Argeo AS

OSE:ARGEO

Earnings Call Transcript 2022-Q4

[Trond Crantz, executive]

Good morning, and welcome to Argeo's Q4 Presentation presented today by myself, Trond Crantz, CEO, and our CFO, Odd Rudshaug. We will take questions, Q&A session, after the presentation. A good idea is to send questions during the presentation to make sure that you get your questions heard and answered. Any questions that are not answered, we will answer in writing later on.Disclaimer. We will start with the highlights and introduction to Argeo. We have an operational update, commercial and market update. We have a short session on technology before financials and finally, outlook and Q&A.So, highlights. In the quarter, we completed our prior placement and were granted a loan financing from Innovation Norway. As everyone has seen, we also secured a vessel for our operations now called Argeo Searcher. This is a 5-year bareboat with an option to buy. We also completed the first commercial project for the USV Argus, which the results were very successful and well received by our clients. Subsequent to that, we also announced that the first project for Argeo Searcher in the North Atlantic was secured. Later events. We have been running what we call the ultra-deep water AUV survey validation project. There's been going on mid-February. This is to get all of the systems working integral with each other to deliver quality data for our customers.Later, we were awarded a contract for the Polish Geological Institute, also a Mid-Atlantic project for Deep Sea Minerals. We completed the Argeo's conversion and rigging in Las Palmas in January and beginning of February. And the later announcement that we now have a multi-client program following after the Polish Geological Institute project for Deep Sea Minerals and the final announcement for the value of that whole campaign of NOK 30 million. So that is sort of the start for the Argeo Searcher, the SeaRaptors, and obviously, a big focus for us in Q1 and leading up from Q4.Business development. We are rolling out globally. We are expanding our markets. This is resulting in more tenders, and we see that our most important segments; oil and gas, offshore wind, and Deep Sea Minerals is the correct focus for the company and where we have the most influx of leads and tenders and subsequently contracts. We expect awards to be coming later on in the quarter but it includes activities in North and South America, Europe, and Africa and Middle East. We reiterate our EBITDA target of NOK 50 million for 2023. However, any delays in contract awards subsequently project start-up could put this target at risk.Introduction. Argeo is now becoming a global company. We have offices set up in both Houston, Rio, in Norway obviously, and in Singapore. The main markets where we are an active player is oil and gas, renewables, and Marine Minerals. The activities that we conduct in our value chain. This is obviously where we started off with survey, especially for greenfield activities, new concession rounds, oil and gas, and offshore wind, but also a deep sea mineral licenses coming up, both existing in the Atlantic, Asia-Pacific, but also new rounds coming in Norway.We are also moving into the Subsea segment, where we do not only survey but also inspection, and we have a plan to continue that value chain into maintenance and repair activities so that the subsea sector will be a proper IMR subject offering. In the Robotics segment, we developed technology. Argeo LISTEN, WHISPER, and DISCOVER, which is the sensor set that we develop. Two of them are now into commercial phase and we have our digital platform, Argeo SCOPE, which is now being used in our operations and offered to our clients as a service.In addition to that, we can combine all of these activities with the data as a service business model. This is something which we are experiencing a welcome business model from our clients and we have started this in the offshore wind, also deep minerals, but we see this as a very successful business model in the oil and gas market as well.So just a recap of the capabilities and the AUVs assets that we have, the SeaRaptors. This has now gone through all the commercial verification and testing. Both of the SeaRaptors are on board, the Argeo Searcher, and that is to give us more productivity, increased utilization, and better imaging, larger swats and areas covered with two units at the same time. The Hugin system is still on project and any announcement regarding that will come when that is when we know.The Argeo Argus, which is the USV, is expanding its capability. We have a few items to announce in that segment as well, but we see this as a very interesting offshore wind product. And we are doing some preparational work for very interesting offshore wind project coming up in the North Sea later on. Argeo Searcher has gone through the conversion process to bring it from a seismic node handler to our AUV and later ROV vessel and is now in the Mid-Atlantic at Las Palmas at the moment to do some post installations before starting the next project.The Argus in the quarter started its commercial operation. This was for our renewables company in Norway. We gave early access to data for the company, for the client. It's a full-service contract, where we did all the optometry, all the mapping of the seabed, shallow seismic to understand the risk in the area and are delivering the final results using our Argeo SCOPE to our partner, Multiconsult, and our clients. A very successful project carried out by a team, a fully remote operation. So great to see that that sort of vision is finally actually coming into creation and being accepted by customers.Ultra deepwater activities with the SeaRaptors, it's actually both of the SeaRaptors from our Argeo Searcher and the Mid-Atlantic. Ultra deepwater. That means more than 4,000 meters. So where we have verified behavior basically how well do the AUVs behave in such a deepwater scenario, the sensors or the payload that we call it, and general operation.Moving from that, we have worked on business development to put together what we call a mid-Atlantic campaign, the total value for that campaign in Q1 and partially into Q2 is the deepwater validation project that we just talked about. Then also PGI with the multi-sensor data acquisition for their licenses for Deep Sea Minerals rules. And following straight after that, a multiclient collaboration project that was announced last week. In total, the vessel and equipment will be busy until late April. Until there, after that, we are working on other projects for the next activities.But just to emphasize, it's a very interesting campaign where we bring new data to decision makers, not only for a resource activity planning, but also for environmental impact valuation. So, all of the advanced sensors that we have in these AUVs are brought to bear to bring back as much data as possible for decision-making in this growth segment. Here's the back of Argeo Searcher with one of the SeaRaptors, hanging off the stern in a ramp. One of the things that we have been carrying out is validation of the dual AUV operations, payload sensors, deepwater operations, emission control, and the data flow with the enormous amount of data coming back from these vehicles and how that flows through the whole value chain before final reporting.The first deep mineral contract was awarded to Agio by the Polish Geological Institute. The Argeo Searcher is the vessel we would carry out the work with the SeaRaptors. And I think the important decision-making for PGI was that we offered a solution where cost optimization were considered and the data centers that they were able to make use of in their resource assessment. Of course, this also includes Argeo LISTEN, our electromagnetic sensor system, which is installed now on both of these SeaRaptors and Argeo SCOPE has the delivery mechanism between us and the client.The area covered is about 200 square kilometers in water depths between 4,000 and 5,000 meters. So, a pretty prestigious project to start off the search and after suit. Then the world's first multiclient survey for the deep-sea mineral market. One thing of the things we carry out here is obviously the multi-client prospecting part. But I think also it's worth mentioning that what we are doing is bringing back a lot of important environmental data. Environmental data is important in the decision-making and what we are using that for is to try to assess the feasibility of later exploration in the next years to come.A couple of things, oil and gas. It's obviously larger markets when we are looking at market opportunities and where we are focusing our attention. About 80% of our tender activities and planned projects is in oil and gas. Now this is not a surprise really given the market and where it's going but it's still important to see why are we where we are and who are the clients that we are working with.The next after that is offshore wind. The tools that we plan to use in the offshore wind market, obviously, there is a big difference in pricing between offshore wind and oil and gas, and which is where we are using and have built the Argeo Argus USV, which is proving to become a very good platform for that market. And finally, 9%, which is the growth market we call Deep Sea Minerals and it's interesting for us to see that we are getting more and more tender activity in this market. It's becoming larger and have more interest, both in Asia Pacific, Mid-Atlantic, but also later on in Norway.The high oppose in terms of leads funnel, we are about NOK 750 million there with a certain different type of range of activities and the status of all of these tenders. And finally, opportunities per geomarket. We see that North and South America is the biggest one, and Europe and Middle East and Africa is the next one, and we see a small we see a small growth in the Asia Pacific market coming as well.Project backlog. In Q3, we talked about a given project in South America, which was near to decision. This project has had a complex back line and story. We have been into this a couple of times, even and so far, that we had signed a letter of intent. But the background of the project itself meant that we had to push it back and we are waiting for final decisions on this. It could be weeks, it could be months, before we know. So, at the present time, and in this project backlog, we have taken that project out and wait to see what happens with it.The whole issue with the project started because we were not part of the initial tendering phase and had to piggyback on other actors, which puts the payment to our GOL risk. So, we decided to wait. But the project is not lost. Neither is it on. So, we are waiting now to see what happens in that segment. Meanwhile, we are working on many other things. And everything from Deep Sea Minerals, and oil and gas, the client feedback --[Audio Gap]-- but with the likelihood, we see this project coming back in our funnel, which way we don't know yet. So that is why we are taking it out. But we see two very clear tracks for our assets. One is obviously North and South America, and the other one is in Europe and West Africa, which are the two most high potential activities for the assets going forward.For Argeo Argus, we are now in preparation for other projects. First of all, offshore wind. And what we are doing there on the technology side, we believe will be very attractive in this market. And this is basically spurred on by client feedback and some announcements in this segment can be expected. We also see this as a potential force multiplier in the oil and gas market, together with other assets as well. So, it's a tool and a product, which we have big hopes for going forward.So strategic development, we obviously started early 2022 with basically containerized systems for surveys and inspection using AUVs. Now we saw that this was interesting for clients, but as the market tightened in terms of the vessel availability and the cost related to vessel availability and the time from contract award to start-up became narrower and narrower, we needed to make a decision that strategically placed us in a better way. This is why we eventually signed a contract for the vessel to have that available to us and that has been received well from our client base.We see that the client also look at this as an opportunity for them to get more services from the same platform and so we are now in discussion with an end company in terms of bringing ROVs on board to basically widen the value chain to include intervention, maintenance, and repair. This will be announced over the next few weeks, months, I suspect, that that will give the clients access to a fully equipped vessel that can do all of the work that the clients need in this demanding market, which basically means that we can offer full-scale subsea services and larger scope of work for clients.Recap of how our asset pool will look like going forward. We have the AUVs on the left-hand side in the middle, we have the ROVs and of course, the vessel on the right-hand side. Depending on how the market developed now, we will obviously look to expand that going forward.A bit of a retake on the market slides. We obviously see the same as the rest of the world that there is a big, big uptick in the oil and gas, in particular, offshore market. But we see the same thing happening in offshore wind as well. The difference is, of course, the price levels and margins between the various players. To give an example of growth, we see that from 2023 compared to 2022. So, it's a very expansive uptick in market growth, and that has an impact in terms of availability and all the services that is provided around the globe.Now I know that there has been many questions asking; why do we not have signed big contracts, and I think one of the very simple analysis of this is that we have been an unknown player in the markets. As you have had plentiful of availability in the service industry, the clients have very simply chosen those that they are familiar with. As we are now moving into this scenario where we see that there's an absolute undersupply in all of the service industry, they are now expanding to include new actors like Argeo in their playbook and this is what we are seeing as well in the tender market.There's a lot more coming in now just over the last month or so. The biggest factors then in the oil and gas has everyone probably are familiar with, Petrobras, Exxon, Shell, BP, and Total within the geomarkets where we are an active participant. Finally, our activities going forward will be in the EPCI, subsea, slightly operational, and well. That's the segment where we are positioning ourselves and the company.The subsea market. A few words on that going forward as well. We see the same trend, a big growth especially in the subsea equipment and subsea services. It is growing at a phenomenal rate. The rates for the vessels and the equipment and the tours used is also going up, which means that the activity levels going forward over the next 3 to 4 years will be very high. And finally, the same thing in the operational services industry. where there is a small and increasing activity coming in, in terms of decommissioning of brownfields.So, technology. We have talked about this on the previous occasions, but we are now there where Argeo LISTEN is a commercial system. It's installed on both the SeaRaptors and will be installed on the Hugin Systems as well. We are now out to commercially test the Argeo WHISPER system. It will happen from the Searcher on certain projects and later on in the year, we expect this to be commercially offered given the results we have so far. Later, probably late this year or early next year, Argeo DISCOVER, which is basically a larger system of Argeo WHISPER is in line.Argeo SCOPE had a lot of place on this, and we are running webinars to explain to all the people who are interested and the clients to see how we revolutionized the digital area between onshore and offshore data provision and the visualization of cloud-based data management. We expect a lot from Argeo SCOPE, and we see that the client uptake and interest is large as well. Of late, since we started to be public about the results of all of these technology systems, we have had a lot of requests from competitors as well as partners and suppliers, both for the Argeo SCOPE system and the sensors.Difficult, high-quality, high-resolution data and giving our customers the opportunity to make more value out of data from expensive service like the ones we are carrying out. But we are looking at ingesting vintage data. We are looking at 4D opportunities as well so that the time lapse between all the new data gives us a specific signal. So, it's important to understand that this is a tool which has a very future-oriented impact for Argeo as a company.Okay. I will then give the word to Odd Erik for the financials.

[Odd Rudshaug, executive]

Yes. Thank you, Trond. So, revenue in Q4 was NOK 10.8 million. This came from the survey we had with Argus USV in Norway and from the Hugin 6000, which started on a long-term contract in September last year.EBITDA was minus NOK 12 million in Q4. It was minus NOK 15 million in Q4 '21 and also minus NOK 15 million in the third quarter in 2022. So, NOK 3 million improvement from both those two quarters. Net financial items was positive with NOK 7.4 million, and this includes NOK 10.3 million unrealized currency exchange gain on the seller credit we have in U.S. Dollar. Net loss for the quarter was NOK 5.3 million compared to NOK 8 million in Q4 '21.Total noncurrent assets were NOK 270 million in the end of '22 and this includes NOK 24.3 million in capitalized development cost, NOK 4 million multi-client library, and NOK 212 million in property, plant, and equipment. We did share with you in December '22 and received some of that cash in December. The remaining SEK 35.9 million was received in January this year. So that is included in the other current assets in the balance sheet.Cash was NOK 21 million in the end of December. Equity, NOK 213 million. Long-term debt, NOK 106 million, and this is mainly the seller's credit we have on our AUVs. There is no interest on this seller's credit. Cash from operating activities was minus NOK 65.6 million in Q4, and this includes a negative effect on this NOK 35.9 million in unpaid share capital we had in December. There is also a reclassification from property, plant, and equipment to spares of NOK 15.6 million. Investment in the property, plant, and equipment in Q4 was NOK 10.1 million, if we exclude the effect of the reclassification of the spares.As we have mentioned, we raised NOK 50 million in new equity in December and the net proceeds from this equity was NOK 47 million. We repaid NOK 4.5 million on the seller's credit and on the other loan we have from Innovation Norway in the fourth quarter.So, now we will open up for the questions.

[Operator]

We've received a few questions from the Internet and the first question is: can you comment further on the contracts that you mentioned at the Q3 presentation?

[Trond Crantz, executive]

Yes. So, elaborating a bit. One of the contracts that we have come very far in was, in fact, something we didn't participate in the tender phase of due to our earlier being an earlier start than our deal and our availability at that point. We have gone through this through a, shall we say, partnership or JV that we felt was too risky for Argeo in terms of the payments being received after we completed the work. So basically, we said we will wait and see what happens with that contract, but it's not lost, of one. It's just it takes more time than we hoped it would, of course.

[Operator]

Another question just popped in is: why are you putting efforts into the deep sea minerals market?

[Trond Crantz, executive]

We see this as a very interesting growth market. And if you look at the international market; Asia Pacific, the Atlantic and of course, in the Norwegian soon as well, this could be the next oil and gas. So, we think this is a very interesting market and we are one of extremely few players who can actually do the work that we do. So, it's an obvious thing for us to focus on.

[Operator]

Now can you explain why you added a large vessel to your fleet? Isn't there a risk of not getting the utilization needed to make it profitable?

[Trond Crantz, executive]

Of course. But I think what we have seen is that during 2022 and especially in the beginning, you saw that tightening of the vessel market. It was near impossible to get hold of our vessel where we could put our equipment and mobilize in time for the project to start. We actually lost two important contracts just related to that. And so as a result, we started a process in the spring to try and secure a vessel where we could have good markets in most scenarios going forward, which we have done and is now working really well for us. And I think from the client side, that has been appreciated and we've seen even clients that were reluctant to take us on board with vessel opportunity now are much more approachable with this setup. So, it's a strategic change, obviously, but we saw that it was difficult with the initial containerized solution to work given the change in the market.

[Operator]

And just one more question on that topic. How do you plan to meet the ROV IMR value chain?

[Trond Crantz, executive]

So, we started again based on client feedback. They wanted both so that we could expand our value chain and our services. So, we are talking with a few companies, and we believe that we have a solution for it, which will be announced in not too long time.

[Operator]

Then there's a question for Odd Erik. You have to repay NOK 62 million regarding seller's credit in 2023. How will this be financed?

[Odd Rudshaug, executive]

We received the remaining from the shares during December in January in NOK 36 million. We have some proceeds from the repair issue we did with NOK 5 million, and we also have a loan from Innovation Norway, which we have not drawn on yet, which is EUR 20 million. So, we have cash from financing activities and combined with the cash from operations, we should be able to deal with that seller's credit.

[Operator]

And then there's a last question. Have you sold any multi-client library from Utsira?

[Trond Crantz, executive]

No, and I think the reason for it is the delayed concessions. Now that doesn't mean we will not sell from it because we have a few good clients who are interested in the data, of course. And what the feedback is related to is concessions being finalized so that our customers know what they need to relate to in terms of their licenses, how it will be for them to operate and so forth. We expected this to be landed actually in Q1, but it seems that this is going to take a bit more time.

[Operator]

I think we'll have time for one more question that came in, what are the expectations for Q1 in terms of revenue and profits?

[Trond Crantz, executive]

Yes, we will get back to that when we come to Q1.

[Operator]

And that should be it for today. Thank you for all the questions.