Electromagnetic Geoservices ASA

OSE:EMGS

Earnings Call Transcript 2022-Q3

[Bjørn Lindhom, executive]

Welcome to the presentation of EMGS' Third Quarter 2022 Results. I'm joined with Anders Eimstad, our CFO, and together, we will be presenting these results. Please take note of our disclaimer.

Let's start with the operational highlights for the quarter. We successfully completed a seabed mineral survey in the Mid-Atlantic Ridge for the ATLAB consortium led by the NTNU. I will talk more about this survey in the coming slides, but I'd just like to mention that amongst other measurements, we acquired data with our newly developed deep-towed EM streamer. Upon completion of the ATLAB survey, we transited to St. John's, Newfoundland in Canada, and we embarked on a fully prefunded multiclient survey in the Orphan Basin. The survey was completed during the third quarter, but the revenue, which was $2 million will be recognized in the fourth quarter upon data delivery to the clients.

We then started the transit towards Trinidad and Tobago for a proprietary survey for Woodside. The revenues for the quarter ended up at $6.6 million with an EBITDA of $3.8 million and an adjusted EBITDA of $1.4 million. And finally, the net income was positive $0.8 million. Our available cash at the end of the third quarter was $11.4 million. But in addition, we had restricted cash of $4.1 million, of which approximately $4 million is related to a guarantee that is needed to be able to operate offshore Canada. We expect this guarantee to be released imminently. After the end of the third quarter, we started the acquisition on the proprietary survey for Woodside offshore Trinidad and Tobago, and we expect this acquisition to be completed towards the end of the fourth quarter.

Then moving on to our operations, market and outlook section. We're excited to see that the Norwegian Petroleum Directorate has initiated an impact assessment for seabed mineral activity on the Norwegian continental shelf with an aim to hold license rounds in 2023 or 2024. EMGS is well positioned to be a leading service provider in the seabed mineral exploration industry, both in Norway and globally.

During the quarter, we acquired a range of geophysical data at the Mid-Atlantic Ridge in the Loki's Castle and Mohn's Treasure area for the ATLAB consortium led by NTNU. This was our third survey for ATLAB and, by far, the most comprehensive. On this figure, you can see a sketch of the setup. In addition to acquiring conventional CSEM and MT, or magnetotelluric, which is the recording of electric and magnetic fields without an active CSEM source using the variations in the Earth's magnetic fields caused by the interaction with the solar wind as a source. We also acquired data using our newly developed deep-towed EM streamer. This system, which is designed for imaging the shallow surface is a fully towed system and does not need to have receivers on the seabed.

We also acquired towed 2D streamer seismic from our vessel, the Atlantic Guardian. This was operated by PGS. And we equipped a few of our seabed EM receiver nodes with seismic nodes from InApril. These were deployed as free-fall nodes from the vessel in approximately 3,000 meters of water and successfully recovered without the use of an ROV.

On our towing platform, or tow fish, as we call it, we had a series of environmental and oceanographic sensors as well as a multi-beam echo sounder. This setup with a few operational improvements will form the basis for our service offerings towards the seabed mineral industry in the future.

Our multiclient project in the Orphan Basin, offshore Newfoundland, Canada, you can see the 2 crossing lines in the Northeast corner of a map was acquired en route to Trinidad. It was fully prefunded with a revenue of $2 million. The revenue will be recognized in the fourth quarter upon delivery of the data to the client, in line with the accounting principles for multiclient revenues.

As you can also see from the map, EMGS has, over the years, acquired many service offshore Canada, some of which were proprietary and some that were multiclient. It is our goal to continue investing in additional multiclient projects offshore Canada in the years to come.

We are very excited and proud of the survey we're doing for Woodside. It is the first EM survey offshore Trinidad and Tobago and the geology offshore at Trinidad and Tobago is particularly well suited for CSEM with its relatively young sediments of mostly clastic origin or sun shale, if you will.

In such an environment, one of the main challenges is that low-saturation noncommercial gas and high-saturation gas looks identical on seismic. On CSEM, these cases are very distinct. The high-saturation case will have a high resistivity, and the low-saturation case will have the same resistivity as the background and does not be visible on CSEM. We are working on the Calypso project in the deepwaters, and we are using our Deep Blue source with our RxV receivers. The survey is also attracting interest from the government of Trinidad and Tobago, and we were excited and proud to host the Minister of Energy and Energy Industries, Mr. Stuart Young, for a vessel tour on board the Atlantic Guardian. We have included a quote from the formal press release and his Twitter post following his visit to our vessel.

The third quarter of 2022 was our sixth consecutive profitable quarter, and we had a modest net income of $0.8 million. Our equity continues to improve and is now positive $1.7 million. Our free cash at the end of the quarter was $11.4 million. But again, this does not include the $4.1 million in restricted cash, of which the majority, $4 million, is from the operational guarantee offshore Canada. A convertible bond loans stands at approximately $24.4 million.

We have extended our charter of Atlantic Guardian for another year until October 2023, with a flexible rate arrangement, where we have significantly reduced rates during warm stack versus in operation. And finally, at the end of the third quarter, our backlog was at $14.5 million. All in all, we are in a strong financial position.

[Anders Eimstad, executive]

Thank you, Bjørn Petter. The total revenue for the third quarter was $6.6 million. The graph on the upper right shows the quarterly revenue development. From this graph, you can see that revenue has been relatively consistent over the last 4 quarters, supported by strong multiclient revenues. Now of the $6.6 million of the revenue in the third quarter, $3.8 million were related to multi-client sales, $1.6 million were contract sales and $1.2 million for other revenue. All of the $1.2 million in other revenue is related to revenue recognition of the Deep Blue partner contribution, which has no cash effect.

We had one vessel on charter in the third quarter. During the quarter, the Atlantic Guardian completed a proprietary marine mineral survey for the ATLAB consortium, completed a multiclient survey in East Canada and started transit towards a proprietary survey in Trinidad and Tobago. EMGS had a vessel utilization of 22% for the quarter. We recorded an EBITDA of $3.8 million this quarter.

The EBITDA excludes the capitalized multiclient expenses as well as the vessel and office lease expenses. If we add these expenses to the EBITDA, we get an adjusted EBITDA. The quarterly development of the adjusted EBITDA is shown in the graph at the bottom right of the slide. EBITDA has decreased as compared to the previous 2 quarters. However, it is the sixth consecutive quarter with a positive adjusted EBITDA. The adjusted EBITDA in the third quarter was $1.4 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 third quarter was $5.2 million compared to an operational cost base of $4.1 million in the second quarter. The $1.1 million increase in operating cost base is primarily a result of increased activity. Employee expenses and other operational expenses remained consistent with the previous quarter. The next slide details the movement in free cash in the quarter. Free cash decreased in the third quarter by $0.2 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 second quarter of $11.6 million.

The components increasing the cash position during the third quarter are shown in dark blue, while the components reducing the cash position are colored red. Free cash at the end of the third quarter was $11.4 million. The adjusted EBITDA of $1.4 million increased the cash this quarter, while vessel and office leases were $2 million. A significant portion of the increase in restricted cash of $3.5 million was largely offset by increases in deferred revenue related to multiclient project in East Canada and the proprietary survey in Trinidad and Tobago. The decrease in trade receivables from $3.5 million to $3 million increased the cash this quarter by $0.5 million.

EMGS also invested $0.4 million in the multiclient library. This investment will be fully amortized from the associated multiclient revenue is recognized in the fourth quarter. The decrease in trade payables from the previous quarter in the amount of $0.4 million decreased free cash. Interest paid in the quarter on the convertible bond and other interest expenses amounted to $0.5 million in the third quarter.

Now Bjørn Petter will give a brief summary of the presentation.

[Bjørn Lindhom, executive]

Thank you, Anders. That concludes our presentation for today. Please e-mail us your questions at [e-mail]. Thank you very much.