Paratus Energy Svcs Ltd

Welcome to the Paratus Energy Q2 2026 earnings call. There will be a question and answer session after the presentation. And you can submit your questions via the form at the bottom of the player at any time during the presentation. I will now hand over to your host.

Thank you, Elba. Good day everyone and welcome to this second quarter and half year 2026 results presentation for Parautis Energy Svcs Ltd. My name is Baton Hajime Mede and I'm the interim CEO and CFO of Parautis. 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. The second quarter of 26 and the period since have been eventful for Paratus. On July 29th, we successfully completed strategic sale of Fontys, Drillings Operations and Jackup Fleet for a total consideration of $400 million. At completion, Paratus received approximately $163 million in cash and a $237 million of seller credit with a term of two and a half years structured with interest rates step up from 10% up to 14%. Separately, we received $20 million as reimbursement of interim funding we provided to support Fontys operations between signing of the SBA and completion of the transaction. For information, ProArtis cash following completion increased to over $300 million. We are currently evaluating the available alternatives for the use of proceeds and will provide a further update once a decision has been made by the company. As announced earlier, during the quarter we also completed the replacement of 250 million dollars of a five-year senior secured bonds with a coupon rate of 8.125% and fully redeemed the 226 notes during the quarter in June. As I will return to later, at Seagym the team achieved an important milestone related to our fleet life extension strategy. TGM has received approval to extend the dry docking regime to up to 20 years for its five 550 tons PLSVs, removing one SPS or dry docking over each vessel's life. From this, we expect lower lifetime COPEX and higher earnings potential as the vessels stay on higher through periods when they would otherwise have been in dry docking. Turn to the operational financial performance for the quarter at high level. The PLSV fleet recorded technical utilization 93%, which was down from approximately 98% in the last quarter.

This was due to some downtime driven by maintenance and operational incidents involving Smeralda and Jade PLSVs.

The related work on this has been completed and the financial impact was reflected in our previously announced guidance, which we provided in connection with the Q1 release. we reported Q2 revenues of 71 million dollars and adjusted EBITDA of 42 million dollars compared with 75 and 46 million dollars respectively sorry in Q1 we closed Q2 quarter with 148 million dollars in combined segment cash while net debt was 282 million dollars performer for the Fontys transaction finally the board has declared a dividend of 22 cents per share for Q2 in line with every quarterly dividend since our IPO in 2024. Including the dividend that we announced today, we will have returned approximately 350 million dollars to shareholders since we started the cash distribution and buybacks two years ago. Now let's move over to the quarterly performance of the joint venture, the Seagems. As usual, please note that the figures referred to here are on 100% basis unless otherwise stated by me. CGM delivered another quarter of solid financial performance. Revenue was $142 million and EBITDA was $87 million, representing an EBITDA margin of 64%. The quarter-over-quarter decline in earnings mainly reflects maintenance activities and operation incidents, as mentioned earlier. in the introduction. Compared with Q2 last year, we see a revenue growth of about 14% from $125 million last year to $142 million this quarter. This was mainly driven by higher day rates under the new Petrobras contracts and fewer off-wire days compared to the same quarter last year when the PLSVs underwent acceptance testing in connection with new contracts. During Q2, the JV distributed $60 million to its two shareholders, of which half of it is to Paratus, compared with $83 million in Q1. At quarter end, backlog stood at approximately $1.1 billion compared to approximately $1.2 billion at the end of Q1. CapEx was about $6 million during the quarter and $12 million during the half year, 26. As already publicly available, early in 26 Petrobras launched a PLSV tenor which includes five lots with different technical specifications and four-year contract durations. Seagym submitted bids for the Jade and a third-party vessel to which Seagym has secured exclusive access to in the event of a contract reward. Negotiation are ongoing and we will provide an update when there's something concrete to report to the market. As mentioned in the introduction, the JV achieved an important milestone related to our fleet lifetime extension strategy. Seagym secured approval for the extended dry docking program for up to 20 years for five of its six VLSVs. Consequently, each of these five vessels is expected to have one less dry docking during the lifetime than what would have been required normally. Reducing future capital expenditures and subject to the vessels being contracted for the relevant period in the projection period allowing for higher revenue generation during the time the vessels otherwise would have been dry docked. As has been discussed in the past and for practical illustration such a dry docking can typically involve approximately 10 million dollars in COPEX per vessel and in about 30 to 40 days during which that vessel will be unavailable for revenue regeneration. DeSIMS continues to seek similar approval for the Esmeralda and other Brazilian FAG as well. Now let's go through the first half year of 26 financial results compared to the same period last year. For Autis reported net income from continuing operations after tax of $28 million. during the first half year 26 compared to $3 million same period in 2025. Key drivers were as follows. Revenues were $146 million up 23% compared to last year, mainly driven by higher day rates under the new Petrobras contracts and fewer of higher days as the prior period included acceptance testing in connection with the new Petrobras contracts. ABTA was $87 million up from $69 million on back of higher revenues, partly offset by higher operating costs as 2025 reflected reimbursement of an insurance claim for Esmeralda and other changes in accounting provisions. Financial items and other expenses were $35 million compared with $47 million in the same period last year. The reduction mainly reflects the absence of the upfront fee related to the Fountas Monetization Agreement, which was signed and done in Q1 2025, and the arts-related losses reported last year. We reported it based on the equity method. Free cash flow in the first half year 26 was $35 million, compared with a negative $1 million last year, same period, supported by materially stronger cash flow from Seagents. Overall the first half year 26 showed a significant improvement in financial performance compared with the same period last year. Mainly driven by stronger operations and higher day rates. Now let's take a look at the main cash flows here during the quarter. At Paratus we closed the quarter with a cash balance of 122 million dollars compared to 130 million dollars at the end of Q1. The main cash flow movements during the quarter were cash flow used in continuing operation for about $3 million compared to $4 million in Q1. We received the cash distribution from CGEMS of $30 million compared to $41 million in Q1. And we paid net interest of about $26 million compared with $4 million in Q1. This comprises the quarterly interest payment on the 26th notes and the semi-annual interest payment on the 29 bonds. The net cash inflow of $47 million from new bond issuance, as I mentioned before, after redemption of 26 notes, net of any fees. Another $3 million in financing fees related to the Fonte sale. And finally, consistent with the prior quarters, we paid $36 million in dividends to our shareholders. After these movements, as I explained here, we ended the quarter with $122 million in priorities. At closing of the Fontys transaction in July, we received $183 million in CAF proceeds from the buyers. as you can see here performer for the Fonte sale total cash was 305 million dollars if including the pro rata share of the season's cash combined segment cash on a performance basis would have been approximately 331 million dollars so so overall priorities continues to have a strong liquidity position supported by stable distribution from cgms and the completion from the of the Fonte transaction of the quarter Next please. Now over to our capital structure and the impact of the Fontys transaction. As you can see here at the end of Q2, the reported net debt was 661 million dollars, which is before the completion of the Fontys transaction. However, performing for the Fontys sale, net debt was reduced to 282 million dollars, which reflects the 400 million dollars transaction concentration. As a result, the performer leverage was reduced from 2.7 times to around 1.6 times EBITDA. As mentioned earlier, at transaction completion we received $163 million in CAF and $237 million of 2.5 year seller credit. The seller credit bears interest at 10% during the first 12 months, 12% during months 13 to 18 and 14% thereafter. Separately, not reflecting the pro forma capitalization graph here, we received another $20 million as reimbursement of interim funding provided for Fontys operations. As disclosed before, under our bond agreements, the Fontys proceeds may either be used to repay debt, meaning the 29 months, or held in escrow for up to 12 months while the company evaluates potential reinvestment opportunities. We are currently evaluating and will provide a further update once a decision has been made to this. And with that, I think we can open up for the Q&A. Thank you.

Ladies and gentlemen, we are now ready to take your questions. Just as a reminder, you can submit your questions by the form at the bottom of the player. We'll now take some time so you can register your questions.

There's a question around the Petrobras tender, not a surprise of course. uh whether we can um talk more about the shade since it is expected since it will roll off the contract in September or in August 27. um it's for artists expecting an extension let's take that first um yeah i mean our current expectation is that the doesn't expect that an extension with Petrobras is the most likely solution or what will happen potentially bringing the existing contract through the through January 28 when it's when the mobilization date is based on the tender But again, more broadly, the fleet's historical technical uptime has over approximately 98% demonstrates our ability to operate the vessels effectively and to deploy them on work, both with and outside Petrobras. The other question is about earnings potential on the third-party vessel. What I can say in general now is that discussions are ongoing and negotiations are ongoing with Petrobras however this remains an active commercial process as you may appreciate and due to its sensitivity commercial sensitivity we're not in a position to comment any earnings potential yet or again in economics or expected outcome out of this before we actually get to any concrete stage with an award or not. Since the start of date of the current PLSV tenders in 2018, we are expecting to see another Petrobras tender for the other five PLSVs. The remainder of the fleet of the other fleet of the other PLSVs rolls off contract from mid 28. One of them rolls off in September 28, ONIX. Based on what I can say is based on historical practice Petrobras typically tenders one to two years ahead of the required start date. So we therefore expect another potentially larger tender addressing those 2028 requirements hopefully and possibly during 2027. If you look at the history, I mean, Seasium has secured contracts in every major contracting cycle since 2011. Of course, pricing and, you know, contractor terms can vary between cycles, but fleet utilization has been historically remained strong. And we, yeah, as we have said before, we continue to see, to view the market, the industry market outlook as promising. How we're thinking about the use of proceeds from the Fontys transaction as we are reporting our Q1 report and as I just talked about under our bond agreements the proceeds may either be used to repay debt or it can be held in escrow for up to 12 months while we Well, the company evaluates spontaneous reinvestment opportunities, so it provides a good optionality. But as I said in the call here and the report, we are currently evaluating our available options and will provide a further update once a decision has been made by the company. How much do you expect in dividends from CGEMS 26? We provided financial guidance in Q1 for revenue ability on COPEX. We haven't really guided on the distributions from CGEMS. However, I think what I can say is one should expect not much different from last year. I've seen this question before. What is your expectation day rates from the Petrobras tender? I cannot really discuss that. It is an ongoing negotiation with Petrobras.

I will not discuss it in this conference call.

There's a question about the operational incidents involving Esmeralda and Jade as we have reported in our quality report. Impact and so on and more details. I don't think there's more to say than what we have disclosed in the report. This Miralla incident involved an LTI which required a short stop of operations while completing needed procedures while the jade experienced an equipment needed some equipment repair. You know safety is very strict and it's first priority and for the smallest incidents operations are paused or shut until they are resolved and in alignment of course with Petrobras. In addition as we have also said in the report as per the contracts we have some maintenance cap and we have some scheduled maintenance that we have performed during the quarter. So I would say the LHBT is more like you should respect higher, more closer to the financial guidance. So we have reiterated the financial guidance anyway. So the impact of these two incidents since of the utilization was already factored into our Q1 communicated financial guidance. There's not so many questions, but I mean, there's another question about Jade and how it will be kept on work until the potential new contract and if there's other regions in Brazil. I mean, what I can say is that we are very comfortable that and also history shows that we have always been able to find, to deploy these PLSVs. If you look at since 2011, our average utilization has been about 98 percent during that those years so yeah I mean our ability to operate the vessels effectively and to deploy them on work has been very efficient both with and outside of Petrobras if needed but our the base case is that will be extended by Petrobras until mobilization for the potential new contract. When is the negotiation round for this tender expected to get completed with Petrobras? I hope to report to you something in the near future but as discussions and negotiations are ongoing and again this is an active commercial process and it's sensitive I'm not in a position to comment on any specific negotiations or timing as you asked or potential outcomes at this stage. But we will report to the market whenever we have any concrete to report. I think with that there were no further questions with that I will wrap up today's call thank you all for joining thank you for the questions and thank you for your continued interest in Paratus we look forward to speaking with you again in Q3 thank you