and believe that we will pick up more activity late this year and, of course, into 2027. We see that as clearly a growth area, and the U.S. market for those kind of tools are quite promising. If you flip to the slide number six in the presentation, the order backlog is stable at NOK 11.5 billion. NOK 6.4 billion is firm. There is nothing really more to say about that, only that we feel that that is a very comfortable element.
Most of the backlog is within Operations, platform, drilling, and associates. I said last time, I think I said it every time, that within Well Services, we take a very conservative number from the potential backlog we have, because that is very much activities that is run by call-offs and not that kind of a firm term contract, but they are more linked to activity level. So there are more rigs in operation, more activity within Well Services. But now the rig count goes up, so we believe that the number you see here on the backlog from Well Services is relatively conservative. So, we think that is okay because we do not want to say more than we can deliver. I am quite confident that the level we are presenting here is absolutely within 80% accuracy. So the backlog is okay. The clients are stable.
We feel that the market is responding to our tenders, our wins. It is not everything we report into the market, so there is a lot of small wins that we just build backlog on, but we do not necessarily report them as contracts. That is the nature of the business. Within Operations, you see there, these bars, blue and green, shows fixed contracts and options. We have taken options into the backlog because very often these options are cleared. I am saying that, it is in a way, I say sometimes, it is ours to lose. If we operate well, if we do our job well, we do the HSE performance well, we do okay and better performance efficiency, very often clients are just calling the options and will be a part of the firm backlog. That is why we kind of show this.
With the ConocoPhillips, we have not taken the options in because they are 5 + 5 years options, so it is actually a 15-year contract we won potentially, but the 5 + 5 year options we are not taking in because that is, in a way, too far into the horizon. So, let us see what happens when the options are when you approach the time for calling the options. Again, I am quite happy to say that we are now back in the dividend picture. We said we would resume it for good reasons. Kaseum and Razor was good reasons.
They have contributed very well, and maybe there was, to be safe before sorry, we waited, we paused the dividend because there's always risk to buy companies, to integrate companies, to make sure that we can deliver on the synergies we have estimated, which is actually happening. That's why we believe that we can now, and the board approved that we could go back to the same level of dividend as we did before the pause. If you kind of just say that, so far this year, Kaseum and Razor, the reason for pausing their dividend has actually contributed with close to 18 million of EBITDA.
With this very strong rate of conversion to free cash, which is part of the story we want to tell, it's quite important to make sure that we are generating free cash. By that, we'll be able to distribute to shareholders and to do future also investments like future M&As and other things we have planned for. We'll comment more on that. That will come in due time before we do it. That's the overall story from my side, then I switch over to Eirik.
Yep
who's going to take the finance updates. Thank you.
Thank you, Simen. I will then start with the group financials on slide 9. The revenue for the quarter was approximately NOK 1.4 billion, slightly up from the second quarter this year, and 2% below the same quarter last year. Well Services, they grew close to 30% on last year. However, this was offset by lower revenue in both Operations and Projects & Engineering. On the EBITDA side, we arrived at NOK 241 million this quarter, with a margin of 17.2%, approximately the same level as in Q2. In this quarter, we had no one-offs. The free cash flow was NOK 108 million, up from NOK 31 million in the second quarter, explained by higher operating cash flow and lower CapEx. On a 12-month basis, the cash conversion rose to 40% of the EBITDA from 25%, and I'll get back to more details later on.
If we then switch to the next slide and we move into the Well Services segment, the revenue was NOK 596 million, up 2% on the second quarter and 29% on last year. Excluding Kaseum and Razor, revenue grew by 14% year-on-year. The EBITDA was NOK 192 million, a record for the segment actually, with a margin at 32.3%. Excluding Kaseum and Razor, the EBITDA grew with 7%. The growth came mainly from the U.K., Malaysia, and Kuwait, and also with some improvement in Saudi. Africa, Western Europe, and Thailand were, however, somewhat lower. Kaseum and Razor, they delivered NOK 69 million in revenue and NOK 34 million in EBITDA, approximately the same as in Q2. The integration of those two companies is on track. We have now hired our first resources in the U.S., and also we have hired more people in Saudi Arabia and in Malaysia.
CapEx for the quarter was NOK 71 million, down 17% on the second quarter and 46% on last year, confirming our strict CapEx discipline that we have emphasized earlier. Then we can move on to Operations. On slide 11, revenue was NOK 660 million, up 3% on the second quarter, however, below the NOK 758 million of last year. The main reason was a large settlement from the Brunei contract that was canceled, which we received in the third quarter in 2025. Maintenance mode on the ConocoPhillips platforms and also lower rig inspection volumes contributed to this. The EBITDA arrived at NOK 53 million, and the margin rose to 8.7% from 8.2% in the second quarter, and we were happy with the development in Operations. The Equinor portfolio and the better use of people across the rigs drove this margin.
As mentioned, rig inspection volumes, some bonus timing, and also the maintenance mode on the Conoco contract pulled it the other way. For this quarter, we had 14 rigs in Operations, and up from 13 a year ago. Then moving to P&E on next slide. Projects & Engineering had a normal seasonal third quarter. Revenue was NOK 128 million, down from NOK 154 million in Q2, and this is basically explained by the summer holidays in July. Engineering activity on the Odfjell Drilling portfolio was also lower and partly offset by more work in the U.K. Last year, the third quarter looked different. We were completing SPS projects, and to meet the deadlines, many of our people worked overtime and moved their holidays. That kept the revenue up through the summer. EBITDA was NOK 11 million in this quarter, down from NOK 16 million in Q2 on the lower activity.
Compared with last year, the margin improved from 6% to close to 9%. We have adjusted our cost base to the activity level, and a higher share of our hours is now invoiced. On the right-hand side, you see the revenue mix by asset type. FPSO, FSUs, and fixed platforms now account for close to 50% of the revenue. That makes the business less dependent on the drilling rigs and on the timing of the SPS campaigns. Near-term activity is expected to be softer, reflecting the lower SPS scope and our clients' focus on cost, and we will, of course, continue to match capacity to activity going forward as well.
Then, moving on to slide 13, I want to just walk you through the cash flow development in the quarter. We were pleased to see that we are improving our working capital position with the release of 38 million this quarter, compared to a 55 million buildup in the second quarter. Furthermore, we see that the CapEx is continuing to be disciplined. We arrived at 73 million this quarter. Summing up these things, we had a positive buildup of cash in the quarter of close to 100 million, and an EBITDA to cash conversion over the last 12 months of 40%. We are really happy with the development on the cash conversion side, and we will continue to monitor and have focus on converting as much as we can of the EBITDA to cash.
We believe that the 40% is a strong figure for the last 12 months. Then I will quickly go to the performance improvement program, and that is just a reflection from what we have seen now on the cash conversion. We continue to have focus on our performance improvement program, and it is basically into three elements. We, of course, have our focus to grow the EBITDA, both on commercial activities, but also on cost initiatives to always have the correct focus on how we are to develop and grow the EBITDA, both on commercial side and on cost side. As mentioned, we have a strict focus on cash and cash discipline in terms of CapEx and how we are approving new CapEx initiatives going forward. This is shown also in this quarter with the 72 million that the CapEx are.
Finally, to convert as much of the EBITDA into free cash flow will always be the end measure. This will be a continuous focus going forward and also into next year, that we are retaining as much of the EBITDA as we can. I think then we could move on to the last slide in the presentation, the summary. To summarize, firstly, the earnings. The EBITDA, they arrived at 241 million with a 17% margin. Our second quarter now above 17%, which is, we are very pleased with that. Kaseum and Razor and Well Services, they carried the higher level. Secondly, the cash, as just mentioned, the operating cash flow of NOK 200 million and free cash flow of more than 100 million this quarter helped us to provide a 40% EBITDA to cash over the last 12 months.
On top of that, and as Simen also mentioned in the beginning, we were successful in the Odfjell Offshore Tax Court, and we received the settlement or the tax refund in the beginning of October. We just missed that for this quarter, but we received approximately 150 million on top of these figures in the beginning of October. Finally, we are resuming the dividends. Now the dividend is back at NOK 1.52 per share, as we also said in August. The leverage is comfortable at 1.2 times, and the available liquidity, including the unused revolving facility, is now at 1.1 billion. All in all, a stable 2026, and with a market set for a stronger 2027. I guess that concludes our presentation, and we are open for Q&A.
Thank you. At this time, we'll conduct a question and answer session. As a reminder, to ask a question via the phone, you'll need to press star 11 on your telephone keypad and wait for your name to be announced. To withdraw your question, please press star 11 again. If you wish to ask a question through the web, please do so now.
Okay. There's one question here that I can comment on, and that's related to the Tax Case that we have in the U.K., and that's also mentioned in the note number 14. As you know, this has been a process ongoing for a long time. There's still no feedback from the hearing that was conducted in July. We're waiting for that. But we are confident that this court case will go in our favor at the end. But we admit it's unfortunate that this takes so long time. We think that the final outcome of this will even take longer time than the current hearing that we are waiting for, as there can be further appeals, dependent on how this will turn out. We don't expect the final outcome of this before perhaps maybe into the beginning of 2028, when all the court instances have been finalized.
But we are confident on the outcome of the Tax Case. There's a question from Lukas Daul on the phone.
Okay, yeah. I'm just patching Lukas in. Lukas Daul from Arctic, your line is open.
Thank you. Good morning.
Morning.
I mean, given your constructive outlook on 2027, I mean, if you decompose that, of course, the three main divisions that you have, where do you see the biggest potential for growing the top line, and where do you sort of see the biggest potential for margin accretion going forward? If you could sort of elaborate a bit more on that.
A little weak line here, but Lukas, I think we believe that the increased activity level which we see in 2027 is primarily based on the fact that clients are now more focused to maintain or increase production. We see that in all markets. I do have contacts with colleagues in the deepwater market, and I think that's, as I said, that's a very clear indication that clients are now preparing for major developments in deepwater. And those spendings are higher than just kind of a, in a way, tiebacks and things like that. These are new fields, and of course, they believe in the future, and that's a good sign. Normally, it's a very good sign.
I think that we'll see. We have expectations to see especially Well Services coming up within all the areas, within what we do with rentals, with casing running, TRS, and of course, also with intervention, meaning that we are focusing more on the development and create synergies from having acquired Kaseum and Razor type of thing. We also believe we have some investments, and we guess that's also going to be materialized hopefully now more in 2027, is that our investments in wired drill pipe with Reelwell, where we have some investments too, both in the company and in powered strings. So these are technologies that we believe will meet a very creative and fruitful future. I think we'll still see that Projects & Engineering are preparing for, as Eirik said, different market areas with asset integrity, FPSOs. We have already doing contracts with other rig holders, owners.
I guess that the P&E will be developing better, but still do not have the same rush of activity that we saw during the waves of SPSs. That is a very important part of the company, actually, because it actually is an enabler for all the technologies and all the things you are doing to qualify and move the company into new areas. Those 350 plus engineers are extremely important to maintain, and it is very difficult to. If lost, it is difficult to build up again. These are very high-skilled engineers with marine competencies and asset integrity competencies, where we are probably number one in the market. Operations, that is the typical area we are running in the North Sea, both U.K. and Norway. We have got some new wins in the U.K. We see more tenders coming up, but not to a big extent.
There are some platforms that will go into maintenance mode next year. We guess that we are going to probably keep the level more or less as if we are looking after the margins. We like to see high single-digit margins up to 10%. If you can maintain that with the cash flow, we are quite happy. That is the market outlook within the different business areas, Lukas.
Okay, thank you. I mean, you reinstated the dividend. Your leverage is coming down. You are going to be generating a decent free cash flow. Obviously, in the context of that, there should be room for increasing the dividend. How do you think about that going forward?
Well, I think you are right. I think that we will create room for dividend, and we have discussed it very thoroughly with the board of directors, and there is no unwillingness to look at-
and potentially increase. At the same time, we are a company that still are in growth modus. I hope I will not pause in the future, but I will say the balance sheet we have now will give us potentially also both dividend capacity and future M&A. We do have some targets where we actually are looking at. Nothing that's going to happen tomorrow, but we do have things we like to follow, and which will hopefully will be for the right reasons again. I do not expect us to pause dividend, but we might in the future increase it.
Okay. Thank you very much.
Okay. There's no more questions in the phone conference, but we have some questions from the web, so I'll hand over to Simen and Eirik to read them out.
Yeah.
Read it.
Okay. I will read up the one question regarding, what is your main learnings of Kaseum and Razor acquisition and integration so far? Going forward, would you say Kaseum and Razor acquisition is sweet spot for you, or would you rather go smaller/larger?
Simen here. I think, yes, thank you. Both. Kaseum and Razor we followed for quite a while. We like the two companies very much. We have spent quite a lot of time to make sure we are balancing our different cultures. We think that is very, very important. We need the people in both of the companies. They are extremely professional, and they have clearly delivered over time. With the support from us, I think we can make 1+ 1 + 1 more than three, much more than three. I do not like your sweet spot, but it is a good acquisition. It needs to be proven that we are able to nurse it to be as great as we hope for. This is a relatively small acquisition in numbers, but for us, it was a big acquisition.
It is always critical, and we got hold of new technologies, which is proven to be very attractive in the market. For us, that is small, big, it is equally important. I do not think I will say we will not buy companies bigger than ourselves. We will not do that, at least for now. Maybe never. But we will make sure we have great bolt-ons. We might look at new structures. We do have a very pragmatic board of directors and a very pragmatic main shareholder. I think for good reasons, we can do quite a lot within regarding that kind of flexibility, if that is an answer.
We can take a final question that is related to the cash conversion. You stated that you were pleased with the last 12 months cash conversion going forward, and given your focus on this, is it fair to expect that this conversion rate to grow further, or should we assume a 2027 growth market to keep this somewhat flat? I think we are very happy with what we see now on the cash conversion side, and we are focusing strongly on this, as I mentioned. It is always difficult to give you any guidance on where we should expect this going forward, but I think the last 12 months represent at least a level that we should target to have. There will be some seasonal dips, as you all know, when we are building up working capital in the spring and then release it in the fall.
That's the nature of our business. We will continue to monitor this on those 12-month basis. With the focus that we have now on cash discipline and to further grow there, this is a level I think we should expect to be at. If we can manage to deliver 30% to 40% on cash conversion, that would be very positive. I think that concludes the questions, so that also concludes this call. I would just like to thank you all for participating and for providing good questions as always. If there's anything else you want to ask us about, please reach out to Gert, and we will feedback as soon as possible. Thank you.
Thank you very much.
Okay, thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.