Subsea 7 S.A.

Good day and thank you for standing by. Welcome to the Subsea 7 Q3 2025 results conference call. At this time all participants are in a listen only mode. After the speaker's presentation there will be a question and answer session. To ask a question during the session you will need to press star 1, 1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1, 1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Catherine Tonks. Please go ahead.

Welcome, everyone. Thank you for joining us. With me on the call today are John Evans, our CEO, Mark Foley, our CFO, and Stuart Fitzgerald, CEO of Seaway70. The results press release is available to download on our website along with the slides that we'll be using during today's call. Please note that some of the information discussed on the call today will include forward-looking statements that reflect our current views. These statements involve risks and uncertainties that may cause actual results or trends to differ materially from our forecast. For more information, please refer to the risk factors discussed in our annual report or in today's quarterly press release. I'll now turn it over to John.

Thank you, Catherine, and good afternoon, everyone. I will start with a summary of the quarter before passing over to Mark for more details of the financial results. Turning to slide three, Subsea 7 delivered third quarter adjusted EBITDA of $407 million, representing 27% growth year on year and a margin of 22%. The increase in our profitability reflects strong project execution, as well as the continued high grading of our backlog. As Mark will discuss, we now expect to exceed our prior guidance for 2025 and to deliver continued momentum into 2026. Order intake was high in the quarter of $3.8 billion, resulting in a book to bill of 2.1 times for the quarter and 1.4 times for the first nine months of the year. Our backlog reached a record high, close to $14 billion. Slide four shows the backlogs of both subsea and conventional and renewables, which continue to increase in quality as we completed work one before 2022 and shift our focus to contracts with more favorable terms. We have a combined backlog for execution in 2026 of $6 billion, giving us over 80% visibility on next year's revenues. And now I'll pass over to Mark to run through the financial results.

Thank you, John, and good afternoon, everyone. I'll provide selected commentary on good, sub-seeing conventional and renewables financial performance in the third quarter, before turning to the cash flow and financial guidance for 2025 and 2026. Slide five summarizes the group's revenue and adjusted EBITDA results for the third quarter set in the context of recent quarterly performance. In the third quarter, revenue was $1.8 billion in line with the high levels reported in the same quarter of the prior year. Adjusted EBITDA of $407 million increased by 27% compared with the prior year period, and margin expanded by 460 basis points to 22%. Net income was $109 million, following depreciation and amortization of $175 million. Net foreign exchange losses of $38 million, which were driven by non-cash embedded derivatives, net finance costs of $12 million, and taxation of $73 million. I'll cover the salient points concerning business unit performance in the next few slides. Slide six presents the key metrics for subsea and conventional. Revenue in the third quarter was $1.5 billion, representing growth of 6% year on year, as high activity levels continued in Brazil, Turkey, and Norway. Adjusted EBITDA was $368 million, equating to a margin of 24%, an increase of 680 basis points from the same quarter last year. The margin improvement was underpinned by strong execution performance and high vessel utilization, as well as the continued rebalancing of our portfolio towards projects with improved risk and reward characteristics. The results of subsea and conventional include an $11 million net income contribution from one subsea in line with our expectations. Net operating income was $228 million, nearly 80% higher than the prior year period equating to a net operating income margin of 15.1%. Selected renewables performance metrics are shown in slide 7. Revenue in the third quarter was $302 million, a reduction of 19% when compared with the high levels reported in the prior year period, which were driven by elevated activity in Taiwan. while in line with the second quarter of 2025. Activity progressed during the quarter at Doggerbank Sea and East Anglia III in the UK and at Revolution in the US after a delayed start. Adjusted EBITDA was $52 million, equating to a margin of 17%, up 70 basis points from the same quarter last year. Net operating income was $21 million, representing a margin of 7%. Slide eight shows the cash bridge for the third quarter. Net cash generated from operating activities was $283 million, which included an expected unfavorable movement in working capital of $82 million. Capital expenditure was $47 million, mainly associated with maintenance on vessels and equipment. Net cash used in financing activities was $123 million, which included lease payments of $79 million. At the end of the quarter, cash and cash equivalents increased by $132 million to $546 million. Net debt was $505 million, including lease liabilities of $421 million, equating to a modest net debt to last 12 months adjusted EBITDA of 0.4 times. The group had liquidity of $1.1 billion on the 30th of September. On the 6th of November, the company paid the second and last of its 6.5 kroner per share dividends to shareholders. Shareholders' returns this year, represented solely by dividends, amounted to approximately $376 million. To conclude the financials, we turn to slide nine. We have refined the certain guidance metrics for 2025. I will highlight the following favourable notable revisions. The upper and lower ends of revenue guidance have been narrowed by $100 million, as we now expect revenue to be between $6.9 and $7.1 billion in the full year 2025. Given strong results in the first nine months of the year, combined with high visibility and confidence in our execution performance, we have increased our guidance for adjusted EBITDA margin in 2025 to be between 20 and 21% from between 18 to 20%. We have also reduced our guidance for capital expenditure to a range from $300 to $320 million. This reflects our continued focus on capital discipline, as well as a re-phasing of some cash capital expenditure from this year into 2026. Today, as is customary for Subsea 7 at the third quarter, we introduce initial guidance for next year. In 2026, we expect the group to continue to deliver growth in revenue and adjusted EBITDA. We anticipate revenue to be within a range from $7 to $7.4 billion, with an adjusted EBITDA margin of approximately 22%. Capital expenditure is forecast to be between $350 and $380 million, which includes re-phasing of some capital expenditure from 2025, as mentioned some moments ago. Our confidence in this guidance is underpinned by the quality of our backlog, which gives us over 80% visibility on revenue, as well as a continued high tendering activity and the attractiveness of the Prospect Type 1. I will now pass you back to John.

Thank you, Mark. On the next two slides, we have a couple of highlights from our portfolio of technology-led solutions. On slide 10, we take a look at 4Insight, developed by our 4Subsea business in Norway. 4Insight is software that combines real-time data from vessels and weather feeds and uses advanced algorithms to automate operating decisions on board. The result is an extension of the windows of operability of our vessels and increased performance in project delivery through a reduction in the cost and schedule risks associated with waiting on weather. By automating the decision making process, Fort InSight also enhances collaboration between marine and project crews and maximizes the efficiency of our operations. The software has been rolled out across part of our fleet and has received excellent feedback from our offshore and onshore teams. In 2025 to date, it has added 35 days of operation to Sound Vega, an uplift of over 10% compared to our standard planning assumptions. Our second highlight slide focuses on our unique bundle pipeline technology. Last quarter, We touched on this when we discussed our activity at Idrisil in Norway, which included the launch of a large bundle during the summer. By combining active heating, flow lines, and the control systems into one total bundle, we reduced the complexity of the subsea architecture and offer a cost-effective alternative to traditional models. The solution requires the use of our proprietary lining as well as highly specialized welding from our team in WIC in Scotland. Subsea 7 is the only contractor with a proven track record of delivering production system bundles with over 90 installations to date. Repeat orders from clients including Acker BP, BP, Chevron, Equinor and Shell are testament to the success of this unique solution and more broadly to the innovative solutions offered by Subsea 7's advanced engineering and fabrication capabilities. Now onto a review of our prospects on slide 12 and 13. In subsea, tendering activities remains high across our key regions with a combined prospect value of around $21 billion. Most of the projects on this map are long cycle, deep water developments with favorable economics. Many carry strategic significance to both the operators and their host nations. They will be sanctioned based on a view of commodity prices beyond the next five years, sheltering them from the change in spot price of oil and gas. Overall, we're confident in the long-term outlook of our subsea business, with demand for our technology-led solutions expected to remain at high levels. Our next slide, we have a summary of the fixed offshore wind projects that could bid in the UK's allocation seven round AR7. Whilst the maximum strike price of £113 per MWh was well received, the recently announced budget for AR7 was lower than hoped for by the industry. As I said last quarter, the UK is the largest single market in global offshore wind sector outside China, and with a number of other markets showing slower than anticipated growth, the ultimate outcome of AR7 process will be a key driver for the medium-term momentum in the industry. Subsea 7 continues to support a number of key clients to optimize their AR7 developments whilst remaining selective in the contracts we pursue to safeguard our future profitability. To conclude, we'll turn to our final slide on page 14. Subsea 7 finished the third quarter of 2025 with a record backlog of firm orders valued at nearly $14 billion. We've increased our guidance for 2025 and our guidance for continued growth in 2026 demonstrates our confidence in the outlook. Looking further ahead, we have a high conviction in the resilience of deep water subsea market and combined with the differentiated offering and a strong track record of delivery, this position subsets them for success. And with that, we'll be happy to take your questions.

Thank you. As a reminder, to ask a question, you will need to press star 1, 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1, 1 again. Please stand by while we compile the Q&A roster.

We will take our first question.

And the question comes from the line of Sebastian Erkstein from Rothschild and Co. Redburn. Please go ahead. Your line is open.

Good afternoon, team. Congratulations on the results today and great to see the backlog at a record level. I'd like to just follow up on the renewables business. So I guess we can expect a seasonal uplift in renewables margins in 4Q, which is consistent with the new guide. But how should we think about the original kind of 14% to 16% EBITDA margin guidance into 26? And I guess linked to this, I mean, you mentioned it in the prepared remarks, but could you provide an update on the timelines associated with allocation round seven, as there appears to be some stalling progress? So, yeah, it would be great to get your thinking on that. Thank you.

I'll ask you to answer both those questions for you.

Yep, so I can answer on the guidance first. So we're maintaining that guidance going forward into 2026 also. Worthwhile to comment that this backlog position in terms of visibility through 26 and into 27 is particularly strong. Then on to... The allocation round seven, so submissions from the developers in terms of the different projects that they put into the allocation round has been happening over the last week. So that milestone is essentially complete as we understand it and the results of that to be announced around mid-January. So the next key milestone in the timeline here is a mid-January announcement of outcomes. But the submissions, for the best of our knowledge, are now made.

Appreciate that, Stuart. And just if I can put another question and appreciate the difficult one on the merger. We've seen the admission of several interested third parties into the Brazilian antitrust process. Can you give us an update on that process and when we might expect to hear some ruling from Carde if you're able to shed any light on that and any other updates on the kind of geographies that you're submitting to? That would be helpful. Thank you.

Yeah, I'll take those. As we've said many times on these calls, we won't be giving a sort of blow-by-blow account here, but let's stand back. When we announced the merger initially with assigning the MOU at the end of February, we targeted the second half of 2026 for completion. The CAR-D process is following the steps that we had expected it to follow. We make our submissions. Interested parties then identify themselves as interested parties. There is also a wider market consultation, including suppliers, our peers and our clients, and that process is underway. We will then have an opportunity to discuss with CADE our responses to the different topics that are raised and then CADE will go into their review process next year. So we continue to believe that the timeline for the merger and the critical path is through CADE and Brazil should allow us to complete by the second half of 2026.

Really appreciate the College on our hand there back now. Thank you.

Thank you. We will take our next question. Your next question comes from the line of Victoria McCulloch from RBC. Please go ahead. Your line is open.

Morning. Thanks very much for your time this morning. Starting as well on renewables, can you just talk a bit about the contribution for 2026? I appreciate you don't give it specifically, but on the basis of Stuart's commentary, should we then see the driver for the growth coming from the sub-team conventional business And then, John, maybe a bit sort of larger picture views. Can you give us a bit of color about how you've seen the Tendering Pipeline and engagement with your customers over the last three months? It remains a fairly unpredictable macro environment, but it'd be interesting to hear the conversations you're having with the engagement you have with customers. Thanks very much.

Yeah, just to take the renewables, you know, Stuart was clear that we are comfortable with a guidance range of 14% to 16% EBITDA on renewables in 2026. And as he says, he has a high coverage of work already on the books. So again, I don't think we will give any further information on that, Victoria, but we're comfortable that we have a good position on renewables in 2026. And as Stuart alluded to, also going into 2027, So for us, it's more about what is in 28 and 29, and AR7 will be part of understanding that in the first quarter of next year. Coming to client interactions, I was down in Brazil at Rio OTC about three weeks ago. We've had a number of client discussions, which, as you'd expect, continue. We're seeing very little change in our clients' views. They are clear that they've got a number of large subsea projects out there for bid or to be bid. The dialogue is all around timing of their bids, timing of their projects. What early commitments do they need to make vessels availability? It's the traditional questions that we get in a busy market, Victoria. In Brazil, discussions with Petrobras. We expect to see the Petrobras five-year plan announced in the next week or so. Continued focus on subsea projects being the main engine and the main driver for Petrobras. So their conversations are clear. A lot of other clients are about some big opportunities that they see. We're bidding work in Namibia. We're bidding work in Mozambique. And these were countries that weren't on our radar screen a couple of years ago. And down in Turkey in the first week in December. And again, that's about our ships are going in to do phase two. As you're aware, we picked up phase three, but there are other phases of Sakaria to come as well. And we continue to work with Equinor as planned on the developments of Visting and Baie du Nord, the two big developments, one in the north of Norway, one in Canada. And they're quietly going on exactly as we had planned with Equinor that we'd be working with them, looking at multiple different scenarios. So long story short, We're not seeing a real change. And the other thing that we touched on in the last quarter was the pleasant surprise to see a number of new projects coming into Norway. um you know the project with conoco phillips which you expect to get sanctioned here at the end of the year so there are you know very creative projects out there with a number of clients and we remain confident the only geography where that is not the case is the uk but i think everybody's clear that unless something changes in next month's budget probably the uk is a bit out of sorts with the rest of the world thanks very much and maybe just a follow-up on that is

It was interesting to hear, obviously, we've shown us lots about the pipeline bundles that you've done for E2Cell, for Farquhar BP, and how that's optimizing the CapEx and OpEx for your customer. I guess, how much I guess, new ideas in AI? Are customers looking for new wins from that? Because, you know, I guess AI is such a massive theme, you know, globally. But, you know, how much of that is part of conversations in terms of they're trying to get economics better because of AI?

Yeah, our clients are always interested. Idrisil is an interesting example that we're using every single technology Subsea 7 has got in our huge greenfield development. We've got bundles in there, we've got traditional relay in there, we've got heated pipelines, we've got cooled pipelines in the system, we've got everything in there. So that's why the customers come to us, is that we have a full toolkit, a full technology capability. If we come on to 4insight, 4insight is a form of AI technology that uses real-time data, analyzes huge volumes of data to give our offshore crews clarity as to what's going to happen in the next 24 hours and how they should think about whether we continue into the good weather or do we stop, do we start and such like. Historically that's all been done in a very static mode. Before we go offshore we plan different scenarios, we take the scenarios out there, we have a book which tells us what we can and can't do and if we're inside the parameters we can work, if we're outside the parameters we What foreinsight has been is say, let's take the actual parameters we've got here and the actual parameters forecast and what we've had in the last 24 hours and exactly which way the weather is hitting the ship directionally and such like. And can we continue pipeline? And again, as I said in my prepared remarks, we are finding some significant improvements. So it's a combination of the portfolio technologies. We've got a real proactivity to also just challenge the norms. We're also doing quite a bit of work with some of the regulators and some of the certifying authorities on how we run our DP vessels. Dynamic position rules were written in the 1980s when free world was free, nobody worried about emissions. And therefore today we are now finding different ways to run these ships, but we need the codes to change to do that. That allows us to improve our fuel efficiency, which our clients pay for, also reduces our emissions. But we need the codes to change to reflect that what was good in the 80s doesn't necessarily have to follow in the 2025 era that we're in. So there's a lot of great things happening, Victoria, a lot of great engagement with our clients and with every client on those type of technologies. So it's a good place that the industry is in. And as we know, a deep water subsea is one of the lowest cost per barrels lifted of any form of oil or gas out there. So I think we're in the right place at the right time.

Super, John. Thanks very much for those additional comments.

Thank you. We will take our next question. And the question comes from the line of Kevin Rodger from Kepler Chevro. Please go ahead. Your line is open.

Yeah, good afternoon. Thanks for taking the time. The first one is maybe in two ways, because when I look at the backlog execution for 2026, you are telling us that roughly your visibility is up by 13%, but the top line guidance imply only 3% growth in 2026 versus 25. So can you give us a bit of color on that? Why the backlog for execution is up 13%, but the top line guidance is up by 3%? Is it related to the fleet utilization rate that is at the end already fully booked, just to understand the rationale around the top line. And the second one, John, you roughly mentioned it, BEDUNOR, a big project from Equinor for 2026. There has been some noise, notably this morning, saying that Equinor is currently hitting the market for fabrication tools. So just to understand on your side, would it be a kind of full scope or then it would be phase by phase, meaning that for 26, it will be more than 1 billion as you have identified the project in the pipeline or a smaller phase because that's going to be done in different phases. Thanks a lot.

Yeah, the backlog in 2026, I guess, would just reflect the fact that we're in a very busy market and clients have committed to us earlier. We have a finite capacity, which is why the revenue doesn't grow as much. We would expect, of course, next year to have 100% backlog by the end of the year. So it's more of a timing question, Kevin. um you know a lot of our clients have engaged with xervia that's been going for a number of years now making commitments to make sure that they have capacity available as they go into 26 and 27. um so it's just a timing disconnect more than anything uh not a fundamental uh issue um with you know this quarter we're running at 87 percent uh utilization you know we're getting towards the highest end of what we can do and we've discussed that a number of times on this call the key to us is post-mergers to reduce the amount of transits between projects and such like that's one of the real attractions for a number of our clients is that there are more days available if you don't move these assets around but at the moment we've got the fleet that we've got we know very well where they're going to be placed next year So I don't see it as a disconnect the revenue will be the revenue in the range that we've given And the backlog is just higher than we would normally expect but equally In my memory when the market gets busy people secure their assets earlier taking your second question beta Nord is is a project that For us, it's done seasonally over multiple seasons, and we won't be offshore until later on this decade, and that's always been the case. And because of the weather conditions out there, we can do about 100 days per year, so it's a multi-year project. And next year, we'll continue to be in this work mode that we're in, which is working with Equinor on the field layouts and allowing them to go through their different decision gates, DG2 and DG3, that they need to go through So for us, Baydenord has continued working with them in the mode that we've been in for a couple of years. And so they will make their key decisions, I suspect in 27, when they have all their information about their fabrication, their local content, as well as the surf packages. What I would say, I think there's been good work between the SIA and Equinor over a couple of years, and there's been some very interesting and how it comes together. So coming back to your initial question, Kevin, it was always a phased project because the weather conditions out there and the remoteness of that part of the Atlantic offshore Canada means that you have to do 100-day slots per year out there. And it's just how you sequence it and how you develop the wells and the reservoir that goes with it is the key to probably unlocking the economics in that field.

Okay. Thanks, Art. Have a nice day.

Thank you.

Your next question comes from the line of Guillaume Levy from Morgan Stanley. Please go ahead. Your line is open.

Hi. Hello, everyone. Thank you for taking my questions. First one, thinking about your guidance, how much would you say the lower figure this year is driven by activity that might have been, might have slipped into 2026? And if you can perhaps share with us what sort of activity that is. And then thinking about 2026, Is this a reasonable level for us to think about your capital needs over the long term? Or is there any non-recurring factor in the 2026 degrees that we have? And then second one, thinking about Brazil. But earlier this year, there was a headline saying that Petrobras was keen to do a long-term lease. of a vessel to do the installation of rigid pipes in the press out itself. Do you feel like this is a live discussion? Are they actively looking to do that? Or do you feel like that was just a headline that didn't really evolve over the course of the year? Thank you.

I guess the first question you're asking about the sort of guidance between this year and next year on revenue and such like, You're very familiar with our projects. They work on a percentage of completeness at the end of completion at the end of each year. It varies. Big projects, a couple of percentage have quite a large influence on dollars. There's nothing to be concerned about. It's just how the different sequences of our projects are coming into play. In terms of 2026, as I answered Kevin previously, we're reasonably clear on how it'll fit together. We've given you a range of revenues that we are comfortable with giving the market here. A high level of visibility as to how that fits, and even the work that isn't in the backlog yet, we're pretty clear in our minds how that will sort of come together. And of course, as we've done consistently, if things change, we will give the market an update on each quarter as we see changes. Lastly, Petrobras are talking to the market about potentially the long-term lease of a rigid pipeline ship. Interesting enough, we had a contract many years ago in 2012 to 2017 to do exactly the same. which was called Hybrid Steel, which was a contract that Subsea 7 had with Petrobras. So I'm old enough to know what one of those looks like, and we've done it before. Again, when Petrobras comes to the market, we will respond and we'd be interested in that. But you just need to remember that, you know, the timescale is probably four or five major projects that need a pipe layer each. So again, if they go down this path, and I do understand that we've spoken to them, This is about the timing of the arrivals of the FPSO and the challenges of how you run different projects with different timescales with different arrivals of FPSOs. So maybe the hangoffs of the riser with a vessel more akin to a PLSV, which is more of a day rate contract where they can control in that way. So I understand fully the logic. It makes a lot of sense. And we will certainly be interested in the opportunity set should that come to the market next year.

Thank you. In the first one, sorry, I was actually just referring to your new COPX guidance. So, yeah, just thinking about your 2026 COPX guidance, is there any reason why 2027 should be much really different from that?

It really is a function of the vessels that have to go through their obligatory dry docking. So as you know, depending on where they are in the cycle, our capex increases and decreases. The majority of our capex is directed towards vessels and equipment. So I think we've provided updated guidance for this year, slightly lower, driven by really strict capital discipline within the organisation, as well as a re-phasing, a displacement of certain cash capital expenditure into 2026. and then an amount that we've guided to for next year. So again, it will vary year on year, depending upon the requirements of the vessels, as well as the opportunities that we see in terms of growth, capital expenditure, minor modifications, around supplementary additions to equipment, etc. So hopefully that provides some additional colour. Understood. Thank you.

Thank you. Your next question comes from the line of Alejandro Magana from J.P. Morgan. Please go ahead. Your line is open.

Hi. Thank you for taking my question. On your surf and conventional margin strength, can you give us a sense of how much of the uplift reflects execution outperformance versus the roll-off of older, lower margin projects? and how much reflects structurally better commercial terms or pricing power on more recent awards? And as the 2026 backlog converts, how do these contracts differ commercially from the ones you've executed this year?

Okay. I won't go into the margin mix. As I said in my prepared remarks, there's a bit of everything. We are taking less projects taken before 2022 into the portfolio this year, and there are none of those as we get into next year. As we've discussed very openly on this market, each project is bid individually, and therefore then there is a mixture of margins in each of the different projects. Sometimes some projects suit us because we're available with the equipment, timing, and clients' decision-making, potential delays in other projects. So again, there's quite a complex mix in that. And lastly, as we've discussed, we've had very good execution throughout this year and I'm very pleased with the execution that we got. So when all these things come together, we get a very good margin in the business, but we won't discuss the segregation of those items. As we go into 2026, again, it's about the stack of projects that we've got in there. There is nothing pre-22 in the mix, so it's the packages of work that we bought in over the last three years at the various stages that give us the margin that we expect to see next year. giving you clarity through the guidance as to what revenue range, and we expect to be at around 22% next year, a bit down on the portfolio that we've got. And just to close out on that, we're reasonably confident in that because we've got over 80% of our margin already in the books. As I touched on earlier, I'm reasonably sure I know how the remaining 20% will fit. The remaining 20% part of that is elements such as call-off agreements we have with a number of clients, call offers yet. So confidence level pretty high here. And we'll just get into 26 and let it run and see how it goes from there.

Very clear. Thank you. And then on the new Brazil PLSV contracts, can you give us a sense of how the new rates compare with prior agreements? Do you expect to step up in PLSV earnings over the next few years?

Yeah, so they were fit a year ago. That is information where if you go through the press releases that we've released and our competitors have released, it's all public information. You know that each contract is roughly a thousand days. So they were better than we had for certain and all four PLSVs are now on the new contracts. Just last week, the fourth of our PLSVs went on their new agreements. So next year, part of the uplift in our margin is around the fact that the mix of work that we've got next year, as we discussed earlier, is a better mix. So the PLSVs are public domain information, so if you want to go back and dig through those, you can work the figures out from where we were and where we are now.

Thank you.

Thank you. Once again, if you wish to ask a question, please press star 1, 1 on your telephone. Your next question comes from the line of Eric Aspen-Fotter from SB1 Markets. Please go ahead. Your line is open.

Hello, guys. I have two questions, at least. First for you, John. I think the understanding so far has been that we should expect a slight increase in activity from 25 to 26. And I'm just wondering how we should think about this into 2027 on a standalone basis for 27. Is there still room for further increases, for example, through fleet optimization and other such things, or are we kind of plateauing in terms of how much you can do with the fleet that you have?

Okay, I think what's interesting for us is that we have a very strong backlog for 27. If you just look at the prepared data, we've got $3.8 billion of backlog for 2027, which is a very good place for us to be looking this far ahead. There are some changes that we're doing next year. It's also about how we upgrade the margins in our been doing, for example, on some Jones Act work that we won't continue next year. So we'll return those chartered vessels to the owners because we can't get the margins that we expect. We've returned the champion in the Middle East. And so for us, it's also about just being very, very selective about which assets we deploy, how we deploy them, and the returns that we get and the risks that we take to earn those returns. So there is room for improvement. There is always room. But now it's about taking the asset base that we've got, as Mark said, being pretty brutal about what it's doing, where it's working, what it's returning for us. So you will see some changes in the fleet next year, some actually reductions in the size of the fleet next year as we're increasing the revenue. That's our task at the moment is to maximize what we have in these cycles that we work in, Eric.

I think you also sort of started to answer my second question and that was on the lease costs that increased slightly now this quarter and I'm just Wondering how we should view that into 2026. Should it come down because of what you actually just explained now, John?

Yes, Eric. We will see a directional downward movement in lease liability dash impact in 2026 as a result of releasing some of the lease vessels that we have in the portfolio today. As you know, out of the 41 vessels, we have 11 leaf vessels and some of those will be going back at the end of their charter period to the owners.

Was that just John's vessels or are there any other?

There's other vessels too, Eric.

Yeah, so they discussed the champion, it's leased and that was in the Middle East and that has already come back. There'll be a couple of Jones Act vessels going back, and there'll be at least one further one going back, but we're not ready to include that at the moment. But that's the direction of travel, as Mark was saying, that we are working our way through, making sure that if we bring additional tonnage in, first of all, is it adding value in the portfolio? What we're trying to do here is to grow the revenue, but also make sure we maintain the margin. but that also brings our lease obligation line down, which again I know has a high focus in the market as well.

Just lastly, could you give some sort of indication on the level that we could think about next year on the lease payments?

It will be notably lower than we have incurred so far this year, Eric. I think we've spoken about it every quarter. We'll probably just be under $300 million cash out this year, principal plus interest. We've given a flavour of the vessels that all other things being equal will leave the fleet. I'll allow you to apply your assumptions in terms of what that means around the impact, the impact to cash out.

Yeah, very clear. Thank you very much, guys.

Cheers, Eric.

Thank you.

This concludes today's question and answer session. I'll now hand back to John Evans for closing remarks.

Well, thank you very much for joining us. We have an interesting story to tell, and we appreciate your continued support and the questions that you ask and the papers that you publish about sub-C7. We have a very good year ahead of us, I believe, in 2026. We tried to frame that for you and try to give you information to allow you to model it and look ahead. And we continue to be in some very positive discussions. Stuart has also been very open about the opportunity sets in renewables in 28 and 29 will become clearer in Q1 next year. So hopefully when we meet with our Q4 results at the end of February, early March time, we will be able to give you more means for seaway so so as ever thank you very much for your support and your questions and we shall see you again soon thank you goodbye this concludes today's conference call thank you for participating you may now disconnect