Aker Carbon Capture ASA
OSE:ACC
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Aker Carbon Capture ASA
Earnings Call Analysis
Summary
Q3-2023
During the earnings call, executives discussed the profit recognition for a major project expected to begin early next year. They also detailed the U.K. Track-1 expansion process, predicting decisions to initiate by autumn next year and awards by autumn 2025. The carbon capture as a service model was highlighted, stressing it would cover the full value chain costs. U.S. market activities in Q3 were positive, with notable interest from Texas and Louisiana, leading to a strategic selection of clients to pursue carbon capture opportunities with the aim of operational efficiency and potential improvements contributing to margin growth.
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Good afternoon, and welcome to the presentation for Aker Carbon Capture's results for the third quarter of 2023. My name is David Phillips, Head of Capital Markets. I'm joined today by my colleague, Egil Fagerland, our CEO.Egil will start the main presentation. Then this will be followed by a Q&A with the audience. So firstly, Egil will take us through our main achievements and progress from the third quarter of this year, and will run through a number of topics that are important to our strategy. Then he 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 via the online system. Just as a reminder, you can post your questions into the system at any time. And at the end, we will try and work through as many of them as time allows.So Egil, over to you.
Thank you, David. So this is the agenda for our presentation today. Following a highly active third quarter, we will address the highlights of this quarter, our operations and business development, our delivery models and the financial highlights. Finally, the way forward will be highlighted as well. Then we will move on to Q&A.But first, before we start the highlights from the Q3, we have a short introduction to the company. Aker Carbon Capture is a pure-play carbon capture company, offering modular and configurable plants with the strength of the Aker Group behind it. Today, we're already delivering 7 carbon capture plants. We are making carbon capture happen.Our proprietary patented technology has been developed over 20 years and is validated with more than 60,000 operating hours and verified across a range of industries. Aker Carbon Capture uses a biodegradable mixture of water and organic amine solvents to absorb the CO2. Our technology is modular, cost-efficient and energy efficient. And it has been a leading HSE profile in the market.Since mid-2020, Aker Carbon Capture has focused on the European and Scandinavian and Benelux markets together with U.K. With an increased policy support for CCUS in North America, we have started our market entry there as well. Also, we're exploring potential positions and markets in the rest of Europe and the Middle East.We continue to prioritize our 4 market segments with high market activity, 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 the refining industry and process industries. Our technology has been tested and verified across all these segments.Now to the highlights of this quarter. We've seen a significant growth in pre-FEEDs and studies this quarter. With order intake year-to-date, 4 pre-FEEDs and studies, around 9 million tonnes of CO2 per year. In July, we signed a MoU with Aramco, one of the world's leading integrated energy and chemical companies.The MoU is to explore partnership opportunities to deploy CCUS and industrial modularization in Saudi Arabia, and we've strengthened our modular product portfolio with the launch of Just Catch 400.Through the third quarter, we've also seen good progress on our major projects. At Twence, the plant has started commissioning. At Brevik, the first heavy lift campaign has been successfully completed. And for Orsted Kalundborg, the container fabrication for the modular Just Catch units has started. In addition, 2 of our U.K. FEEDS and pre-FEED projects are in the final negotiations for government support.Our backlog remains strong at NOK 3 billion on the backlog Orsted Kalundborg CCS award in the second quarter. I'm also happy to share that we've continued our revenue growth in Q3, more than doubling our top line compared to the same period last year. All this, while maintaining a cash position at NOK 1.3 billion.This quarter, we've also appointed Julie Berg as CFO. Julie brings with her a vast experience in finance, risk assessment and compliance, and she will start on December 1 this year.Now let's take a closer look at the significant growth in our pre-FEED and studies work. In the quarter, we've continued to see a considerable development across regions and industries, further supporting the positive momentum we've been witnessing over time now for CCUS and the market.The EU, France, Germany and U.S. have all introduced supportive CCUS ambitions and favorable regulations the last couple of months. These are important steps for realizing and accelerating the broader industrial decarbonization across both sides of the Atlantic.And with this as a backdrop, I'm happy to share with you that Aker Carbon Capture has been awarded a number of strategic pre-FEEDs and studies across Europe and North America this quarter.In Europe, we strengthened our foothold with pre-FEEDs and studies in Sweden, Germany and France for the waste-to-energy and biomass and power plant sectors, all based on our standardized and modular Just Catch with a capacity ranging between 200,000 tonnes and 250,000 tonnes of CO2 per year per plant. A clear sign that there is a strong interest for the Just Catch product in the market.Then in the U.S., we were awarded a Big Catch study covering emissions from several mineral production facilities with a combined capture capacity of 1.5 million tonnes of CO2 per year.And recently, just before our presentation today, we signed a pre-FEED contract for a major European power company, covering a portfolio of power plants in Europe. The planned capture capacity could reach up to 14 million tonnes of CO2 per year for the sites combined. Some of these plants have the potential to become the largest capture plants in Europe.Finally, R&D is important to further develop our technology to maximize carbon reduction and removal, while minimizing climate and environmental impacts.In Q3, we've initiated 3 new projects: first, investigating new classes of capture solvents in collaboration with DTU, the Technical University of Denmark; Second, reducing solvent consumption in collaboration with, amongst others, SINTEF; and Third, as a part of the Northern Lights+ project, we aim to further develop carbon accounting methodologies that will further enable carbon removal credits.As mentioned, overall, we see that CCUS commercial activities continue to pick up, not only throughout this past quarter, but throughout the whole financial year of 2023. So let's therefore take a closer look at the order intake year-to-date for Aker Carbon Capture.There's been a growing interest from emitters in Europe and the U.S. for our whole product portfolio, ranging from the modular Just Catch 100 and the Just Catch 400, the Just Catch Offshore and our bespoke Big Catch offering.Looking at our order intake year-to-date, Aker Carbon Capture has now contracted studies, Mobile Test Unit campaigns and pre-FEEDs for a combined capture capacity of 8.7 million tonnes of CO2 per year, counting more than 25 capture units altogether.When including the contract for delivery of 5 Just Catch 100 units to Orsted, the total intake for paid works added to our pipeline is close to 10 million tonnes of CO2 per year, and counting more than 30 capture units altogether.However, for clarity, please note that awards our 10 and '25 targets. The target to secure contracts to capture 10 million tonnes of CO2 by the end of 2025. We only count secured development contracts. This covers supply agreements for Just Catch, license and key equipment agreements for Big Catch and Carbon Capture as a service agreements. So the Orsted award earlier this year was an important step in this direction.Also note that, some of the most recent studies we have announced are not included in this overview as they have not commenced and were announced late in October.The growing interest for our modular Just Catch offers a significant opportunity. Our review of the market shows that emitters with between 100,000 and 500,000 tonnes of CO2 per year account for around 3,000 industrial plants across Europe and North America.So now to our overall pipeline. When we launched in 2020, we set an ambitious target to secure contracts to capture 10 million tonnes of CO2 by the end of 2025. And as before, we visualized this progress towards the target in 4 categories.Secured development contracts, covering supply agreements, license and key equipment agreements and carbon capture as a service agreements; secured feed and tenders for development contracts; pre-FEED studies and Mobile Test Unit campaigns; and then finally, our prospects.Here, the 1 million tonnes in the chart represent our already secured contracts with Heidelberg Materials, Twence and Orsted, which has been awarded earlier and Orsted now latest during the second quarter this year.This is important progress that shows that we are able to successfully convert this pipeline of opportunities into secured work with timing, of course, strongly influenced by the pace of the market itself.But then to our tenders, FEEDs and PDPs, which are process design packages. This now stands at 7.9 million tonnes, a strengthening since the second quarter. It reflects the Net Zero Teesside Power and still the Keadby 3 in the U.K. and also includes tender activity for development contracts. This category has been strengthened through the quarter due to several studies and pre-FEEDs moving into the tender phase.Also in the quarter, we've seen a continued growth in pre-FEEDs, studies and Mobile Test Unit campaigns. Now this category has grown to 18.5 million tonnes, up from the last quarter. And reflecting on pre-FEEDs moving -- sorry, there are pre-FEEDs moving into the tender phase, and this has been offset by the new study work we've seen in the third quarter, both in the U.S. and in Europe.Then back in July, we signed an MoU with Aramco, one of the world's leading integrated energy and chemical companies. The MoU is to explore partnership opportunities to deploy CCUS and industrial modularization in Saudi Arabia. This MoU is a potential first step for Aker Carbon Capture into the Middle East.The MoU focuses on carbon emissions reduction and removal through modular carbon capture. Together with Aramco, we will assess the potential for developing local supply chains and module fabrication.The country targets to do CCUS for 9 million tonnes of CO2 per year from 2027, and they will expand this to 44 million tonnes of CO2 per year by 2035. And through the Middle East Green Initiative, the region aims to reduce CO2 emissions by 670 million tonnes per year, representing around 10% of global nationally determined contributions.Now we move on to look in more detail at our operations. In the Netherlands, at Twence's waste-to-energy plant in Hengelo, all equipment and piping has been installed, as highlighted on the picture.Commissioning activities have started, and we plan for the Just Catch to be delivered around the end of this year, on track to start capturing 100,000 tonnes of CO2 per year from 2024. Delivery of the modular Just Catch for Twence's waste-to-energy facility will pave the way for other companies in Europe, planning to decarbonize their operations through CCUS.At Brevik CCS, we're making solid progress by having successfully completed the first heavy lift campaign. The absorber and all the CO2 storage tanks have been installed on site. Also, 2 process pipe rack modules have been lifted in place, and we've started installation in the compressor area. When complete, the plant will be ready to capture 400,000 tonnes of CO2 per year.Then at Orsted Kalundborg CCS, we will deliver 5 modular and configurable third-generation Just Catch 100 and additional equipment such as liquefaction systems, temporary CO2 storage and on and off loading facilities.We see this project as a milestone for serial production of Just Catch Units, and it will enable us to deliver cost efficient and fast deployment of carbon capture. For this project, all long lead items have been ordered, and we've already started the container fabrication for the units. The total contract value is about EUR 200 million, and the total capacity is 0.5 million tonnes of CO2 per year.And then to the U.K. This remains a very important market for CCS with some important decision points over the next 6 to 12 months. At the end of March, the U.K. government confirmed which projects will go into the final negotiations for Track-1. And this is the Track-1 for government funding.At the end of July, the U.K. highlighted that the Track-2 process, which will include Acorn and Viking clusters, and also the last month, U.K. announced that the Track-1 expansion process will kick off towards the end of this year, with an ambition to move into final negotiations next fall.Aker Carbon Capture is the carbon capture provider for a FEED for BP Net Zero Teesside Power, the FEED for SSE Keadby 3 and the pre-FEED for Viridor's Runcorn CCS. All potential mega scale carbon capture projects in the U.K. Both BP's and Viridor's projects are in the final negotiations with the U.K. government for Track-1 funding.For SSE Keadby 3, the U.K. government will launch a process toward the end of this year to enable the expansion of the Track-1 clusters beyond the initial 8 projects that was announced. This aims to identify and select projects to join the Hynet and East Coast clusters, including the Humber where Keadby 3 is located, and their associated storage facilities as they become viable with a clear aim to be operational by 2030.These projects in the U.K. are important steps forward for the delivery of our Big Catch license and key equipment offering for mega scale carbon capture plans, where for both BP and SSE, we are the capture partner to a consortium of Aker Solutions, Siemens Energy and Altrad Babcock.Now I'll take you through our delivery models and financials. In our second quarter presentation, we introduced the Just Catch 400,000 tonnes per year as a concept. Today, we share some more details about the Just Catch 400 concept. This latest addition to our Just Catch product portfolio follows clear signals from the market, showing interest in the modular Just Catch unit with a higher capture capacity.Although the potential capture capacity of a single unit has significantly increased from our Just Catch 100, the footprint remains optimized and the delivery time efficient due to the prefabricated and completed modules.We're currently doing studies that cover 5 Just Catch 400 units. We see modularization and standardization as a clear market differentiator and accelerator. So in short, we delivered the Just Catch on an EPC basis or to be more accurate due to the high level of standardization under a Just Catch supply agreement, and we delivered under a carbon capture as a service agreement. And this is the offering where our customers simply pay per tonnes CO2 capture.Our Big Catch offering is focused on bespoke mega scale capture capacities sold as license and key equipment packages. As a rough guidance, you could expect license and key equipment contract sizes to be in the range of around 1/3 of the full EPC delivery, but with a higher long-term margin potential.We offer aftermarket services, solvent management and solvent supply for all our clients across all our offerings. And aftermarket revenue streams are expected to pick up over time, in line with the growing installed base of our Just Catch and Big Catch units.Since the third quarter of 2021, we have shared quarterly updates for the estimated levelized cost of the full value chain carbon capture as a service offering based on our modular Just Catch unit. Note that the CapEx and OpEx figures covers the capture facility, liquefaction and temporary storage. So all the pieces needed to do carbon capture and deliver the CO2 over for transportation and permanent storage.For our European delivery model, the full value chain range is unchanged since the last quarter at a range between EUR 75 and EUR 175 per tonnes. This has now been stable for the last few quarters and validated by our ongoing Just Catch deliveries.For North America and the view there, we see the potential to realize lower cost across the value chain, mainly due to lower transportation and storage costs, but also lower operating costs due to lower power prices. This gives an overall levelized cost range of USD 55 to USD 120 per tonne for that market.Now I'll take you through the key financial highlights of the third quarter before we move on to the summary and Q&A. Bear in mind that all the numbers that are mentioned are in Norwegian kroner. Let's start with the income statement.Overall revenues for the third quarter was NOK 440 million, which is up 116% compared to the same period last year. The growth in revenues is mainly driven by Big Catch and Just Catch projects, including the Orsted Kalundborg CCS project, which has progressed well in the quarter.Our reported third quarter EBITDA was negative NOK 47 million, which is NOK 9 million better than compared to the same quarter last year.Both Big Catch and Just Catch projects contributed positively in the quarter. However, you should note that the Orsted Kalundborg CCS project profit has not yet been recognized. To give you a better description of how project accounting and profit recognition principles on Aker Carbon Capture work, I would recommend that you review our Slide 31 in the appendix.The overall negative EBITDA continued to be driven by high sales and tender activity, as you can see from our pipeline, the entry into North America and R&D activity. Our third quarter net current operating assets ended at negative NOK 806 million, which represents a continued positive cash position on our key projects.Overall, operating assets and liabilities or net capital employed, which includes fixed and intangible assets, was negative NOK 591 million. This shows that both our short-term and long-term business activities are currently funded by our net working capital position. We continue to have a healthy cash position of NOK 1.3 billion, which could cover all of our liabilities 1.4x. And finally, our equity remained strong at NOK 0.8 billion.We started the quarter with NOK 1.138 billion in cash and cash equivalents. And through the quarter, we saw an overall cash inflow of NOK 185 million. The market -- the main drivers were milestone payments on key projects, driving a NOK 268 million net current operating assets, cash inflow.We had a loss before tax of NOK 40 million and CapEx of NOK 43 million, and the CapEx was mainly related to product development and the construction of a second Mobile Test Unit. In total, the cash and cash equivalents ended this quarter at NOK 1.323 billion.These were the highlights of our historical financials. And now let's have a look ahead. Our financial outlook remains broadly in line with the outlook presented in the previous quarter. Our backlog ended the third quarter around NOK 3 billion after including the Orsted Kalundborg CCS contract from the second quarter.By year of execution, we see this work at roughly NOK 0.5 billion for the rest of 2023, around NOK 1.3 billion in 2024 and another NOK 1.2 billion in 2025 and beyond. As a reminder, all the order intakes are included in the backlog once a firm contract has been announced.We expect a positive impact on gross profit margin when profit is recognized from Orsted Kalundborg CCS. And here, I would remind you to go in the appendix and have a look at how we do project accounting. And we don't recognize profit for the project, that is due to the maturity of the project.Normally, at certain milestones in the project such as placement of key POs, purchase orders, or commencement of the installation work for the project, we typically start recognizing profit on these projects. And this is a EUR 200 million contract, where the majority of the work will be done in 2024 and 2025. So you should expect to see an improvement in the numbers then.The serial delivery of the Just Catch units on the back of Twence CCU and Orsted Kalundborg CCS is expected to further drive improved profit margins through the backlog execution period. And we expect to see an increased conversion of tenders, FEEDS, pre-FEEDs and studies, 2 firm development contracts through the illustrated backlog execution period.Salary and personnel cost is expected to increase gradually with our activity growth, whereas other operating expenses and CapEx are expected to remain around current levels through the next 6 to 12 months.We continue to show a strong liquidity position, ending the quarter with a net cash position of NOK 1.3 billion. This position is expected to trend towards NOK 1 billion through the year. And please note, as usual, these comments do not include any assumptions for cash spend on M&A or additional investment opportunities that might arise going forward. And the numbers might be subject to short-term working capital fluctuations.Now let me share with you a short summary of our way forward. We've set a clear direction to position for the huge market ahead of us. We're here to accelerate planet positive through carbon capture, carbon reduction and removal.We have prioritized European markets in 4 market segments: cement, bio and waste-to-energy, gas-to-power and blue hydrogen. And we see opportunities emerging in industry segments such as refining and process industries.We have a strategic ambition to successfully enter North America, and we're exploring our position with the rest of Europe and Middle East. Our proven technology is market-leading, and we will further improve energy efficiency and increase our focus on new technologies going forward.Through standardization, modularization and digitalization, we are expanding our cost-efficient product portfolio, cost reduction through serial production and working together with strategic suppliers is an important part of this journey. We'll offer the Just Catch on supply agreements and license and key equipment models for the Big Catch, followed by long-term service and solvent agreements.As a part of our aftermarket services, we will offer supply of solvent, performance optimization, digital operations and maintenance. We're also bringing the full CCUS value chain together through carbon capture as a service. And to meet the expected high growth in the market, we will continue to build strong partnerships.And finally, we're building our company through the devoted people who are making carbon capture happen now. And by delivering on our ongoing projects and setting an ambitious carbon capture target, we're in a strong position to make positive impact on our planet and to help our clients move towards a sustainable future.Thank you. And now we move on to the Q&A section of the meeting.
Okay. Thank you, and welcome back. I hope you enjoy the presentation. And we now move into the question-and-answer session for our presentation today.We will be taking questions on the system. This is a live system, as you know. So as usual, please do enter your questions during our discussion right now, and we'll get through as many as time allows. And thank you also for everyone who's already loaded the system up with some very, very good questions. We really appreciate the interest.So let's get things going. Firstly, from [ Vincent ] from Societe Generale in Paris. 2 questions. Firstly, Egil, asking about the decline in backlog from Q2. What drove that?
Yes. So in Q2, we had a big order intake of the Orsted Kalundborg CCS project with 5 Just Catch, more than EUR 200 million. So the decline from the second quarter to the third quarter is the revenue recognition that we've done in that period due to the progress on Orsted and also the other existing projects that we have. So that's a natural effect of having a bulky order intake in one period that you will see that being consumed over time.
Absolutely. And also from Vincent asking about -- I think it's referring to the major pre-FEED we announced quite recently. How confident are we that this will convert into a real project?
So for all the studies and pre-FEEDs and MTU campaigns, we do, we do quite a tight follow-up whether or not we believe these projects have the potential to become real projects with FID. So we look at whether or not they're in the right area, right clients, right type of emissions and close enough to permanent storage that the project can make sense overall.Whether or not this particular one will move into FID, it's difficult to say at this stage. It's still early. Once we've done the study and the pre-FEED, it's going to be easier for us to comment on whether or not we believe it will have the full potential to move forward. But it's an extremely interesting project and a huge potential. And if Europe and the various countries in Europe are going to meet their targets, this type of project is definitely required.
Okay. Moving on. Some questions from [ Carrie Elizabeth ] from Pareto now. A question on our pipeline, the tenders, FEEDs and PDPs and so on. This is now 7.9 million tonnes per year worth of projects. How much of this is PDPs? And how does the PDP differ from FEED?
So let me start with what -- how our PDP differs from a FEED. So a FEED is typically the work we do before a project goes into FID and becomes a development contract. When we do a PDP, a process design package, that is typically -- instead of a full FEED, because we're going to deliver license and key equipment or it could be just after a FEED, because we're going to deliver the license and key equipment and not do the full EPC.So in that bucket, there's an element of the process design packages, but we can't be specific about the exact number of PDPs we're doing there.
Fair enough. I think it's still fair to say in that tenders and FEEDs bucket, it is still very much dominated by the large work in the U.K.
Mainly dominated by FEEDs in the U.K. and also tenders for other projects.
Yes, absolutely. So the next question from Carrie Elizabeth is about Track-1. It sounds like then for me, actually.
Yes, go ahead.
It's -- and so when can projects starting in the Track-1 tender hope to see construction commence?I guess, in the U.K., it's worth pointing out there are sort of 3 blocks, if you like, or 3 groups you should bear in mind. Number one, is the Track-1 list that is now in final negotiation stage. Number two, which includes -- by the way, even Net Zero Teesside and Viridor's Runcorn.Number two, is a Track-1 expansion phase, which most likely will include a number of projects that didn't get into that first 8 list. And this could include, theoretically, could include SSE Thermal's Keadby 3.And then you also have Track-2, which is the 2 projects or 2 clusters so far that we know that are Acorn in Scotland and also Viking on the East Coast. And in that list, there's not a lot of new news. The first new -- or I guess, if you look at what's happened in the last, let's say, few months, as Egil mentioned in his presentation, we know that there will be this Track-1 expansion process that will start later this year, November-December.And the ambition in that -- and this is not firm timing yet, but the ambition in that is to have those projects being selected and moving forward for fund negotiations by next autumn. So a little bit like this time, maybe slightly earlier next year. That's the expansion process.And that will also include quite a lot of other categories that weren't in Track-1. So for instance, by bioenergy, capture and storage or BECCS, that's also going to be in that phase if the projects are big enough as well.For Track-1 itself, those 8 projects, this is not a new news on this -- it's always been the case ever since we knew about those 8 projects at the end of -- I think, it was end of Q1 this year. Those 8 projects moving forward, we expect they'll be moving forward and to really taking some steps towards award middle of next year onwards, maybe a little bit in sort of Q3 next year, around that sort of time. That's the best indication.But this is still, as you know, in the U.K., this is not a finalized process. These are final negotiations. We still have to get those vital Ts and Cs sorted out with the government, with our customers before those really move forward.So moving on, Victoria from RBC, a number of questions from Victoria. First of all, net cash was stronger than expected going through Q3. Can we talk about the main moving parts in that free cash flow? What drove that to that point at Q3?
Yes. So the main driver of the cash increase this period was the project related milestone payments that we received from the clients when we achieve certain milestones. This typically comes ahead of cash outflows on the same projects as our vendors reach milestones as well. So we're expecting this cash to trend toward NOK 1 billion at the end of the year.And then, of course, if you look at our working capital position, it's going to fluctuate through 2024 as well and maybe normalize a bit through that year.
And that's exactly the other question that Victoria had around cash was, how will this progress to the next year and so?
Yes, as expected.
Good. Exactly. Good. So also moving on to the pre-FEED that we announced just recently, a very large one, the up to 14 million tonnes worth in Europe. Can we talk a little bit about what this involves, how long it might last, the pre-FEED phase that is? And what the timeline might be for that to progress to a real contract?
Yes. It's a little bit early to say something about the time line. But you should note that the pre-FEED is more mature than a feasibility study. So typically, that's a client who is more specific on what they want and what they are looking for. We look at converting a pre-FEED into a FEED or a process design package probably within 6 to 12 months, that's the typical range. And then, of course, each client is special and this project, in particular, is extremely large, so timing could be different. But that's the time range we normally see on these pre-FEEDs.
And also from Victoria, last one, looking at O&M, so the operation and maintenance phase. As our first project moves towards delivery, how should we think about O&M? Is it just replacing and studying the amine and the solvent? But what can we say about how that might relate to the overall...
So the aftermarket packages that we sell definitely includes an element of replacing solvent and maintaining the solvent and also optimizing both the consumption of the solvent and the capture rate and activities at the plant. If you look at the graph, we're showing for levelized cost of carbon capture as a service in the OpEx bucket, there's a range between EUR 15 and up. And the numbers above EUR 15 is typically related to power or energy consumption -- that number typically don't hit our books. It's typically the client who comes with the power source for the plant. So the remaining EUR 15 per ton is typically the addressable revenue that we can have in the aftermarket for these type of plants.
There we go. Excellent. So moving on James Carmichael from Berenberg. A number of questions here. Again, looking at the phasing, when should we expect some of the studies, pre-FEEDs and so on to convert into firm contracts?
Yes. So the first step is converting them into process design packages or FEEDs, especially if we're looking at licensing key equipment models for Big Catch. Like I said on the prior question, 6 to 12 months is probably the right range to assume. Then when you're in the FEED process design package and tender period, anywhere between 3 to 12 months again is typically the range that you should be looking at.So from a pre-FEED or study all the way until a final contract between 1 and 2 years. It really depends on the project itself. So the closer you get to the firm contract, the near where we are, and then we're typically looking at less than a year.
Okay. Next one from James. Any updates on the 2 LOIs that were announced in January, and when you talked about FID in Q2.
Yes. So those 2 LOIs, I think you're referring to the 2 Just Catch that we announced and that announcement was actually related to the Orsted award that we signed in the second quarter, so that one has already been confirmed. And if I do remember correctly in the press release, we also referred back to that announcement of LOI.
Yes. So if you like a very first phase -- the early first half. Saudi Arabia, what's the position in this in terms of when we might expect firm announcement? And do we have any exclusivity?
So first of all, it's MoU to explore this partnership. There's no exclusivity. However, we are in dialogues on various topics that are interesting and especially around the modular Just Catch 100 and Just Catch 400 solutions, it could be very interesting going forward. But it's too early to say firmly when there will be real activity in this MoU.And as you saw with the Orsted contract, we are quite persistent. When we sign an MoU, we really intend to move it forward. And with Orsted, we signed an MoU with them and Microsoft back in Q1 2021, and we realized this project in the second quarter of 2023. And if we draw that parallel to Saudi Aramco, it could take some time. It could also go faster.
Great. Well, moving on. [Operator Instructions] Moving on, Vetle from SB1. Margins, one of our favorite areas. Should the overall gross profit margin be expected to stay around Q3 levels until recognition starts at minerals at [ Orsted ].
Yes. I think the simple answer is yes, of course, it depends. But if you take the Q3 numbers and normalize the way the Orsted project, our underlying margins or gross margins are in line with what we've had before. So given that we are not increasing the margins on other projects or some of these pre-FEEDs or FEEDS that we're signing starts up during that period. You should expect the same margin level until we start profit recognition of Orsted, then you should expect a decent increase for sure.So, of course, there could be more work coming in over the next quarter in terms of FEEDS and pre-FEEDs in addition to what you've seen so far that could also impact positively here.
Absolutely. Okay. Good stuff. So Daniel from Clarksons is asking also around timelines for conversions or pre-FEEDS and FEEDS. We've done a little bit of that already, I think. But maybe just linking this up. In other words, when can we expect the recent wave of news that we've had in the last few weeks to become firm orders. I mean, I know it's quite a mixture in that, there's something Just Catch, some Big Catch and so on.
Yes, so if we take the Just Catch first. Just Catch study or feasibility study or pre-FEED can actually convert into a firm contract within 6 to 12 months. Some of them, depending on the site and the Big Catch project will typically use 6 to 12 months to convert from pre-FEED or study or a Mobile Test Unit campaign into a FEED or process design package. And then when you're in the FEED or process design package or tender period, it's 6 to 12 more months before typically, you see a firm award.
Absolutely. And moving to Elliott Jones from Nordea. Orsted profit taking -- or profit recognition rather, should, we assume this will start in Q4 or next year?
Yes. I think it's a bit difficult to guide specifically on exactly when it will start because here, we are talking about 5 Just Catch units across 2 sites. So normally, when you have a construction contract, you will start it all in one go when you have enough certainty in the contract. I think the timing that you're mentioning is roughly right, but we have to see the triggers come through before we can make that accounting assessment.Also given the fact that we have several sites here, might be slightly different assessments than what we saw for the Twence project, which we've already done profit recognition on earlier.
And it's very much next year, not this year. Yes, absolutely.And on to the topic again about pre-FEEDs and studies, but thinking more about conversion rates. We talked about timing, but what sort of conversion rate might we assume in terms of seeing those pre-FEEDs and studies move to orders?
I think so far, we've seen a very high level of conversion rate. It's just that it's been a bit slower than everyone has expected, especially related to the U.K. But the projects that we have secured, we have -- and worked on, we have converted. Some of the ones that we have worked on have not converted yet and we're still in competition for those.Over time, I would target to be able to convert, let's say, 1/3 of this into projects as long as the underlying project moves forward. And that is just the reason being that there will be competition on some. And it might be that the client decides not to move forward with some of them in the time period that we are looking at here now. It could be that they come later, like some of the projects in the U.K. where they might move into a later track in the funding process.But we have so far had a high conversion rate on the stuff that has moved forward. So we expect to stay on that for a while longer.
Absolutely. Question from Sasi at Morgan Stanley. We sort of mentioned this a little bit, but he is asking again about recording profits on Orsted and I know we've discussed this. I know maybe -- I know in your prepared remarks earlier, you mentioned about some of the issues that you would look at to decide to recognize profit.
So typically, we look at have we placed all the major purchase orders that can really impact the cost of the project. And on this project we have. Do those profit purchase orders have the right level of maturity so that we can be certain about that cost? Well, I think we're very close to that. Then secondly, how we place the orders for the installation work, which will happen on site. That's typically a major defining factor for these projects. Once that is done, typically, you're at the right time to start profit recognition. We expect that to be around early next year.
Very clear. One question left now. So again, a quick reminder, once we finish this -- answering this last question, we will be heading off. So if you want to get the question in, please do so in the next few minutes.Question from Kate O'Sullivan at Citigroup. Again, it's about the U.K. Track-1. And we mentioned this a little bit, but maybe just go a little bit more detail. You asked about when we expect the final decision on the Track-1 expansion in the U.K. and if Keadby 3 is not in that group, what does it mean and so on?I think the latter point, we would have to refer you to our customer. I mean, it's their decision in terms of how they would position that project in these various phases. But just purely as a what-if, as I mentioned before, a project that's going to be joining the Track-1 expansion process, we'll likely be able to do so from November-December this year. That will probably run until Easter, then there'll be decision processes, selection and so on, a shortlist and then with the ambition and as a famous phrase goes, there are lot of known unknowns in this, but the ambition is then to see those final negotiations stage start in the autumn next year.And then probably, if you look at the final negotiation stage from this year, which was announced in, I think it was end of Q1, then it runs for at least a year before you get down to the FID. So you have to think, well, presuming that timeline is correct, and anything the expansion -- in the Track-1 expansion group if they do move into final negotiation stage next autumn, you're looking at autumn in 2025 for the actual award. Something like that is that how we think of those stages.It's also worth bearing in mind that the Track-1 expansion process is now also aligned time-wise roughly with Track-2. And this appears to be -- again, it falls into known unknown camp. It appears to be a chosen routes by the U.K. is to have these 2 running sort of in parallel to really maximize the chance of hitting that 20 million to 30 million tonnes target by 2030 for the whole country. Any to underline at all?
I think that's a good summary.
Okay. Just checking. And we have a couple of more coming in. One more from Vincent in Paris. Capture as a service, will capture as a service cover the fixed cost of the Just Catch? How does the CapEx part of that fit into the capture as a service model?
So the carbon capture as a service model is typically an offering where we would go and work with the client and transportation storage partners to have an offering to the end customer on a pay per tonne model that covers the full value chain range. So whatever that full value chain costs, we would charge that fee. So it will definitely cover the fixed piece, but it will also cover the operations and the transportation and storage.The nice thing about this for Aker Carbon Capture is that the better we operate these plants, the more plants we have in operation, the more of the potential improvements we're able to do on those plants in terms of capture rate and efficiency will fall to us in terms of margins on these.We're quite flexible when we work with transportation and storage partners, whether or not we offer capture as a service only for the facility itself, and they have the same type of model on the transportation and storage or whether we consolidate and do it all.
Obviously, my bluff has been called in terms of putting questions in, because we're having some more coming in which is excellent.
It's good. Very good.
So Anders from SEB. The catching up -- we have this extra slide, you've probably seen, it's Slide 31, I think, where we talk about very theoretically how the profit recognition would work of timing and catch-up and so on. Is the catching up of margin recognition the same methodology as we've used in Twence and Brevik?
Yes, it is the same methodology. I think there is a difference in this project, and it's that we're doing 5 of the same unit. So in this project, there is a possibility, of course, to take all the learnings that we've done from Twence and implemented in the project here. So the potential is larger, of course. And also as we deliver 5 units, there is the purchase power that we get from buying 5 off from all our vendors and also the efficiency gain by doing 5 units at the time. So those elements are new, but the profit recognition principles are the same.
And the follow-on for Anders, are we able to say which quarters will you started recognizing margins on the other 2 projects?
On the other projects, if I don't recall incorrectly, we started in the fourth quarter with Twence of 2022. And we started gradually on Brevik in a different way in the second quarter of 2022, if I'm incorrect. I'll have David summarize to the others if we did incorrectly. So -- but we did also -- and please note that we did have other activities in the P&L at that time. So it's not necessarily very obvious when those came in.
Okay. And at the moment, the last question, but, let's see what happens when we finished answering. At the moment, the last question, again from Victoria, RBC. You talked about the U.K. quite a bit. What about the U.S.? How has this market been in the U.S. in Q3 in terms of looking at the market and progress with potential opportunities?
Yes, we've got feet on the ground in the U.S. now, and we see a tremendous level of activity over there. Especially in the states that we've been focusing on mostly now during the startup, which is Texas and Louisiana. We have a huge amount of incoming inquiries. Our brand name seems to be fairly well known. We were a bit worried being European and Norwegian company will people recognize is over there, but in the carbon capture world, our name is fairly well-recognized. So we get a lot of inflow. And now we're selecting the clients that we believe will have the best chance of moving forward into developing carbon capture projects and doing studies and pre-FEEDs with them.
Yes, absolutely. I think as you said, one of the key words is selectivity. I mean, something that we've learned a lot even in the last couple of years from Europe. I mean we think we turned away last year something like 7 out of 10 inquiries, politely, of course. But this selectivity -- given how much bigger the U.S. market could be -- this selectivity is so important. Otherwise, we will just spend all our time chasing loose ends.
Yes.
Okay. That is the last question.
Thank you.
So thank you very much for your time. You know where we are, so please do get in contact if you want to follow up. And we look forward to engaging with you in the next few weeks and months and at the very least, speaking to you again, I think, in February with our fourth quarter results. Well, of course, we'll have Julie, our new CFO, with us as well.
Yes. Very good.
Okay.
Thank you all.
Thank you.