Odfjell Drilling Ltd

My name is James Crothers and I'm an Investor Relations Officer at the company.

I'm joined today by our Chief Executive Officer Kjetil Gjersdal and our Chief Financial Officer Orjan 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 a more comprehensive quarterly report should be read separately. Both that report and today's presentations are available on our website www.oddfjelldrilling.com Today's call will follow the traditional structure with Kjetil taking us through the key highlights before moving on to our operational review. Kjetil will then continue with an overview of the market as we see it today before handing over to Orjan who will go through our financial review. Kjetil will then summarize the presentation before we open up our Q&A session for analysts and investors. As always, the Q&A session will be conducted over both telephone lines and the webcast tools, and we will try to get through as many of the questions put to us as possible. However, if we don't get a chance to get through your question, I will endeavour to follow up with you directly after the call. We make an effort to answer all of the questions asked, so we do encourage you to use this feature. With that, I'll pass over to our CEO, Kjetil Gjersdal.

Thanks, James, and a very good afternoon, everybody. As I was quoted in our report, which was published earlier today, results emphasize the resilience and capability of our organization. Even though we've had one rig of fire from much of the quarter, we still have been able to return solid financial results, leverage our balance sheets, and we are continuing to return cash to our shareholders. From revenue of $251 million, we have recorded EBITDA of $162 million and achieved a net profit of $57 million. These numbers are positively impacted by the insurance proceeds from the Atlantic incidents. After write-off of lost equipment and expenses incurred related to the insurer's claim, there is a positive EBITDA effect of $32 million. Meanwhile, we have continued to deleverage, reducing our leverage ratio now to one point times net debt to EBITDA and our net debt to 862 million dollars. At the same time, we have announced the dividend for the quarter of 25 cents per share. And while we are still seeking to increase our dividend to a long term sustainable level, We believe that given the incident for this quarter, it was prudent to maintain our distribution level at 25 cents per share. I will touch more upon this later in the presentation. In addition, we have also added more backlog resulting in our own fleet now having firm contract backlog of 2.1 billion dollars. And of course, as many of you know, we have successfully brought Deep Sea Atlantic back on higher following the incident of the total fire of 106 days within the three to four months guidance, which we gave during our Q1 results presentation. And while the incident was a tough hit, I would say that, you know, the response Our organizations, our vendors, insurers, our clients, peers and the wider industry has just been exceptional. We did this the odd-fell way and it speaks volumes to all involved that we were able to bring the unit back into operations within 106 days and I would like to sincerely thank everybody who has been involved in making this happen. And on that topic, as we move on to the operational review, we wanted to make sure we provided an update on what's been going on with the Deep Sea Atlantic. Since the incident, the company has been working hard to bring the rig back on hire. This started by locating, cleaning out and recovering the BOP, which had been dropped to 1100 meters of water depth. This was not easy, but working with various suppliers, we were able to recover the BOP by using specialist equipment and by using the Deepsea Atlantic itself. Inspections of this dropped BOP suggest that it will be likely repaired and refurbished. Following this, the rig sailed to yard for repairs and to install a now upgraded BOP, which the company had in stock. The rig subsequently returned to site for testing and final acceptance in mid-July before going back on rate on August 2nd. The company has so far recognized $82 million worth of insurance proceeds related to recovery and repair following the incidents. As mentioned, the company has had a positive EBITDA effect of $32 million in Q2 related to the insurance proceeds and has had a positive EBIT effect of $4 million following an impairment loss of $28 million relating to the damaged equipment. As regards to cash, the estimated net impact from the incident, all effects taken into account, is negative approximately $35 million compared to what it would be if the incident had not happened. And I would like to add that over the past couple of months, we naturally have had a lot of people asking what the cause of the incident was. And while it's still a formal investigation ongoing, I think we can with confidence say that the cause of an incident was equipment errors and not operating errors. And then moving on to our backlog. and General Operations Performance. And despite the incident on the Atlantic, our units performed extremely well during the quarter. Notably, both the NIPSI Nordkapp and NIPSI Stavanger averaged the financial utilization of 99% during the period, above our 10-year average of 97%. Meanwhile, we also added another year of backlog to the DTC Nordkapp after Åke BP elected to exercise options to extend backlog for the unit for another year ahead of schedule. The day race for this contract will be defined by two independent rig workers before the end of this year. And with this extension, Deep Sea Nordkopf's firm contract backlog is now secure until at least 2028, and all of our units are now secure until at least late 2027. The Deep Sea Atlantic is the first unit with availability. However, Equinor still has priced options for the unit, which extends into early 2028. Our focus over the next couple of months will be on securing more backlog in a market that we believe will continue to strengthen going forward. And at that point, I think we can have a look at our view on the market. Starting with the supply side, the story really hasn't changed that much. The average age of harsh environment units continues to increase by limited new supplies being added. or is likely to materialize in the near future. New builds remain unlikely and the high spec unit market is increasingly tight. And when you look at the availability of tier one rigs in 27 and 28, it is notably low. We consider the utilization in our sector to currently be at around 90%. And if you consider historic trends, as utilization goes above 90%, Day rates tend to often follow. We believe that this tightening of the supply market is largely due to the strength of the Norwegian market, which we have been vocal about for some time now. Operators continue to reaffirm the strategy of drilling to arrest production decline, and they are looking to secure rig availability into the future. I think this is emphasized by recent contracts awards in our sector, such as for the trans-ocean CAT-Ds, as well as the Deep Sea Note Club. In addition to this, we continue to see good interests from overseas, notably Namibia, Suriname, Canada, and the UK. In addition to exploration work, Many of these areas are looking at development opportunities, which could mean further increased utilization of bricks in our sector. And ultimately, with these conditions, we believe that the market is likely to facilitate more strong day rates for future contracts. And I think we do certainly echo Commen's babel appears of a strengthening overall drilling market, and particularly for the harsh environment sector. And with that, that concludes my section and I will pass it on to my CFO, Orjan, to go through our financial review.