Siem Offshore Inc

OSE:SIOFF

Earnings Call Transcript 2022-Q1

[Bernt Omdal, executive]

[Audio Gap] We will cover the main happenings through the quarter and subsequently, financial performance and position, vessel employment and contract backlog, and we will provide some comments on the market outlook. And at the end of the presentation, we will open up for questions.

Looking at the highlights for quarter, we had $61 million in revenue. We delivered a net EBITDA of $16.7 million, which is equivalent to 27%. And our cash position at the end of the quarter was $80 million.

Moving on to the next slide. We continued to deliver safe and efficient operations in all regions, even with the COVID challenges that the industry is faced with in some parts of the world. The utilization of the fleet in first quarter was 79%, excluding vessels in lay-up. We had 4 vessels in lay-up at the end of the quarter. Contract awards in the first quarter, the anchor handlers, Siem Sapphire was awarded a contract for walk-to-work operations for a wind park in Taiwan, securing the vessel from utilization well into the third quarter of 2022. Siem Spearfish was awarded a contract for walk-to-work operations in the U.K. sector, securing continued utilization well into the second quarter of 2022.

We have negotiated with Helix, and we have a new agreement in place for the 2 well intervention vessels, Siem Helix 1 and Siem Helix 2, now with firm periods of 3 and 5 years, respectively. And we have also been awarded a 6 months extension for the Canadian vessel Avalon Sea. We have also recently secured another contract for Siem Spearfish, a long-term contract, securing firm utilization until end of 2023. We have reactivated the anchor handler, Siem Ruby, which is now trading in the North Sea spot market.

Following the AGM and a subsequent Board meeting, the Board composition is now as follows: Kristian Siem is still the Chairman, Celina Midelfart is a new member, Christen Sveaas is also a new Board member and Barry Ridings continue for another year as well.

Moving on, Vidar Jerstad will now give some more details regarding the results for the first quarter.

[Vidar Jerstad, executive]

In the third quarter, Siem Offshore generated $61 million in revenue. That is up from $56.3 million first quarter last year. Increase in revenue is mainly due to higher revenue from the OSCV and well intervention fleet and this more than compensate for a reduction in income from other segments.

Operating expenses were $38.9 million. That is up from $30.6 million same quarter last year. Higher operating expenses was driven by increased utilization of the OSCV fleet, increased use of rental equipment for the OSCV fleet, but also dry dockings in the period has generated increased OpEx related to maintenance work and COVID-19 costs. But let me add, the company has no more planned dry dockings in 2022.

G&A came out at $5.3 million. This leaves us with an operating margin of $16.7 million, down from $20.7 million last year. Depreciation was $60 million. There were no impairments, no gain or loss on realized assets and no gain and loss on derivatives.

Operating profit were $797,000. Interest expenses were $4.9 million. However, unrealized currency gains splits the net financial items into positive territory. Net financial items were positive by $5.2 million.

Net profit before taxes ended at $6.1 million. Tax benefit, an adjustment for shareholders in our subsidiary for anchor handlers, leaves our shareholders with a gain of $8 million for the first quarter this year.

This slide shows operating margin before G&A distributed on segments. OSCV and well intervention has an operating margin of $14.5 million. That is up from $10.9 million last year. Taking the extra maintenance and COVID-19 expenses related to the dry docking of Helix 2 into consideration, the increase is even more noticeable.

Scientific core drilling vessel generated a margin of $4.5 million. That is up from $3.6 million. Anchor handling vessels had a negative operating margin of $600,000 and compared to a negative figure of $200,000 same quarter last year.

Our PSVs generated a minus of $400,000. That is down from a positive figure of $6.5 million, 1 year earlier. First quarter last year, the margin on the PSVs were affected by an extraordinary payment from clients. This quarter, we see lower utilization due to better installations, upgrades, dry dockings and steaming of vessels from the North Sea to Singapore and Australia. This also leaves the company with more fuel expenses as well in the Q1. Other vessels generated $4.1 million, down from $4.9 million 1 year earlier.

And let's take a look -- quick look at the balance sheet. The book equity was at the end of the quarter, $349 million. The book equity ratio is 33.7%. Gross interest-bearing debt is $613 million. Net interest-bearing debt is $533 million. The financial restructuring in 2021 has improved financial position to [indiscernible].

And then the cash flow so far in 2022, we started the year with $92 million in cash. We have received the $19 million from operations. We have paid $5 million in interest. We have invested $14 million in the vessels, and we have repaid $12 million in debt. That leaves us with $80 million in our accounts at the end of the quarter.

Now let's take a look at the contract backlog. At the end of the first quarter 2022, the backlog amount is $451 million. We have added $153 million to the backlog since the year-end of 2021. You see that the anchor-handling vessels, which are our largest segment with 8 vessels, are represented by only 2% of the backlog. On the other hand, the OSCV and well intervention vessels dominate the backlog with 61% of the backlog.

Bernt?

[Bernt Omdal, executive]

Thank you, Vidar. And we will now go into the fleet and the employment situation.

On this slide, we have listed the vessels in operation for OSV segment. Currently, we have 28 owned vessels in operation. And in addition, we have 3 vessels on management. There are no major changes to the fleet composition, thus, we will not go into the details here.

On the next slide, yes, that covers our geographical footprint in terms of office locations and also vessel location. So if you are starting with anchor handlers currently, we have 3 anchor haves working in Australia on term contract. That is the Siem Topaz, Siem Amethyst and Siem Aquamarine. And in the same region, we have 1 anchor handler working offshore Taiwan, which is the Siem Sapphire.

In Canada, we have the Siem Avalon, working on a term contract there. Siem Opal, Siem Ruby and Siem Pearl are all trading in the North Sea to -- in the spot market and 1 on a term contract. And we still have the Siem Emerald in lay-up in Norway.

The construction vessels, Siem Stingray is currently working on a firm contract in the European waters. Siem Barracuda is on a firm contract in Taiwan until the end of this year. And Siem Spearfish is on a long-term contract currently working in the North Sea, and so is also the Siem Dorado. The 2 well intervention vessels, Siem Helix 1 and Siem Helix 2, are on long-term contracts, one working in Ghana and the other one in Brazil. The firm contract until 2025 and 2027.

We have 6 PSVs in our fleet, most of them on long-term contracts, Siem Thiima and Siem Pilot are both on a long-term contract in Australia. Siem Pilot still working on a term contract in the North Sea, and then we have the Siem Symphony, which is now trading in the North Sea spot market. The 2 Brazilian-built PSVs, Siem Atlas and Siem Giant are still trading in Brazil, both vessels on term contracts.

For our smaller Brazilian fleets, the situation is as follows: Siem Pentotiba and Siem Piata still in lay-up in Rio. Siem Maragogi and Siem Marataizes are both on term contracts with Petrobras. Then we have our core drilling vessel, JOIDES Resolution. The vessel continue working around the globe on a long-term contract. Finally, we have the well stimulation vessel, Big Orange, is still working in the North Sea.

We then move on. We continue focusing on our ESG targets. A lot of good work has been done by our onshore and offshore staff. It's still focused on reducing our carbon footprint. We have completed our battery installation campaign for 2022. Other initiatives are being worked upon. And I must say that our ESG team is doing a tremendous good job. A lot of good initiatives is being worked upon.

So the market's -- brief market update. It was a very slow start for the quarter for the North Sea, PSV and anchor handlers, but gradually, we have seen improvement throughout the quarter. March was a particularly strong month for the anchor handler segment. There's several development projects took place in parallel. And for the first time in years, Siem Offshore commenced that term contract for an anchor handler on the Norwegian Sea.

The offshore construction market was considerably more active than in previous years and was almost sold out towards the end of the quarter with improving day rates and a really strong utilization. And we also see that long-term contracts are now becoming more and more frequent. The long fundamentals and outlook for the OSV market continues to improve on the back of a strong increase in oil price as well as continued demand for vessels in the renewable market.

Although this -- the vessel supply-demand balance is slowly shifting, the market still suffers from oversupply in some segments. But we reiterate that consolidation is necessary to improve the efficiency of the global OSV fleet. The way we see it, we are well positioned to compete with our peers based on our modern fleet and the quality backlog and also strong operational record with a very good reputation.

So moving on then, just a few words about the wind segment. I mean we continue to include contracts within the offshore wind segment and our track record is getting more and more solid. We have now more than 225,000 personnel transfer. We are a motion-compensated gangway which is a really high number.

All right. So the last slide, to summarize. Our EBITDA is in line with our expectations. We see positive market outlook in all segments. First-class operations delivered with an excellent HSEQ performance. We have a firm contract backlog with a positive margin. All planned dockings for 2022 are finalized. And we continue to strengthen our position within the renewable segment. The maintenance on the subsea infrastructure has been neglected for years. Prior activity is expected within this -- in this segment.

COVID-19 is still a challenge. I mean we are not operating in the North Sea, but elsewhere in the world, there is still quarantine rules and regulations to follow. And we still are working on consolidation. We believe that this will create a better market balance, especially within the anchor handler segment. And we are well positioned worldwide to make the best contribution from what the market now can offer to ensure utilization with a good and safe operation.

That completes the presentation of first quarter 2022.

[Bernt Omdal, executive]

Okay. So we will now open up for any questions that you might have. Any questions please?

There's one question regarding renewable energy. I don't know what is the question. Said related to the market -- or to the reorganization. All right. How many boats are made for renewables. That is one question here.

There is no vessels fleet built for the renewable market, but we have our construction vessels working in within the renewable segment. We also have our anchor handlers working within the renewable segment. But there is no specialized vessels within our fleet for this segment, but the market is there, and we have a huge, I would say, a good -- very good track record for this type of vessel.

There is one question here. What is the time line for consolidation? I mean we have been voicing this for many, many years, really. We are still working on it. I mean as soon as the other owners are willing to enter into a kind of a consolidation with CMOs, we are ready to go. To give an exact time line, that's very difficult.

All right. There seems -- not to be any more questions. All right. Here's another one. How do you see opportunities to keep the subsea fleet working throughout the upcoming winter season? And is it likely to see more of your subsea vessels being awarded long-term contracts like announced with Siem Spearfish?

Yes. Well, we really hope that we will have the entire subsea fleet employed throughout the winter months. And we see that the charters are now asking for 365 days contract instead of just the contracts for summer campaigns. So we are positive to that segment, and we believe we will manage to find employment for the entire subsea fleet.

Another question here. Siem with [ Sveaas ] in the company will Siem grow more now? We hope so. We hope so. I cannot go into more details there.

One more question here. The North Sea and fleet sees strong project demand in second quarter and third quarter. How do you see opportunities for anchor handler fleet in late 2022 and 2023, opportunities arising in Brazil foreign flag tonnage?

Yes, when we see more and more tender in Brazil. We see Petrobras announced on the last tender, day rates above USD 60,000 a day. Hopefully, we will be able to compete on those tenders going forward. We also have a red capacity in our fleet, meaning that we are able to reflag some of our vessels to fly the Brazilian flag, which will give us an advantage compared to some other owners. We think 2022 in general, for anchor handlers, will be -- still -- will still be a volatile market, but we see improved day rates really from week to week. Last week, we saw day rates up to NOK 1 million a day.

To find term contracts for the entire fleet in 2022, I think that's not possible, but will we see more tenders. 2023 is a year, we believe, that we really will see good rates also within the anchor handler segment and also increased utilization.

[Vidar Jerstad, executive]

And there is one question regarding future results for second quarter and third quarter, and we do not do any guiding on the financial results going forward. And also, there is a question about expected CapEx for Siem Emerald and we do not do any guiding on that as well.

[Bernt Omdal, executive]

Any other questions? Well, the red capacity, I commented on -- earlier on. So we have rated capacity for a couple of vessels. That depends on the size of the vessel. You earn red capacity based on tonnage built in Brazil. So it depends on what kind of vessels you are talking about. Smaller vessels, larger red capacity and large vessels, less red capacity.

Okay. I see no more questions, so that ends this session. Thank you all for attending, and I wish you all a good day. Thank you.