Siem Offshore Inc

OSE:SIOFF

Earnings Call Transcript 2024-Q1

[Operator]

Welcome to the conference call. [Operator Instructions] Now I will hand the conference over to the speakers. Please go ahead.

[Bernt Omdal, executive]

Good day, everyone, and welcome to the review and presentation of our results for the first quarter. My name is Bernt Omdal, and I'm the Chief Executive Officer of Sea1 Offshore. I am joined by our CFO, Vidar Jerstad, and together, we will take you through this presentation.

Sea1 Offshore's report for the first quarter of 2024 was released prior to the market opening today. And in this presentation, we will cover the main highlights for the report, and we will refer to the presentation issued together with the financial report. And at the end of the presentation, we will open up for questions.

Looking at the highlights for the quarter. We had 26 vessels in operation and all vessels delivered a positive EBITDA margin. We had close to $83 million in revenue, and we delivered $33 million in EBITDA, which is equivalent to 40% EBITDA margin.

Our cash position at the end of the quarter was close to $77 million and our book equity ratio was close to 50%.

In the quarter, we had class renewals for 3 of our vessels, which are impacting the margin. And our firm backlog is now $857 million, and there are $603 million in options attached. So the total backlog, including options are USD 1.46 billion.

Looking at the contract awards in the first quarter, we signed 2 long-term contracts for our 2 Well Intervention Vessels, Siem Helix 1 and Siem Helix 2. The new contracts will commence 1st of January 2025 and 1st of January 2026, with that firm period for 6 years with 5 yearly options.

Firm contract backlog for the 2 vessels are $608 million. We -- and USD 1.1 billion when including the options. Siem Spearfish got a 1-year contract with PXGEO, and there is 1 optional year attached to that contract. We also signed a contract with the same client for Siem Dorado, taking until end of 2024.

For the 2 Brazilian-built vessels, the PSV Siem Giant and Siem Atlas. We secured 2 contracts with Total in Brazil. Duration of the contracts are 3 years firm with 4 years of options. And for Siem Atlas, the firm period is 9 months with options until end of 2027.

We have also got in place a medium-term contract for the anchor handler Siem Ruby taking her until the end of the year. And in addition, it's worth mentioning that we recently signed a contract for Oil spill recovery vessel, a Siem Marataizes and the contract duration is 4 years. And yesterday, we concluded 200 days for the Siem Emerald.

Furthermore, the company agreed to sell 9 of our vessels to the major shareholders, Siem Sustainable Energy in exchange for 35.7% of the company's shares. As part of the transaction, $117.5 million of debt will follow the 9 vessels. The vessels will be transferred as soon as practical possible, but no later than 1st of July.

Then we had the AGM that was held on the 7th of May, and the new Board is in place with Mr. Sveaas, as the Chairman. 2 new Board members were also elected Mr. Fredrik Platou and Mr. Ørjan Svanevik.

I will hand over to my colleague, Vidar Jerstad, that will give you some more details regarding the results for the first quarter.

[Vidar Jerstad, executive]

Thank you, Bernt. Sea1 Offshore's first quarter report confirms a continuation of the positive market trend. The company had $83.2 million in revenue in the quarter, up from $76.5 million same quarter last year. The uplift is particularly strong when we know that the revenue was negatively affected by the dry docking in class renewal of the 3 OSCV vessels Siem Barracuda, Siem Spearfish and Siem Stingray. Operating expenses was $44.6 million. That is higher by $10.4 million compared to same quarter last year. However, we must be aware that, number one, the operating expenses in the first quarter last year was positively affected by a one-off incident of $3.7 million. Point number two, changes of operational area and thereby cost level for certain vessels represent $3.4 million in increase in our OpEx. And point 3, related to the mentioned class renewals of the 3 vessels, we had an increase in operating expenses of $1.1 million.

So after this, $2.3 million remains as a gap in the operating expenses figures compared to last year. And this is explained by other smaller issues, incidents and inflation.

Administrative expenses came in at $5.6 million compared to $5.2 million last year. EBITDA for the quarter was $32.9 million, down from $37 million. Depreciation was $18.2 million. This is somewhat higher than last year due to robust of impairment on vessels at year-end of 2023 and general capital expenditures last 12 months. There were no impairments or reversal of impairments in the quarter.

Operating profit ended at $14.7 million, down from $20.1 million. Net financial items were negative by $3 million, and that's compared to a positive figure of $9.7 million last year. However, last year was largely affected by one-off incidents, and you can read more about that in Note 9.

Net profit before taxes ended therefore, at $11.7 million. Net profit after taxes ended at $11.6 million. And after adjusting for a minority shareholder in one of our subsidiaries, we end up at $11.8 million.

This slide shows operating margin distributed on segments. The figures are before G&A expenses. On the left-hand side, we see operating margin in the quarter. The $2.4 million or 9% decrease in the subsea segment relate to the previous mentioned 3 vessels in dry dock for class renewal. This has been affecting operating margin negatively through both less revenue and increased operating expenses in the quarter.

The PSV market was more challenging than expected this quarter, and margin ended down by $800,000.

The anchor handling market is improving an increase in charter rates and utilization has increased operating margin by $3.3 million or more than 50% this quarter compared to same quarter last year.

Other segments are down. However, if we exclude the one-off incident of $3.7 million from last year, it is unchanged. Actually, the vessel operating activities isolated in these other segments has a small increase in operating margin.

And let's take a look at the balance sheet. The company has now $534 million in book equity and a book equity ratio of 49.7%. Gross interest-bearing debt is $443 million, $156 million of outstanding debt under certain facilities mature in December 2024 and is expected to be refinanced during the year. We are comfortable with the situation and our position, and we see good interest from a variety of lenders.

Net interest-bearing debt is $366 million. Sea1 Offshore's financial position is strong.

And the cash flow for the first quarter shows the following: we started the year with $97 million in cash. We have received $23 million from operations. We have paid $6 million in interest. We have invested $21 million in the vessels. We have repaid $20 million in debt and some other changes, we ended the quarter with $77 million in cash.

Even though first quarter historically represents winter season and lower activity and first quarter this year has been particularly CapEx-intensive. The company has repaid $20 million in debt. Going forward, we see that Sea1 Offshore's capacity to repay debt is good.

And now the contract backlog. Note, this overview is excluding backlog of the 9 vessels to be sold, and this is the backlog as of today. The full backlog amounts of $857 million with quality counterparties. In addition, clients have options representing $603 million in revenue. Total amount before plans exercise all options is $1.46 billion.

The Subsea segment dominated with 81% of the firm backlog. The 2 Well Intervention Vessels or Helix vessels are part of this segment. Our Brazilian PSVs has 6% of the firm backlog. Over 6 remaining anchor handling vessels represent 6% of the firm backlog, and our Brazilian Fast Crew & Oil Spill Recovery Vessels has 7% of the firm backlog..

On this slide, you see firm contracts and options in green and vacant vessel capacity in blue. The anchor handling vessels represent the largest exposure to the market, implicating market risk and market opportunities going forward. However, under the current continuing trend of improving markets, we believe the available capacity going forward represent an attractive earnings potential.

Back to you, Bernt.

[Bernt Omdal, executive]

Okay. Looking at our fleet. We have now a fleet of 17 owned vessels as listed on this slide. And in addition, we have 12 vessels under our management. The vessel now owned by Sea1 Offshore are as follows: we have 6 anchor handlers that is Siem Emerald role; Siem Aquamarine; Siem Amethyst; Siem Sapphire; Siem Ruby; and Avalon Sea. We have 2 Well Intervention Vessels, which is the Siem Helix 1 and Siem Helix 2. We have 2 construction vessels, which is Siem Spearfish and Siem Dorado. We have 2 PSVs, Siem Giant and Siem Atlas. We have 2 oil spill recovery vessels, Siem Marataizes and Siem Maragogi. And we have 2 fast crew vessels, Siem Pendotiba and Siem Piata, and we have 1 core drilling vessel, which is the Joides Resolution.

The company has a very good global footprint, which is important for the utilization of the fleet. We will continue to move vessels around the world where we can perform safe operations with sustainable condition. It is important to remember that we have only changed name to Sea1 Offshore, the know-how remains in the company, and so will the office locations around the world.

We will now go through the company owned vessels. For the anchor handler segments, there are mainly shorter contracts and campaigns. Currently, we have the Siem Emerald trading the North Sea spot market. We signed a contract where yesterday, so she will leave the North Sea for another region. Then we have the 3 anchor handlers, Siem Sapphire, Siem Amethyst and Siem Aquamarine, which are trading in Asia on term contracts. Then the Siem Ruby, also an anchor handler is on a term contract in Argentina, keeping her employed throughout the year. And the last anchor handler, Avalon Sea is on a term contract in Canada.

Moving on to the construction vessels. The Siem Spearfish is on a term contract, which gives utilization throughout the year. She is currently operating on the West Coast of Africa. And then we have Siem Dorado on a term contract currently in Brazil. The 2 Well Intervention Vessels, Siem Helix 1 and Siem Helix 2 are both on term contracts, working offshore Brazil.

In our fleet, we have 2 PSVs, both of them on term contracts in Brazil, that is the Siem Atlas and Siem Giant. And for the smaller Brazilian fleet, as we call it, we have the oil spill recovery vessels, Siem Maragogi and Siem Marataizes, both on long-term contracts with Petrobras. And we have the fast crew vessels Siem Pendotiba and Siem Piata, they are both on bareboat charters. And then the Joides resolution, the core drilling vessel, continue working around the globe on a term contract.

As shown on our previous slide, we have a grid contract cohort for this year. At the same time, it's important to have vessel available in an improving market. So there is an increased potential of earnings.

Just a slide giving a summary of the market for the first quarter. The quarter was as expected, a bit slow at the start and then increasing towards the end of the quarter. The Northeast spot market was characterized by a limited utilization for anchor handlers and PSVs. And for anchor handler market, it is expected to remain volatile going forward.

The Subsea segment was tight with competition between renewable projects and traditional oil and gas campaigns, which are impacting the utilization and also the day rates in a positive way.

Most segments are experiencing an increased number of multiyear contracts, which is a single signal that charters are positioning themselves for future projects. The expected increase in activity for all segments indicates good market prospects for our high-end fleet.

So to summarize, we delivered a strong quarter with high activity. We had several vessels class renewed. We delivered first-class operation with an excellent HSEQ performance, continue to improve financial position, and we have a strong backlog with quality clients, and there is a positive long-term market outlook in all segments.

That was the end of the presentation, and we will now open up for questions.

[Operator]

[Operator Instructions] The next question comes from [indiscernible] [ Martin Carlson ] from [indiscernible] Capital.

[Unknown Analyst]

I have a 2-part question regarding the anchor handling supply side. Given the recent development in the anchor handling supply market, where we have seen Viking supply ship acquire high-spec vessels from ocean [indiscernible] and noting that there are very few vessels promoted in the market, and those are mostly low quality, low bulletproof vessels. It appears that the market is experiencing some tightening. Could you please share your insights on the current state of the supply side in the anchor handling sector with regard to vessel acquisitions? That's the first one.

[Bernt Omdal, executive]

Well, I cannot comment on Viking supply ships acquiring anchor handlers. But I mean, we are following the market tight. And if we see there's any good opportunities, we will consider them. There's a limited number of high-spec anchor hammers on a worldwide basis. So we believe that the anchor handler market will tighten going forward.

[Unknown Analyst]

And considering the prolonged hiatus in new ship construction since the market downturn at $0.20, what are your thoughts on new build activity within the anchor handling sector? Are you observing any notable trends or upticks in new build orders? And what is your perspective on the industry capacity to initiate and sustain new build projects at this juncture?

[Bernt Omdal, executive]

I think it's hard to justify building new anchor handlers, the way the market is. I mean it's very volatile. Yes, we see a really good day rates obtained for shorter periods of time. But then again, you have a number of days where you were idle. So the average day rate in our view, doesn't justify building high-spec anchor handlers.

[Unknown Analyst]

And finally, just a follow-up. We have seen some activity where PSV vessels that left the oil and gas market, for example, aquaculture are coming back into the oil and gas market. Is there any supply that could come from those sort of reversing for the anchor handlers, such as those that have been sold to the Coast Guard and similar?

[Bernt Omdal, executive]

It's hard to say, but we don't believe so. I mean many of vessels that have gone to the fishing industry -- fish farming industry, I think that's low spec older vessel -- vessels. So we don't see that as, call it, competition that those vessels will come back.

Is there any other questions, please?

[Operator]

[Operator Instructions] There are no more questions at this time, so I hand the conference back to the speakers for any closing comments.

[Bernt Omdal, executive]

[Operator Instructions] Okay. If there's no further questions, we thank you all for attending. Thank you, and have a good day..