Electromagnetic Geoservices ASA

OSE:EMGS

Earnings Call Analysis

Earnings Call Transcript 2023-Q4

[Bjørn Lindhom, executive]

Welcome to the presentation of EMGS' Fourth Quarter 2023 Results. I'm here, as usual, with our CFO, Anders Eimstad, and together, we will present these results.

Please take note of our disclaimer.

Operational summary, the Atlantic Guardian was warm-stacked for the entire quarter. And the initial phase of the renewable energy project was completed.

On the financial side, we had revenues for the quarter of $1.1 million, which resulted in adjusted EBITDA of negative $1.7 million, and our total cash at the end of the quarter was $10.3 million.

After the quarter, we announced a fully prefunded multiclient contract with Petrobras worth approximately $11.7 million, and also that we received a letter of intent from Equinor for a fully prefunded multiclient survey offshore Norway. I will talk a little bit more about these 2 projects later in the presentation.

Moving on to our operations and market section. We are very pleased to be returning to Brazil for the first time in almost a decade. We will be acquiring data in the Espirito Santo Basin, where we also have acquired a significant amount of data before, as you can see on the map on the right. This time, we will be acquiring a fairly large 3D multiclient survey in the deep waters of the basin. The coverage is about 456 square kilometers, and we will be deploying a total of 470 receivers and tow our source for 426 kilometers. We will be using a Deep Blue source, and we expect the survey to take approximately 2 months. The total value of the contract is $11.7 million.

The Norwegian APA 2023 offers were announced on the 16th of January. 24 companies were awarded ownership interests in 62 production licenses. Of those 62 licenses, 10 of them had a work program that included some form of EM work commitments. 6 licenses had a commitment to acquire new data, and 4 had a commitment to either perform an EM feasibility study or license existing EM data. An additional 16 licenses are fully or partially covered by our multiclient data.

The map shows the 10 licenses with EM in the work program, and the southernmost license highlighted in black is a license PL1202S, which was awarded to Equinor, Aker BP and Petoro, and we will talk a little bit more about that license coming up.

In the license PL1202S, we have received a letter of intent from Equinor for fully prefunded multiclient survey. The expected revenue from this survey is $2 million. And the survey will be acquired by the Atlantic Guardian prior to its departure for Brazil. The reason we are acquiring the data so early in the season is to avoid the significant fishing activity expected in this area later in the year. We plan to return to Norway after the completion of the Brazil project, and acquired data over additional licenses awarded in the APA 2023 license round, especially in the Barents Sea.

The current energy situation in Europe has led to a focus on gas exploration. The oil companies have become energy companies and many are now actively looking for gas, not just finding gas and looking for oil. You see the interest in EM has increased as a result of this.

The figure on the right shows an example of how EM data can complement seismic data in gas exploration. The uppermost figure shows a structure with a strong seismic amplitude anomaly, which indicates the presence of gas. However, seismic cannot distinguish a sand with 10% gas saturation from a sand with 90% gas saturation.

However, EM only responds to high gas saturations and the resistivity response measured by EM shows that a much smaller part of the structure is actually filled with high saturation gas, and that the northern part of the structure looks much better than the southern part.

Despite a slow quarter at the end of a very slow year, our financial position remains strong. The available cash balance stands at $10 million, and the convertible loan is unchanged and remains at $19.5 million approximately. The book value of our multi-client library is now $0.9 million, and our equity is still positive.

With that, I will hand over to Anders, who will go through our financial numbers in more detail.

[Anders Eimstad, executive]

Thank you, Bjørn Petter. The total revenue for the fourth quarter was $1.1 million. The graph on the upper right shows quarterly revenue development. From this graph, you can see that revenue has decreased from the previous quarters. Out of the $1.1 million in revenue in the fourth quarter, $356,000 was contract sales, while $793,000 was related to multi-client sales.

We had 1 vessel on charter in the fourth quarter. The Atlantic Guardian was warm-stacked for the entire quarter, resulting in a vessel utilization of 0% for the quarter.

We recorded an EBITDA of negative $1 million in the fourth quarter. 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 adjusted EBITDA. The quarterly development of the adjusted EBITDA is shown in the graph at the bottom right of the slide. The adjusted EBITDA in the fourth quarter was negative $1.7 million.

The next slide deals with 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 fourth quarter was $2.9 million compared to an operational cost base of $2.3 million in the third quarter. The low operational cost base reflects the low activity level over the last 4 quarters.

The next slide details the movement of free cash in the fourth quarter. Free cash decreased in the fourth quarter by $1.3 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 third quarter of $11.5 million. The components increasing the cash position during the fourth quarter are shown in dark blue, whilst the components reducing the cash position are colored red. Free cash at the end of the fourth quarter was $10.3 million. The EBITDA of negative $1 million decreased the cash this quarter. Vessel and office leases decreased cash by $0.7 million.

The decrease in trade receivables from $1.5 million to $1.1 million increased the cash this quarter by $0.4 million. The increase in trade payables from the previous quarter in the amount of $0.5 million also increased the free cash.

The investment in property, plant and equipment of $0.3 million in the quarter decreased free cash. Interest paid in the fourth quarter on the convertible bond and other interest expenses amounted to $0.6 million in the fourth quarter.

[Bjørn Lindhom, executive]

Thank you, Anders. That concludes our fourth quarter 2023 presentation. Please, as always, submit your questions at [e-mail]. Thank you very much.