SBM Offshore NV

AEX:SBMO

Earnings Call Transcript 2021-Q3

[Operator]

Ladies and gentlemen, thank you for holding, and welcome to the SBM Offshore Third Quarter 2021 Trading Update Conference Call. [Operator Instructions]I would like to hand over the conference to Mr. Ludovic Robino, Investor Relations. Please go ahead.

[Ludovic Robino]

Thank you, operator. Thank you all for joining us today. Today's call is being recorded and will be available for replay on the company's website. Today's prepared remarks will be delivered by Mr. Bruno Chabas, followed by a Q&A session.Before we begin, I would like to point out the disclaimer at the bottom of our press release and remind participants that some of our comments today may include forward-looking statements, reflecting SBM Offshore's view of future events. These matters involve risks and uncertainties that could cause our results to materially differ from our forward-looking statements. The risks are discussed in detail in SBM Offshore's 2020 annual report, which can be found on the company's website. Once again, we will welcome your questions after the conclusion of the prepared remarks.I will now turn the call over to Bruno.

[Bruno Y. R. Chabas, Chairman of Management Board & CEO]

Thank you. Good morning all, and thank you for taking the time to join SBM Offshore's Third Quarter 2021 Trading Update Call. My name is Bruno Chabas, CEO of SBM Offshore, and all members of our management board are joining me today.SBM Offshore added another quarter to a solid track record of delivery. Our financial performance was in line with our expectations. This was possible thanks to all SBMer, who continue to overcome the challenges brought by the COVID-19 pandemic. Our teams managed to maintain a very good safety performance with a total recordable injury frequency rate well above our year-end target. As our operations carry inherent safety risk, especially with the additional impact from the pandemic, we continue to prioritize safety and focus on improving this track record further.Let's go through the progress our teams are making on our 3 value platform. Through our Ocean Infrastructure platform, thanks to our team's discipline and efforts, year-to-date, fleet uptime stand at 99%. COVID-19 challenges remain under control, and we are even seeing signs of improvement in some country, which have improved distribution of vaccine. The reduction in travel restriction and quarantine requirements have a positive impact on our staff's mental and physical well-being, ultimately reducing operational risk.On to on Turnkey activity and starting through our Growing the Core business with 5 FPSO projects under construction. The Turnkey segment or this segment is going through a significant growth phase, supporting our record track record order book. The economy continued to bring various challenges in our project execution. This range from difficult to travel to our execution location, capacity constrain with yards and suppliers, to general inflation on materials and services prices. The degree to which these challenges can be mitigated going forward varies from project to project. Despite this, the profitability of SBM Offshore overall project portfolio remains robust and competitive.Let's go through some key milestones. Liza Unity FPSO arrived in Guyana on October 25, with first oil targeted for next year, in line with client schedule. On FPSO Sepetiba, the topsides' modules lifting campaign has started at the yard in China. The Fast4Ward MPF hull for Prosperity FPSO entered the dry dock in Singapore and the topsides' fabrication is progressing in line with project schedule. On FPSO Almirante Tamandaré, the keel laying milestone has been achieved for the Fast4Ward MPF hull and topside construction activities have started in Brazil. And finally, the Fast4Ward MPF hull construction of FPSO Alexandre de Gusmão has reached the first steel cut milestone.Also on our Turnkey segment through New Energies platform, our teams continue to position the company as a co-developer for Turnkey technology provider in a 2-gigawatt floating offshore wind global pipeline for 2030. That's our vision. SBM Offshore is making good progress in its cost reduction program, which will lead to a second-generation floating design.Now over to the financials. The company generated total underlying directional revenues of USD 1.7 billion during the first 3 quarters of the year, which is in line with the same period last year. To date, on a 100% basis, the company has secured USD 4.1 billion of project financings. This reflects our financial strength as well as the confidence that our financial stakeholders have in the role of SBM Offshore and that this role will continue through the energy transition.The net debt position at the end of the quarter was USD 5.1 billion compared with USD 4.1 billion at the end of 2020. This expected increase is a logical consequence of the ongoing investment in the 5 FPSOs under construction. As a reminder, nearly all debt is project related with the majority being nonrecourse and all the financing turned into nonrecourse debt following the start of operation and release of the parent company guarantee. Finally, with the completion of our share repurchase program in October, we returned to our shareholders USD 345 million in 2021, including dividends. Adding this year to our track record, the company has returned more than USD 1.2 billion over the last 6 years.Then regarding our market. SBM Offshore continues to expect volatility and believe that the projects that continue to attract funding are very large, high-quality deepwater oil development. These developments are characterized by a low carbon footprint compared to other sources and a very competitive breakeven price. SBM Offshore strategic positioning remain unique. We bring a unique experience, have a solid track record of reliable execution and bring our industry-changing Fast4Ward and emissionZERO concept to the market. The company will continue to position itself as a technology leader in the energy transition.Over to our guidance. 2021 underlying Directional revenue guidance has been revised from around USD 2.6 billion to above USD 2.3 billion, mainly due to an assumed shift in the expected timing of the partial divestment of FPSO Almirante Tamandaré project from late 2021 to early 2022. This is not impacting the 2021 EBITDA as the project is not expected to reach the gate progress of completion allowing margin recognition. As such, we maintain our 2021 Directional underlying EBITDA guidance at around USD 900 million. The Directional EBITDA and revenue guidance considers the currently foreseen COVID-19 impact on project and fleet operation. The company highlights that the direct and indirect impact of the pandemic could have material impact on the company's business and results.So to summarize, year-to-date, SBM Offshore reports solid performance in operation and project execution and demonstrate financial strength with the financial -- financing secured. The company is demonstrating the resilience of this strategic positioning, its business model and the quality of this execution and this despite challenging times. SBM Offshore continues to focus on developing the technology required to support and accelerate the energy transition that our industry is going through.This concludes the prepared remarks portion of the call today. Thank you for listening, and operator, you can now open the call for questions. Thank you.

[Operator]

[Operator Instructions] And the first question is from Mr. Luuk Van Beek, Degroof Petercam.

[Luuk Van Beek, Analyst]

Well, first of all, I have a question about the mitigation measures that you are taking. Can you provide a bit more color on that and also indicate what the net cost -- if there will be a significant net cost impact of those?

[Bruno Y. R. Chabas, Chairman of Management Board & CEO]

Thank you, Luuk. So I propose that Philippe Barril takes us through the life of our project and the mitigation measures we're taking. Philippe, you want to take this?

[Philippe C. Barril, COO & Member of Management Board]

Yes. Thank you, Luuk. I guess your question is referring in particular to the Sepetiba/Mero 2 project. So going through the various phase of the project so that you understand where we are and what are the challenges and mitigation measures. FPSO projects will start by engineering. There is hull as well, procurement, then topside fabrication, anchor modules, then you lift the modules onto the hull for integration, leading to the sailaway of the facility and then the connection on the field, hook up and final commissioning. On Mero 2, the engineering phase has been completed. The hull has been delivered. The procurement item, which are mentioned somehow in our press release are delivered, and we are now in the critical phase of the topside fabrication and integration.Coming back to what we had communicated earlier, we were mentioning completion at the end of 2022. I'd like to point out that the main difference with first oil is more or less a quarter on Brazilian projects. So we were already in [ 2022 ]. Now the challenges and the mitigation measures we are taking are aiming at being able to complete the remaining part of the top side, and we are having resources, we're having supervision with completion date in mind. We will follow up on the effectiveness of the plan.And coming to your question on cost, those costs as soon as recognized, as soon as we identified or recognized that within our CapEx. So they're already built in. What I would like to add is that the portfolio remains robust and competitive. So this is one project at this particular stage of completion. But if I was to move to a project, which is at the back end of the delivery, Unity, for 3 years now, we have maintained the delivery and the first oil date to 2022. I'm glad to report that the facility has reached Guyana. It is now safely moored and we are now moving in close coordination with Exxon to the last phase, which is the hookup of a complex subsea system and as well the completion leading to first oil.

[Bruno Y. R. Chabas, Chairman of Management Board & CEO]

Thank you, Philippe.

[Luuk Van Beek, Analyst]

And a second question about wind farm, you indicated the next generation actually at a lower cost level. Can you comment on the current cost level of your solution versus competing solutions? Is it competitive? Or is this a necessary step to gain a good market share?

[Bruno Y. R. Chabas, Chairman of Management Board & CEO]

So as you know, the floating offshore wind market is today a market in this embryonic stage. There is roughly only 300 megawatts installed in water, so basically nothing. And the industry as a whole needs to go through the learning curve. So the learning curve that the industry has seen in the onshore or the offshore facility, but which are moored were linked to the fabrication to the turbine to a number of things. Now if you -- when you go to the floaters, there are other components that you need to add to that. First of all is the floater. And second of all, is the turbine which need to be adapted if the floater is moving along. The good news about the solution of SBM Offshore is our floater is extremely stable. And therefore, we can use all the learning curve of what has been done for floater onshore and offshore and use the turbine, which have gone through all the learning curve.The second aspect is we -- the first initial phase of any industry is to demonstrate the technical feasibility of this industry. And therefore, the costs are really not the main focus. The cost is -- the focus is on technology. And that's what we're doing on the first large project that we're doing. But the second phase that we're looking at is to decrease the cost, which today is competitive, by the way, the cost that our system compared to the rest of the industry, but it's looking at ways to reduce the cost of our system to make it in par, to be competitive with other alternative development, which could be onshore or offshore development. And that's where we are.So to come back to your question. Your question was, is our floater competitive? The answer to that is yes. Do we need to reduce the cost of our floaters in order for the industry -- to provide solution to the industry, which are going to be competitive most of the time, yes, like everybody else, but we are in the right track to do so.

[Operator]

The next question is from Mr. Nick Konstantakis, Exane.

[Nikolaos Konstantakis, Analyst of Oil and Gas]

If I'm going to have to speak on Sepetiba, I appreciate you don't normally give guidance, but can you -- on specific projects. Can you confirm whether the project is still profitable on a stand-alone basis and/or to what extent you believe you could recover part of the incremental cost from the client?And then secondly, I just wanted to ask about the MPF hull. We have seen some articles on the industry press that you might be looking to build the next one. Can you just help us understand a little bit how is the tendering environment? How many possible candidates you possibly have for the existing new MPF? And what you would need to do to sanction the next one?

[Bruno Y. R. Chabas, Chairman of Management Board & CEO]

Okay. So on your first question, specifically on the financial, I will ask Douglas to go through this. Even though, as you know, we never comment specifically on projects. But nevertheless, Douglas can give you more light on this. On the market environment at this stage and the ability to get new project or the position. One of the key points that SBM has mentioned over the past few years is our ability to be disciplined in all the projects we're going to be taking. And the ability to be disciplined means that we can't deliver the portfolio of projects in line with the expectation of our clients and that makes the whole difference on their economy. So our main focus is going to be on this one.We're not going to overstretch the company even though the demand for new projects is going to be high. We believe that today, there are a number of risks that we can mitigate within the portfolio that we have and the target project that we are looking at, but we're not going to go overboard and we're going to remain extremely disciplined. Now over to the -- more the financial part, Douglas?

[Douglas H. M. Wood, CFO & Member of Management Board]

Yes. Nick, so I mean as you observed, I mean we don't usually comment on projects. And that's because, as Philippe mentioned, the way we look at things is on a portfolio basis. But just specifically on Sepetiba, it's quite a simple answer the way of looking at it to your question. And the answer is yes, we still see it as being profitable. Otherwise, we would have had to make an impairment. And clearly, we haven't done that.

[Operator]

The next question is from Mr. Quirijn Mulder, ING.

[Quirijn Mulder, Research Analyst]

Yes, Quirijn Mulder from ING. A couple of questions. My first question is about, let me say, the news from the CO2 -- COP26 where some countries have, let me say, in fact, concluded that the export credit facilities from the government, the resistant governments, are not supportive anymore to the oil and gas industry in international waters. So maybe you can give some comment on to what extent it might affect your business in terms of financing for new projects. That's my first question.

[Bruno Y. R. Chabas, Chairman of Management Board & CEO]

You want to go through your second question? So like this, we can decide which one we'll answer.

[Quirijn Mulder, Research Analyst]

Yes, yes, yes. [ The question is fine ].

[Bruno Y. R. Chabas, Chairman of Management Board & CEO]

No. You provide the second question. So like this, we can organize ourselves also to provide you the answer.

[Quirijn Mulder, Research Analyst]

No, perfect. Perfect. So my second question is with regards to what is the reason behind that your Japanese partners that has a delay in, let me say, in the contract there?And my final question is with regard to, let me say, to the options of Exxon. Is there any news from that side with regard to the BOT contracts. It looks for me too, Liza -- that the first Liza Destiny is for a ramp-up of the capacity in 2022. So it looks to me that the projects, let me say, that there will be a lengthening of the -- now is it -- I think, it's a 10-year, but it will be lengthened, let me say, maybe later on. Is that a possibility you and, let me say, the partners might consider?

[Bruno Y. R. Chabas, Chairman of Management Board & CEO]

So let me take your last question first, and Douglas is going to take the first 2 questions on the financing and the partner on Almirante Tamandaré. On the first question, basically, on the BOT, the duration of the BOT, the build and operate format for the Guyana fleet with ExxonMobil, we provided some comments on quarters ago. Since then, there is no variation. No new news in reality. So the same assumption apply and really, we don't have more information to provide. So that's the same assumption that you have seen at the Q2, which are translated into the cash flow forecast of the company and the backlog of the company. So that's where we stand at this stage. There is really no new news on the subject.Douglas, about financing and partnership?

[Douglas H. M. Wood, CFO & Member of Management Board]

Yes. Quirijn, we start off with the financing environment. I mean we're pretty comfortable right now with where we're positioned on financing. As you will have seen from the press release, we raised USD 4.1 billion so far this year. And actually, we've added some banks and institutions through our credit syndicators, the lenders. You'll also see in the press release that building on the very good cooperation that we had in the Mero 2/Sepetiba financing. We've signed a frame agreement with the ECA, Sinosure. And plus also in -- earlier in this year, we've established a good reference for SBM in the project bond market with Ilhabela, and we'll be looking to build on that in the near term.Now the feedback that universally we get from all of our financing providers is that they're very supportive of our strategy, our experience and execution track record. They recognize the efforts that we're making to transition the company. And really, it's thanks to their support, that's what we are focusing on doing. So reducing emissions in our core business and growing our offering in new energies and services.Then the second question you had was on the partnering for Almirante Tamandaré. So basically, the deal is done. There are a number of conditions precedent. We need to make some [indiscernible] in the guidance. It's only going to get concluded early next year. So as a consequence, rather than booking the revenue this year, we'll be looking at next year. And maybe just to mention, to be very clear, there's absolutely no EBITDA.

[Operator]

The next question is from Mr. Thijs Berkelder, ABN AMRO.

[Thijs Berkelder, Research Analyst]

Yes. Couple of questions. First, a simple one. Can you explain leasing operating revenues Q3, why is it lower than Q2? Second question is a floating wind [indiscernible]. Can you tell me whether you are in the tenders of floating wind Norway, [ Scotland wind ] and/or in France in the next round tender? A [ serious ] question on carbon capture and storage. Are you already in conversations with clients on further carbon reduction plans for the existing FPSO fleet? So for instance, with Petrobras on the existing FPSO fleet as Exxon work for 6 [ projects ] or so.

[Bruno Y. R. Chabas, Chairman of Management Board & CEO]

Okay. So let me take the -- your 2 last questions. On our existing fleet, we're working actively with our clients on ways to reduce the exhaust and the flaring from our FPSOs. In fact, over the years, you have seen quite a steady decrease on our flaring and our emission on the existing fleet. This reduction has been done in conjunction, obviously, with our operation team, the engineering but also with the client in finding better ways of operating. So that's an ongoing subject, which is addressed day by day with every clients throughout the world.What we're looking at is through the emissionZERO program is to be able to offer to the market an alternative, which will basically eliminate all emissions from the FPSO. That's a stretch because it requires a lot of technological development. We believe we're going to be able to get there in the coming few years. We're going to provide more time line on this by year-end actually. But that's what we're aiming of doing. So really 2 sides to what we're doing on the reduction of the CO2 footprint is on the existing fleet with all the investments we're making, the relationship with our clients, the digital programs that we're having, reducing our CO2 footprint. And second of all, to offer products, which surely would be carbon neutral when they go in production. The -- your second question was related to our commercial activity on the floating offshore wind. What I can say on this is that there are a lot of activity at pre-tendering stage -- at this stage. Those projects or most of the projects we're looking at, we're going to see commitment by the clients sometime in the period between 2023 to 2025. Those are going to be the first commitment. We engage throughout the world in a number of activities to provide information, to provide feasibility, to engage with the client.What is really remarkable in the number of projects that we're looking at is the magnitude and the size of those projects, which really comfort us in telling you that we're well positioned as a company, not only from technological standpoint, which goes without saying, and SBM Offshore has demonstrated this over the past 60 years of being the leader in floating moored technology. But also more importantly, when you see the size of this project, the challenge in fabrication, logistics, project management is really at the core of what SBM Offshore knows are to do.So yes, to answer your question, we engage in a number of projects throughout the world. Like for the FPSO market, we never mentioned which project we're targeting or which project we're looking at, but suffice to say that we're extremely active at this stage.Now with regard to the more mechanical question on the financial, the revenue quarter-on-quarter for the operating activity, Douglas?

[Douglas H. M. Wood, CFO & Member of Management Board]

Yes. Thijs, so pretty straightforward, revenues are never totally linear even in our lease and operate business and the difference is the timing of payment of bonuses.

[Thijs Berkelder, Research Analyst]

Okay. And maybe one add-on question on, let's say, Sepetiba additional costs. Can you just simply roughly [ dirty ] say, USD 50 million, USD 100 million or am I way too high in those kind of assumptions?

[Bruno Y. R. Chabas, Chairman of Management Board & CEO]

Again, we have been extremely specific throughout the year, and that's almost for the past 10 years. So it's a bit of a recurring remarks. We never comment on specific projects about the financial or any other aspect of project on commercial. So we're not going to comment on that. What we're going to comment. And that's what we are saying is our portfolio of Turnkey project overall is extremely healthy, that we're delivering in track with our client expectation and that's quite unique when you compare ourselves to the rest of the industry.

[Operator]

The next question is from Mr. Andre Mulder, Kepler Cheuvreux.

[Andre F. M. Mulder, Analyst]

Two questions. First on the delays. On the stake sale, can you give us a bit more color what has caused delay? Secondly, on the Sepetiba, can you indicate what kind of delay that you expect there maybe 1 quarter or 2 quarters or 3 quarters? And last question is on the offshore wind part. Your prototype will hit the water in '22. Does that give you enough time to be ready to tender for projects in '23, '24, '25, as you mentioned?

[Bruno Y. R. Chabas, Chairman of Management Board & CEO]

Yes. Okay. So let me take the floating offshore wind. Just as a reminder, we have been in the business of floating objects which are anchored for the past 60 years. We have an experience of more than 600 floaters in the water, which is second to none of anybody and is probably more than 30% market share. So the answer to your question is yes. We have been ready for this for the past 60 years. Now Douglas, on the...

[Douglas H. M. Wood, CFO & Member of Management Board]

Yes. On the other question around the sale of Buzios and the partnering. The whole project and the sale process has really been going in line with expectations. We were always targeting around the year-end. As I said, there's nothing untoward. The deal is done, and we're just waiting to complete some conditions precedent. So nothing particularly remarkable there. And yes, we're going to -- we'll -- we've assumed that we don't conclude it this year. I guess there's a possibility we could do, but otherwise, we'll see the money next year.

[Andre F. M. Mulder, Analyst]

And on Sepetiba, can you give an indication of what kind of deal you're looking at?

[Bruno Y. R. Chabas, Chairman of Management Board & CEO]

Philippe, you want to mention something more on Sepetiba?

[Philippe C. Barril, COO & Member of Management Board]

Yes. So what -- I clarified this at previous communication. We were talking about the completion at the end of '22. I have somehow clarified that when you're looking at first oil, which is what we are currently referring to, that was equating more or less around an additional quarter. So we were already in 2023. What we are currently monitoring is the activity within the next 2 quarters. So that gives you an indication of potentially what could be an impact. But that's all the activities that are under particular scrutiny. They are critical for the completion, but that's what we are currently monitoring.

[Operator]

[Operator Instructions] There are no further questions.

[Bruno Y. R. Chabas, Chairman of Management Board & CEO]

Okay. So in this case, thank you very much for listening to this call. Again, to summarize, solid performance in operation and project execution, financial strength, also in securing financing, as you have seen. Again, thank you for listening for this call, and you can now resume your normal activity.

[Operator]

Ladies and gentlemen, this concludes the SBM Offshore Trading Update Call. Thank you for attending. You may now disconnect your lines. Have a nice day.