Paratus Energy Svcs Ltd

Welcome to the Paratus Energy Q3 2025 earnings call. There will be a question and answer session after the presentation. And you could submit your questions by using the button on the bottom of the player. I will now hand you over to your host.

Good day, everyone. Welcome to this third quarter 2025 results presentation for Paratus Energy Services Limited. My name is Robert Jensen and I am the CEO of Paritus. Joining me on the call today is Baton Hajimemedi, our CFO. Before we begin today's presentation, I would like to remind all participants that some of the statements on this call may involve forward-looking statements. Forward-looking information involves risks and uncertainties by nature that may cause actual results to differ materially from those projected in such statements. I therefore refer you to our latest public filings. Paritus delivered another strong performance for the third quarter of 2025. We reported better than expected revenues due to higher average day rates and increased operating days at Sea Gems and recognition of previously unrecognized revenue at Fontys. Both of our operating entities maintained strong operational performance with a fleet technical utilization of 99% for the quarter. Revenues for the group were 127 million compared with 107 million in the second quarter. As mentioned, the increase is primarily driven by 12 million of variable revenue previously unrecognized in Mexico, as well as higher average day rates and reduced off-hour days for our Sea Gems fleet. On the back of this, adjusted EBITDA came in at 78 million versus 57 million in Q2. Even when excluding the previously unrecognized revenue at Fontes, EBITDA was 66 million, which is a substantial improvement from the second quarter. Net income for the quarter was 46 million, significantly up from 5.6 in Q2. In September, we divested our entire 24% stake in Archer through a secondary share placement. We have been a supportive shareholder in Archer since the inception of Paritus. However, as there were no natural synergies between Paritus' two operating companies and Archer, we believe the sale aligns well with a strategy to simplify the group structure. A book gain of 13 million was recognized from the sale, and the sale increased our liquidity profile by 30 million, following approximately 18 million of the proceeds used for mandatory debt redemption and accrued interest expenses. In line with our policy of targeting stable cash distribution to shareholders, the board of directors has declared a dividend of 22 cents per share for Q3. This is our sixth consecutive dividend at the level consistent with every quarterly distribution since our IPO last year. Considering today's announced dividend, we will have returned almost 250 million to shareholders since we started our distribution last year, equivalent to roughly 36% of our current market cap. This reflects our continued dedication to maintaining a disciplined capital return policy that delivers value to our shareholders over time. We ended Q3 with a cash balance of $144 million and net debt of $659 million. The quarter-on-quarter increase in net debt primarily reflects CGEMS securing $60 million in additional CAPEX funding during Q3. We currently have no plans to draw more debt in CGEMS for CAPEX funding as the required CAPEX spending for the new Petrobras contracts has been completed. Receivables in Mexico increased to 293 million, up from 232 million in the prior quarter, as no significant payments were received during Q3. However, in October and November, Fontys has received a total of 96 million from its client in Mexico. We have now collected 309 million year-to-date from the client. This represents 1.5 times the annual revenue for Fontys. Recent collections and ongoing support from the Mexican government reinforce our confidence in an improving operating environment in the country. However, as we have consistently stated, the timing of future payments may fluctuate in Mexico, and the company will therefore continue to plan its cash management accordingly. It is also very encouraging to see that we continue to convert previously unrecognized invoices to revenue through constructive discussions with our clients. As always, we remain committed to the full recovery of any outstanding receivables consistent with historical practice. Now let's move over to the quarterly review for each of our two operating entities. We continue with our joint venture, Sea Gems. Please note that all numbers referred to on this slide are on 100% basis, of which we own 50%. Sea Gems had another strong quarter with revenues of 145 million compared to 125 million in the second quarter. The sequential increase was primarily driven by higher average day rates, with the ONIX beginning its new contract in August, as well as reduced off-hire days relative to the second quarter. In the second quarter, three vessels underwent acceptance testing prior to commencement of their new Petrobras contracts. All of our vessels have now started their new three-year contracts with Petrobras. EBITDA for the quarter was 90 million, up from 81 million in the second quarter. Operating expenses came in at 43 million, up from 31 million in Q2, while G&A was slightly down at 6 million, compared to 7 million in the previous quarter. Technical utilization for the quarter was a solid 98.5% versus 97.9% in Q2. Please also remember that Q2 OPEX was positively impacted by reimbursement of an insurance claim as well as reversal of certain accounting provisions. The average contractual day rate increased substantially to 272,000 per day from 255,000 in the second quarter, reflecting again the start of the new contract for ONIX. The contractual backlog for CGEMS stood at 1.5 billion at the end of the quarter. During the first nine months of 2025, the JV provided cash contributions of approximately 182 million to its shareholders, of which Paratus received 91 million. As mentioned previously, during the third quarter, CGEM secured 60 million in additional CapEx financing from local Brazilian banks. Amortization is scheduled to start in 2026 and will run over three years. Finally, subsequent to the third quarter, Seagems reached another great milestone, being awarded Petrobras' Best Supplier in Flexible Pipeline Installation for the second consecutive year and the fourth time in eight years. As a proud shareholder, we are pleased to see Petrobras once again recognize Seagems' excellence and innovation in offshore operations. Moving over to Fontys Energy, Our wholly owned drilling business reported Q3 revenues of 55 million and an adjusted EBITDA of 35 million. This compares favorably to 44 million and 18 million respectively in the second quarter. The increase was primarily driven by booking of 12 million of previously unrecognized revenue for the Titania. Operating expenses were 20 million for the quarter, down from 26 million in Q2, which was inflated by the demobilization of the Titania. G&A was 500,000 slightly up from 400,000 in the previous quarter. Technical utilization remains strong also for Fontys at 99.7% compared to 99.2% in Q2. Average day rate remained at 116,000 per day consistent with the previous quarter. Fontys' backlog at the end of the third quarter stood at 56 million down from 98 million at the end of Q2. As mentioned previously, the receivable balance increased to 293 million at quarter end from 232 million in Q2. But as also previously mentioned, the company has received substantial payments in the past two months and is expecting a more normalized operating environment going forward. Looking at the fleet, with the exception of Titania, all of the rigs are currently working and contracted into Q1 2026. Although we do not have any concrete updates to provide today on the contract situation in Mexico, Fontys is currently in commercial discussion with the client regarding potential renewals. We expect to share more information regarding the outcome of these discussions soon. As previously stated, we remain confident in the long-term demand for our assets in Mexico if the client is to achieve its targeted production levels. More broadly speaking, even through the recent market slowdown, premium Jacob utilization has held above 90%. The renewed activity we are now seeing in Saudi Arabia is an encouraging sign and should add positive momentum to the overall industry sentiment. As a result, we are also seeing more prospects for work outside of Mexico for our fleet. In parallel, we are continuing to evaluate strategic options for our jacket business. In recent months, we have been approached with several unsolicited indications of interest regarding Fontys and its assets. We are assessing these as part of our ongoing effort to determine the most value accreted path forward for Paracos and our stakeholders. With that, I will leave the word over to Baton to walk you through the financial results.

Thank you, Robert. Let's start with a review of our Q3 results compared to the Q2, the prior quarter. Net income after tax came in at $46 million, which was up sharply from $5.6 million in Q2. And as shown in the top right graph on this slide, there are a few key reasons for it. First, revenues were up by 20%, or $21 million, from $107 million in Q2 to $127 million in Q3, while EBITDA rose 38% to $78 million. That came from two main reasons. CGEM generated $73 million in revenue, a 10 million increase from Q2, mainly from higher day rates and more operational days. In Q2, three vessels were still in acceptance testing for the new Petrobras contracts, and by August, the final vessel, Onyx, as mentioned by Robert, started operations on this new contract. In Mexico, we had a strong quarter. EBITDA rose from $18 million in Q2 to $35 million in Q3. That's up by $17 million. This came from strong rig operations, continued cost discipline, and also helped by the $12 million in revenue we hadn't recognized earlier for Titania due to prudent accounting rules. That is similar to what we have seen last year when we booked and collected $25 million of previously unrecognized revenue. The company continues to work hard to realize all contractual revenues we believe we are entitled to. Since we took over the operations from the previous owner, we have booked $37 million of previously unbooked revenues. 25 of this was booked in 2024 and paid to us as well during Q1 this year. And finally, we booked a $30 million of gain from the sale of our R2 shares in September, which explains the significant decrease in net financial expenses and other line in the P&L. So in short, this quarter once again shows the strength of our operations and how well our teams are executing with strong financial results to show for it. Now stepping back and looking at the first nine months of 2025 compared to the same period last year. During the first nine months of 2025, we report a net income after tax of $55 million, which is up from $29 million in 2024. As shown in the lower right graph here, there are several key drivers behind this increase in profit. First, total revenues were down slightly by about $6 million, mainly due to low revenues at Fontys, which was primarily because Cetania has been off contract and warm stacked since Q1, late Q1, and lower day rates for the other forays. That impact was partly offset by the $12 million of additional revenues that was booked in Q3. That decline was almost entirely offset by strong revenue growth in CGMs, where revenues increased by 26% or $39 million from last year. Primarily driven by significantly improved day rates from rolling into the new Petrobras contract, as well as fewer off-fire days compared to last year. Operating costs were also $6 million lower year-on-year, reflecting reduced personnel and other costs at Fontys. And remember that last year the results included transaction costs related to the company's IPO and the issuance of the 2029 bonds, which are not present this year. And finally, financial expenses and other items were $22 million lower compared to last year, mainly due to the $30 million gain from the art sale, as mentioned, and the absence of a $35 million non-cash accounting charge related to the partial redemption of the 2026 notes recorded last year. This was partly offset by the inclusion of an upfront fee related to the receivables monetization agreement in Q1 this year to collect the $209 million of receivables. So to summarize year-on-year results, the year-to-date results came strong despite having one idle rig since Q1. and now moving on to page six uh let me walk you through the main drivers of our cash flow this quarter at the paratus consolidated level we closed the q3 with a cash balance of 118 million dollars which was up from 70 million dollars at the end of q2 2025. the main factors behind these movements were First, we saw a working capital build up in Mexico, as we had no significant collections from our client during the quarter in Mexico. However, this will reverse in Q4, as we have already collected in total $96 million during October and November this year, as disclosed in the report. Second, we spent about $2 million on CapEx related to Fontys, which was down from $4 million in Q2. We received cash proceeds of 58 million dollars in Q3, which was significantly higher than in Q2, when we received 16 million dollars. And a second dividend from Archer of 1.3 million dollars before the sale of the shares. In addition, as Robert mentioned, we had cash proceeds of 48 million dollars from the sale of Archer stake in Q3. Net interest payments came to $4 million, which was much lower than the $28 million of interest paid in Q2, since that quarter reflected the semi-annual coupon on our 29 bonds. And finally, we paid CAF a dividend of $36 million, related to the Q2 2025 dividends. After these movements, we ended the quarter with $118 million in cash at the Parata's level. And on the top of that, our Parata share of cash in the Sea Gems joint venture was $26 million, bringing the group cash position to $144 million at the end of Q3. So this leaves us with a solid liquidity position going into Q4. And together with the recent collection from Mexico, it provides us with flexibility for both operations and capital allocations. Turning to page 7, let's look at our capital structure and selected balance sheet items. As just mentioned, we closed the quarter with balance of $144 million and a net debt of $659 million, resulting in a net leverage ratio of 2.6 times EBITDA, which was unchanged from Q2. Our accounts receivable balance in Mexico increased to $293 million from Q2, which was driven by The revenues booked this quarter and the $12 million additional revenue booked in Q3 as well. Performing for the October-November collections of $96 million, the receivables balance will just be below $200 million. We remain, of course, actively engaged with the client to collect outstanding receivables, but as before, we continue to plan on the basis that delays may persist in the near to medium term. That said, as Robert mentioned earlier, the recent collections of the ongoing government support initiatives gives us great confidence that the payment cycle is beginning to normalize. With respect to the debt maturity next year relating to the 2026 notes, we continue to evaluate our options holistically and strategically. And we will communicate the plan for this well in advance of the maturity in July next year. Finally, after Q3, the company repurchased $17.6 million in principal amount of its 2026 notes, pursuant to a tender offer which was completed after this quarter. With that, I will hand over the word back to Robert.

Thank you, Barton. Before we hand over to Q&A, we would also want to provide a little bit of a financial guidance, an update to what we issued earlier this year. Based on the results delivered in the first nine months, we are now happy to report that we expect 2025 revenue and EBITDA to exceed our previous guidance. We have therefore lifted our 2025 revenue guidance to between 445 to 455 million, up from our previous guidance of 420 to 450 million. We now expect EBITDA to come in between 250 to 260 million, up from the initial range of 220 to 240 million. For 2025, CapEx is expected to come in at the very low end of our guided range. With that, let's open up for Q&A.

Ladies and gentlemen, we will now take your questions. Just as a reminder, you can submit your questions by using the button on the bottom of the player.

Let's start with the first questions. What are your capex, sorry, any incoming from Petrobras as part of their attempts to cut costs or capex that might suggest CGM's contracts may be renegotiated?

Let's just make it very clear, our contracts with Petrobras are not open for renegotiation, so any changes to the terms will need to be by mutual consent. We have also seen the reports in the market of Petrobras may look to reduce costs for 2026. The company or being CGEMS has not yet been approached. We expect there may be a discussion, but as I said, there is no obligation for us to accept anything. Peers or some peers have sort of, committed to some type of a blend and extend on older contracts. The new Petrobras contracts are not open for that type of discussions. So I think based on where we stand today with all our vessels on the new contracts, there is little that we can see that will be offered to us. But obviously we have a very good relationship with the client and we'll obviously entertain discussions. But I just want to stress that it needs to be by mutual consent. So we if there's a benefit to us in discussing the contracts we will certainly entertain it

When you say you seek strategic alternatives for the GU rigs, does this also include a complete fleet sale, M&A and other consolidation?

Well, I think obviously we cannot sit on a call like this and discuss openly what options we are looking at. We provided some indications that there are ongoing discussions that we wanted the market to be aware of. We have said all along that we would like to develop Fontys as the structure today is probably subscale and too concentrated on one jurisdiction and client. We remain positive to consolidation in the industry and believe there is room for Fontys to play a part in that. For our part, I mean, We could remain involved in the space. We could be part of something larger. There's also an argument to be made that maybe we should look at further streamlining our portfolio of assets as we did when we disposed our Archer shareholding. So we are evaluating various strategic alternatives and we will see what is the best for all stakeholders and operators in the long run. I think that's all the commentary we can provide at this stage.

There's a question about contracts in Mexico. Do you expect the level seen in recent contract extensions in Mexico around USD 130K per day is representative for what you can achieve for your two larger backups?

We're not going to speculate on day rate levels on a public conference call. So we've said Fontys is in commercial discussion with his clients and we hope to conclude on this in the near term and then we'll communicate that to the market. But I think it's important to remember that Fontes during the rough patch in late 2024 and into early 2025 was able to keep all of its rigs working. So we're obviously also very focused on ensuring that we maintain good enough protection in our contracts in the event of something like that were to happen again. So there's more to a contract than just a day rate. But again, we will update the market when we have something more concrete to say about the current ongoing commercial discussions.

Robert, so when do you expect to conclude the review of the Fontys fleet offers?

As I said, we're currently reviewing. We've had several indications of interest in recent months, so we are taking our time to review and see what is the best outcome for the company. I think hopefully we will be able to conclude something in the next Yeah, let's say months. We obviously we have the 2026 notes up for renewal in or for refinancing in July next year. We know there's going to be more questions on this call relating to that as well. But I think there's a holistic. Thinking around here, so obviously we need to review our strategic alternatives, decide on how we best position the company for the future, and then we will obviously cascade that into the refinancing going or as we move into 2026.

There's a question around the collection that we have received recently. How is the process of receiving funds from PAMEX through the government-established fund working? Is there any discount applied? Are all jackups eligible to use this system?

I can only speak on behalf of what we are seeing through Fontys. And so the payment is made by that government established fund. We receive revenue or payments as it would have been through Pemex. There are no discounts involved. So other than receiving money from a different counterpart, it is as if we were receiving money from Pemex.

Given the lack of activity in terms of M&A, investment activity since the IPO, and beyond the Arthur divestment, should Cheryl still consider Paratus an investment company?

If so, can you elaborate more on that? Yeah, I mean, we still view ourselves as an industrial holding company. I think what we've said since we went public, we obviously inherited the assets that we had at the time of the IPO. We reviewed our holding in Archer and decided it was, as I said earlier on the call, there were no natural synergies across Archer and our two other operating entities. We still own fontis and our stake in the joint venture so i would still consider as a joint venture as a holding company given that we have two very two different assets um as i said that we we are reviewing uh opportunities for fontis i wouldn't say that that if we end up uh disposing um partly or wholly that investment i wouldn't say that it disqualifies us as a as a holding company uh by any means But I think we are obviously looking at all times at how can we maximize the long term value for our shareholders? And if we decide one way or another, I don't think that really changes the dynamics of us being an investment company. speculating what happens further out in time. I think let's just focus on what we have in front of us right now with the potential opportunities for Fontys and then we will obviously come back and communicate to the market any strategy that may or may not have changed when we get into 2026.

Regarding the future, is there a price level on the actual commodity that, if reached, would begin to give you concerns on jeopardizing your 26 and 27 expectations? Related to you folks, do you have any hedges in place if the commodity price declines to some extremely low level, such as the 2020 period?

We do not have any hedges in place, but obviously we are hedged in some way, particularly through the joint venture where we obviously have all vessels on long-term contracts. So again, our contract language is very strong and protective, no cancellation for convenience. So near-term fluctuations on commodity prices should not impact that company. When you look at Fontys, obviously we mentioned it before and you can see that it's been discussed on the call. We have Briggs rolling next year. I think the The good thing about working for a national oil company, we see that their demand is more resilient than what we typically see from independents. But ultimately, I think we are in commercial discussions now, so we don't want to talk too much about our expectations going into 26 or certainly not beyond that.

What are your capex expectations across Fontys and Seagems Q4? Does your guidance imply little to no spend in Q4? How much have you deferred to 2026?

Well, in a capital intensive business, there's also always some deferrals from one year to the next, but I think the level of capex being deferred from one year to the next is not out of the ordinary here, or it wasn't last year. So within the CapEx guidance that we have disclosed to the market previously for both Fontys and the SeaGems joint venture, that still holds. As for Q4, I think when you look at our guidance for 45 million in total, bear in mind that the year-to-date CapEx numbers that are presented for SeaGems are on 100% basis. So when we provide CAPEX guidance, that's on a 50% ownership basis. So the number that you see on the slides need to be or need to account for that. You need to account for that.

There's a question again about C-Gems. What Petrobras fields are the C-Gems, PLSVs primarily working at?

It's hard to say that they're one field all the time. The way Petrobras handles its PLSV portfolio is that they have obviously a pool of vessels. We are one of the three suppliers into that pool and the vessels will work on several fields throughout their contracts. I don't think we need or should go into the specific details of which fields they're working on at any point in time. If that's even disclosed, I think that's something you will need to look for at Petrobras documentations or presentations.

The remaining questions seems to be more like housekeeping questions and details. For the persons involved you can rather contact me for answers so I will respond to those.

Separately. Just to add to that, I think there are some questions about OPEX and CAPEX assumptions. I think if you just look at our investor presentations, we have disclosed more or less everything required for modeling CAPEX and OPEX, and those numbers still hold. So I would just refer you to those assumptions.