Siem Offshore Inc

OSE:SIOFF

Earnings Call Transcript 2022-Q3

[Bernt Omdal, executive]

Good day, everyone, and welcome to the review and presentation of our results for the third quarter 2022. My name is Bernt Omdal, and I'm the CEO of the company. I'm joined by our CFO, Vidar Jerstad. And together, we will take you through this presentation.

Siem Offshore's report for the third quarter of 2022 was released prior to the market opening today. In this presentation, we will cover the main highlights of the report, and we will refer to the presentation issued together with the financial report. At the end of the presentation, we will open up for questions.

Looking at the highlights for the quarter, we had 28 vessels in operation, and all vessels delivered a positive EBITDA margin. We had USD 73.7 million in revenue. And we delivered USD 34.1 million in EBITDA, which is equivalent to 46% EBITDA margin. Our cash position was USD 89 million at the end of the quarter, and our book equity ratio was 35%.

We continue to deliver safe and efficient operations in all regions. This is a result of high focus on safety at all levels in the company. The utilization of the fleet in the third quarter was 93%, excluding vessels in lay-up. We had 3 vessels in lay-up at the end of the quarter.

We have been awarded some long-term contracts in the third quarter. The Siem Stingray was awarded a 3-year contract with Subsea7. And the anchor-handler, Avalon Sea, was extended by 18 months in Canada, ensuring utilization value into second quarter of 2024. We also got a new contract in place for the oil spill recovery vessel, Siem Maragogi, with a duration of 3 years.

First of 2 options was also declared for the PSV Siem Atlas and Siem Giant. Both vessels are now firm until June 2023. The mentioned vessels are operating in Brazil. And for the anchor-handler, the Siem Opal, Equinor declared the 3-month options with commencement in September this year.

We also recently received a notification of a final unfavorable decision of a Brazilian court in a lawsuit filed against Petrobras. This case is related to late delivery of the vessel Siem Marataizes from yard back in 2016. The penalty charge has been [ accrued ] for in previous year's accounts and will not have any impact on the profit and loss account for 2022. The unfavorable decision of the court amounts to a cash payment equivalent to around USD 8 million.

My colleague, Vidar Jerstad, will now give some details regarding the results for the third quarter.

[Vidar Jerstad, executive]

Thank you, Bernt.

In the third quarter, Siem Offshore generated $73.7 million in revenue and achieved an operating margin of $34.1 million. Both figures represent a decent uplift from same quarter last year. Depreciation was $16.6 million. There were no impairments or any reversal of impairments in the quarter. Operating profit ended, therefore, at $17.5 million.

Interest rate expenses were $6.2 million, and net financial items ended negative by $7.7 million. Net profit before taxes were $9.9 million; and after taxes, $10.2 million. After adjusting for minority shareholders in one of our subsidiaries, we end up at $9.9 million.

This slide shows operating margin before G&A and distributed on segments. The OSCV and well-intervention vessels had an operating margin in the third quarter of $19 million. The PSVs generated $3.6 million in margin last quarter. This figure confirms for second quarter in a row that the drop in margin for the PSVs in the first quarter were transitory.

Anchor-handling vessels had an operating margin of $8.5 million, a considerable increase in margin compared to same quarter last year and also year-to-date. Other vessels generated $8.2 million.

A quick look at the balance sheet shows that book equity of the company is continuing to grow quarter-by-quarter. The company now has $356 million in equity, and the book equity ratio is 35%. Gross interest-bearing debt is $579 million; net interest-bearing debt, $490 million.

Siem Offshore's financial position is good, and it continues to improve. Siem Offshore is an attractive and solid business partner not only from a commercial and operational perspective but also from a financial perspective.

And now the year-to-date cash flow shows the following. We started this year with $92 million in cash. We have generated $69 million in cash from operations. We have paid net interest of $11 million. We have invested in the vessels, $20 million. We had repaid debt of $40 million and end the third quarter with $89 million in our accounts.

Note that the first half year was very CapEx-intensive and not representative for the second half of the year. Out of the $20 million in CapEx in this figure, $19 million relate to the first half year and only $1 million to the third quarter.

And let's take a look at the contract backlog. At the end of third quarter of 2022, the backlog amount is $462 million. This is a net increase of $51 million from previous quarter end. The OSCVs and well-intervention vessels dominate with 64% of the backlog. Our anchor-handling vessels are represented by only 1% of the backlog.

In this slide, you see firm contracts and options in green and vacant vessel days in blue, especially the short backlog in the anchor-handling vessels represent a large degree of exposure to the markets, implicating market risk and market opportunities going forward. However, under the current trend of the improving markets and continued focus on energy security, we believe the available capacity going forward, in general, represent an attractive earnings potential.

[Bernt Omdal, executive]

Yes. On this slide, we have listed the vessels in operation for the 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 any more details here.

We continue our operations around the world, moving vessels to a location where we find it safe to operate and where we are able to sign favorable contracts for the company. Going briefly into the employment situation for the various segments, we could start with the anchor-handler feet. And currently, we have 4 of our anchor handlers in Southeast Asia, 2 on firm contracts and 2 are trading in the spot market.

In Canada, we have one anchor handler working on a term contract. Siem Opal is still on a term contract with Equinor in the North Sea. And the sister vessels, Siem Ruby and Siem Pearl, are still trading in the North Sea spot market. And then we have one of our anchor handlers still in lay-up in Norway.

Moving on to the construction vessels. Siem Stingray, she is working in European waters on a firm contract. Siem Barracuda, also in the North Sea on a short-term contract. Siem Spearfish is on a longer-term contract, taking -- till end of 2023. Siem Dorado is also on a firm contract working in the North Sea.

The well-intervention vessels, Siem Helix 1 and Siem Helix 2, they are both on long-term contracts, and they are still working offshore Brazil. We have 6 PSVs in our fleet, most of them on long-term contracts. In Australia, we have the Siem Thiima and Siem Pilot working on term contracts there. We have the Siem Pride on a long-term contract in the North Sea; and the sister vessel, Siem Symphony, is trading the spot market in the North Sea.

We have 2 PSVs in Brazil, Siem Atlas and Siem Giant, both are on term contracts. And then also in Brazil, we have our fleet of crude boats and fast-supply vessels; 2 of them, Siem Pendotiba and Siem Piata, are both idle in Rio. Then we have the Siem Maragogi and Siem Marataizes both on firm contracts.

Our core drilling vessel, Joides Resolution, continue working around the globe on a long-term contract. Then we have the well-stimulation vessel, Big Orange, she is still working in the North Sea. As shown on the previous slide, we really have a good contract coverage this year. And under the current improving markets and continued focus on energy security, we believe that available capacity going forward represent an attractive earnings potential, just like Vidar mentioned earlier on.

Moving on, we continue our focus on ESG. A lot of good work has been done by our onshore and offshore staff, and there is full focus on reducing our carbon footprint. Many good initiatives are being worked upon.

A few comments to the market. There is high activity in nearly all offshore support segments at the beginning of the third quarter. After experiencing historically high day rates in July, the anchor-handler spot market in the North Sea saw a sharp activity drop in August. This has continued into September, and it was caused by lower demand and many vessels returning to the spot market after project/campaigns.

The PSV segment was stable for most of the period and performed better than in the recent years. The offshore construction vessel market was more or less sold out throughout the period and a few contracts -- and the few contracts that were concluded reflected high day rates and favorable contract terms.

The expected increase in activity in Brazil, West Africa and also in the North Sea is showing signs of realization, although progressing a little bit slower than expected. We believe that the market for our fleet will continue to improve as the world will need fossil energy for years to come, in addition to renewable energy.

So to summarize, we delivered a strong quarter with high activity. We continued to improve our financial position. There's a positive long-term market outlook in all segments. We deliver first-class operation with an excellent HSEQ performance, and we have a strong backlog with quality counterparties. And again, we believe having available days for parts of the fleet in a rising market represent an attractive earnings potential.

Then we will open up for any questions you might have. I see there's a couple of questions in the chat already.

[Bernt Omdal, executive]

A question about 2 of our offshore subsea vessels, the Siem Dorado and Siem Barracuda. They have more or less employment throughout this year. For next year, there's nothing firmed up for those 2 vessels.

And then there is another question about, do you see charters approaching the market earlier to secure capacity?

Yes, we do. We really see a shift in the market where our charters are securing tonnage well in advance, especially for the subsea construction vessels.

And then there is a question about the anchor handlers. Do you see anchor-handler opportunities in 2023 already now?

We see shorter potential work out there but no long-term tenders.

[Vidar Jerstad, executive]

And there is a question about the potential refinancing going forward. We are continuously following the market and doing assessments. What is the fact is that we have a favorable financing terms right now. So we are always seeing pros and cons when it comes to refinancing, but we are following the situation closely.

And there is a question: are there any initiatives taken to have stock market analysts following Siem Offshore?

And yes, we want stock analysts to follow the share. And we know that there are several brokering houses that are evaluating this, but none of them has taken any decision yet.

[Bernt Omdal, executive]

There is a question about 2 of our anchor handlers working in Australia. I mean they are working on projects. So for how long those projects will last, a bit early to say, but we believe this January next year.

Any other questions, please? Two anchor handlers are in Singapore, outlook for work of putting lay-up for the winter.

Well, we are trading, we call, the spot market in Southeast Asia. I don't see us putting those in lay-up. They will stay in that area until we find work for those 2 mentioned.

Another question here. What type of vessels are experiencing impairments? And how is outlook for reversal?

[Vidar Jerstad, executive]

Well, we have made no impairments this quarter and no reversal of impairments this quarter. That means that we feel that the current valuations of the vessels are correct. But of course, going forward, with the continued focus on energy security and a market that is improving, there is a chance that going forward, there will be a reversal of impairments. But today, there are no reversal of impairments.

[Bernt Omdal, executive]

Any other questions, please? Okay. If no further questions, we thank you all for attending, and we wish you a good day and a great weekend. Thank you so much.