Bw Offshore Adr

Welcome, everyone. My name is Marco Bene, CEO, and I will host this conference call together with our CFO, Stole Andreasen. And in this call, we will present BW of Shores first quarter 2023 results. Please note our disclaimer. And then I move on with the highlights. I'm pleased to report good progress on Barossa, now 67% complete by end of April. We have divested BW opportunity for 125 million US dollar. And we continue our return to shareholders with a combination of cash and dividend in kind in BW Energy shares. That's roughly 50-50 and equivalent to about 45 million US dollar on an annual basis. The EBITDA in the first quarter came in at 79 million, operating cash flow 128 million, and that includes 78 million of the prepayments of the Barossa day rate. Moving on with an update on operations, starting with Barossa, as I just mentioned in the highlights, the Barossa project is progressing well with 67% complete and on track for first oil in the first half of 2025, as planned. We're extremely pleased with the excellent safety performance on this project, accomplished by all parties involved, with 14.1 million man-hours without a lost-time injury event. The assembly of the mega-blocks in the floating dock is nearing completion, and we are preparing for a float-out in June. And the first major equipment packages are arriving in Dynamec in Singapore for integration in the modules. You can see from the pictures that we are now deep in the construction phase in all areas, the whole in South Korea, topside modules in Singapore and the turret mooring system in Indonesia. As you know, the project is being executed in difficult circumstances. We're dealing with inflation and global supply chain disruption. But we remain on track and maintain our guidance on schedule and the project economics. Then on our fleet and HSE performance, the safety statistics are trending down for recordable incidents, which is good. In addition, we report on the high potential incidents, which we treat as leading indicators, and we follow them up in the highest level of our internal investigation process. to ensure we take this incident as learning moments to prevent potential future incidents. And this quarter, we had two of those type of incidents. The fleet commercial availability expressed in weighted average fleet uptime was slightly down, and that was due to logistical challenges in Nigeria, which impacted Schengen Bergen. Overall, still a solid commercial uptime. Our strong cash flow is underpinned by our core fleet, which in addition to BWO Palo Verosa, consists of BWO Adolo in Gabon, BWO Catcher in the UK, and BWO Pioneer in the Gulf of Mexico. The backlog of these four units now stands at US$5.8 billion, and that is 84% of our total backlog of US$7 billion. The total backlog includes the most probable options that we have in these contracts. BWO Adolo will now increase its production above the average of 7,000 barrels per day achieved in the first quarter, and this is due to the achievement of the first over from Hibiscus and Ruisfield in April. And now the second well is in progress. I will come back to this in the BW Energy section of this presentation. BW Catcher had a strong quarter with 100% commercial uptime and an average production of just below 38,000 barrels per day. MBW Pioneer also delivered a strong quarter and we're looking forward to the results of the drilling activities in the Chinook field, which have started recently. Then an update on units that we had in layup. We sold both BW Opportunity and BW Athena for a total net proceeds of 130 million US dollar and we reduced with that also our OPEX going forward. In case of BW Opportunity, this was part of a redeployment project which consists of an EPCI and an O&M service contract which we currently negotiating. while the feed phase has already started. Then on the non-core fleet, we are on track with the divestment of this portfolio, and we're aiming for a conclusion before the end of this year. This will then cover the units in Nigeria and Ivory Coast. Petroleum Nautipa is progressing decommissioning, cleaning and then demobilization, and then followed by recycling in the second half of this year. And for FPSO Polvo, we have already agreed a sales transaction with BW Energy so that the unit can be redeployed on the Maromba field in Brazil. We have now agreed that BW Energy to delay the payment milestones in accordance with the adjusted timelines of the Maromba project. With that, I'm handing over to Stole to renew through the financials.

Thank you, Marko. Moving to the finance section. Starting with the overview, as usual, you can see operating revenues came in at 166 million and EBITDA at 79 million for the quarter. If you compare to quarter four of last year, you will see that those numbers were impacted by the one-off reimbursement for the work we had done on the Gato de Malto project. And as such, it's not representative for underlying business going forward. And as Marko mentioned, we had good performance on the units during the quarter, only affected by the shutdown on Senneberge, which have limited impact on the financial results overall. And when going forward now, we should see minor impact as marginal units are leaving the fleet through the divestment program. But that should be offset by a better and higher tariff from Adolo as production is increasing in line with planned production increase from BW Energy and also somewhat offset by a lower OPEX as units are leaving the fleet. Looking at the overall income statement, as you can see, depreciations are reducing slightly. Again, it's just a natural effect of units being fully amortized. We have a fully amortized FBSO Abo in last quarter of 22, and as such, you see lower depreciation in this first quarter of 23. Sale of BW opportunity resulted in a gain, as it was so slightly above book value, of 6.4 million recorded in quarter one. And when you move on to financial instruments, you will see that we have a negative mark to market impact of 13.9 million in Q1 related to hedges we have put in place. This is mostly driven by strengthening of US dollar against other currencies that we have hedged, and also declining swap rates, which has had a negative mark-to-market impact quarter-on-quarter on interest rate hedges. Countering this somewhat is the fact that we are revaluating our bond loan, which is denominated in Norwegian kronor, to the same strengthening of US dollar, which has a positive impact on our P&L of 10.3 million in quarter one. Other items are more or less in line with the expectations. Share of our investment in BW Energy, the impact was close to zero this quarter. Tax expenses similar to last quarter, and we ended the quarter with 17.8 million net profit in Q1. Taking a look at the cash flow, as you can see, cash flow from operation was 128 million in quarter one. And when you exclude the prepayment related to the Barossa FBSO charter, we had cash flow of 50 million from existing operations. I have to say that's somewhat lower than what you would expect. And this is driven by some delay on payments from clients. which has come in after quarter end and has not been reflected in this cash flow statement. We had the net investments of 196 million in the quarter, of which 159 million is related to Barossa. The remaining cash flow out in the quarter is one related to the final milestone payment to Keppel for the repair work we have done on BW Opportunity, which was all settled ahead of the sale. and some capex that we still are incurring on the dollar related to the time for rouge phase one. And I just want to mention that this capex also, although not so significant, but it does translate to a higher ongoing day rate, including an agreed return on the investment we're making on the unit. As Mark already said, we have sold BW Opportunity in the quarter, and we got 125 million in from the buyer. For Barossa, BW Offshore for our 51% ownership injected another 13 million into the joint venture. And the same joint venture paid another 100 million to the construction company as we're progressing as per plan for the project. All the debt was reduced by 66 million in the quarter as we continue with the scheduled installments on our facilities. And you now can note that interest expenses are reducing to about 5 million for the quarter as we actually get quite a bit of benefit from the positive cash settlement under our interest rate hedges, which are now significantly in the money. And so end of the quarter, we had 283 million in consolidated, when excluding consolidated cash from BW Ideal. Taking a look at the funding for the BROSA project, as Marco has mentioned already, we are progressing well on the project. We continue to fund as planned, and in Q1, we did draw another 135 million on the project debt facility, which is now about 50% drawn in total. And as you can see, we called another 25 million in equity when you combine the equity injection from BW Offshore as well as our partners. And this implies that there's approximately 52 million more to be funded from BWO until end of the project. Prepayments from Santos is coming in as expected. They are being paid based on percentage measured completion of the project. And as of end of Q1, we had received $607 million from Santos, which shows their continued very strong commitment to completion of the FBSO. And I've said this before, but again, we are 100% funded for all costs related to this project. This quarter, the net debt reduced by almost 130 million to 369 million by end of Q1. And the basically exceptional debt reduction in the quarter is largely driven by the sale of BW opportunity that was closed in March. But I also think it shows to demonstrate that we continue to fund equity for Barossa as well as paying dividend without the need to increase on consolidated debt on our balance sheet. Equity ratio trended down slightly and stood at 32.4% by end of Q1. As you can see, we have two debt facilities and two bonds that needs to be addressed over the next couple of years. I'm pleased to say that we have now launched the refinancing of the corporate facility and the facility for BW catcher, which both have their original maturity mid-2024. We are targeting to extend the corporate facility with five years from closing and the catcher facility with 3.5 years from closing. And we do have a target to close these refinancing efforts within end of second quarter. We think that we are offering lenders an attractive refinancing opportunity backed by units which have good cash flow visibilities and in two facilities that are further supported by our corporate guarantee. And post-closing of the refinancing, the next step will then be to start addressing the outstanding bond debt that we have in the market. And as I've said before, we indicated that we, as we've indicated before, sorry, we expect to reduce this debt significantly on a going forward basis. Well, to sum it up, and I think Marco has said it to a large extent, we are progressing well on divestments on the non-core fleet. freeing up 130 million from the sale of VW Opportunity and VW Athena. The efforts on the remaining non-core units in terms of divestments are continuing, also including the sale of Polvo, which is now being moved to completion by the first half of 2024. Looking at the liquidity situation, I would argue it's rock solid with the sale of opportunity, and we now have over 520 million in available liquidity at the end of the quarter. And with the liquidity situation being where it is, we have continued to opportunistically repurchase the convertible bond as it's trading significantly under par. And as I mentioned on the previous slide, we are now well underway with the refinancing of both the corporate facility as well as the catcher facility, which all in all will help improve our overall financial flexibility and our capacity when it comes to new product business that we are in the market for. And I think when you bring this to the project and outlook there, as Mark was saying, we are delivering well on ROSA and we have good cash flow visibility with activities we're undertaking and that allows us to continue with what we would argue is a substantial dividend program at the same level as before and which is at current share price level implies a dividend yield of approximately 10 percent annually. So that I'll hand it back to Marco for the remaining part of the presentation.

Thank you, Stolen. The last part of our presentation is an update on our strategic investments. The window of opportunity is definitely still open and even improved on the back of concerns about the energy security and relatively high oil prices. And this also supports contract extensions and redeployment, which are obviously relevant for our core fleet. But for new FPSO projects, this year we may see 10 new awards in the market, and there are about 40 to 50 serious FPSO projects on the map between now and 2030. As BW Offshore, we're targeting the four to five most attractive of these. And we do see that lenders and investors are increasingly selective on which projects to support. In addition, we see several banks no longer supporting oil and gas developments, including lease FPSOs. So selecting the right project is absolutely key here. Our preference remains long-term lease contracts with lease prepayments, similar as we have with the Barossa project. But we're also looking at EPCI plus long-term O&M opportunities. key criteria for us is that we will not invest in projects which require residual value risk in the asset then in the floating wind segment the assembly of the first eomet floater based on bw edo's damping pool design has now started in port la nouvelle um Our subsidiary BWD Oil has signed a head of terms with the local developer Elevon to co-develop floating wind projects in Spain and Portugal. And the BWD Oil board has approved a partnership for the Celtic Sea tender. And good progress has been made for the project development funding backed by France investment fund ADEME. ADEME will invest 40 million US dollars in BWD Oil's project portfolio. Together with Noria, BW Offshore provides a buffer of 12 million euro through a shareholder loan. And last but not least, the Ardèche port, where BW Deol obtained exclusive rights to manufacture floating wind turbines, has now secured 300 million British pounds to progress the development plans. Then moving on to BW Energy. BW Energy is on track for a step change in production during 2023. They started with the first oil from Hibiscus Rus', and that added about 6,000 barrels per day, which is in line with the expectations. And it will continue to bring five more wells online during this year, targeting about 30,000 barrels per day when all these six wells are online. In addition, an additional gas lift compressor on board FPSO Adolo will further support the production and startup is now expected very, very soon. In Brazil, the planned transaction of the Golvinho field is now progressing towards closing. And then in Namibia, on the Kudu field, a 3D seismic campaign is progressing to further study the potential of the reservoir. following the recent nearby discovery made by a couple of old majors. And this may open a whole new oil and gas region. That brings me to the end of the presentation. Brief summary and outlook. As we explained, the full focus is on the safe and timely execution of the Barossa project, which is going as planned. we will conclude the fleet divestment program in the second half of this year we're actively but selectively progressing new infrastructure type fpso projects and we continue to support bw neo in pursuing floating wind opportunities both co-development as well as the first epci opportunities and we continue to support bw energy in the ambitious production ramp up remain focused on shareholder returns while we grow the company both in the FPSO segment and the renewable energy segment. And that concludes this presentation and we will then continue with the questions that we have received on the web.

Okay, then I'll go to the web where we've received a few questions. I'll start with the first one from Christopher Murlock from Sparbank One Markets. There's actually two questions there and I'll do the first one first because it's simple. Then I'll take the second one for you, Marco, but I can take the first one. The first one is on the capex excluding Barossa was higher than expected in the first quarter. What is it used for and what's the guidance for capex excluding Barossa going forward? As I mentioned in my part of the presentation, the majority of the capex excluding Barossa was for the final milestone payment to Keppel related to the repair project that's been going on for that unit. That was all cleared out before the unit was sold and was closer to $30 million now. But that's now done. And the rest was related to Adolo as we discussed. We're doing some upgrades related to the tie-in project there. Going forward, as kind of units are, well, all the units are being phased out, so we do no investments on them. Catcher and Adolo in general are reimbursable contracts, so we have very little in terms of planned capex for these units. What we have in the pipeline is to finalize the work we're doing related to these tie-in activities for Aduro, which shouldn't be in the magnitude of 5 to 10 million in total, in terms of CapEx excluding the Barossa project going forward. So very, very limited. And the second question is on if the Barossa FBSO is completed according to plan, but Santos is not able to start production due to delayed drilling program. Would the contract term still allow you to go on your contract a day rate, or would it be fair to assume you would receive a standby rate until Santos is ready to start production? Marco, you want to take that one?

Yeah, I can answer that. I mean, our contract is very clear on this. We're ready to receive first gas, but we cannot proceed, and we will receive a standby rate. Now, the difference between standby rate and contract rate is not very much. And then the good thing about the standby rate is, in fact, that the contract term is not starting. So this comes on top of the firm period of the contract. So in that sense, limited impact on our expected cash flows, whether we go on standby rate or contract rate.

Okay, and the next question is coming from upstream. In terms of the fleet, if your divestments are completed, how can you compete in the redeployment market, which evidently the oil and gas markets or oil and gas companies are turning to with enthusiasm? And maybe just to start from my side, and then you continue, Mark, on this. But I think we have tried to be quite vocal on the fact that we are we are predominantly focused on new build projects, very particular about the counterparties and the type of contracts we are entering into. We are not looking to take a residual value risk on the assets and looking more for the top of long-term infrastructure type projects. So it's a conscious decision to divest all the units as we don't actually see them as viable redeployment candidates. Not that we're not looking at these opportunities if they are around. If you have the right unit, that is also a potential for us, but I don't think we see this as our, this is not the main part of our strategy. We will see if the right projects come around with the right fit on the right unit, but otherwise I think we are more focused on on the market where we do new builds. You want to add to that, Mark?

Yeah, no, you said it correctly, but indeed our strategy was to extract maximum value from our existing fleet, and we do that through divestments, but also redeployments where redeployments make sense. the units we divest we didn't consider as very suitable for redeployments in the first place. So the fact that we complete these divestments is progress, is a good thing. And then in view of redeployment opportunities, there were basically four assets that we had, which was Volvo and then BW Opportunity, and then we still have Pioneer and Catcher, and those were the assets in our portfolio that could potentially be redeployed, while POVO will be redeployed with BW Energy. BW Opportunity we sold, but we're also expecting to progress into a redeployment project for that unit. So in that sense, two out of those four are being redeployed. And then We have catcher and pioneer in due time, but first we see, we expect those units to get into contact extensions and then potentially they could still benefit from a strong redeployment market. So one is not, I would say, contradicting the other.

Thank you. Second one is also from Upstream. In terms of potential new projects, can you provide some detail on the projects being pursued?

Not sure what you want to... Yeah, there's not too much detail to provide, or at least I don't think it's desirable to provide too much details. But what I can say is that we're definitely focused on Brazil and Americas in general. And then of course, you know, West Africa is also a market we know well, and there could be opportunities there as well.

I think what you are saying, what you also showed on the previous slide, that the market is very active at the moment. And there's probably more in terms of limitations on capacity, internal capacity, financial capacity, supply chain capacity that also limit how many projects we can chase at the same time.

Yeah, exactly. That's why we're saying selectively. The other light that can shine on what type of projects we pursue is That's linked to our criteria. We want contracts with strong counterparties. We want contracts that can be financed, obviously. And we will not take residual value in our investments.

Thank you. Next question is from Nick Linne from Sefton Place. He's asking what is the approximate increase in BWL revenue you get from one 1,000 barrels a day higher production in Gabon. And does this only kick in above a certain production level or does it kick in from current production level? I think details on the contract, but yes, there is a tariff there. And it's $1.5 up to 20,000 barrels and $3 above. That's how the tariff works in terms of how it affects our our revenue stream with higher and higher tariff. The next question is from Cindy Serby from Arctic. Despite a very good sales price of 125, it's not euros, but $125 for BW opportunity, you recorded a gain of only 6 million US dollars. Does that mean book value was 119 or is the accounting affected by the deal you're negotiating with regards to redeployment? The book value was close to 120 million when the unit was sold. I think we have done quite extensive repairs over a number of years on this unit. I can't remember exactly the number on top of my head, but it's above $80 million, which has been invested in this unit, replacing the hold-off section of this new accommodation on this unit. I would say part of this unit is completely new, which is somewhat also reflecting in the price that the client has paid for this unit. And it's also a reason why they saw it as a good opportunity for what they are, where they are going to deploy this asset. So there's nothing else to the accounting that the book value was very close to the price that we achieved through this sale. But that being said, and has been said also in our updates, is that we are now pursuing to do kind of an EPCI services contract for this unit where we will do the necessary upgrades to enable this unit to go on field for the client and also combining this with a transitional type of O&M contract where we will operate the unit for a period of time after activation. Next question is from ABG from Håkon Amundsen. Sounds like we can expect the quarterly EBTA run rate to remain roughly around the underlying level from this quarter in the near term. Is that correct? And can you provide some more color on the prospects for extensions on Catcher and Pioneer? Is refinancing of Catcher facility linked to an extension? Well, on the first one, I think going forward, given that, as I also said, the marginal units are leaving the fleet. In the short run, I think we expect the quarterly BTA run rate to drop somewhat, but we expect this to be countered to a large extent by increased tariff being generated by a doula as production ramp up. But there might be a bit of a gap there until of this this equalizes so so if you ask me kind of today i expect the next quarter to be yeah some million lower than than what we are uh what we have reported to today due to this kind of change that's ongoing and it's also hard to be 100 specific on this because of these divestment programs that we work on is is is difficult to give you kind of the exact timing of when units leave the fleet when agreements are being closed. And that's affecting our short term kind of internal forecasting a little bit in terms of being accurate. But so somewhat to repeat myself, some drop I expect in the near term. And then for this to be counted as these units are leaving the fleet and production is and being increased on Nodulo countering this again, and then should bring EBTA up to very similar levels as today. And on the second question, on the prospect for extensions on Catron, Pioneer, maybe, sorry, Marco, you would want to elaborate on this, how you see it?

Yeah. on both of them we're seeing quite a high probability of extensions being exercised um you know probably somewhere between uh three and five years um and then uh in in in any case on catcher we see also beyond the uh extensions we see also very good uh Good opportunities for redeployment. As mentioned, the market is a good market currently for redeployments, and Catcher is one of the most versatile FPSOs in the space. So, yeah, beyond extensions, we also see opportunities for redeployments. But we have a few more years on the contract and at least a few more years extensions, and then we'll look at that.

I realize that there was a second question in there as well. Is the refinancing of the catcher facility linked to an extension? The answer is no. We're not negotiating an extension in combination with this. We're pursuing the refinancing on the basis that we are fairly confident that there will be extensions under the contract and that And the stretching of maturity that we're doing on that facility should be well within the timeline we have for continued charter on, for catcher on the existing field. That's our view. And we're only asking for three and a half more years on the catcher loan facility from estimated closing towards the later part of Q2. Next question is from Nick again from Sefton Place. Under what circumstances, if any, could Santos declare force majeure on the Brussels start-up date? And somewhat related to this, can you successfully commission the Brussels FBSO in order to satisfy this test to qualify to receive the standby rate if there are no wells to tie into the FBSO? Do you want to elaborate a little bit?

Yeah, I can elaborate. I think, again, the issues that Santos has in their field development are linked to permits, environmental permits of the drilling program and pipeline program. It has nothing to do with the FPSO. And this has just, you know, this just requires additional work for Santos, which they are completing. But this cannot be seen as a force majeure event in any way. So our contract is very clear on that. The second question was then whether, you know, if, and again, Santos has guided these activities are not on the critical path. The FPSO is on the critical path. So they have time. to uh you know provide this additional work that has been requested by the regulator but if that would still result in a delay of the project and if there would be no gas then i think the question was whether or not we can successfully commission and whether that would then prevent the qualification of the standby rate And the answer is no, that has no impact. The criteria for standby rate is that we are ready to receive gas. So when those criteria are met, so basically the FP is always ready and installed and pre-commissioned. That's where the entitlement to the standby rate kicks in.

Yeah. So basically to the contrary, the standby rate is there to ensure we We get a rate if the client is not ready. Exactly. So no commissioning would then be necessary as long as we are able to deliver the FBSO on field as you're saying. So it's really there to protect us against the delays from their side.

Yeah. Which is, by the way, a very normal clause in, I would say, almost any FBSO new world contract.

Yeah. Thank you. And the second question from him was, what is the current production level for Pioneer FBSO? And what level do you think needs to be maintained for the option to be exercised?

Do you remember exactly? Pioneer is producing around 10,000 barrels per day, around that. Well, personally, I think that is more than enough with current oil prices to keep it interesting to produce. What the break-even is for the client, that is hard to say, and I also don't want to speculate, but I think that 10,000 barrels per day is still quite a comfortable production rate to continue to produce the fuel.

Yeah, I was just thinking that the fact that now the client has decided to move ahead with the drilling indicates their strong interest to extend this because there's maybe several elements to this. One is the current production, but I think we have said, and we also know that for this to be extended, because the next block is from 25 to 2030, so it's not the five years. to be able to chart FPL for such a long period, they will need to replenish there. And that's why they do the drilling, as the current levels will taper off and not support that. That's at least what we think. But if you look at their activity now moving towards drilling, and you see where oil prices sat and the outlook there, I think that is supportive of them showing strong indications that they want to move ahead with and keep the unit on the field for longer. I don't have any refresher, but that seems to be the last question at least I can see on the web here. If there's nothing else coming in as a refresher. Okay. No, that seems to be it.

Yeah, if that's it, then I think that will conclude this call. And I want to thank everyone for the questions and also for your interest in our update and your participation in this call. So wishing everyone a good rest of the day until next quarter. Thank you.