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spk02: Good afternoon, and thank you for participating in the Board Drilling Second Quarter 2023 Earnings Call. I'm Patrick Shoren, talking to you from Oslo, and here with me today is Magnus Fahler, our Chief Financial Officer, and Bruno Morin, our Chief Commercial Officer. Next slide, please. First, covering the required disclaimers. I would like to remind all participants that some of the statements will be forward-looking. These matters involve risk and uncertainties that could cause actual results to matter, to differ materially from those projected in these statements. I therefore refer you to our latest public filings. Next slide. In the second quarter of 2023, we recorded another strong result with an increase in revenue of 9% to 187.5 million. and an increase in adjusted EBITDA of 16% to 84 million on a flat active rig count. This brings our adjusted EBITDA margin for the quarter to 45%. We continue to see the market for Jacob drilling rigs developing strongly, and year to date, we have added seven new contracts and LOAs for a total estimated duration of 1,771 days or $289 million in contract value, which gives an average day rate of approximately $163,000 per day, continuing the building of an increasingly strong backlog. In July 2023, we had previously exercised options on the GERD, which was active in West Africa canceled. This rig was placed back on the market and we were immediately able to secure new work in the Middle East at more favorable economics. The change of contract for this rig will lead to some idle time before it commences its new contract in December 2023, which will impact our results in the second half of this year. However, at the same time, it will also improve our position in 2024 and beyond for the GERD. We've also secured a short-term extension to the contract for a rig Prospector 1 operating in the North Sea, a region that is experiencing lower day rate levels than the rest of the world. With the overall market continuing to strengthen, particularly in other regions, we are positive that this extension will provide a bridge towards favorable long-term commitments elsewhere. Based on these developments, our full year adjusted EBITDA for 2023 is now estimated to be between 330 to 360 million. And we expect our financial performance in the third quarter of 2023 to be similar to the second quarter, which we expect will be followed by an increase in the fourth quarter, when for the first time, all of the company's 22 delivered rigs will be in operation. Supported by our confidence in the Jackup rig market, we are in active discussions with Citrium, formerly Keppel, for an expedited delivery of our rigs Vale and Var to August and November 2024, respectfully, as we see significant opportunity to increase earnings with having these last two top-tier rigs available. Following the recent contract awards, our fleet's contract coverage for 2024 stands at 70%, including firm contracts and priced option with an average equivalent day rate of approximately $123,000. Considering this firm contract coverage and the projected day rates for the uncontracted days, we have narrowed the estimated range of adjusted EBITDA for full year 2024 to be between $500 to $550 million. Magnus will now step you through the financial details of the second quarter.
spk05: Thanks, Patrick. Q2 2023 revenues were $187.5 million in the quarter, an increase of $15.5 million or 9% to the first quarter of the year. The increase in day rate revenues were 13.4 million, and the increase in bare boat income from Mexico joint ventures was 2.1 million. The increase in revenues was a result of higher day rates and higher efficiency for our JV rigs, as the number of contracted rigs were the same quarter on quarter, 20. The rig operating and maintenance expenses for Q2 were 89.5 million, an increase of 4 million from Q1. and this was mainly due to insurance proceeds which was booked in Q1 and thereby reducing the operating expenses in that quarter. The general and admin expenses decreased by 2.1 million because Q1 included a 1.3 million national insurance expense recorded on employee stock options due to increase in the company's share price. The total financial expenses net were 49.6 million for the quarter an increase of 9.1 million, mainly as a result of 4.8 million increase in foreign exchange losses, 1.6 million increase in interest expense, and 0.7 million decrease in interest income. This gave an interest income before income taxes of 14.2 million and a net income for the company in the quarter of 0.8 million. Our adjusted EBITDA was 84 million, an increase of 11.6 million, or 16% compared to Q1. Our free cash position at the end of Q2 2023 was 83.8 million. Our cash movements in the quarter were mainly driven by 2.4 million cash from operations, which included 67.1 million cash interest paid. and 7.9 million of income taxes paid. We also spent 25.7 million on asset activation costs and drilling equipment, mainly for our rigs, The Hill and Arabia 3, which are starting up their contracts in the third quarter. We received 9.8 million proceeds from return on previous shareholder funding to our Mexico JVs, and we used 161.4 million in financing activities which comprise of 151.2 million repayments for all convertible bonds, 35.2 million debt principal repayments, and a drawdown of 25 million in debt from the upsides of the D&D loan facility. With this, I would like to turn the word over to Bruno.
spk03: Thanks, Magnus. I'll now briefly cover some aspects relating to the markets where we operate. check-up utilization levels have continued to increase year-to-date. In particular, the market utilization for modern rigs currently stands at 93.9%, an increase of 1 percentage point since our last report and a level not seen since 2014. Amidst this tight rig market, we note an increased sense of urgency from our customers in securing rig capacity. This is evidenced by two primary trends. the increase in average contract duration, and second, a higher number of tenders and awards targeting programs with commencement one year ahead or more. As a result of these trends, we note that the two- and three-year forward contract coverage of the Jacob fleet has already returned to peak levels experienced in the prior cycle. Further, in recent months, there has been an increasing number of reports of tenders and negotiations concluding unsuccessfully due to no or limited number of offers received. Additionally, we are experiencing an increased number of direct negotiations as customers attempt to fast-track re-contracting. We believe that the combination of strong demand visibility and this near and long-term tightness in the market will continue to provide support to increasing rates. Moving to the next slide, board drilling continues to build quality backlog. Our current contract revenue backlog stands at 34.1 rig years for a total of $1.64 billion. This equates to an equivalent rate of $132,000 per day, which we believe to be industry leading for jackups. Let me provide some more details of fixtures and general fleet developments since our last report. First, the MIST has received a contract from Valiura for 244 days program in Thailand that will maintain the rig contracted into the second half of next year. This award is a result of the strong operational performance delivered by the MIST and its crew, leveraging its unique features and offline capabilities. The TOR has been awarded a binding LOA for a 151-day program in Southeast Asia. This contract is expected to commence in December 23 when the rig will conclude its current commitment with CPOC. These awards for the missed in the tour will maintain these units contracted until mid-24. Based on the visible prospects, we project the Southeast Asian jackup market will be undersupplied at that time, which should put us in a strong position to recontract these units at favorable rates. The GERD has been awarded a binding LOA for a 270-day program in the Middle East, expected to commence in December 23. The Prospector 1, receive a short-term extension from its current customers in the North Sea, including some options that are subject to mutual consent. As Patrick mentioned earlier, the North Sea continues to experience softer demand and day rate levels. Hence, we continue to actively market the Prospector 1 for opportunities around the globe. All of our 22 delivered rigs are contracted or have future commitments. With the projected contract commencements for the Arabia 3 and the Hilt in Q3, and the GERD in Q4, we anticipate having all our delivered rigs active by year-end. Moving to the next slide. Since the beginning of 2022, we have continued to experience marked increases to our EBITDA numbers as a result of higher operating rig count and boosted by improved day rates. With recent awards we have secured, our contract coverage, including price options, stands at 70% for 2024 and 45% for 2025. Based on the demand outlook and active discussions we're having our customers, we maintain an optimistic view that our available days in 2024 and beyond will be contracted at rates similar or superior to our recently announced fixtures. On that note, I'd like to turn the call back over to Patrick.
spk02: Thank you, Bruno. So in conclusion, we finished Q2 with strong earnings a quarter in which we turned 75 cents of every incremental revenue dollar into earnings. The average day rate of our backlog is increasing by adding contracts at market leading rates. The quality of our assets with a fleet that is the youngest in the industry is the backbone of our operation. Based on the demand for rigs in the market and us being sold out at the moment, we have been progressing discussion with the shipyard to accelerate the delivery of our last two rigs. These two rigs could be adding to our earnings as early as the end of 2024. The refinance of our 2025 debt maturity is a key priority for us. With the development of our results and the strengthening of the credit market, we intend to be making first steps forward possibly as early as this year. The return of cash to investors remains a key objective that we aim to achieve in combination with this refinance. Our operational team remains focused on operational excellence for the sold-out fleet. So in closing, I'm very pleased with the results of the second quarter. The earnings potential of board drilling continues to improve, And our long-term value is getting stronger and stronger as the demand for premium asset continues to increase in what we see to be a multi-year upcycle for the shallow water offshore drilling industry. And with this, I would like to end it here, the prepared remarks section, and we can go to the Q&A now.
spk01: Thank you. As a reminder, to ask a question, you will need to press star and then 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 1 again. Please kindly ask one question and possibly a follow-up question at a time to leave room for other participants. If you do have any further questions, you can please rejoin the queue. If you wish to ask a question via the webcast, please type it into the question box and click Submit. Our first question comes from the line of Greg Lewis with BTIG LLC. Your line is now open.
spk00: Yeah, hi, thank you, and good afternoon and good morning, everybody. You know, thank you for all the prepared remarks. You know, Magnus, I guess I wanted to ask a question to you. I mean, clearly you mentioned the refinancing. You mentioned shareholder returns. You know, thank you for the next 24 guidance as we kind of look at that at the midpoint. That's $525 million. You look at net debt, we're looking like we're trading around three times next year on a net debt to EBITDA basis. That's a pretty good place to be. But I guess as you think and realizing in that number, there's some day rates in the 160s and 170s, which have been pushing and obviously some rates that are legacy that are below that. But really what I'm trying to understand is as you think about on like a, you know, because as good as the market outlook is for the next two, three, four years, you know, there is kind of that mid-cycle type way to think about it. So really, as you think about the cycle and the balance sheet, Any kind of color around how you're thinking about what a sustainable debt load is for the fleet? You know, post the, you know, let's assume we have the, you know, take delivery of the two, you know, we're going to have 24 high quality rigs. Any kind of color around how you're thinking about debt so that then we can kind of do our own assumptions around how we think the company has the potential to return cash to shareholders?
spk05: Yeah, thanks. Thanks, Greg. And it's true, we are. seeing a steady increase in EBITDA and what was a question in these calls two years ago, were our debt levels being too high? We now are extremely comfortable with the debt levels that we have currently on our fleet. At the same time, it's obviously important to be cautious about the cyclical nature of the industry. So we need to find a good balancing point on where we want to be when it comes to the debt in relation to our projected EBITDA at the time of drawing it down. So we don't have exactly a targeted level. Except I can say that the levels that we are at currently at around 75 to 80 million is a comfortable level, which I think is an okay assumption to also include in the future as well, which would both be a good level for upcycle, but also in a mid-cycle scenario. Maybe Patrick, you want to add something on the financing?
spk02: No, I think you're absolutely right. We're comfortable with that. And I think you have to combine that as always with that we're in a situation where there is no new builds coming to the market. The pricing that we hear on new builds is ever increasing, meaning that the loan to value type of ratios are actually improving in our favor. Even with the debt remaining the same, the values are going up. So I would say that we're comfortable with where we are today. And going forward, it is probably not the first thing that we intend to bring down. We'd rather leave the debt on the rigs as it is and use the surplus cash to return to shareholders based on what we see at the moment.
spk00: That's great to hear. Thank you for that. And then just, you know, Talking a little bit about the, you know, the GERD, which, you know, saw its contract change and then move that rig to the Middle East. You know, I guess what I was, I guess I'm kind of curious, you know, realizing that the Middle East is the largest market for jackups. You know, Patrick, I was kind of more interested in some color around West Africa. I mean, this seems like a market where You know, there could be opportunities for, you know, maybe not BOR, but the global market, the industry to deploy more rigs in West Africa. Just kind of curious how you're thinking about that market just now that we have one less rig, one less of your rig there. Is that kind of, yeah, just any color you can talk about West Africa and how you think BOR will participate in that market over the next three years?
spk02: No, I think it is certainly a market where there is upside going forward. And it's also a market that is close to our heart. So I'll let Bruno give a little bit more color on that. But there's certainly opportunity. Bruno.
spk03: Thanks, Patrick. Thanks for the question, Greg. And listen, we remain constructive in relation to West Africa. I think when you think about long-term programs in West Africa, we've been fortunate to have secured previously some of those contracts, including some of the contracts that we have in Congo. What we see at the moment is an increasing number of requirements, including a variety of new exploration programs in places such as EG, for instance, or Morocco, for example. It's a tight market already. There's limited capacity out there. With these programs, these exploration programs now taking some of the capacity, things should stay tight. And we hope that in the near future, a few of these programs that are under exploration phase are hoped to be fast-tracked by the customers, and they could be very quickly turning into a longer prospect as well. So we maintain a positive view. Obviously, in terms of size, as you pointed out, West Africa is nowhere near the same size as Middle East. So the impact that it can have is not as significant, but we do have a constructive view on that market.
spk00: Okay, super helpful. Thanks for the caller, Bruno.
spk01: Thank you. As a reminder, to ask a question at this time, please press star 11 on your touchtone telephone. Our next question comes from the line of Frederick Steen with Clarkson Securities AS. Your line is now open.
spk06: Hey, Patrick Magnus Bruno. Hope you are having a nice day so far. Thanks for the color in the prepared remarks. I guess the question I really want an answer to is how you optimally envision a global refi, but I totally understand that that is a sensitive matter, but feel free to comment on that if you'd like. But while you think about that, I actually wanted to touch on the new builds, Eval, and the one that you have at guard and that you're now considering to take early delivery on. I was wondering, are you able to, or I think you've discussed this or mentioned it before, maybe it was the previous call, that having discussions with Ctrium for something like this is something that you've considered for some time, but now you've given relatively specific dates. So I was wondering what has triggered these discussions to come to this point? Have you come to a point where there are firm opportunities for these two particular rigs that you're chasing? And also, how are you thinking about financing these rigs? Are earlier commitments still in place, or do you have to think about something new? Any call on that would be helpful. Thanks.
spk02: All right. So there's obviously quite a few things around the two new bills, but let's start with the overall opportunity that we see. Clearly, the market is so strong at this moment that for us to have more rigs to put to work at current and improving rates is incredibly beneficial, much more beneficial than having the rigs sit at the shipyard and being delivered a year later. I mean, these rigs will generate $35, $40 million of EBITDA per year apiece. So this is a large amount of earnings that we could put our hands on. And I would say that the only reason to pull it forward is because we see some real opportunities for these earnings, and we have customers that are interested to the tune that, Bruno, maybe you want to comment a little bit on the latest engagement you had regarding this.
spk03: Yeah, indeed, Frederic. We have had, I mean, let me start by saying that those two rigs in particular are quite special in terms of their capabilities and that in nature make them quite attractive in the market. We have two sister units currently operating and doing a fantastic job for their respective customers and that has kind of set their reputation, particularly in Southeast Asia where the sister rigs are. And we do see increasing number of opportunities A lot of these opportunities are, in fact, already targeting the second half of next year. We have had, including a couple of customer visits in the rigs. I think it's premature to say that they will be contracted overnight, but we do have a high level of confidence that it won't take too long to have them out there. So we are quite optimistic in a combination of a strong market and very, very premium assets.
spk02: Okay. Thank you, Bruno. Then when it comes to the finance, you were asking whether the financing is on rigs. And at the moment, we have financing on these rigs, as you know. But bringing them forward and having them delivered in 24 and our desire to refinance as fast as we can, you obviously start to get into a situation where this would be just become part of the refinance in which we would, in actual fact, pay the shipyard right out. So I would say that is a more logic scenario to follow. And you, as you rightfully mentioned, I'd love to lay out the plan exactly for the refinance, but you understand that that at the moment is not something that can happen. We will talk about that after we have that in place. But I think the key thing is it on these two particular rigs, we are having opportunities. We can improve our earnings by bringing it out early The market doesn't need to be any stronger than what we see today. And from a financing perspective, it fits very well with our refinance program that we are fully preparing for. So I think that is how it fits together. And as we have mentioned several times, sold out at the moment, we'd love to have our hands on those type of rigs because even though you might say that many of our customers have gone through a cycle of increasing demand, We still see a lot of demand for capable rigs, but particularly when it comes to lump sum turnkey type of jobs, anything related with offline capabilities and high efficiency, there's absolutely a place for it. So that is why we are keen and that's why we are somewhat pushing it. You mentioned earlier that we are indeed talking for a while with the shipyards. And I think that you have to see that from two angles. On one side, it needs to be very clear that these shipyards have a lot of work on their plate at the moment with normal shipbuilding activities, which basically means that anything that any rig contractor is trying to do is coming over and above the normal workload. Very hard to find actual shipyard capacity. So this is for us actually trying to complete our last two rigs. You can imagine if you would extrapolate that to any new build scenario, what this is going to do in time for the delivery time, but also what this is going to do for the delivery price. So I think it kind of understripes more again how strong the market is at this moment. And that's why we'd rather get our rigs out and are able to generate earnings with them. So that is the reasoning behind it. And I hope that we touched on most of the points that you were asking about.
spk06: Very helpful commentary. Thank you. And just a follow-up to this potential fast-track delivery. In that case, I guess you would also have approximately one year less of holding costs. So anyway, you'd have better cash flow in 2025 if you're able to bring it forward. Is that the right way to understand it? You're absolutely right.
spk02: Yeah, so there is a cost for us to have them delivered later. So there is also there a benefit of doing it faster. Now, obviously, you would have to trade it off if there's any costs related to acceleration. But clearly, we are looking and making sure that this, from an economics point of view, there is a good benefit to it.
spk06: Yeah, certainly. Final one before I hand it back, just touching upon the market. You guys have been pushing, I think, leading edge in all regions that you operate. And now we're in this upper half of $150,000 to $200,000. And typically, the data bonds that companies announce, they are dated in a way. They're based on discussions that took place a while ago. So if you're able to comment on it, are you currently discussing opportunities that would cross to $200,000 per day barrier in some way?
spk02: No, without giving our whole commercial framework away, we're not quite there yet, but we'll continue to move. And like Bruno was mentioning that there's contracts where there is not enough bidders to actually complete the the tendering process, all of this is leading to ever increasing day rates. So I don't think we have seen anything with a two in front yet, and we haven't bid anything with a two in front of it yet. but it is getting closer and closer. And we are certainly getting in ranges where we are past the 175, if you look at the latest stuff that is being put in front of people. And I would hope that that leads to contracts, hopefully concluded here in the next three, four, five months, right? So as you say that these things are somewhat dated, but we see it continued to move. and i think that there is an understanding for many of the customers that if you want the premium equipment then that is what they need to pay and if you don't pay it your neighbor pays it so i think it is it is the whole question of are we playing fair to our customers i think it is it's very much not so much that we increase prices unreasonably it's really if Customer A doesn't pay for it. Customer B is willing to pay that price, and that's why it ratchets up the way it does at this moment.
spk06: All right. Thank you so much, everyone, for the commentary. I'll hand it back. Have a good day. Thank you.
spk01: Thank you. I'm showing no further phone questions at this time. I will now hand the call back over for any webcast questions.
spk04: Thank you. We have two questions from the web. I'll start with the first one. Are you still looking to actively refinance debt and do you think BOR is likely to begin dividend payments in 2024 if refinancing is successful by the end of the year?
spk02: So as I said in the comments and what I commented on particularly on the conclusion slide, is that the refinancing of our debt is a key priority. And we are encouraged by the recent refinancing in our industries and the strength in the credit market. We are very keen to refinance at the earliest opportunity. And as we have indicated, this is for us the way to be able to return cash to investors in the form of dividends. I would expect that we are in a position to make the first steps towards this refinancing within this year. And we are preparing ourselves accordingly. So I do think that this is going to get traction during this year already. And as we have said, we expect to be in a position at that time to then also start to look at diffident and getting some of that cash returned to our investors. So I would say that is our position at this moment. I cannot express in a different way than just say that this is the key priority for management at this moment. And the first opportunity that we have to refinance, we will.
spk04: All right, thank you, Patrick. The second one, it was mentioned earlier that direct negotiations are increasing as customers want to speed up the recontracting process. What is board drilling strategy here in terms of the risk of fixing out rigs on long-term contracts in an increasing day rate market?
spk02: Okay, I'll let Bruno answer that in more detail. But I think in general, there's always this concern that in an up market, you are getting too much of your capacity too early on in the cycle committed by which you forego the higher day rates. I think we're very clear on that. And I think we have shown a very good discipline with looking at the open contract space that we have in 24 and beyond. I mean, in 24, it stands at 30% open. So us being able to fully benefit from the increasing market rates. So I think that is one thing to it. On the other thing, and that's what we've always said as well, the more we are starting to approach the $200,000 per day, we are certainly willing to take some fairly long-term type of contracts, meaning that, yes, you will forego any increase over that. But I think that with that, we have a fantastic return on the investments that we make. So that is, in general, the view on it. But maybe, Bruno, you can give your view on some of this more from a global view of where you see rates go and how we feel about that.
spk03: Sure, Patrick. And I think it's important to note that oftentimes direct discussions, direct negotiations with customers relate to rigs that are currently operating in their respective regions. I think over the years, we've demonstrated how disciplined we have been in terms of fixing, waiting for the right opportunities, finding the right opportunities, and it's no different at the moment. Obviously, with a market as tight as it is at the moment, incremental requirements in the regions oftentimes result in rig shifts across regions, which is something that we consider very carefully as well. to the same tune that maintaining RIGS contracted with a customer is of value to us. It is of huge value to our customers as well to avoid mobilizations, avoiding idle periods, and so on and so forth. So in these negotiations, we're obviously very mindful of all of these aspects to ensure that we secure the best deal possible. Out with that, I think it's important to highlight that over the course of the cycle and us leading the rates, it's obviously a function of how mindful and disciplined we are in the market, but it's a lot of function of the quality of our assets and the quality of our operations. And we see in a lot of ways, the contract that we're negotiating with the customers, they're coming to us because they're familiar with the results that we are currently delivering for them or that we have delivered for them in the past. So I think that's something that we consider very carefully as well in our negotiations. I'll probably leave it to that, but The bottom line is the discipline that we show to the cycle stays intact, irrespective of that being a tender or direct negotiation.
spk02: Thank you, Bruno. I think with this, we have reached the end of the questions. I would like to thank you very much for your interest and attention to the story that we have to tell. And we look forward to talking to you again real soon. Thank you.
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