Aker Carbon Capture ASA

OSE:ACC

Earnings Call Transcript 2022-Q3

[Operator]

Good afternoon, and welcome to the presentation for Aker Carbon Capture's results for the third quarter of 2022. My name is David Phillips, Head of the U.K. and Investor Relations, and I'm joined today by my colleagues, Valborg Lundegaard, our CEO and Egil Fagerland, our CFO.

First, Valborg will take us through our main achievements and developments from the third quarter of this year, and we'll run through a number of topics that are important to our strategy. Then Egil will take us through our key Q3 financials, including some outlook commentary for the rest of the year. And finally, we will take your Q&A by the online system. Just as a reminder, you can post your questions into this system at any time. And at the end, we all try and work through as many of them as we have time.

So, Valborg, over to you.

[Valborg Lundegaard, executive]

Thank you, David. This is the agenda for our presentation today following an active and interesting third quarter. We will address the highlights of the quarter, our operations and business development, the delivery models, the financial highlights of the quarter, finally, the way forward, and then we will move to Q&A. But first, before we start the highlights from Q3, we have a short introduction to the company.

Aker Carbon Capture is a pure-play carbon capture company, with the strength of the Aker Group behind it. We see many important benefits from this structure, including, our customers will have our full attention. And for investors, this open up for investments in a pure-play company, not a conglomerate of segments. Our proprietary patented technology has been developed over 20 years and is validated to over 50,000 operating hours and verified for several applications.

Aker Carbon Capture technology is cost effective, robust and flexible, meaning it can be applied to existing plants or new builds. The process uses a biodegradable mixture of water and organic amine solvents to absorb the CO2 and as a market-leading HSE profile. Since mid-2020, Aker Carbon Capture has focused on the European market with Scandinavia, Benelux and U.K. leading the way. Here, the interest from customers continues to be highest and the regulatory environment to support adoption of CCUS continues to be the most mature. We also note the increased policy support and early-stage corporate activity around CCUS market in North America. We continue to prioritize 4 market segments where our technology has been tested and verified; cement, bio and waste-to-energy, gas-to-power and blue hydrogen. And we're also seeing good engagement with a number of additional segments where our technology is well suited to capture CO2 such as refining and process industry.

Now the highlights of the quarter. There are only 2 large carbon capture projects under construction in Europe today. Aker Carbon Capture is delivering both. Brevik CCS, the world's first carbon capital plant on the cement facility where key equipment currently is being installed and Twence CCU, a modular carbon capital plant on the waste-to-energy facility where foundations for the columns are installed.

In addition, we are the carbon capture provider to a consortium of Aker Solutions, Siemens Energy and Altrad and Babcock for 2 feeds in the U.K., both mega scale gas-to-power plants with carbon capture, BP Net Zero Teesside Power and SSE Keadby 3. Both developments strengthen U.K.'s energy security and have now been shortlisted for Track 1 funding. Delivering on our commitment is top priority. In the quarter, there has been high activity around our mobile test units. We've started a test campaign for smelters in Mo i Rana, Norway for Elkem Rana and SMA Mineral. Due to high interest from our customer for test campaigns, we have started building a second mobile test unit. And recently, we were awarded a new contract from another customer for a test campaign in 2024. We recently announced that Just Catch Offshore, a modularized carbon captive facility for offshore installations has been qualified by DNV, the global independent energy expert and assurance provider.

This product is now ready to be deployed in offshore oil and gas fields, where Aker Carbon captures proprietary solution can significantly reduce emission from offshore power generation. And then there has been some very important news and milestones in the quarter, accelerating the CCUS market, increased CO2 storage capacity in Europe plans for a CO2 pipeline from Germany to Norway, and in the U.S., the Inflation Reduction Act will increased tax credit for CCUS has already accelerated the market.

When we look at our financial results, I'm happy to share that through the past quarter we've seen continued revenue growth. Overall, revenue for the third quarter was NOK 204 million. We have a robust cash and cash equivalent position at NOK 1.4 billion. Despite the pandemic, the war in Ukraine and the consequent energy crisis, political and corporate efforts to fight climate change remain strong. These efforts are exactly why the level of activity at Aker Carbon Capture continues to be high.

Now we move on to look into more detail at our operations and business development. In May, Aker Carbon Capture reached a key milestone at the Brevik CCS project, the installation of the first major equipment on site, which was the waste heat recovery unit. Now all 3 waste heat recovery units are installed as well as underground piping. The installation work will gradually accelerate as more equipment arrives. The peak installation activity will be in 2023. From 2024, the plant will capture 400,000 tonnes of CO2 per year.

The Brevik CCS project is part of Longship, a full CCS value chain development and the largest climate project in Norwegian industry ever. The cement industry represents 6% to 7% of global CO2 emissions, and CCS is a key solution to decarbonize this hard-to-abate segment. Through the Brevik CCS project, we help to create local employment and establish strong partnerships with local companies and other stakeholders. This delivery model is scalable also for other carbon capture projects.

In the Netherlands, at Twence waste-to-energy plant in Hengelo, the foundations for the columns have been installed. In parallel, key equipment are being delivered from our suppliers. Aker Carbon Capture is delivering a standardized just catch. This first-of-a-kind modular carbon capture project is on track and will start capturing 100,000 tonnes of CO2 per year already from the end of 2023. The plant will reduce CO2 emissions assorted with the generation of energy from incineration of nonrecyclable waste. The captured CO2 will be used as fertilizer in greenhouses, a unique example of circular economy.

In the U.K., we are the carbon capture provider to a consortium of Aker Solutions, Siemens Energy and Altrad and Babcock for 2 feeds, both mega scale gas-to-power plants with carbon capture, BP Net Zero Teesside Power and SSE Keadby 3. Both developments strengthen energy security in the U.K. and have now been shortlisted for Track 1 funding. Each of these carbon capture facility will have the ability to capture up to 2 million tonnes of CO2 annually, which is around 5x the size of Brevik CCS. Siemens Energy is providing cutting-edge gas turbine technology for the plant, which will have a generating capacity of around 900 megawatts. These feeds are crucial steps forward for Aker Carbon Capture in terms of further cementing our carbon capture business in the U.K. And U.K. has an ambitious CCS strategy and aim to capture 20 million to 30 million tonnes per year by 2030. A CCS infrastructure fund of GBP 1 billion has been established to reach these targets.

The mobile test unit was built in 2008 and has since then been upgraded according with our latest technology development. Aker Carbon Capture can therefore offer our customers a unique opportunity to test our technology at their site and de-risk the project prior to full-scale CCUS implementation. The mobile test unit is now in Mo i Rana, Norway and a test campaign for Elkem Rana and SMA Mineral smelters has started. With this campaign, we will verify our technology also for the smelter industry, and the customers will familiarize themselves with carbon capture.

Due to high interest for test campaigns from our customers, we have started building a second mobile test unit, which will be ready next year. And we have been awarded a new contract from another customer for a test campaign in 2024. We recently announced that Just Catch Offshore, a modularized carbon capture facility for offshore installations has been qualified by DNV, the global independent energy expert and assurance provider. This product is now ready to be deployed in offshore oil and gas fields where Aker Carbon Captures proprietary solution can significantly reduce emissions from offshore power generation. Just Catch offshore is fit for harsh weather conditions with severe motions. The modularized solution can fit into any type of application where gas turbines are present, bottom-fixed as well as floating production facilities like FPSOs, FLNG, powerhubs and offshore power gas plants.

Strong governance and compliance is one of the 4 key pillars of our ESG strategy, protecting human and labor rights is a crucial part of that pillar. Therefore, we welcome the introduction of the Norwegian Transparency Act, and we work systematically to protect human rights and decent working conditions in our operations and supply chain. In Q3, we have updated and implemented policies and procedures conducted risk assessment and due diligence of business partner. Moreover, we have also increased internal awareness and trained our employees as they should be strong advocates respecting human rights. We recognize that this is an area that requires continuous attention and ongoing communication with stakeholders is an essential part of this.

We've set an ambitious target to secure contracts to capture 10 million tonnes of CO2 by 2025, our 10 in 25 target. In order to better reflect our activity status, we now visualize this progress towards the target across these 4 updated categories: secured development contracts, tenders for development contracts and secured feed contracts, prefeed studies and mobile test unit campaigns and finally, prospects. Here, the half million tonnes represents our already secured contracts with Norcem and Twence. Then the tenders and feeds now 5.5 million tonnes, which reflects Net Zero Teesside Power and Keadby 3 as well as ongoing tender activity for development contracts.

We've seen continued growth in pre-feeds, studies and mobile test unit campaigns. This category now totals 9.9 million ton. Apart from the progress we made since 2020, it is also important to note that we deliver technology sent amongst Norway with a capacity of 80,000 tons of CO2 already in 2012. This experience sets us apart from many competitors without a history of proven technology, delivery of projects and operations. With a few days to go until the start of the COP27 Summit in Sharm el-Sheikh Egypt, the need to urgently address the climate crisis has never been clearer.

This year, we have experienced devastating flooding in Asia, record heat waves in Europe and wildfires in North America. CCUS is an important part of the solution, and there has been important news and milestones in the quarter, accelerating the CCUS market. CO2 storage capacity is currently a bottleneck in Europe. However, several storage sites will be in operations second half of the decade, and on the Norwegian continental shelf, new storage operators have been announced. Also, Wintershall Dea and Equinor are planning a CO2 pipeline from Germany to Norway, connecting a hub in Vilshofen in Germany with offshore storage site on the Norwegian continental shelf.

And finally, looking at the U.S., it's clear that the recent enhanced 45Q tax scheme to the Inflation Reduction Act has already accelerated the market. Princeton University has analyzed the impact and concluded the enhanced 45Q will likely result in a 30x increase in deployment of CCUS in the U.S.

Now our CFO, Egil Fagerland, will take us through our delivery models and financials.

[Egil Fagerland, executive]

Thank you, Valborg. We now have 2 main product offerings that we offer in the market. It's the Just Catch and the Big Catch. The Big Catch can handle from 400,000 tonnes of CO2 per year and up to several million tons per year. The modular Just Catch comes with a standard capacity of 40,000 or 100,000 tonnes. The Just Catch is also available in a larger modular design for offshore work, for instance, with large-scale FPSO vessels. We can deliver all of these on an EPC basis. And for the Big Catch and the Just Catch Offshore offerings, we can also provide a license model with key equipment. Our standardized Just Catch offering is at the heart of our Carbon Capture as a Service model.

For the Carbon Capture as a Service model, our estimated levelized cost for the full value chain service offering has been adjusted to reflect the current market conditions, and it now ranges between EUR 75 and EUR 175 per tonne compared to our prior estimate of EUR 70 to EUR 150 per ton. In general, we've seen higher costs related to long-term energy forecasts, and we expect cost for transportation and higher expected costs for transportation and storage. The most recent analyst targets for carbon range between EUR 80 and EUR 150 per tonne in 2030. And the overall consequence of a higher levelized cost range is that certain prospects are no longer as attractive for the emitters.

However, the majority of our targeted Carbon Capture as a Service prospects fall within the middle of the range, EUR 75 to EUR 175 per ton. Now to the decomposition of these cost elements. The CapEx for the Just Catch plant, including liquefaction, temporary storage and financing remains within an estimated range of EUR 30 to EUR 45 per ton. Although we expect deficiency gains through implementation of a serial production scheme to partly offset the inflation in the market. In the short term, we still see typical cost elements moving toward the higher end of this defined range. But as mentioned before, since we are currently delivering a Just Catch 100 unit for Twence in the Netherlands, we have recently placed purchase orders that confirm that we are delivering the CapEx within this illustrated cost range. And we have also been able to validate this range in recent tenders.

The OpEx, which includes solvent supply, energy, digital operation center, labor and maintenance covers a range of EUR 15 to EUR 55 per ton. This compares to EUR 10 to EUR 45 per tonne last quarter. The higher long-term energy forecasts are the main driver behind the increased range. And as we commented in prior quarters, engagement with customers has allowed us to identify a number of opportunities to reclaim and utilize excess heat that significantly reduces the energy costs in certain projects. And as we've indicated before, these are typically the largest part of the OpEx.

If we apply the current high energy prices on opportunities with a little or no excess heat to utilize in the process, we would see the OpEx category fall in the higher end range of this bar. In general, we see that most of our prospects are in the middle of this range due to available heat or steam. However, it's important to note that the levelized cost of Carbon Capture as a Service is based on a 15 to 25-year lifetime perspective. And during this time, the assumptions are very likely to fluctuate.

Then the highest range we still see for transportation and storage, ranging between EUR 30 to EUR 75 per ton. The cost will vary mainly due to the distance from the emission source to the available storage site. And we still see some attractive projects located in hubs close to the permanent storage site, where lower cost for transportation can be applied. However, recent quotes indicate that the overall high end of the transportation and storage cost range has now widened from EUR 60 to EUR 75 per ton. Then the EUA or the EU ETS has so far in 2022 been relatively volatile. And it now stands around EUR 80 per ton. The volatility seen this quarter was influenced by geopolitical unrest, energy security concerns and increased uncertainty on the back of political talks to finance the repower EU package through selling off EU ETS allowances.

Although we see some short-term volatility, the market outlook remains sound, and analyst forecast for carbon by 2030 continue to be in the range of EUR 80 to EUR 150 per ton. And this is supported by IEA's recent World Energy Outlook Report, which based on the announced Net Zero pledges, expected carbon price at EUR 135 per tonne in 2030. These prices still compare within the range of our levelized cost of Carbon Capture as a Service, where some projects are already economically viable above EUR 75 per ton.

Now I will take you through the key financial highlights of the third quarter before we move on to a summary by Valborg and then Q&A. Bear in mind that all the numbers that I mentioned are in Norwegian kroner, and let's start with the income statement. The overall revenue for the third quarter was NOK 204 million, which is up more than 100% compared to the same period last year. This reflects good activity on the Brevik CCS project, where we have now installed major equipment on site. And as Valborg highlighted previously, the Twence CCU project is also progressing well, and we have started construction work.

In addition, the BP Net Zero Teesside fee and the SSE Keadby 3 feed and studies contributed to the revenue growth. Our reported third quarter EBITDA was negative NOK 56 million, a decrease of NOK 2 million compared to the same quarter last year. Currently, profit is being recognized on the Brevik CCS project. And for the Twence CCU project, profit will only be recognized when the site installation order has been successfully placed. This is expected to take place by the end of the year.

Although we're seeing an increased contribution from our projects, feeds, mobile test unit campaigns and studies, the cost from our continued efforts within R&D, digitalization projects, our increasing tender activity, business development activities and sales initiatives means that the overall EBITDA is still negative. The efforts that we currently invest in our business will have significant future value and some of the costs qualify for capitalization, which we see in the balance sheet and our cash flow statement.

Our cash flow statement -- I'm sorry, our balance sheet statement. During the third quarter, net current operating assets or networking capital ended at negative NOK 537 million, which represent a continued strong positive cash position on our projects. Overall, operating assets and liabilities represented by net capital employed was negative NOK 457 million, and this shows that both our short-term and long-term business activities are currently pre-funded by our networking capital position. And we continue to have a very healthy cash position at NOK 1.4 billion, and this could cover all of our liabilities 2.3x. The derivative financial instruments are related to our projects where we hedge currency risks on our contracts. And finally, our equity remains strong at NOK 0.9 billion.

Then our cash flow statement. We started the quarter with NOK 1.452 billion in cash and cash equivalents. Through the quarter, we saw an overall cash outflow of NOK 79 million. The main drivers were loss before tax and CapEx. Loss before tax represented a cash outflow of NOK 51 million, which is in line with the previous quarter and EBITDA. CapEx of NOK 36 million, mainly related to our product development and standardization development efforts. In addition, CapEx came from our new mobile test unit that is currently under construction and upgrades to our existing mobile test unit to be ready for the new campaign.

In total, overall cash and cash equivalents ended this quarter at NOK 1.373 billion. These were the highlights of our historicals. Now let's have a look ahead. I will now outline some key figures concerning our financial outlook. These remain broadly in line with the outlook we presented in Q2 2022. First, our backlog scheduling. We ended the third quarter with around NOK 1.5 billion of backlog. By year of execution, we see this work at roughly NOK 0.2 billion for the remainder of this year, around NOK 1.1 billion in 2023, which is up slightly from the prior quarter and unchanged at around NOK 0.2 billion for 2024.

Second, our operating expenses. And for the third quarter this year, we saw salary and other personnel costs and operating expenses together around NOK 76 million. Excluding salary and personnel costs associated with our projects, we expect these costs together to remain around this level per quarter. And that is as we move through the next 6 to 12 months.

Thirdly, our net cash balance will continue to benefit from a favorable cash position, and it ended this quarter at NOK 1.4 billion. This was helped by a favorable cash position on our projects. And through the fourth quarter of 2022, we expect to see some of this cash position used up as our project further matures. And based on project-related movements alone, we would expect this to end at around NOK 1.1 billion, slightly higher than we indicated in the Q2 report. Again, based on project-related cash flows alone, we would expect our cash position to improve somewhat in the first half of 2023. Please note that these comments do not include any assumptions for cash spend on M&A or additional investment opportunities that might arise going forward.

And now back to you, Valborg.

[Valborg Lundegaard, executive]

Thank you, Egil. So now let me share with you the way forward. There are only 2 large carbon capture projects under construction in Europe today. Aker Carbon Capture is delivering both, the Brevik CCS and Twence CCU; delivering on our commitments as top priority. We've set a clear direction to position for the huge market ahead of us. We have prioritized European market and 4 market segments: cement, bio and waste-to-energy, gas-to-power and blue hydrogen. We also see opportunities emerging in North America and in other industry segments such as refining and process industries. Our proven technology is market leading. We will aim to further improve energy efficiency and capture rate and increase focus on new technologies.

True standardization, modularization and digitalization. We are expanding our cost-efficient product portfolio. Collaboration with strategic suppliers is an important part of this journey. We will continue to offer EPC and license models, followed by a long-term service agreement. We are also bringing the full CCUS value chain together to Carbon Capture as a Service. To meet the expected rapid growth in the market, we will continue to build strong partnership covering both the physical and digital CCUS value chains. Therefore, we work with complementary partners such as Microsoft, Siemens Energy and Northern Lights.

And finally, we are building our company true committed people, driving in a collaborative and innovative environment. We are in a strong position to make a positive impact on our planet and contribute to creating a sustainable future. Thank you. And now we move to the Q&A session. So, Egil, if you will please join me and David to follow the…

[David Phillips, executive]

Thank you, Egil. Thank you, Valborg. So, we have a very good list of questions. So, thank you, everyone, for the good attention. I'll try and get to them as fast as we can. So, firstly, from SpareBank 1 Markets. Gross profit margin, this sounds like an Egil question. This gross margin have been around 10% for the last 4 quarters. How should we think about this going forward?

[Egil Fagerland, executive]

We've indicated now based on our secured backlog, what revenue, secured revenue, will be going forward. We've also given a guidance now on our other expenses. So, I think that should be the basis for what you model. And then we can also say that our projects do deliver a profit, but we haven't guided on those profit levels at this stage.

[David Phillips, executive]

Next one, a very general one about North America. When do we think we'll have some major news to talk about?

[Valborg Lundegaard, executive]

Yes. I think what's happening now in North America is very exciting. And of course, we follow this market closely. We have started with some study work, and we are working very closely with some of our global partners like Microsoft and Siemens Energy to position for this market. So, we are certainly positioning not more exact timing than that I can give you.

[David Phillips, executive]

Next one, about Twence and recognizing margin. Egil, I know you partially answered this one or pretty much answered this one in your discussions already. But in terms of a quarter, when would you expect to see the effect of…

[Egil Fagerland, executive]

So largely recognizing profit on these projects, which are first of the kind, although standardized, is driven by having a sound estimate that you can really validate. And one of the elements that is remaining to do that on the Twence project is placement of our site installation order, and we expect that to happen now during this quarter. And as such, you should also expect profit recognition during this quarter.

[David Phillips, executive]

Next from RBC. I have quite a few questions here. Firstly, with the U.S. Inflation Reduction Act in mind, when you look at what's happening in the U.S. and look at the potential issues in Europe from a high level, has this changed our geographic focus in any way? Valborg?

[Valborg Lundegaard, executive]

Yes, that's a good question. I certainly think that to us and to many of us the approval of the Inflation Reduction Act came actually faster than we expected. And I see -- I expect that we will see really acceleration of the market in U.S. In Europe, of course, we are all familiar with the situation. And this may lead to that we see actually a faster acceleration in the U.S. and it may exceed the European market. And of course, this makes our decision to position for the North American market even more important.

[David Phillips, executive]

Absolutely. Moving on to Just Catch Offshore. Have we started any discussions with companies for Just Catch offshore? Or is it still early days in terms of discussion?

[Valborg Lundegaard, executive]

No, we've worked a lot with various customers for Just Catch Offshore. And it's various operators, including lease operators. And what we look at here is mainly greenfield developments because these facilities require some space, which might be difficult for a retrofit solution. But there is high interest in the market. So, in general, if you want to look at the size of the market, you have to look into greenfield FPSO market or powerhubs for that matter, which could be a very interesting alternative also to electrification like we see on the Norwegian continental shelf.

[David Phillips, executive]

And last one from RBC. Looking at our progression of prospects to studies and tenders, feeds and real contracts. The move from studies into what we might call actual work, do we still see funding and fiscal support as the biggest hurdle?

[Valborg Lundegaard, executive]

Well, I highlighted in the presentation also the bottleneck that we see on storage. And I really like to emphasize that. I believe that when more storage projects will come in operation second half of the decade, we will also see the market grow in a much quicker way than what we see today. So, in addition to what you're stating, yes, I would highlight storage.

[David Phillips, executive]

Okay. Next, from Bank of America. Quite a shopping list of questions here. So mostly -- a lot of them are financial, so I think this is a Egil's territory without any question. The backlog at the half year point, we talked about having NOK 0.5 billion in backlog for the second half. Now you talk about NOK 0.2 million for Q4. That implies there's some -- given the revenue reported for Q3, implies there's been a change. Is there some slower execution or any impacts that we should be aware of here?

[Egil Fagerland, executive]

No, I wouldn't say that these are rounded numbers. So, the 0.5 million at Q2 was probably towards the lower end of that rounding. So that turned up to NOK 0.5. In general, there's very minor adjustments to the progress of these projects included in that figure that we shared. The 0.1 increase next year is related to some order intake that we've seen in the quarter.

[David Phillips, executive]

Okay. Very clear. And looking at revenue growth year-on-year, just over 100%. The goods and services material costs were a little bit over 100%. What is the difference for that difference?

[Egil Fagerland, executive]

Yes. I think when you look at the cost of delivering our projects and studies and feeds and everything that we do in the beginning of our execution, we only had one project, and that was the Brevik project. Now we have several projects under construction that have been taking in costs. And if you also remember, we are only recognizing revenue on the Twence project according to a zero profit scheme. So that's mainly the reason why they are -- the revenue isn't growing faster than the cost base.

[David Phillips, executive]

Okay. Fair enough. On to the commercial pipeline slide, the progress towards 10 in 25. And there obviously has been -- we changed the way this was set up a little bit, but the growth of capacity, what was -- what can we say about what's behind that?

[Valborg Lundegaard, executive]

What you can see from the update is that there is really high activity on feeds and tenders. So, this is something I want to highlight. These are mainly within our core market, geographical market. And it's U.K. It's, for instance, what is happening in Denmark with the funding coming up by the end of the year and so on, which is a very interesting market to us. But also, I really like to highlight the growth in studies because we see increased activity in this market and we see, based on our experience and the projects that we've delivered, that there are customers contacting us from all over the world.

[David Phillips, executive]

Absolutely. And just one clarification. In that renaming tender and feed segment, have we tendered for the U.K. projects?

[Valborg Lundegaard, executive]

No. I think we've reported to you as we are in the feed phase right now. When it comes to more details regarding the projects, of course, we have to refer to the operators, BP and SSE directly. But these are very, very interesting opportunities with great hubs to be decarbonized in the U.K. We see that both the East Coast Cluster and also HyNet are part of Track 1 and this opens up a lot of opportunity for us as a carbon capture provider.

[David Phillips, executive]

Absolutely. Last one from BoA. I feel almost unfair asking this one given my job title, but how has sentiment changed in the U.K. with the new governments? But I presume the use of the word governments in plural was deliberate there.

[Valborg Lundegaard, executive]

Well, that remains to be seen, I guess. So -- but I think we just -- we keep on pushing, promoting our technology. Next week, I'm going to Egypt. We are going to discuss decarbonization and climate change. And I know that the prime minster decided not to go. So okay, there are challenges. But I think, all in all, the commitment that we've seen from U.K. is very strong.

[David Phillips, executive]

Absolutely. Maybe I could also add just very quickly, it is too early to talk about exact time lines, but the commitment is very, very clear. That's absolutely without question. And also, don't underestimate how much work is done in the background by the guys at base in the Civil Service is an incredible amount of work and talent that's been done already.

Okay, moving on. Feeds and studies. I think we talked a little bit about what's behind the increase. From the feeds, what share of them are competitive?

[Valborg Lundegaard, executive]

Yes. I don't think we can go into the details in that respect. I think we've been quite clear about the position on both Net Zero Teesside and SSE. And that is really what you can observe from the market. BP has announced that they have awarded feeds to the consortium with Aker Solutions, Siemens Energy and Altrad Babcock with us as the carbon capture provider and also to another consortium. So, there is certainly a competition. And as you've seen from the market, there hasn't been any such messages with 2 feeds from SSE. I think I'll stop there.

[David Phillips, executive]

Yes. that's fine. Again, there's a lot of focus on this on the feed and prospect progression. I know it's very hard to generalize this, but timing to see that pipeline mature. What can we say about that? When are the next sort of major news flow item is going to be in that?

[Valborg Lundegaard, executive]

I think what you can expect that when we are in a tender phase, it's not that long time horizons before the contract will be awarded. So we are certainly talking about first half of next year, something like that.

[David Phillips, executive]

Absolutely. And as a good follow-on from Berenberg now, another mini shopping list to go through, but some very good questions here. What can you say about the major feed projects we're engaged with, especially in the U.K., what can we say about the time lines for those in terms of coming to a conclusion?

[Valborg Lundegaard, executive]

Yes. I think I touched upon that already. It's Track 1. There's commitment. We discussed that already, a new government in place, but still strong commitment from U.K. It will be in operation second half of this decade. And again, it explains the opportunity when we have these storage projects in place because not only does it open up for these very large carbon capture projects, but also for these hubs, there are a number of medium-sized emitters where we can apply are Just Catch solutions. So as long as we get this infrastructure in place, I see the market opening.

[David Phillips, executive]

Okay. The U.S., following the Inflation Reduction Act, have we seen a material increase in uptick of inquiries?

[Valborg Lundegaard, executive]

Absolutely, yes. I think we've seen that the market there is moving already. And as I shared with you, we are doing some study work already and have a very good outlook with customers. And also, our strategic partners are important in this respect. I mentioned Microsoft and Siemens Energy, which are really global and a strong footprint, of course, in the U.S.

[David Phillips, executive]

And one last one on the financial side. Any sort of outlook for the investment for the rest of this year in 2023 thinking CapEx?

[Egil Fagerland, executive]

Yes. I think you should expect to see that we are going to continue to invest in our technology, in our standardization efforts and digitalization efforts that we've started. So, the development line, you should expect to remain in line with what you see today. Then for our mobile test unit, the new one, that's going to be completed next year. And you should expect to see somewhat of an uptick in that box through the first half of next year. We also had an upgrade of the current mobile test unit this quarter. And that could happen again towards the end of next year as we make it ready for a new campaign.

[David Phillips, executive]

Okay. I know there are a couple of other sort of more detailed questions on the Just Catch Offshore. What I will suggest on those is please drop me a line individually afterwards and we can follow up.

One from Redburn. I think we talk about Just Catch offshore, but in terms of retrofit compatibility and which markets we're looking at in particular. I think you commented on some of this already, Valborg.

[Valborg Lundegaard, executive]

Yes. Of course, we looked at retrofit opportunities and have been doing a study for that. It could be in the tail-end phase of a field where you may not need as many gas turbines as in the beginning, and you could actually lift off and have some space for it. But overall, I would say this is a greenfield market because it's -- and the FPSO, FLNG and so on are really the most suitable in addition to large powerhubs because it has a large area available.

[David Phillips, executive]

Okay. Fine. Moving on, another question from Arctic. Margins, thinking of profitability, definitely one for Egil, I think. Carbon Capture as a Service, how do we see this comparing with what you might call our standard contracts in terms of margins?

[Egil Fagerland, executive]

Yes. I think the way that we've structured this model is that we will work with financing partners who will actually own the assets. In many cases, we will lease them back and offer it to the end customer as a full value chain service or in some cases, the end customer could actually lease it directly from the financing partner that we have. In each of these cases, we would sell the Just Catch on an EPC basis to the financing partner. And we do expect to recognize revenue and margin according to a normal EPC contract during that phase.

But then subsequently, we will have an operating phase where we will recognize costs related to the lease, but also revenues related to a pay-per-tonne model. So, during that operating phase, that's a long-term operating contract. You should expect to see decent margins.

[David Phillips, executive]

Yes. Okay. One follow-up from Nordea. Back to the MTU, in particular, the MTU Number 2. What can we say about the overall cost of that and the remaining spend that we might envisage in 2023?

[Egil Fagerland, executive]

We haven't guided on this earlier, in particular. But normally, a unit like this would cost in the range of NOK 50 million to NOK 75 million, a little bit depending on how well you equip it and how far you accelerate the delivery schedule of the unit.

Anything to add there, Valborg?

[Valborg Lundegaard, executive]

Yes, maybe I'd like to add because we see that some of our competitors are building very small test units. And in our view and the experience we have since 2008, being able to offer a true carbon capture plant, which includes all the technical solutions that we have in our full-scale plant is very, very important. That is really the only way to verify the technology and being able to optimize the operation for that customer. And that is why we also decided to maintain this capacity for our second MTU. Still, the MTU can be transported on trucks or by ship or so. It contains 6 modules, which we actually drive around to the customer or we ship it to United States or U.K., or whatever. So, it's very efficient, but it's larger than what you may have heard from some of the other carbon capture providers.

[David Phillips, executive]

Okay. Last question from Citigroup. We covered some angles. This is the question around U.K. feed studies and Track 1 and so on. You cover a number of these angles already. I guess the other question in this is in the next period of time, what are the -- what is the chain of events we should expect? Should we expect to hear about funding decisions? Should we expect to hear about FID? How should that sequence of news flow come out? What do we think?

[Valborg Lundegaard, executive]

Well, I think we already said that we are working on tenders at the moment and, of course, feeds and so on, which we certainly will hope will mature into new contracts, which will be awarded, I would say, next year, early next year. So, this is important. In addition, we haven't touched about this so much this quarter. But of course, technology development and looking at new technology is also an area that is important for us. And we believe that the experience that we have with commercializing technology is extremely valuable. So, we are screening the market also for technology companies in an early phase that we can collaborate with and mature. So, this is also something you should be aware of.

And of course, we expand our activities into new markets. We have a setup in Denmark. We have people in U.K., which will now soon move into our offices in London. We have employees now in Sweden. And this morning, I met our first employee in the Netherlands who will establish there. So, we have to be close to our customers. And so, we are growing the organization. We need really to strengthen our position to be ready for the growth that we expect to come.

[David Phillips, executive]

Okay. And the very last question because I know we're running out of time a little bit here. And this is sort of a follow-up, I guess, just on that U.K. feed topic. Just -- I know you've covered this from a number of angles already, but just as a -- what can we -- what's our best view in terms of when these feeds might become the real construction projects in the future?

[Valborg Lundegaard, executive]

Well, if you're talking about the large feeds in the U.K., I think we commented on that already. We know that this is a large infrastructure project. But looking at the U.K. strategy for decarbonization, I would not give an exact timing. I would have to refer maybe not to the U.K. government, but at least to our customers, BP and SSE.

[David Phillips, executive]

Absolutely. And yes, and as I noted, thank you all for all the questions. There are a few more detailed ones on there. And as I said, please do drop me a line directly and we can take those offline. But thank you so much for the interest in Aker Carbon Capture.

[Valborg Lundegaard, executive]

Yes. Thank you so much for joining, everyone.