Welcome everyone to this Q1 presentation for Prosafe. I'm Reese McNeel, the CFO. I'll start off the presentation today and then hand over to Jesper, our CEO along the way. I won't dwell on the disclaimer, which everyone knows about. Start off with a few highlights. I think I'd like to start off first by saying that we are very pleased that we were able to conclude the private placement yesterday. As we've noted, we've communicated to the market over several weeks and months that there was the potential liquidity need going into the later part of this year, we're very happy that we were able to close that transaction yesterday and had good support. There will be a subsequent offering coming for the shareholders who weren't able to participate.
We're very happy to have that done, and I think that will give us a much clearer runway into what we think is a very improving market. Coming on a bit to the Q1 itself, we had EBITDA of $6 million negative. I'd like to add though that there was $4 million of mobilization costs, which has been capitalized, so will be actually amortized over the period of the contract. When I look at that, I look at that at about sort of if I were to say cash EBITDA equivalent, it would be more like minus $10 million, and I think that is, that is coming close to, I think, some of the market's expectations here. Had actually a very good working capital development during the quarter as well.
I think that's driven by unwinding of the contracts that we were on in the back half of the year, so we're collecting out the sort of receivables as our activity level went down into Q1. We see that, not unexpectedly, as we're ramping up our cost and coming online with these new projects, we see that it takes time, so you to actually see the cost come through to cash. We think there's a timing effect here, and the cash balance ended approximately $75 million at the end of the quarter, which was relatively strong, again, we think there's a timing impact to come there. We'll come on a bit later to the tender activity.
I think Jesper will give kind of a good look into that, but I can give sort of one highlight, which is that we were well, in line with our expectations, Petrobras actually did come out yesterday with a new four-year tender. I think Jesper will talk a little bit about that. Operationally, we had one large success from our perspective, not in Q1, but shortly after, which was the Zephyrus. Everyone knows, we mobilized the Zephyrus from the North Sea to Brazil. We had had a target of 1st of May, which was, in our view, also quite aggressive, we achieved that. She was actually on hire on the 30th of April. A very good result from our team, from our perspective shows again our capability to operate well. Brazil is...
Petrobras is not an easy client, not an easy client to get happy. It's not easy to get on hire, but we have a strong team there, and I think that we were able to really deliver well on that. We're very happy with that. Likewise, in Brazil, we do have the Notice off hire period coming up. She should be starting her off hire period here very shortly in the coming days for about 30 days for whole cleaning and some compliance works and that sort of. Yeah, still on track. No big surprises there. Utilization quite low this quarter. I think that was a transition quarter.
We only had two rigs on hire in the quarter. Again, Zephyrus is now on hire. We will have Concordia on hire later in the year. We will see the utilization improving coming into the back half of the year as expected as we get these two vessels to work. Backlog, nothing new added to the backlog this quarter. Again, we had tripled the backlog going into this year. Briefly on the fleet status. I'll come on to that, I think, on the next slide a little bit more in detail. I think the highlight kind of on the fleet element is, of course, and on the cost side is Concordia. We do see that Concordia has had some additional cost coming through from the project.
We are, though, quite far along now on that project. I think we have all the work scopes identified. We have a full new team on board, new project management. I think we feel quite confident now that we've hit the range on Concordia in the $25-$30 total kind of cost range. That includes, you know, layup cost, operating cost to mobilize the field and CapEx. We think we'll probably end in the lower range, but we have prudently added some contingency. We are well on the way, so I think, you know, we believe that we've seen the back end of that, and we have good control of that project now going forward. That has presented itself with some negative surprises, unfortunately.
Again, we did get Zephyrus on hire, and all the rest is looking quite good, and I think we'll come on to Boreas and Caledonia with Jesper a little bit later. A positive mention as well, we did, and I think that's in line with sort of our messaging that we would try to do what we could to secure additional liquidity initiatives, we were able to sell an old gangway that we had from the Regalia for $2 million. We have been working as well to collect out what we can from a cash perspective. I think I addressed Concordia well. Happy to take questions if there are any questions after on Concordia. Very quickly again on the financials, -$6 million, again, the $4 million mobilization costs, which I think is important to keep in mind.
We do think that obviously the results will improve with Zephyrus sort of coming in and the utilization improving as we move through the latter half of the year. Nothing material from our perspective to address on the balance sheet. Of course, the interest cost has been increasing. We are not hedged under the current facility. We don't have any hedging facilities. As the interest rate environment changes, of course, we're susceptible to those interest rates increases, but we still have a very low margin on this facility. Balance sheet. Happy to say on the balance sheet that we have improved that significantly after the private placement.
The comments around liquidity risk, potential covenant breach, et cetera, I think with the initiatives we have put in place, deferring the Eurus, raising some capital, now through the private placement, also selling some assets. We feel very comfortable now that we have a solid liquidity base, going forward and looking ahead into 2024 and the opportunities there. We think we are now much better placed than we were just a few hours ago, in fact. Again, very strong working capital development in the quarter, although a lot of it is timing and working capital. We believe that we will see the cash balance decreasing more substantially as the costs kind of come through.
We have incurred a lot of the costs, committed a lot of the costs, and it will start to come through before we start to see the revenue from Zephyrus and Concordia coming on. Debt profile. Not going to talk really about that. I think we've talked about that many times. There's one thing I would like to highlight though, which is that we are very focused on the tightening market and opportunities to grow the business, opportunities to do acquisitions, opportunities to potentially bareboat in other vessels. We are proactively going to see what opportunities are out there and how we can discuss both with our lending group and our broader stakeholder group, how we can achieve that, because we think there's significant value to unlock by being able to execute some of these transactions.
With that, I think Jesper talking about the positive sort of outlook. We'll hand over to Jesper, who will talk a bit about the market. Jesper.
Thank you, Reese. Thanks a lot. A quick run-through of the market, starting with, for most, I think a familiar slide showing the global overview for the high-spec flotels. As you can see, it's the familiar story that we have seen supply reduce a bit from the peak, that we see increasing demand, and we see quite a bit of volatility in utilization. I think that's a bit the story for this segment. There's two things that you see quite some swings in activity and utilization. Normally, you have a bit of a catch-up effect from time to time, as we saw after COVID, where it's quiet, then you have a recovery or catch-up effect or catch-up.
Now we have a quiet 2023, which we then hope, of course, will then be followed by more activity, as you can see is the statistical trends. On utilization, the other thing, this small niche with big swings means that often there are situations where the demand-supply balance fluctuates. You have situations with oversupply, and then more interesting for us, there are also situations where there is undersupply, given the small niche and the sensitive balances we are working with. That's the story from a global point of view. On the day rate slides, you will find no new data points, which means that our last public data point is at least $112 for Zephyrus in Brazil.
Yes, there is a new tender out, which will give a new data point shortly. In the North Sea, we have only mentioned the last public data points. There are a few other fixtures that are not public to my understanding. You may dig around to see if you can get some more data points, but we stick to the public and the factual. I'll not be surprised if they are not too far away. On the demand drivers, looking at the North Sea first, you can first on the left see what I mentioned, that you have these typical high activity, low activity, and especially low activity followed by high activity or the catch-up effect, which we think will also be the case going forward.
There's no 23 bar, but that will of course be relatively low, and then we will see what will come in the coming years. On that basis, the one demand indicator we have included here is the, is the PDOs, the investment activity on the Norwegian Continental Shelf. I'm often asked, "Is there an easy way to translate number of PDOs to timing and size of flotel activity?" It's not so easy. You kind of track them on a one-by-one basis, and then there can be execution philosophy, other supply chain limitations or bottlenecks that has impacts the timing. That's something you track. Of course, 2022 proved to be an all-time high in Norway in that sense, and a very positive indicator of the demand that lies ahead.
In Brazil, the activity level is a bit more predictable, and that is because Petrobras use these vessels as part of their plant maintenance. You will see a fairly strong correlation with the number of vessels required and the installed base. As everybody, I think, who follows us and other segments understand, there's quite a positive outlook on the installed base with a number of very large FPSOs being delivered primarily in the Búzios region. I think in Brazil, which is harsh but not as harsh as the North Sea, you have a bit more variety on the supply side. I think there's quite a clear technical preference from Petrobras on what they need, which is at least at par with the North Sea, but there's probably more flexibility on the supply side.
Quite frankly, to meet the demand picture in Brazil, there has to be flexibility on the technical specs, otherwise it will not match. A snapshot on some recent current activity. We have a bit of the tendering snapshot for semi-subs or other solutions. In addition to what's on here, there are other ongoing tenders that we track and didn't include it on the list. I think there's also a tender in Canada for 24 and Australia for 25, Australia for 24. You know, some of these things, our vessels may not be ideally positioned from a geographical point of view for some of these jobs, but it's still important to track as this of course absorbs the high-end supply on a global basis.
We are, after all, in the mobile units, so keeping a good overview of the global development is quite important to understand also how the regional dynamics may come at play. Currently, we have no visible tenders for the North Sea for 2023. Let's see what pops up. The second bullet is this right of first refusal agreement on Boreas that we have already received many questions about, so I'll just touch briefly on that. It's a bit of a slightly unusual situation where we are working with a potential customer to basically build a case for employing the Boreas in 2023 into early Q1 2024. No conflict with other 2024 jobs. For about eight months is what there's looking at now.
I think we are, I think the gross payment is about $2 million, and we have $200,000-$300,000 of cost or a bit around that, so it's net $1.8 million to us. There's a limit until mid-June to see if we can formalize something. I think what we see now is not a strong push to formalize this. I think our base case is the $1.8 million. Then of course there's time until mid-June to see how we can further develop this. It's a bit of an unusual situation, something we have developed bilaterally, therefore it's not a tender or anything.
Of course we like to be involved early to discuss with customers what are acceleration possibilities, what are the scenarios, what can we do to basically help accelerate production reduce. We like to that early engagement with customers and try to develop something that is that could turn into something. That has a bit of a cost to it, of course. In this respect, also positive income. We expect there will be another one to two tenders in the North Sea in the coming months. Will it be tomorrow, next month, after summer holidays? I think it's too early to speculate on. I know the customers are following the market fairly closely to understand what is going on and see when and if they will come to market or enter a more concrete dialogue.
Petrobras, as Reese has already mentioned, released a tender yesterday. I haven't done the full analysis, but can see it's a, I think the bid deadline is end May. Fairly large personal capacity. Spec fairly flexible, a bit in line with last time around that was unsuccessful by Petrobras. At delivery, I think it's within less than 6 months from contract, which is fairly tight considering what's available in the market. I haven't done the full analysis, I must admit. We still have time until the bidding end May. We have something which is slightly unofficial is that we still thought we would include for transparency. We had one tender on the list previously, I think.
I think it says four months, and we understand it may be three to four months, where it looks like a competitor in the North Sea will take that job at rates and implied earnings that I don't think we found attractive enough to commit our last available DP3 vessel in the North Sea. So we will sit a bit on that. That's been our strategy. The next two bullets say, what does it mean for the, for the North Sea supply? I think it's too early to say something absolute about that. If it's a DP job, so if the other, apart from Boreas, there's 1 more DP vessel available in the North Sea. If that takes the job, then the Boreas alone.
If you choose to take a vessel from outside the North Sea and to take the U.K. job, then basically there's still two. I think it's, it's too early to say something absolute. But of course, it's positive that that supply is reducing. All good. Overall, I think before handing the baton back to Reese to say something about the future, looks optimistic about the future activity. We are focused on basically on seeing that we secure the best possible employment for our last available DP vessel. Then, of course, we have the Caledonia, so we have two vessels available for 24 that is exposed to the market. On a very sunny day, also the Scandinavia, may not be 24, but that's where we are. Yeah. Please.
Thank you, Jesper, for a good market overview. I think that flows well. I think several people have seen this slide already several times. Again, I think we just wanted to highlight again that, you know, a day rate of about $110 in Brazil, that's about the equivalent of a day rate of $175 in the U.K. and gives you sort of that $22-ish million EBITDA that we have seen historically. We are basically at that level and above, we have seen the rates increasing. The last fixture was $112 for us in Brazil and there was a $190 fixture in the North Sea. We are trending, I think, up in day rates towards that, you know, what we believe will be moving to the average and increasing in the future.
We remain optimistic on that. As Jesper said, we're maintaining our strategy of seeking sustainable day rates going forward. We have seen others maybe being willing to go a bit lower on rates, but we think that it's the right strategy here is to continue to seek more sustainable day rates in the market. Quick summary to wrap it up before we ask questions. I think first and foremost, again, very pleased that we could close the private placement. Very happy that we had good support from our shareholders to do that.
We will be out with a subsequent offering, we have fixed the liquidity situation that we have been discussing for several months, which for us is obviously, I think, allows us to get on with focusing on what is an improving market and getting our last remaining two rigs on good contracts going into 2024. With that, I think open it up to any questions that the group may have. Yeah.
Yeah. I.
Maybe take.
Yeah
Take this too.
Okay. Congrats, by the way, on the placement. I have a few questions here. I think the first one, I actually want to touch upon your comments about M&A and the tightening market, and that you could potentially work with your stakeholders to see what's possible with the current cap structure and how you can, you know, take, I guess, take market share in an improving market. How would you kinda weigh those M&A and bareboat style options versus the two new builds that you have at yard? I think that would be interesting with some color on.
Yeah.
Yeah. Yeah, it's not an.
Go ahead, Jesper. Please.
It's not an either/or.
Please go ahead. No.
I think they have different time horizons. You know, they are the new builds at the yard. They're being repaired after some typhoon damage. There's reactivation. They have one timeframe, and then we have another. We would like to have relevant supply and bids for everything that's there. We have some near term and some a bit longer term. It's not an either/or, and we do see it's not like there is a whole forest of opportunities. Then you say some structures you need basically to get lender approval, other structures you can do without. You know, we would like to do the optimal structure basically to create value. It's not an either/or. I think it's fair to say that we do pursue different tracks, which we don't see as being conflictive, conflicting.
Yeah.
Just as a follow-up on that, do you have any preference on, you know, acquiring or chartering assets, with or without contracts at this point?
Without contracts would be okay for us. We think how the market looks, I think we are in a good position to market the vessels. I think in Brazil, we have three rigs there. That's the most of any operator. We have never delayed a delivery to Petrobras. I think they like our services. We have a good foothold in the North Sea. Was less available supply. I think we have a strong marketing position. I would rather buy a rig and then have exposure than buy a bond with a long track record, to be honest.
Thanks. Next theme here, I think on the cost or on the Concordia, where you said that you had some negative surprises. Are you able to share a bit more color on that? I think what I'm really wondering about is if you're doing similar work on another rig in the future, what should we expect then?
Oh, I can take that one. I think Concordia's, in fairness, is a little bit unique relative to our other vessels. She is coming up on 20 years old. She's one of the older vessels in our fleet. I think she was working in that harsh environment for some time, or has been working in Brazil and in the Caribbean in a quite corrosive environment, you know, over some time. I think she's in a different place than Eurus, Nautilus, Zephyrus, and Boreas, which are sort of more modern and younger vessels. I don't think we see the same issues. I think, yeah, I think this is, to some extent, a one-off situation that we've encountered.
I think a little bit of the color, I think there's two large factors driving the cost, in all fairness. One is that arguably, we underestimated the amount of work that had to be done. So we didn't, things came up that we weren't expecting, when we needed to upgrade or do things on the vessel to get her prepared for the contract in the Gulf of Mexico. These could have been things that we actually should have known, repair issues on the vessel, but also I think to some extent we underestimated the compliance, certain compliance scopes that need to be done. The second is related, I think, to cost and cost inflation in the region.
We find ourselves in Curaçao, and we find ourselves in a tight sort of market with respect to services to this industry with a lot of other mobilizations and upgrades and reactivations going on. We have found that actually the cost of doing some of the work in Curaçao, whether it's, you know, labor that we need to fly in from Europe to do the work, or whether it's actually machining of parts or transport, we have found that that has actually also been quite a lot more costly than we had anticipated.
Thanks. And final super quick one. Now that you have raised $30 million extra, what's your own estimate both in amount and time of the liquidity low point going forward?
I think that's... Well, my first caveat is that it depends very much on what we, what work and where we achieve for the likes of Boreas and Caledonia. You know, there is one scenario where we just outlined sort of two scenarios. There's one scenario where we'll be able to get some work in 2023 for Boreas, which is not unheard of. We have this option. It's not our base case, but we think if you were able to achieve that, have some work with Boreas, for example, you know, in 2023, or if you have a job with Boreas in U.K. sector, we think the low point would likely be sometime in Q1, early Q2 next year.
You know, probably no questions, a very comfortable liquidity position. That is sort of our sort of base case is that, you know, based on the current assumptions, there's no issues going forward. Of course, we're also very keen on securing the best contracts for these vessels. Again, Petrobras out with a tender. We think there'll be more tenders in Brazil. We have vessels in China that could potentially do that. Looks in our opinion to be a bit too far out in time for those vessels that are in China, these current contracts. We do have the Boreas, and there are other opportunities in the market. We do know that it costs about $20 million to take a rig down there. That's what it costs in Zephyrus. Boreas probably'd be the more.
I think we want to also be opportunistic and proactive on those tenders. Depending on exactly how the market moves, you know, you can foresee a scenario, of additional capital need, but I see that as a positive because that means that we have actually been able to secure high quality contracts, you know, looking, you know, going forward. I think, you know, our base case assumption is that the $30 million is sufficient to see us through that low point, which will probably be Q1, Q2 next year.
Perfect. Thanks.
Okay. Other questions in the room?
Any on the phone?
There was a few questions on the phone. One was, "Is the right of use of Safe Boreas different than what is already on the tender list?" Yes, that's an opportunity which is not listed.
Yeah.
It's not a tender.
It's purely bilateral.
Do you see more tenders in Norway and the North Sea of 2024, and does that make it reasonable to activate Scandi?" I think our view is that 2024 may be very tight on that. Of course, if the market, she is there and it could happen. I think it's not in our base case that she is reactivated for 2024.
No. I think you have to look at what is the type of job. It's a moored vessel. Can you do a moored unit? What is the number of jobs? What is the number of rigs? You can do the different scenarios, but it is not in our base case. It would be a positive surprise.
Yeah. Another question. You expect rig tenders from Petrobras. Is this adding new rigs or renewing existing contracts?
Yeah. There needs to become more rigs to Brazil, mainly for Petrobras, also for others. It's if you look at. If we just say bidding 1st June, 30 May, a few short period for concluding a contract and then delivery within 6 months about year-end. If you look at the contract overview, I don't recall there's any contracts that come off contract at year-end. If it's about that, then it's most likely would be something new that we'll be looking at. That's my preliminary assessment without having taken a look. Our overall view is that more vessels needs to come to Brazil to satisfy the activity.
Spec requirements in Brazil, high or low specification, and how do you see that, you know, the difference between international players like Equinor versus Petrobras? Yeah.
Okay. I will, I'll keep going. No, it's Petrobras have a preferred spec, which is quite high. I think they need to display some flexibility, especially on the large FPSOs. You need a high quality vessel to be efficient. You have the likes of Equinor that normally also, especially for the FPSO, would go for a North Sea type vessel. For fixed installation could possibly be a bit more flexible. They have the Peregrino, they have Bacalhau. SBM MoTech, also like good quality vessel, but a bit more flexible. You have some of the smaller independents with smaller jobs where I think lower spec vessels can do it, and I think the point here is that it all adds up is the...
We have seen that. I wouldn't be surprised to see some attractive fixtures for some of the simpler vessels. Everything absorbs supply, whereas our main focus on that market would be the higher echelon, I think.
Good. Thank you, Jesper. The next one was any new markets opening up Mexico or West Africa? Take that one as well.
No. No. The short answer is no. I see, we see activity both places, but West Africa probably not for our type of vessels, although on a rare occasion. Mexico has its own structure with some very high spec vessels and some a bit lower spec. We have some steel that fits the high spec. They are currently busy in Brazil.
Yeah. I do I have heard myself people talking about new opportunities West Africa, for example, South Africa or Namibia where it's a bit harsher. That could be, our view on that is that that is a ways away. They've just done some exploratory drilling, accommodation tends to be late cycle. In some years potentially, but not, we don't see that currently on the horizon. Do you see rates coming up in 2024 for new contracts, or is there low visibility for rates? I think first and foremost, the fixture that is public, which was the $190, I think that definitely shows an improvement from what it was in the past.
What the exact rates are on the last two tenders, which we understand have been issued, those have not been made public, so we're not exactly sure what those rates are. What we can say is that we have been following our strategy of holding what we believe is a sustainable rate and not wanting to have our last remaining DP vessel on a rate which we don't feel is sustainable in the market. We have been holding back and taking that position. What that exactly translates into as far as what others are bidding, I think that's. We're a bit unsure.
Yep.
I think that was it. One more question here. Yeah. Can you please comment on how you see competition from walk-to-work and jackup vessels?
Okay. Yeah. That's a longer story. Quickly, in Norway you can only use walk-to-work vessels on unmanned installations, simple installations. In Norway, not relevant. I think generally you see them used in U.K., you see them in wind and so on, and it's kind of a, an inflection point when it makes sense. If you have low POB in a short period, then it could make sense. I think some of the larger jobs that we have predominantly performed in recent years, it's not been walk-to-work territory. In Brazil, I think they're testing a bit in that sense. It depends on the concrete job. For many of the jobs we're looking at it's not relevant, and for some of the smaller jobs it could possibly work.
I think of course the key is that the weather criteria has to be fairly benign, so you're looking for a short summer period of benign conditions. Then the number of people involved is normally quite a lot less than what we are looking at in that sense. But it's a bit longer story, but that's the, those are some of the headlines.
Yeah. No, I guess on the jackup space we have seen there is a jackup working
Yes
In the U.K.. Yeah. Two actually. One in the U.K., one in Norway. Those are accommodation jackups. I think they have a lower operating cost but a higher installation cost. Of course they can work over the season, but they're a bit more tailored to, you can't work on every type of installation. There will be a market for those vessels, we're sure about that.
Yeah, sure.
You know how, you know how that competes with us, you know, we do compete at times. Other times, you know, it becomes quite clear that's a preferred solution.
Yep.
There's also limited supply in that space today. I think that was it for the questions. Thank you everyone for coming.
Thank you.
Look forward to speaking with you next time.