Odfjell Drilling Ltd

Good afternoon everybody and welcome to the Oddvale Drilling Q2 2025 results presentation. My name is James Crothers and I'm an Investor Relations Officer at the company and I'm joined today by our Chief Executive Officer, Jeffrey Yarsdahl and our Chief Financial Officer, William Lunde. Before we begin, your attention is brought to the important information slide of our presentation, which we would encourage participants to read in full. Note that this presentation is only a summary of the quarter and the more comprehensive quarterly report should be read separately. Both that report and today's presentations are available on our website, www.oddfielddrilling.com. Our call today will begin with a brief summary of the quarter, with Chet taking us through some of the key highlights. We'll then move on to discussing our operations during Q2, before moving on to our financial review, Victoria. We'll then summarize the presentation and close the call. As always, following the presentation, we'll open the Q&A session and invite participants to submit a question either via the telephone line or electronically via the webcast tools which are available. Q2 has been a busy quarter for our business, and I'm delighted to hand you over to our CEO, Kjetil, who can dig through some of the key highlights.

Thank you, James, and very good afternoon, everybody. Q2 was an extremely busy period for our company. Completing three yard stays in short succession, in addition to focusing on delivering for our clients, this was an important period for us to get right. I can happily say today that we are very much achieved our objectives in Q2, and we do enter Q3 with a fully upgraded fleet, no major cockpit builds ahead of us, and increasing day rates secured. Despite how busy this quarter was from an operational standpoint, we were able to once again set new quarterly financial records. As can be seen, we achieved a record EBITDA of 109 million from a revenue of 290 million, and we were able to achieve a net profit of 42 million. Financial utilization was 92%. This is somewhat reduced for our normal levels, but it is reflecting the off-hire due to the SPS on the Deep Sea Aberdeen. Shareholders will be pleased to see that we once again increased the dividend to 18 cents per share from 60 cents per share, and we remain well-placed to continue to increase shareholder distributions from here. As discussed, all of our SPS programs are now completed, all of them on time and on budget. And our next SPS will be for the Deep Sea Nord Cup in late 2028. And finally, our financial position goes from strong to stronger, with the company reducing its level ratio again to 1.3 times net debt to EBITDA, while our equity ratio remains at 64%. Moving on to our operations. During the quarter, the company's own fleet was active on the Norwegian Continental shelves, working for AKBP and Equinor. Three of the company's units had yard stays during the quarter, with the Deepsea Aberdeen SBS being the most impactful. However, the company was still able to achieve 92% financial utilization for the entire fleet. And going through our units specifically, we're not in the yard for the SPS. The Aberdeen was working for Requinorat on the Bredablik field. The Atlantic was also working for Requinorat throughout the period, and that worked on various exploration wells. Q2 saw Deep Sister Vanger working for RKBP on exploration wells as part of its wider campaign on the Yggdrasil development. The Nordkap was also working for AKBP during the period, having completed a short yard stay towards the end of Q1 and going into the start of Q2. And when it returned to operations, Nordkap was still under contract with AKBP, worked with Harbour Energy on a carbon capture well. In our external fleet, the Jantai and Bålsta were working in Norway for Konica Phillips and OMV respectively throughout the Q2. The Bålsta is now likely to begin operations with Equinor in September, meaning next month. The Mira was demobilizing following its contract with Total Energies before preparing for a new contract with rhino resources in Namibia. And finally, the Hercules was in yard in Norway for the entire quarter. And then moving on to what will be our final SPS update for some time. Thank God for that. As many will be aware, we have now successfully completed all four owned rigs SPS, having completed the Avedin SPS in mid Q2. We have been preparing for this critical period since early 22 and to see it now finally completed is fantastic. It's taken a huge amount of careful planning, creativity and execution to ensure that it went smoothly and with all rigs completed on time and on budget. The crew and staff involved can be extremely proud of how they have performed. ultimately with all projects now completed our rigs are in prime condition and installed with the latest technologies and this provides a solid foundation to deliver further value and excellent performance and i think the subtitle on the slide says as well our fleet is very much ready for what's next now turning on to the backlog And what's next? It was noted earlier, our backlog now sits at 1.7 billion. Our forward schedule is largely unchanged from our previous quarter, with all four units having firm contract coverage until nearly the end of 26, and with the Stavanger booked until 2030. And as can be seen, our first contract opportunity is with the Aberdeen and the Nordkopp. And we are working on opportunities for both these units currently. Regardless, our units are well secured with contracts coverage at increasing day rates. And As per previous quarter, we thought it was important to demonstrate what this backlog translates into in terms of revenue generation. And as you see, we maintain year-on-year revenue growth based on firmly secured contracts alone. Our average day rate per RIG continues to increase quarter on quarter, and our average OPUS per RIG is anticipated to only marginally increase. It is also worth reminding stakeholders that on top of these day rates comes an historic average of at least $25,000 to $30,000 per day per rig in bonuses and add-on sales. And going forward, we will not have the capex that we have experienced in 2024 and 2025 associated with the SPS projects. So, our near-term growth is very well secured, and our Q2 records today, we hope, won't last very long. And then, before I hand over to Örjan, I would like to talk a little bit about how we view the market and the market outlook. And as the title suggests, we see a market that is well balanced. The Norwegian market is positive for work in 27 and beyond, and with several clients expressing direct interest in contracting our units. Speaking with our clients, we expect that in response to their intention to maintain Norwegian production levels, we will see more wells being drilled on smaller infield development and on exploration wells. We expect that these developments will require more wells for less barrels of production, which could be favorable for our business. Formal tenders remain outstanding in Norway, and we maintain our view that demand for rigs will increase in the coming years, particularly from 2027. If you look internationally, we see demand as being more mixed. Contracting is largely dominated by short-term exploration work with longer-term contracts expecting to mature in coming years. And we expect demand to come from places such as Namibia, Canada, South Africa, Australia and the UK with projects expecting to be matured from 27 and onwards. On the supply side, our view remains unchanged. We expect the supply to likely reduce with some retirement of vessels in our sector, expected, and no new builds likely to happen. There are a few stranded or incomplete vessels in our sector also, but we do not believe it's likely to create any meaningful competition in the near to medium term. Ultimately, we do see good interest from clients seeking to secure Tier 1 assets in this period and are confident of securing additional backlog for units for work in 2027. And with that, I will now pass on to Örjan to go through the financial review.

Thank you, Kjell-Till. I'm pleased to say that we are reporting strong financial results. For second quarter, and I will begin with a summary of the income statements. Operating revenue in Q2 was 219 million compared to 119 million in Q2 last year. Operating revenue from our own fleet was 171 million, while the external fleet generated a revenue of 47 million. As reported earlier, the positive impact of higher day rates is continuing also in Q2, with an EBITDA for the own fleet segment of 101 million, which is a margin of 59%. The EBITDA for the external fleet segment was 9 million, which is a margin of 19%. Less corporate overhead and other adjustments, the group EBITDA was 108 million. The company delivered a net profit of 42 million in Q2, which is a significant improvement compared to previous quarters. The total net profit for the first half is 73 million. Let's move on to the balance sheet page, page 14. Our net debt is decreasing. During the quarter, we have reduced it by another 17 million down to 458 million. which corresponds to a leverage ratio of 1.3 times. I refer you to the last page of the report for details regarding the leverage ratio calculation. Equity ratio was 64% out of total assets of approximately $2.2 billion. The available liquidity is 217 million, including undrawn RCF of 113 million. As anticipated, the available liquidity is down from last quarter, mainly due to capex payments related to SPSs and half yearly amortization on the bond, in addition to increased dividends and upgrade projects. Further details of the cash flow for Q2 follows on the next slide. In Q2, we generated $127 million in cash from operations. Net interest paid was 21 million, including half yearly interest payments on the bond. Tax paid was 4 million. CapEx for the quarter was 52 million, of which 25 million were client-induced upgrades that are covered by lump sum payments from customers in this or adjacent quarters. net cash flow from financing activity was minus 11 million of which 28 million in scheduled amortization on loans and 3.5 million in repayment of lease liabilities offset by drawing on 20 million on the rcf during the period dividends paid in q2 were 38.4 million and related to q1 results We are continuing our upward dividend trajectory by declaring a dividend for Q2 of 18 cents per share, which will be a total dividend payment of 43.2 million. This corresponds to an annualized yield of approximately 10% based on yesterday's close. The shares will trade ex-dividend from 3rd of September and payment will be made around 17th of September. We see a strong potential for continuing the increase in quarterly shareholder distributions going forward, given our solid financial position and our increasing free cash flow generation as a result of higher locked-in day rates, reduced capex payments and reduced debt payments. With that, I will pass back to Kjetil who will summarize our presentation.

Thank you. So then, a summary of the Q2. It has been a record-breaking quarter for Oddfeld Drilling, delivered by strong operational performance of the Oddfeld Drilling team. We have achieved record financial results. Our SVS performance has been exceptional and all of our four units are now upgraded and ready for what's next. We have increased our dividend once again and have strong potential for further increases. And finally, our financial position is further strengthened. To summarize, Q2 was another great quarter for our company, and we are very excited about what comes next. Thank you very much for listening in.

Thank you, Kjetil. As a reminder, if you'd like to ask a question, you can do so either via the TELC online controls, by the webcast tools as ever. We'll try and get through as many questions as we possibly can, but we may be limited on time. So our operator, Sergei, would you be able to please open the Q&A session on the telephone line?

Absolutely. We have a first question from Frederik Steen from Clarkson Securities. Please go ahead.

Hey. James. Hope you're all well. I am I wanted to talk a bit about dividends today. So you have increased your dividends to 18 cents per share for the quarter, as you said now in your prepared remarks in the back end there that you feel very comfortable that you can continue to increase that going forward. And while I'm sure you cannot say exactly how much you're going to increase them to, I wanted to touch upon couple of elements that gives you that confidence. First, if you look at your fleet, you have the Aberdeen and the Nordkapp going off contract late next year, which is one year and something until that happens. But to continue to increase your dividends, I guess the underlying thought from your end that this would have to be that you're very confident in securing more work and continuous work on those units so while you said that you were in discussions if I understood correctly I was hoping to get some more color about you know contract length there at levels if you can share or maybe more so when should we expect any updates on more work firming up for these two particular units Thank you.

Yeah, maybe I can say a little bit about that, Fredrik. Thanks for the questions. So I want to start with the NordCop, because that's sort of the easiest one. That is, as you know, in the semi-alliance with Docker VP. And we have a model there that we add one year to the backlog approximately 15 months ahead of the third period being completed. So that being completed in the end of 26, early 27, that should mean roughly around November or something like that. So we've already started those discussions and And the daily rate for that contract is to be set by two independent brokers. It's a model that we used for some time now, and we used the average of those two brokers. And it's a model that has worked fine for both us and the client. I do not know what that number will be now, but if I were to guess, I would believe it is somewhere between 450 and 500. And then for the Aberdeen, we have various outcomes. As you can see in the contract backlog, Equinor has options for use of the rig, which is to be declared roughly around 15-16 months ahead. That is an unpriced option, so that could be an opportunity. But there are also other, they are in the market with some other tenders. So, which of course is something that we look at as well. So, there are several opportunities there. It could be a shorter time or it could be a longer time if we are succeeding in agreeing with Equinor. So, was that answer, Fredrik?

Yeah, no, that's very good. Thank you.

Just one follow up. Revenues, that's one thing, but now that you've completed your SPS, you're also talking about material, lower capex numbers going forward. Are you able to give some color on what the run rate capex number would be for a year without any SPS work?

Well, firstly, I would say that we have some remaining capex from the SPSs and we're looking at a range of 35 to 40 million still remaining unpaid, which will will influence our Q3 cash flow. And in addition to that, there's always, as you can believe, there's always influence on CapEx levels. But we usually say that per rig, approximately $5 million of CapEx run rate year by year for periods outside the SPSs.

All right, that's super helpful. Congratulations on a very strong, very strong operational performance this quarter. Thank you. Thank you.

Thank you very much.

Thank you.

It appears there are currently no further questions in the phone queue. This I'd like to hand the call back over to James for any webcast questions.

Thank you. I can see we've had quite a number of questions specifically on that point, namely how much CapEx is remaining and what sort of we can advise on that. And as Dorian, you've given your view on that already. Perhaps we can sort of answer this question, which has come through a few times, could management comment on the contract length and discussions for 20 to 27 contracts? Do customers want to continue short and long term or medium length contracts with further options? Is there an appetite for longer term contracts?

Yeah, I would say that remains to be seen. I think all sort of outcomes are being discussed. So it could be shorter, it could be longer. So I won't be sort of conclusive on that one, but I think I can say that all aspects are being discussed, both shorter term contract and shorter, I mean, typically a year. but also longer programmes are on the table.

Great, thank you very much. We've also had a question about our financial utilisation this quarter, why it was slightly down from our typical, which is about 97% over a nine-year period. quick answer on why financial utilization?

Yeah, I think that was the answer in the presentation as well. But it is due to the fact that we've included the off-hire for the YPZ Abaddon when it was doing its SPS.

Again, that's a similar question on new contracting opportunities and how confident are you in announcing new contracts in 2025 for at least one of the rigs coming off contracts in late 26? And which rig do you expect to be contracted first?

I can say that we are confident that we will be able to announce something before year end, which will come first. That's a 50-50 outcome, I would say.

Any changes in home management thinks about its capital allocation? Will you risk falling below one times net debt to EBITDA without any substantial dividend increases? maybe a brief summary of how we see our capital allocation and then talk about maybe the next debt to EBITDA position.

Well, our target is to maintain a leverage ratio that de-risks our company towards any challenges in the future. And currently we are returning as much capital as we believe is right for our business in the current stage. And we have obviously been vocal about the outlook to possibly increase this going forward.

A little bit of colour, Elizabeth, on how we see our dividends programme and how we potentially intend to step that up and or define our future dividend programmes. Is there anything that we wanted to talk about on our dividends that we can get across to our investors, I suppose?

You will always be able to find our dividend policy on our website. The board prefers to maintain flexibility regarding dividend levels and not to be bound by specific metrics the way it is currently. If you look at the history of how we communicated our dividend, we have started the dividend earlier than expected and have now increased it more than expected. So I would say that this could potentially be a beginning of also further increase. But again, as I mentioned initially, the board prefers to maintain flexibility regarding dividend levels.

Great. As we always do get a question on M&A, is there any update on our position on M&A and how we see that and how we see pricing discussions between buyer and seller?

Yeah, M&A, no breaking news, but I can say that we still believe that there's room for consideration in this industry.

I think that would make very much sense on a lot of metrics. And we do want to be part of an active assessment in those processes. What I can say is that we have looked at a lot. We have looked at various, and we have also been quite into detailed discussions. But I would say so far, and from our side, we think that the price expectations from potential sellers have been too high, to be honest. But we will not give up. As I said before, it's all about finding that right combo, the right asset quality with the right price and with a contract backlog to sort of match it. And we will continue to see what we can do there. But we will be disciplined in that process, but remaining active, I would say.

Thank you very much. I'll maybe take one or two more questions that comes through running out a little bit on time. What are your thoughts on refinancing your bond and doing anything in that regard?

Well, firstly, I would say that we appreciate the interest in the bond and we recognize that there's quite a bit of interest while bondholders look to be sitting on the position as is. And with our first opportunity coming up this autumn in Q4, we are obviously looking at this, but we will look at this the way that we look at any opportunity. It needs to improve the position that we're in, also on a longer term. So I guess that's something that we will come back to at a later stage.

Okay, we have one very quick question. Do you have any more downtime planned for your fleet? And I think even I can answer that. The answer is no.

Absolutely not.

Yeah, not this year at all. I think we'll close the call in that case and we'll sort of close the webcast as well. Thank you all again for joining and for your interest in the company. Our next conference call will be on the 6th of November. uh however as always if you like any more color on today's results please do get in touch uh you know i'll try and answer all the questions that have gone through to the q a post at this call closing thank you very much