Bw Offshore Adr

Good morning and welcome everyone to the second quarter results of PW Offshore. My name is Marco Beynes, CEO, and I will present today together with our CFO Stole Andreasen. And please note our disclaimer and then we're moving on to highlights. First of all, the Barossa project continues to progress by plan. And based on This quarter results and previous quarter results. We have the confidence to adjust the EBITDA guidance up to 305 to 315 million US dollar. And we maintain our quarterly cash dividend of 11 million US dollar. Moving on to the operational update, mentioned the BWL PAL FPSO for the Barossa project. We're now 86% complete. Pleased with the progress. As you can see on the pictures, all the topside modules have now successfully been lifted on board. So it really looks like a completed FPSO, but obviously there's still a lot of integration and pre-commissioning, commissioning work to do while we are in the Citrium Yard in Singapore. Integration is now 75% complete and the pre-commissioning and commissioning activities are ramping up. We're focused on maintaining the schedule and mitigating the project risk and delivering this unit safely to the field on the Barossa field in Australia. In accordance with the guidance on the schedule, we also are confident that the long term project economics remain intact. So in short, we're on track to be ready for first gas in the first half of next year. Then, to the fleet and HSE performance. We're happy with the right trending of the high potential incidents, trending downwards like we like to see it, because this is the kind of leading indicator of safety performance. On the lagging indicators, we had, unfortunately, an LTI with a subcontractor in Indonesia, not without severe consequences, but we followed up with a level three investigation and implemented lessons learned together with this subcontractor. Like last quarter, we have had a strong commercial uptime, and that underpins the good financial results of this quarter. Then, moving to the fleet backlog overview, you see here the three operating assets, and with those three units, we deliver strong and predictable cash flow, which together with BW Opal, gives us a firm contract backlog of 5.4 billion US dollar. BW Adolo production is a bit lower this quarter. That was due to a planned shutdown. BW Catcher delivered 100% commercial uptime, but next quarter there will be, and this will be a bit lower due to planned maintenance. Currently we are on a 12 months rolling extension in the contract. And based on the current performance of the field and the fuel on the oil price, we expect that we will remain on contract through to 2028. BW Pioneer delivers consistently stable production. And while we are converging on outstanding topics of the contract extension, we have not been able to conclude yet. for a new contract after March 2025. But again, I think we're really converging and the number of outstanding issues is steadily reducing. With that, I hand over to Stole to run us through the financials.

Thank you. For the quarter, it came in at a strong 77 million. This was driven by underlying good performance from the fleet, although slightly impacted by 21 days planned maintenance shutdown for Adolo. In addition, we had a sizable contribution to our earnings from the value-add engineering work we have done for the Sakuraya project, also in the second quarter, which added another 7 million to our EBITDA. our client, Turkish Petroleum, has decided to progress this redeployment as a local content project in Turkey. And as a result, we will not see a role and be part of this project going forward. And we have agreed on remaining deliverables from our side to close out the project on our side or for our sake, which will be completed during the third quarter. And that, we expect, will add another contribution of $10 million, which we expect to book into quarter three. So then when you look at the year as a whole, we expect steady contribution from the fleet for the rest of the year. And when you then include expected contribution from the efforts we have performed on the Sakuraya project opportunity, it does allow us to increase the EBTA outlook for the year. to a range of $305 to $315 million for the year as a whole. The income statement shows very few surprises, I would say. Depreciations continue to be stable as we have now stabilized also the size of the fleet. Net interest expenses came in lower quarter on quarter at $4.8 million. This is driven by The fact that we have a lot of cash on hand, which generates interest income at the moment, but also the fact that we have no need to draw on our corporate facilities. So we only pay a commitment fee for that. And that offsets a lot of our interest expenses on the other loans we have. As you can see, we can post again on financial instruments, which is the typical mark-to-market movements you have on hedges. which in this quarter was largely offset by a $2.2 million loss being posted related to revaluation on our Norwegian kroner denominated bond loan. And overall, as also Marco mentioned, we were able to post a profit of $29.2 million for the quarter, which is equivalent to $0.16 in earnings per share. Cash flow from operations. Another quarter of good cash flow. Also, when you remove the ongoing prepayments related to Barossa from Santos, we had the underlying free cash flow from the fleet of $57 million. As you can see, majority of investments are related to Barossa, as you would expect, with 111 out of 130 million is invested into that unit. This quarter, we were able to close out the sale for Polvo. We received the full and final installment from Be The Bench in quarter two, which was approximately $28 million. Given the ownership of the FBSO is set up through a joint venture with two external partners, we do our funding through the JV. And then this quarter, the JV funded $58 million towards completion of the FBSO, which when you add to the $50 million received from Santos, more or less covers all the ongoing investments. We continue to pay installments on other loan facilities. $40 million was scheduled installments on the catcher loan facility. So then when you take into account all the recurring items on the cash flow, It allowed us to increase our already solid, I would say, cash position, which was above 400 million when we started the quarter, to 448 million by end of Q2. As we've said many times, the Barossa project is set up as a joint venture. All the funding is set up through these joint ventures. As such, not consolidated on our balance sheets. We produced these slides to give an overview of how the funding looks like and how that progresses. For the second quarter, we continued to draw on the debt facilities set up for this project. We drew another 70 million, which resulted in overall draw on the facility of 960 million with another 190 million available, which we expect to draw as we complete the project. We did call for some new equity, so we added $8 million in new equity, where the total equity injection for the project stood at $230 million, with another close to $30 million to go upon sort of expected equity contribution for completion of the project. And Santos continued to pay for scheduled installments. As I mentioned also on the previous slide, and as you can see, the client has, well, almost funded the equal amount to what we have drawn in debt on the project. So overall funding for the project was 2.1 billion. And we are kind of well funded with this for remaining cash needs to complete the project. When you look at cash flow and the balance sheet, you can see that during quarter two, we went actually from a net debt position to a net cash position now of $29 million, which is an improvement of close to $60 million, all driven by good underlying cash flow from the fleet, which adds to our net cash position. Equity ratio was trending more or less flat and stood at a comfortable 30.4% by end of Q2. And despite The funding that we need to do for Brossa, despite the fact we continue to pay dividends quarterly, we still are able to increase our available liquidity. And we almost increased it by 50 million in quarter two, and it stood at 728 million by end of the quarter. And this also includes the corporate facility, which is fully available at $268 million. We only have one major maturity that we need to manage, and this is the convertible bond, which matures in November 2024, so quite shortly. We have 157 million left under that convertible bond after we've been buying it back gradually over some time now. And the plan has also earlier communicated that we will use available funds to retire that bond upon maturity in November. In terms of dividends, going forward, our ambition is, as we have said before, we will aim to pay out 50% of annual net profits as dividends. On a quarterly basis, we will continue with a flat dividend, which is equivalent to $6 per share, and then we will calibrate this depending on what results we can deliver for the full year and either potentially then top up our dividends during or when we present Q4 results. So overall, I would say we're tracking well on our financial strategy. We have a good and strong balance sheet. We have liquidity that allows us to capture growth opportunities coming in the market. And we need that for That to have that capital available, it gives us flexibility and agility. And we believe we are being able to combine this with a sustainable and attractive dividend policy that generates solid direct returns for shareholders. With that, I'll give the word back to Marko.

Yes, thank you, Stalle. Yeah, I will address the opportunities that we see. There's clearly a strong FPSO market with a historical high demand for FPSOs, as you can see here on this map, which is one of the presentations of the market. But at the same time, and that's a bit ironic, we see that the awards are lagging. The last two, three years, only a limited number of FPSO contracts have been awarded compared to the expectations. The reason is that on one hand, the relatively high oil price and also concerns about the energy security pushes demand up. But at the same time, projects have become large and more complex, and multiple years of inflations and high interest rates have increased the cost of the projects itself and also the cost to finance these. And this has resulted in delays of FIDs and recycling of tenders by our clients. And that's what you see in the graphs in this slide. However, I do think that this is going to change towards the end of 25, 26, 27. And we have identified six attractive targets where BWF Shore has an edge. And half of these are gas FPSOs, where we can leverage our credibility and experience of the Barossa project for Australia, which we're currently completing, as you know. We're also progressing with the feed for Repsol for a Gulf of Mexico project and the other targets are in the Americas and Europe and Australia and these are all jurisdictions where we have presence and where we have experience. Aim is to land one or two of these targets in the next 12 to 36 months and with Barossa starting up in the and first half of next year, we have both the financial capacity and the organizational capacity to do so. And consequently, we are ramping up our tender efforts. The inflation and interest rates increases have also resulted in less appetite in the market for the conventional long-term lease and operate contract models. The trend is more towards EPCI and combined with our own models, operation and maintenance, and often with negotiable risk reward structures. And we are adjusting accordingly where we focus on delivering to our clients the unique FPSO contractor competence, which is the seamless delivery of engineering to building, operating and maintaining the facility of our client. while we're open about the contract structure. And this is to tailor to our client needs while meeting our risk-reward appetite. Our aim is to lower the risk and consequently lower margins, but with high probability of the envisaged profit takeout. An example is our involvement in the Sakuraya Phase 2 project in the Black Sea. And this was already mentioned by Stoller. But this is a project where we assisted our client with engineering and procurement services till the phase where they decided to make a strategic change and make it 100% local content project, which had limited, there was limited added value to give by us in that setup. And so while the project became a lot smaller than I visited earlier, we have still been able to deliver to our client what they needed and we were able to extract a healthy profit, and that contributes meaningfully to our 2024 results. So all in all, as Tole also said, we don't consider this as a bad outcome, neither for ourselves nor for our client. And this service contract model can be replicated with other clients as well, from EPCI all the way into the O&M phase. So all in all, We take a positive view on the market, in which we take a strong position for gas FPSOs. We also bring a long experience in all major oil and gas regions. And our rapid framework whole strategy eliminates the constraints of dry dock capacity in the supply chain. And I think the delays in the contact awards in past years have only made the market stronger for the coming years. And we are ready to take the benefit of this market with disciplined investments, and new financing models and or de-risk EPCI plus R&M contracts. Then moving on to floating wind. Our subsidiary BWDO and together with its consortium partners, BEWA and Elicio, continue to be one of the frontrunners of the ScotWind floating wind developments as they progress the Bukan offshore wind project towards final consent. And this is expected in 2026. And the EOMED consortium, which is led by CARE for a French Mediterranean pilot floating wind project, is also progressing with their three times 10 megawatt development. And this project is based on the BWEDO floater solution. So now all steel blocks are in production and the wind turbine blades are being delivered, and the project is further progressing towards production in 26. Focus for further developments are in Europe and Asia, and in particular, France and Taiwan. Together with the BWDO management, we are engaged in investor dialogues for a capital increase in the private company. Then I come to the outlook and summary. Our focus is in the first place on our ongoing business, in particular Barossa. We focus on the safe delivery and completion of the Barossa project with a startup in the first half of next year, as explained. And also we're trying to unlock value to contract extensions for Catcher and Pioneer. But in parallel, we're looking for new business and we have increased our tender efforts on six targets with the aim to land one or two in the next 12 to 36 months. Then we continue our support to BWDO as a private company with the aim to increase capital with new industrial shareholders. And we maintain an attractive shareholder return program as we have consistently delivered during past years. That concludes this second quarter update and we're happy to take any questions.

OK, then we'll start with a couple of questions to kick it off. I'll start with the first one. It's a fairly simple one, which is We were asked to disclose how much of the work on the Sakurai impacted the Q2 revenues. It's 19 million was the revenue from that activity in Q2. Then we have a question relating to... You're increasing your forecast EBITDA range, but however, with 163 million, In the first half, it implies mid-range 147 million for the second half, which seemed soft given the 10 million contribution you expect to also book in from Sakurai and soft, I assume, in terms of underlying operations. Can you comment on this? I think, as Marco mentioned in his presentation, there are a few moving pieces. also in second half, all part of natural operations. Katja will have a shutdown in Q3 for planned maintenance. We will wrap up the activities related to Sakuraya, so we'll need to wait and see how we redeploy resources, which has been linked to that activity up until now, which means there might be an interim increase on the overhead. And we're still seeing a lag in production from BW Energy, impacting a little bit negative on the tariff contribution from Maduro. So we are a bit cautious on the second half, awaiting some of these moving parts. I think that's the explanation for that one. I was thinking, So the next one here, maybe Marco, this one for you. Could you elaborate on why you consider Catcher? Why are we confident now that Catcher would operate throughout 2028?

Yeah, sure, I can do that. Basically, we are in the field from end 2017. We've seen the production unfolding and how it compares with the original production profiles so yeah basically if you take a view on production decline expectations of oil price and also you know activities in the catchy area this is a larger oil and gas region than just the fields we're producing from and you know there's seismic activities going on so if you combine all that i think you know it's hard to see that this would come to a cutoff point, you know, already before 2029. So on that basis, you know, this is the kind of what we put in our projections.

I don't know if you have anything to add. No, not anything to add from my side. Let me see. Next question. When can we expect an update on the Pioneer extension?

Yeah, you know, guiding on timelines of negotiations, I think it's always hard and not even wise, I think, to do. I had hoped, and I think Murphy as well, actually, to be able to have an update before this market update. But, you know, as always, the final bits and pieces of contracts can take longer. Fact is by March, both parties need to have a new agreement in place and both parties want to have it in place. And, you know, it's kind of beyond the point of return, if you could say so. So it's a matter of getting the agreements detailed out and signed. But I still expect that will happen, well, in any case before March, but, you know, I really hope before the Halloween.

Maybe a point of thinking in addition, I think we would have to communicate and think differently if we didn't think this will continue because we get so close to the end of the contract that we would need to start planning for decommissioning. If there was any thinking that it would move in a different direction. I think our comfort or confidence in being able to land this is very high.

And also from the client side, of course. Yeah, you're absolutely right. It's a fact that we're not preparing for decommissioning at all. There's no activities in that direction.

Then, slightly different angle on the next one. When do you expect the Bakken offshore wind project to reach ready to build? I presume FID, they refer to FID, and are you looking to further farm down the exposure? What are the main risks for the project not materializing as expected? Marco, you're probably closer to answer this one.

Yeah, well, so as part of the Scotland developments, the UK government has been a bit slow with confirming the grid connections and timelines have changed. The confirmation is now that There is no, a grid connection will be no later than 2033. It could be earlier, but it's no later than that, but that's still a bit far out. And of course, uh, you know, we'll, we'll only start building when all these things are firmed up. So if you, yeah, you could knock off four years from that, uh, then you're so, uh, around 29, uh, it'd be, it could be a time that you start, uh, the construction activities.

And it was kind of a follow-up on that. What are the main risks for the project not materializing as expected?

Yeah, main risks are if you can't agree on an acceptable CFD that gives the right returns. That's, I think, the main risk. I mean, we're heading towards consenting, and I don't think that will be controversial. Lots of work has been done, and so I think that's more following the process. After that, you get the CFD and that confirms the commerciality of the project. That's too early to say because we don't know yet how the CFDs will look like. What you could see with those that follow it, that it has improved quite a bit, the CFD schemes in the past 12 months and the latest rounds, because the UK is still very much committed to the offshore wind developments. But yeah, we'll have to see by the time we get to that point what it will look like. And in terms of farming down, there's always, we're definitely open for farming down. And it's actually part of the business model. We like the exposure to the developments to be early and be part of that value creation and also to unlock kind of an EPCI market for in the UK and, and, you know, combined with the strategic position we have in the RDA port, um, you know, that, that kind of makes us an early mover for, for a very large EPCI market. So development strategy is, is part of that, but we would be okay to farm down at a right price during, during this process.

Okay.

I was thinking, I'll just jump a bit on the question list and then go back, but since there was a linked question, which is more directly, is there any prediction on when BW Ideal might become profitable? Which I understand, given what you said, it's not a straightforward answer to give. I'm not sure you want to try and give some color.

Uh, when it will be profitable as a company, you know, there's three revenue streams. Uh, one, one is kind of, uh, selling the technology and engineering and, um, you know, with license fees. And so for every floater that will be built by, uh, on the BW, the old design, there is a, uh, a license fee as a percentage of the capex. Um, so as soon as, as, um, the first unit will be built, regardless of the development project or other development projects. there's revenues coming in from that until that time there's revenues from engineering so that's one stream of revenue then there's a stream of revenue from um you know sitting in epci consortia and then there's the revenues from the uh and that's the furthest out from the from the development uh the activities for the co-owning calling the wind farms if if we even get all the way to that to that point um So if you take those three, that is also where timelines of profitability come in. We increase, you know, if we increase the engineering activities, the company could be cash neutral or positive in, you know, I would say nearer future years, year or years. But it will be relatively small values. It will be engineering business profits. Then again, you know, you could progress to EPCI level profits and potentially, if that would remain the strategy, basically selling the power, the PPA returns. So that's a bit how you need to look at the potential revenue streams and then timelines to profitability. But of course, as things in the floating wind business have shifted to the right and timeline-wise, it makes sense to focus a bit more on engineering work first, because it starts with that. Yeah.

So in short, there are different potential revenue streams with different potential timelines for them. In particular, in addition to farm down as a way to capitalize on development.

Exactly. That's the forward revenue stream, or you could say that's linked to the co-developer revenue stream. Either you take your return from a PPA or for farm down or a combination, but that's further down the line.

Then shifting with gear on the question going back up again. So, we have a question that we get on a regular basis. It's around if we have any plans to launch a share buyback programme. I think if we take a step back to what we've said, we have committed to a dividend programme, where we pay quarterly dividends, as I think most of you are aware of, where we are paying within what's the minimum covenant at the moment. and then we will take stock when we get to Q4 if results allow us to increase dividends. And that being said, we have an ongoing dialogue with our board on how to address this, because it could be dividends, it could be shared buybacks, and we have done this before. So what I think we can say is that we are, it's always something that's in the back of our mind, we are discussing it and considering it, and we will Yeah, we will announce if we will do a share buyback program.

And then let's see, we get some repeat on questions.

Yeah, I have some more questions around the Pioneer, but I think you have answered because this may be more linked to if you can give some call around potential structure and terms on the Pioneer extension contract, relative to the current. I don't know how to answer for you, Mark, but it's difficult at this point to try to go into details on this, unless you want to say something.

That's a bit premature, I think. We better communicate everything at once, but all I can say, the commercial target was to come up with something close to equivalent of of what we have now. But then, yeah, you know, there's different commercial structures to get to kind of the equivalent answer. One thing we're trying to build in is also flexibility for our client and de-risking future exposures for ourselves.

Yeah, exactly. But now you said it, I think we We're also very focused on the risk side of this, of operating going forward, moving towards reimbursable O&M, et cetera, to make sure that you have more certainty on the net contribution, which is also important for us in the new contract. I think I said, but do you still expect the existing financing to be sufficient to complete Barossa? The question is, yes, as of now, we think we are funded such that we can complete the unit. That's how we look at it. Then, are you bidding actively for new FBSO contracts? And what type of contract do you prefer? Lease and operate or is EPCI plus O&M? You did, yeah. partially in status, but maybe you want to elaborate a bit.

Yeah, well, what I said in, you know, just earlier in this call is that we are, you know, we see a very good, strong market. We see that the awards have been lagging to expectations or to planned. And it means like the market only gets stronger because, you know, these projects are generally not canceled, but postponed. So I think you'll get even more of a crunch in the market. And we have increased our number of targets from four to, I think last time I said four, now I said six, because we really do see attractive projects where we have an edge, whether that's, you know, building on the Barossa solution and experience or, you know, what we have to offer through our experience in, you know, specific oil and gas regions, I would say heavy regulated areas, harsh environments. So the market is large and we are able to really select now six targets where we feel like we have a good position with the aim to land one or two in the next 12 to 36 months. So, yeah. We're actively bidding, we're ramping up our tendering efforts, and we think there is a great market. And as Tole explained, we also have the financial position for it. And that's for a reason, otherwise we would not, you know, have that liquidity. So we are ready to invest. And 12 months may sound for some of you like a long time, but that's actually relatively short. That's kind of like in our long-term business, that's kind of tomorrow. Normally it takes two to three years to develop a project and then it takes another you know, four years to build it. So, 12 months is actually tomorrow. Now, on the contract models, what we like about lease and operate are the long-term cash flows. But what is most important still for us is that we have the right risk profile of the undertaking. And so, EPCI plus O&M, with a partial kind of service contract, partial lump sum undertaking where we can fully control the risk. All these things are on the table. Essence is I think that we, as FPSO contractors, there's only a handful or less companies that really have that companies where you can give a solution to the client all the way from engineering, building, owning and operating, maintaining and operating. That has a value and it's quite a unique competence and that's what we want to sell in the right risk award model. And the market has been changing a bit due to the challenges I explained with inflation and interest rates increases. So I think we need to be agile and flexible to work together with our clients to the best solution. And that seems to shift a bit to EPCI and and combined with the long-term O&M and with good operational incentives. And that's totally fine for us. That's still a model where we can allocate our competence and provide what our clients need. So yeah, no real preference, really working with our clients to find the best solution for both. Yeah, exactly.

So as you say, summing up, we are open, flexible to different models. But it's all about how you allocate the risk under the different models and to agree with the client. Maybe a point to make on lease and operate is that, as you mentioned, inflation, et cetera, that there's an appropriate lease and operate model that is an appropriate risk sharing on maybe material or cost inflation in general and could also be related to risk on interest rates, factors that typically will Yeah, it is quite risky as there's a time span between you start negotiating until you execute, which needs to be managed during this time span.

Yeah, and it's something we don't control, right? I keep repeating, we have no problem to taking risk in areas where we can control the risk and where we use our competence to control this risk, but There are, particularly with the lease and operate model, there are risks that we can't control, and obviously those need to be allocated to our clients.

Then another question on Sakuraya. You say there's limited scope for meeting your return requirements. Could you elaborate? Is the project losing attractiveness?

What I said, what we were negotiating with our client was an EPCI management contract building on already the early engineering and early procurement service contracts that we had in place for about a year. While the project was also shifting to 100% local content contract in Turkey and you know, certain risks were kind of expected to be taken by us. And again, risk that I feel like we could not control, that didn't make sense anymore. Then the risk reward of a kind of management contract versus risk that we can't control doesn't work anymore. I mean, and service contract is a kind of a, you could say low risk, low return contract, but then it has to be like that. And yeah. Yeah. You know, the strategy of the project changed and our client had different, you know, evolved with different drivers during the process, which is, of course, you know, at their discretion. But it changed the game incrementally to the point that I think, you know, it didn't make that much sense anymore, nor for them, nor for us to try to then come to and EPC engagement all the way to the finish. And that's why we're kind of stopped it here and basically provided the solution that the client can use to continue in their local setup and doing the project in Turkey.

Yeah, I think as we have debated and stated, I think it's worth mentioning, as you say, although, as you say, we are flexible, we want to be creative and solution oriented towards our client. At the same time, we need to be disciplined with regard to what risks we're taking. In this case, it just didn't work out. We could not find a solution that would work for us and the client. We really believe this will pay off in the end, that we do what we did. I think we have a good relationship with Turkish Petroleum. As you said, they want to move in a different direction. We do our deliverables and

That's it for now.

That's the last question I have here. So I think it doesn't seem anything else is coming in right now. So you could probably wrap it up, Marco.

Yeah. This concludes our second quarter update and thanks for your attention and participation in this call and I wish everyone a good day and already a good weekend ahead of you. Thank you.