Bw Offshore Adr

Welcome and good morning, everyone. Thank you for participating in the third quarter market update of BW Assure. My name is Marco Bienen, CEO, and our CFO, Stola Andreasen, joins me in this call. At the end of our update, there will be an opportunity to ask questions via the Q&A function of the webcast, and we will be happy to address these. Starting with our disclaimer, please take note And then I move on to the highlights. Our main highlight is first gas and receiving day rates with our new flagship BW Opel. This marks the end of the construction phase and the start of operations with cash flow recognition. In early September, we signed the heads of agreement with Equinor for debate in or FPSO and the project is progressing towards the start of engineering in early 26. We established a joint venture with BW Group to design and build floating desalination units. And then on the financials, our EBITDA guidance narrowed based on our year-to-date performance and our fourth quarter outlook to the range of 240 to 250 million US dollars. And we continue our predictable shareholder distribution program, similar as previous quarter, and consistent with last year, we will adjust to 50% annual net profit in the fourth quarter. And I'll continue with an operational update of an exciting quarter, starting with BW Opel. As just mentioned, we received first gas on 20 September and started to export gas to the Darwin LNG terminal in October. The day rate will increase to 100% at the practical completion milestone once the ongoing commissioning and ramp-up phase is completed. And this is now expected for the first quarter in 2026. And it will be the formal start-up of the 15-year contract with 10 years of options. And it is the starting point of our IFRS revenue recognition. In the meantime, we will receive day rates during the entire ramp-up phase and that's recognized in cash flow, which will be amortized over the contract duration. Our HSE and fleet performance was strong in the quarter, although the fleet delivered just below 99% commercial uptime, which is slightly lower than normal, but this was impacted by three weeks of scheduled maintenance on BW Adolo. And on safety performance, Primary focus is on maintaining a strong safety record, and I'm pleased to say that we had zero recordable incidents during this quarter. The increase in the HPI statistics, high potential incidents in the graph, is due to the reduction of hours exposure post the Barossa wind down, while the 12 months incident count did not change. So the ratio trended up, but we did not have an increase in incidents. Then an update on our backlog and the fleet. The units and operations now complemented by BW Opal deliver strong cash flow based on high commercial uptime, and that underpins a healthy operating cash flow backlog. Similar as in the previous quarter, we report here the backlog in operating cash flow rather than revenue recognition. And the operating cash flow backlog stands now at 2.1 billion US dollar, where 82% is firm and almost 50% will be delivered before 2029. As mentioned, BWU dollar production was impacted by a three-week planned maintenance campaign, but delivered otherwise high uptime. And also BWU catcher underwent a two-week scheduled maintenance shutdown. However, she still contributed with 100% commercial uptime. And I expect Ketcher to remain on contract through at least end 2028 and probably a bit beyond. For Pioneer, we are providing the O&M services, operational maintenance services, under a five-year contract on a reimbursable basis with production-linked management fees. Then an update on the Bay-Dunor FPSO for Equinor, also mentioned in the highlights. We are very pleased that We were selected as the preferred contractor for the Babynore project offshore Newfoundland and Labrador in Canada, and that was after two years of close collaboration with Equinor. The pre-feed deliverables we were working on are now completed by mid-September, and Equinor exercised their option for a bridging phase to prepare for feed in early 26th. And then we hope that Equinor will take an FID and award the contract by end of next year. The base case is a fixed 10-year lease contract with options to extend further. And our current focus is on refining a smart and cost-effective design based on our rapid framework hull solution, suitable for specific environmental conditions at the Bay-de-Noor field. And with that, I hand over to Stolle, who will take you through the financials.

Thank you, Marko. And as usual, we start with an overview on EVTA performance. Third quarter EVTA was 44 million, driven by strong fleet performance, only impacted by a three-week planned maintenance shutdown for FBSO Adorno. The 2025 EVTA guidance is now set to a range of 240 to 250 million. mainly due to the BWP's contract timing. Practical completion is now expected first quarter next year, basically delaying revenue recognition. Importantly, this has minimal commercial impact as we already remain on rate and continue to generate cash flow and will do so up until contract start and beyond. When you look ahead into 2026, There's no doubt that EBTA contribution will increase significantly. BWL Pal, as we mentioned before, will alone contribute over $260 million on an annual basis, with Catcher adding another $160 million, and actually a bit above, and Adolo will deliver over $60 million. Going to the income statement, which reflects overall very stable operations quarter on quarter. You can see that depreciations on the fleet remain unchanged quarter on quarter at 21.4 million, which left us with an EBIT of 22.5 million for Q3. Other financial items reflect the valuation gain on the financial liability on our balance sheet related to BWPAL, and otherwise there are only smaller changes quarter on quarter. Net profit for the third quarter was $23.3 million, and year-to-date we are now at above $110 million, which translates into an earnings per share for the third quarter of $13 cents, And for year to date, $61 cents. Going to the cash flow, I'm pleased to say that the operating cash flow was exceptionally strong in the quarter at $142 million, which includes $67 million from Santos, which by the way now also includes a charter hire for September. And it also includes the roughly 11 million settlement from Repsol, as they paid for the tender efforts on the feed engineering and product tender effort we performed for them in previous quarters. Investments of 190 million were primarily related to BWPAL, as well as the acquisition of FBSO and Gahura. Financing includes a $28 million draw from the Brussels Joint Venture to fund ongoing activities on BWPAL, and $50 million in regular amortization on the capture loan facility. So, after dividends and other recurring items, we ended the quarter with a very comfortable, strong cash position of $388 million. We continue to be in the net cash position, reflecting our strong balance sheet and financial stable situation. And as you can see, the equity ratio trended more or less flat and stood at a comfortable 30.5% by end of Q3. We have strengthened our financial flexibility further in the quarter following a, I would say, successful refinancing of the existing revolving credit facility, which had a $86 million limit, into a new $220 million facility with maturity fourth quarter 2028. As part of this, we have also made efforts to make amendments to existing covenants under the senior secured facilities. These amendments are meant to provide more flexibility for us to use prepayment structures by clients on products, as well as provide more flexibility on shareholder distributions to allow us to be efficient on capital management. I have to commend secured lenders for engaging in a very proactive and collaborative approach, demonstrating that our request was sensible for the long run of the company. It does allow us to engage constructively on new projects with our clients, and it allows us to manage capital allocation efficiently, as I earlier mentioned. We also reached out to bondholders with a request to amend covenants under BWO 06, We made what we believe is an appropriate proposal to bondholders, put together in discussion with our advisor, but bondholders viewed this differently. And although we respect that bondholders wanted a different outcome, we think it was best for all stakeholders not to engage in a dialogue where only one party get a very favorable outcome. And as a result, The overall covenants for the company continue to follow covenants restrictions under the bond, unless changed or until maturity, which is later part of 2028. And to make it clear, that means that the overall dividend payout ratio remains unchanged at 50% of net profit. Liquidity remains very strong. increased from last quarter, driven by the increased liquidity under the new RCF put in place, which remains undrawn, as you speak. All our debt is hedged at very competitive rates, and as I mentioned before, we are in net consolidated cash position, to be exact, 187 million, as shown on the slide, per Q3. Our capital allocation framework is built upon a disciplined operating model where cash flow generated by our FBSOs is the foundation. With the way we're operating our fleet, we will have a continued good visibility on cash flow going forward. We target to grow the FBSO business to new projects and increase free cash flow. We are focusing on maintaining a strong balance sheet, and that means maintain modest gearing while we look for new ways to expand our liquidity sources. And ultimately, we target to grow dividends to our shareholders over time. For 2025, this means that our target is and remains to be to pay out 50% of net profit as dividends. while we continue to distribute quarterly dividend based on 25 cents per share annually. So with an earnings per share of 61 cents year-to-date, we're already positioned to exceed the minimum distribution for 2025, which looks good in terms of being able to upsize the dividend in Q4. With that, I'll hand it back to Mark.

Yes, thank you, Stolik. We're moving on with an update on the FPSO market. This market remains strong with multiple projects in various stages of maturity led by areas like Brazil, and in Brazil it's led by Petrobras, but also Asia and Africa. Australia is also interesting for us. There we can leverage our newly established presence with BWO Pop. From the market outlook presented here, we identified about 12 targets between now and 2030, where our competitive offering applies. And we target one to two contract awards in the next 12 to 24 months. This could include the Babynore project. And thereafter, we target one project award every other year in line with the strategy update we gave you previous quarter. As mentioned earlier, the FBSO market has changed. with larger and more complex developments, and that shifts from conventional lease and operating models to EPCI in combination with operation and maintenance contracts, or even hybrid contract and finance models. For the lease and operate projects, client prepayments are required to enable external financing, as well as shared risk allocation with clients, joint venture partners, and subcontractors. And this is a revised approach to risk management with an appropriate risk-reward balance which suits the size of our company. In this market, we are well positioned for both new-built FPSOs, but also redeployment or conversion projects. As we have with BWO Pal, we have proven that we can deliver Premier League FPSOs even in difficult circumstances. We have access to a high-quality FPSO willful redeployment following the acquisition of Nangura FPSO earlier this year. And this will allow for a faster and cheaper solutions compared to 10K conversions for those type of projects. We have sufficient investment capacity and a robust delivered balance sheet, as Tole explained. and we can apply flexible project execution models, which includes strong partnerships to deliver projects that meet our selection criteria. Then shifting to the wind market, our subsidiary BWDOL celebrated its 15-year anniversary in September, and that underlines its pioneering position in this segment. The company is progressing with a floating wind pipeline with more than 70 foundations for the 1 gigawatt Buchan project in Scotland and the 250 megawatt AO6 project in France. Also in France, the EOMAT project is now on track for first power at the end of 2025 using the BW-EDL floater technology. BWDOL is a 5% owner in this project with partners CARE as operator and also Total Energies. The float out of those three 10 megawatt turbine foundations was completed this quarter and integration with the wind turbines is currently ongoing. And in Scotland, the Buchan project has submitted the offshore and onshore consent applications and expect to receive the final consent in the third quarter of next year. And earlier this week, we received good news that BWEDL's fabrication line in France was selected for an EU commission grant of 74 million euros. Company is currently financed by shareholder loans and discussions with potential new investors are ongoing. As mentioned in the highlights, we are excited about the potential of a new business segment. BW Shore and BW Group have established a 50-50 joint venture to design and build floating desalination units, leveraging BW Water's technology. BW Water is a 100% subsidiary of BW Group and a specialist in desalination. Access to fresh water is an emerging global challenge driven by infrastructure delays, climate change, and population growth. The floating desalination unit combines proven technology into a modular, rapid-to-deploy desalination solution, which we will deliver through flexible surface supply models. So this is ideal for urgent deployment in response to dross, delays in land-based desalination projects, or other temporary industrial and infrastructure water demand spikes. We see great interest from potential clients worldwide, within both municipal but also industrial sectors. And this market potential underpins our ambition to develop and operate a sizable multi-regional fleet over time. So our aim now is to deploy our first unit by the end of next year. So concluding with an outlook with busy times ahead of us, summing up, our focus is first of all bringing BW Opel to practical completion with a contract startup early next year. Move the BDNOR project forward to feed and then followed by a contract award, hopefully. We target our next FPTO project during the next 12 months, and we'll look forward, and we will work towards an FRD on the first floating desalination unit, sign a supply contract, and then bring it to the market by the end of next year. And we remain focused on an attractive and readily growing shareholder return program. That concludes the trading update, and we're happy to take the questions that has come in to the webcast.

Okay, we have some questions to comment, so I will just start going through. i think the first one i'll take up here is uh for you marco um could you could you update on them the hurrah also we have we have renamed it so if we can clarify if either we offer as purchase that they saw what the opportunities we pursued for for that uh for that unit yeah that's correct we renamed the unit because we completed the transaction

as announced earlier, and this unit is now available for redeployment, but it's really a HUL solution for us. So we have now a readily available FPSO HUL, and that will put us in a competitive position for smaller projects that are based on thinker conversions where we basically have the HUL already ready. And we see about Three prospects, I would say, where we can use or where we can apply this solution.

Okay. The next one is also around the market. What do you make of the Namibia opportunity? The future of harsh environment criteria, the Venus speed is already underway. So what does the opportunity set look like for BWF? Sure.

Yeah, we're monitoring the Namibia development closely. We're not bidding on the Venus project. There are already three companies working very actively on that opportunity. There is high expectations about the Namibia market. The question is always the timelines. So, yeah, we're monitoring that. I think we have... a role to play there, also with early production units based on redeployments. So it's definitely an area we pay attention to as it develops.

Okay. The next question is related to CapEx for BWPAL. Should we expect CapEx related to BWPAL in the fourth quarter as well? Or does the CAPEX in the third quarter represent a last part? And if so, how should we think about maintenance CAPEX for the current episode going forward? I can respond on this one. Because as we're getting towards the end of the project, we're also getting towards the end of the CAPEX investments into the unit. There are some contracts to be closed out. There is some CapEx that will be taken into Q4 as well. And typically, then you have CapEx, and then you have some timing impact on the cash out. It should be in the magnitude of $30-40 million gross, which would somewhat be upset also by still some outstanding milestone payments from some companies. On the fleet in general, no, we do not model with maintenance capex on the current fleet. Our contracts are reimbursable in nature, which means we set a budget for the year in agreement with our clients. And for what needs to be done, our clients reimburse us plus pay us a margin. for doing maintenance on their units. So we don't have an additional regular CAPEX or maintenance CAPEX that we need to forecast or model for on the existing fleet today. I'll move on to this thing. Looking at the episode client base, your largest rivals have successfully targeted particular clients. So do you have a strategy around clients, or is it more of a geographical focus? Do you want to start on this one?

Yeah, I can take that. I think our strategy is focused on clients in the first place. We like to continue with clients we have and focus on repeat projects thereafter. We also have a geographical focus, but then even more so from a regulatory or regulator perspective. We're one of the few FBSO companies that have an extensive experience in highly regulated jurisdictions like the UK, Australia, Gulf of Mexico, and also Canada. So that's a different shaper. And naturally, we look at projects in these areas.

Good. Then some financial-related questions. I'll take one here. What is the economic impact of BWO for delaying practical completion from what was earlier to be fourth quarter into first quarter of MEXR, in particular in terms of revenue recognition and cash flow timing? Maybe I could start with this one to make sure. This is clearly understood how the model works, and you can tap in on this, Marco. When we achieved ready for startup on the unit, we started receiving 60% of the full charter day rate under the contract. And we will continue to do so for some time, and then we will eventually ramp up to the next phase and get 85%. until we get to what we call practical completion and the formal 15-year contract period starts. The contract was designed this way to allow us time to build stability in the unit before the formal contract period starts. This is a facility where you can't just turn on a switch and then you can expect that everything will run stable and deliver gas with high uptime to the client immediately. So it was designed that way to allow some time to do commissioning testing and make sure the facility can deliver for the expectations of the client. It's important to note that these cash flows are in addition to the original contract. So per se, there's no negative commercial impact for us by switching or moving practical completion from Q4 this year to Q1 next year. Because we are paid this and the contract hasn't started, the formal 15-year contract period hasn't started. It will have an impact on EBTA because revenue recognition follows practical completion and the formal contract startup. But it's not a negative for us from a commercial point of view and financial point of view as to getting paid throughout this whole period. And in fact, in addition to what will be paid under the contract. So it's good to clarify that. I'm not sure if there's anything you want to add on this particular thing. So it's understood in terms of our focus on getting the facility to operate stable before we try to trigger practical completion and formal contract startup.

Yeah, yeah. No, exactly. I think you explained it clearly. But the key is that we are, since Ready for Startup, we're actually on rate and we're producing gas to the client, but it's just irregular and that's why the contract hasn't started yet. And that's as expected as you explained, yeah.

Okay, thank you. Given a strong net profit delivery at the end of the day, could you provide some guidance on what to expect for net profit in the fourth quarter and consequently for full year 2025? We don't guide specifically on net profit, but I think it's reasonable to say that we don't expect net results to change significantly in Q4 versus Q3. And then I think you can extrapolate all that. We are pleased with being now above 110 million in net profit for the first three quarters. And we expect to build on that also in Q4, which should allow us to be in a good position for adjusting also dividend distributions when we get to Q4. We got a question on, can you elaborate on financing activities Q4 and 2026? Well, it is pretty easy when it comes to Q4. We have no planned financing activities in the fourth quarter. For 2026, in terms of activities, those will be, the first one is obviously linked to the progress on beta naught. Provided everything goes according to plan and this moves towards FID and contract towards the end of 2026, we will start an initiative related to financing for that project. So that will be a large planned undertaking that we will kickstart in early 2026, if things go according to plan. Beyond that, we don't have any other larger activities planned. And then we've got a question on how much capital are you going to deploy into the new JV, VW Alara, presumably referred. Do you want to say something about this, Marco?

As we explained, our target is to have the first unit in operation at the end of towards the end of next year. And as we explained, I think it was first, previous quarter in this segment, these units are, we think the CapEx is somewhere between 60 and 80. We're aiming for the lower end of that range. So, I mean, that gives you an indication of the capital allocation and then divide it 50-50 with BW Group to put this segment in working basically during 26.

Okay. I don't see any other new questions coming in. Very fresh.

I'm also checking.

No, that seems to be everything.

Seems to be it. Well, there was a question about customer base for the floating desalination. Let's see, I can take that.

What kind of customer demand are you seeing for the FDU concept and when could the first contract realistically be signed?

Yeah, so as we also explained in the press release, we see obviously a growing market driven by water stress basically in various places in the world and that's increasing. The particular niche for this solution is for areas where there's both the demand from municipalities but also industrial. And then the client base can be exactly that. It could be industrial players that want to secure their freshwater supply. but it can also be local governments that make sure that there is a quick solution to respond to unexpected events or developing shortages. So particularly that combination is, I think, the ideal part of the market. And first contract could be as early as next quarter.

Very good. Dan, am I missing anything?

No, I think we... I'm falling through the list. I think we've covered it. Okay.

I didn't see any... Oh, wait, sorry. There was a new one coming in. Yeah. Could you give some comments on how we would manage risks of cost overruns in future FBSO projects? That one is related to project execution, which could be an interesting one to touch upon.

Yeah. As we also explained in previous quarter, this is all about risk management and risk allocation. And certain project execution models carry more risk than others. And even if you price the risk, I think you need to then be realistic about about whether these risks are proportional to the size of the company. And as I also explained, these projects, the CAPEX values of these projects have been growing significantly. And that means that we just basically need to reduce the overall risk exposure rather than just looking at percentages. And ways to do that is to team up with partners. So we're looking at strategic joint ventures such that we can share or basically make the project smaller, share the risk of a project over two parties. Another element is the, you know, risk allocation to clients, you know, particular risks that we don't control. So inflationary exposures, commodity pricing risk, et cetera, those are better placed with clients. And most of our clients actually recognize that. and risk allocation to subcontractors, which is similar in nature as, you know, joint ventures, where you basically say you carve out pieces of the project and leave the EPC integration of that, including the profits, but also then the risk to those parties. So, yeah, that's, I think, the key. And last but not least is, of course, the level of definition that you create before contracts get signed. And, for instance, the Bailinor project with Equinor is a nice example where there's an extensive period. We've been working on a pre-feed that lasted nine months, and now we're preparing for a feed that will probably take another – nine months or even a bit longer, which means by the time this contact is signed, there's a very high level of engineering definition, which de-risks the project both for our clients and for ourselves. Okay, so I tried to sum it up.

Number one, more extensive upfront planning of the project before kickoff to make sure we have a good understanding of the schedule and the cost. Two, Well, commercial and strategic partnership models, where we focus on each other's strengths and you basically did the project up in, I would say, smaller pieces and create more subcontracting. So you allocate more of the scope directly to subcontractors, which reduces the risk, of course, also the profit margin to us, but it splits it up and give us better control on on the overall commercials of the project. We're just trying to sum it up in a simple way, what you said there, hopefully you agree. Exactly. Okay, yeah, while we were speaking, I didn't see any new questions come on, so then I'll give it back to you to wrap it up.

Yeah, so then this concludes our third quarter trading update. I'll thank everyone for participation and interest in BW Offshore and wish you a good day and a good weekend. Thank you.