Electromagnetic Geoservices ASA

OSE:EMGS

Earnings Call Analysis

Earnings Call Transcript 2024-Q2

[Bjørn Lindhom, executive]

Welcome to the presentation of EMGS' Second Quarter 2024 Results. I'm here with our CFO, Anders Eimstad. Together, we will present these results. Please take note of our disclaimer.

During the quarter, we completed a fully prefunded multiclient survey for Petrobras in Brazil. The data was delivered and we recognized the full revenue from the survey within the quarter. We then started the transit towards Norway and the program in the Barents Sea. The revenue recognized in this quarter was $13.8 million, which include, amongst others, the Petrobras survey, the North Sea survey, which we acquired before the vessel we partnered for Brazil and some multi-client late sales.

The EBITDA came in at $7.8 million and the adjusted EBITDA at $7 million. After the quarter, EMGS has secured several fully prefunded multiclient surveys in Norway with a total value of USD 4.8 million. We also secured $1.5 million in funding for our very first seismic OBN survey that we are currently mobilizing for, in the Barents Sea. This survey is undertaken in collaboration with Velocitas Geo Solutions.

Moving on to our operations and market section. The Atlantic Guardian arrived in Brazil at the end of April and was successfully imported under the Brazilian temporary importation regime, [indiscernible]. Upon clearing customs, the vessel sell to Espirito Santo Basin and started the survey on May 1. In Brazil, EM is treated differently than seismic and drilling by IBAMA, the environmental authority. To conduct an EM survey, EMGS does not have to go through the lengthy environmental permit process. We do not need to apply for a permit. Instead, we have a permit waiver and we can inform them of our activities after the pact.

In contrast, IBAMA permits for seismic acquisition often causes significant delays and headache for seismic companies. The survey took place in the deepwater portion of the Espirito Santo Basin, just northeast of Rio de Janeiro. This survey was completed on schedule on the 22nd of June and the vessel departed for Norway. During the survey, we deployed about 470 ocean bottom EM nodes or also called receivers and we told 426 kilometers of our source.

The survey area under the receivers were 456 square kilometers. The project has -- since the quarter ended, in fully invoiced and paid. After the close of the second quarter, the Atlantic Guardian are back in Norway late July. As of today, we have completed 4 fully prefunded EM surveys in the Barents Sea and we will start a seismic OBN survey shortly. Upon completion of the seismic OBN survey, the vessel will head South and perform some equipment testing before continuing our Norwegian campaign with a survey in the Northern North Sea.

We are very pleased with securing funding for our very first OBN survey together with Velocitas Geo Solutions. And we are looking at smaller seismic OBN jobs as a way to diversify our business and complement our EM offerings but we are not planning to bid for large multi-vessel OBN jobs anytime soon. In the previous quarter presentation, we highlighted 3 wells in the Barents Sea that were planned to be drilled in the near future. Now 2 of these wells have been drilled. AkerBP drilled Ferdinand Nord and Hassel, both in the Wisting area and both within the PL1170 license.

We predicted both wells to find hydrocarbons as both wells, we're drilling on EM resistivity anomalies. The results are now in and both wells did, in fact, find gas. We also predicted a third discovery on the Viasat well, but this has not yet been drilled. In this area, EMGS had a 100% success rate in predicting the presence or absence of hydrocarbons in the Jurassic. The table shows the wells that have been drilled in the area with a main or secondary target in the Jurassic, which are associated with resistivity anomalies and which are not and whether they were successful or not encountering hydrocarbons in the Jurassic. We have also included the Wisting alternative well, which did not have a target in the Jurassic but has been included due to its proximity to Wisting. In this area, EM has proven to be the most accurate predictor of hydrocarbons as most structures have seismic amplitudes whereas only the ones with hydrocarbons have resistive anomalies.

EM further indicates that the area still holds potential in the Jurassic, but that the sizes of the remaining accumulations tend to be smaller. As a side note, the Triassic in this area has proven to be enigmatic with very limited success. However, the Triassic also is the most interesting undrilled EM anomalies in the Barents Sea. High risk, definitely, but fortune favors the bold. Maybe 1 day, someone dares to use EM to develop newer prospects, not only confirming or condemning seismically the right prospects, we will see.

And with that, I will hand it over to Anders, who will go through our numbers in some more detail.

[Anders Eimstad, executive]

The total revenue for the second quarter was $13.8 million. The graph on the upper right shows the quarterly revenue development. From this graph, you can see that revenue has significantly increased from the previous quarters. EMGS has recognized the revenue connected to the project in Brazil which was completed in June as well as the fully prefunded multiclient survey in the North Sea, which was acquired in the first quarter but not delivered until the second quarter. We had 1 vessel on charter in the second quarter, the Atlantic Guardian completed the fully prefunded multiclient survey in Brazil and started transit towards multi-client campaign in Norway. The vessel utilization in the quarter was 51%.

We recorded an EBITDA of $7.8 million in the second quarter. EBITDA excludes the capitalized multiclient expenses as well as the vessel and office lease expenses. If we add these expenses to the EBITDA, be it an adjusted EBITDA, the quarterly development of the adjusted EBITDA is shown on the graph at the bottom right of the slide, the adjusted EBITDA in the second quarter was $7 million. .

The next slide details the movement in the operational cost base. In the graph to the left, you can see the quarterly development and the components of EMGS' operational cost base. The components are charter hire, fuel and crew expenses, employee expenses and other operational expenses. In addition, the capitalized multiclient expenses and vessel and office lease expenses are added to the cost base. The operational cost base for the second quarter was $6.7 million compared to an operational cost base of $4.1 million in the first quarter.

The higher operational cost base is a result of the Atlantic Guardian being in operation for the entire quarter as well as the location of the survey. The next slide details the movement of free cash in the second quarter. Free cash decreased in the second quarter by $2.8 million. This is illustrated in the graph to the left. The light blue bar to the left shows a free cash position at the end of the first quarter of $8.7 million. The components increasing the cash position during the second quarter are shown in dark blue, whilst the components reducing the cash position are colored red. Free cash at the end of the second quarter was $5.9 million.

The EBITDA of $7.8 million increased the cash this quarter. Vessel and office lease expenses decreased cash by $0.7 million. The increase in trade receivables from $0.4 million to $12.1 million decreased the cash this quarter by $11.8 million. The increase in trade payables from the previous quarter in the amount of $0.6 million also increased free cash. Changes in other working capital also increased cash by $0.8 million in the quarter. Interest paid in the second quarter on the convertible bond loan and other interest expenses amounted to $0.6 million in the second quarter. Now back to Bjørn Lindhom.

[Bjørn Lindhom, executive]

Thank you, Anders. That concludes our presentation. As always, please feel free to send questions to EMGS at emgs.com. Thank you.