Subsea 7 SA

OSE:SUBC

Earnings Call Transcript 2021-Q3

[Operator]

Good day, and thank you for standing by, and welcome to the Subsea 7 S.A. Q3 2021 Results Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions]I would now like to hand the conference over to your first speaker today, Katherine Jones -- sorry, Katherine Tonks. Please go ahead.

[Katherine Tonks, Head of Investor Relations]

Welcome, everybody. With me on the call today are John Evans, our CEO; and Ricardo Rosa, our CFO. The results press release is available to download on our website, along with the presentation slides that we'll be referring to during today's call.May I remind you that this call includes forward-looking statements that reflect our current views and are subject to risks, uncertainties and assumptions. Similar wording is also included in our press release.I'll now turn the call over to John.

[John Evans, Chief Executive Officer]

Thank you, and good afternoon, everyone. I will start with highlights from the third quarter before passing over to Ricardo to cover the financial results.Turning to Slide 3. Revenues improved 53% year-on-year to $1.45 billion, and our adjusted EBITDA margin increased to 13% from 12% in the same quarter last year, giving us an EBITDA of $185 million. This was the result of high activity in both Subsea and Conventional and Renewables, as well as the benefit of client settlements.Although, we had a relatively high buildup in working capital during the quarter, our cash balance was $300 million at the quarter end, and our net debt, including lease liabilities, was $99 million.During the third quarter, we had a very high fleet utilization of 94%, up from 84% in the prior year, with an active summer season, Offshore Norway and in the Gulf of Mexico. Our engineering and procurement teams were also busy on the recent major EPCI awards.Finally, since the second quarter, we've made good progress in delivering our strategy with an increased interest in floating wind through the acquisition of a majority holding in Nautilus, the completion of our combination with OHT to create Seaway 7 ASA and the announcement of our Net Zero targets.Turning to Slide 4, under operational highlights. Although the challenges posed by COVID remain significant, Subsea 7 made good progress during the third quarter on several projects. The engineering and procurement phase of Bacalhau is well underway as well as on SLGC, Sangomar and Barossa.In the Gulf of Mexico, we tolled the joint FPU for the Mad Dog 2 project to its offload location and installed gas export infrastructure and rigid and flexible jumpers.In Norway, vessel activity was high with the Seven Vega, Seven Oceans and Seven Navica all active on the Johan Sverdrup 2. Seven Vega also installed the Electrically Heat Traced Flowlines on Aerfugl 2.In Australia, the offshore phase of Julimar 2 was completed by the Seven Oceans and the Seven Oceanic before the vessels began the return journey to Norway. During the quarter, we announced the award of Sakarya project in Turkey, for which engineering and procurement has commenced. And also at the quarter end, we announced new contracts for 3 of our PLSVs in Brazil, which I'll talk a little more about shortly.In Renewables, Seaway Strashnov installed monopile foundations on Hollandse Kust Zuid; Seaway Aimery, Moxie and Simar Esperanca all worked on Hollandse -- on Hornsea II and the Seagreen project achieved an important milestone with the installation of the first jackets.Turning to Slide 5. We had another good quarter for new orders, resulting in a book-to-bill ratio of 1. This followed strong order intake in the second quarter and gives us a book-to-bill ratio for the first 9 months of the year of 1.1. The largest award this quarter was Sakarya at over $750 million, but we booked several smaller contracts in Norway as the high level of engineering work we've discussed in previous quarters, began to yield EPCI work.We've presented here the backlog at the 1st of October, so we can show the addition of OHT and give you some extra details of the backlog by year for each business unit. Overall, we have good visibility on revenue for remainder of 2021 with $1.2 billion still to be executed in Subsea and Conventional and $0.3 billion in Renewables. For 2022, our backlog is in line with that at the equivalent point last year.And now, I'll pass over to Ricardo to run through the financial results in more detail.

[Ricardo Horacio Rosa, Chief Financial Officer]

Thank you, John, and good afternoon, everyone. Slide 6 shows our income statement highlights. Third quarter revenue of almost $1.5 billion reflected higher levels of activity in both the Subsea and Conventional and Renewables business units, underpinned by good progress in executing major EPCI contracts.Adjusted EBITDA of $185 million after incurring net direct costs associated with COVID-19 of approximately $9 million was up 63% from the prior year quarter. The adjusted EBITDA margin was 13% compared with 12% last year. This improvement largely reflects higher margins in Subsea and Conventional and Renewables due to high vessel utilization in both business units as well as the benefit of client settlements.The net income for the quarter was $45 million, equivalent to earnings per share of $0.15 in contrast to a loss of $43 million in the prior year.Turning to Slide 7 for additional details of the income statement. Administrative expenses increased by $15 million against the prior year, mainly reflecting an increase in tendering costs. The depreciation and amortization charge was stable at $107 million compared to the prior year quarter, as the impact of the new build Seven Vega and upgraded Seven Phoenix joining the active fleet was offset by reduced leased vessel costs.The net operating income of $78 million in the third quarter included a credit of $8 million associated with a downward revision to the cost of the group's resizing program. This relates to the continued improvement in the outlook for the Subsea sector and associated resource needs.The $29 million increase in the tax charge compared with the third quarter 2020 reflected the improvement in income before tax, combined with irrecoverable withholding taxes in certain jurisdictions.On Slide 8, we summarize the performance of our operating business units. The Subsea and Conventional business unit generated slightly more than $1 billion of revenue in the third quarter, 59% higher than the prior year period, including significant contributions from Bacalhau, Sakarya and several projects in the Gulf of Mexico.Renewables revenue was $377 million, up 40% compared with the prior year, reflecting a higher contribution from Seagreen, Offshore Scotland and as well as the commencement of the Hollandse Kust Zuid project, Offshore Netherlands. We recorded $19 million in revenue in corporate, representing the contributions from Xodus and 4Subsea, our autonomous subsidiaries.Subsea and Conventional recorded net operating income of $70 million in the quarter compared to $15 million in the third quarter 2020. This reflected increased project activity and high utilization of the Subsea fleet in the Gulf of Mexico, Norway and Brazil.The Renewables business unit moved from a breakeven position in the third quarter of 2020 to net operating income of $5 million in 2021. Good progress in the offshore phase of the projects I've just mentioned, was diluted by the impact of delays in executing work in Taiwan, as has been highlighted in our commentary on the results of the second quarter this year.Slide 9 shows our cash flow waterfall chart for the quarter. Net cash used in operating activities was $20 million after incurring a $230 million adverse movement in net working capital. This adverse movement resulted from the timing of milestone payments in the Gulf of Mexico, the protracted invoice approval process in the Middle East, and delays to progress of renewables projects in Taiwan.Although, we are expecting an improvement in the net working capital position in the fourth quarter, looking ahead to 2022, we expect the group's investment in working capital to increase as we execute large EPCI projects with adverse payment terms, particularly in the Middle East and Brazil. We have, nevertheless, the necessary resources or sources of liquidity to address the working capital needs of these projects and will draw on them, if required.Capital expenditure was $24 million, $10 million lower than the prior quarter, and lease payments made were $22 million. At the quarter end, we had $300 million in cash and cash equivalents, a reduction of $90 million since the end of June. Our net debt position increased but remains a modest $99 million, including lease liabilities of $208 million.To conclude, Slide 10 shows our guidance for the full year. We have with a relatively high level of visibility on the remainder of the year, our guidance for 2021 is largely unchanged. We expect revenues to remain at an elevated level in the fourth quarter as we make progress in the procurement phase for certain major EPCI projects.Our fourth quarter EBITDA margin will reflect the normal seasonal impact of vessel utilization, particularly in the Northern Hemisphere. We continue to anticipate revenue and adjusted EBITDA to be above 2020 levels with positive net income.Our CapEx expectation for 2021 has been revised upward by $20 million to between $140 million and $160 million after including shipyard expenditures of Seaway 7's newbuild vessel program.Turning to 2022. We expect a modest decline in revenue year-on-year, while adjusted EBITDA is anticipated to be broadly in line with 2021. Capital expenditure for the group in 2022 is expected to fall within the range of $420 million to $440 million, mainly driven by Seaway 7's construction commitments for the Alfa Lift and the Vind 1.CapEx relating to the Subsea and Conventional business is forecast at $140 million to $160 million, marginally higher than 2021, driven by enhancements to certain PLSVs prior to the start of their new contracts.I will now pass you back to John.

[John Evans, Chief Executive Officer]

Thank you, Ricardo. On Slide 11, we have a summary of our strategy, comprising the Subsea field of the future and the proactive participation in the energy transition. Our progress since June touches upon 4 elements of the strategy, and I'll take each in turn, starting with integrated SPS and SURF.After our success in booking Bacalhau project in the second quarter, during the third quarter, we had another big award for the Subsea Integration Alliance, the Sakarya project in Turkey. Together, with some smaller contract awards this quarter, it has taken the SIA's market share since January 2020 to 75% by revenue. The award follows a strong collaborative early engagement process with Turkish Petroleum, which will enable an industry-leading time line from discovery to first gas for a project of this scale and complexity.The project will utilize the engineering and procuring project management expertise of our Global Project Center as well as the local team in Turkey, and it will utilize several Subsea 7 vessels in 2022.The pipeline of opportunities for integrated work remains strong. The Subsea Integration Alliance is the preferred supplier on Scarborough, which is due to sanction in quarter 4 and is the bidding on LAPA South West BMC-33 and Bay du Nord.Moving to Slide 13 and our PLSVs in Brazil. In October, we announced new contracts for 3 of our PLSVs working for Petrobras, namely the Seven Rio, the Seven Sun and the Seven Waves. Each award covers a 3-year period, giving us visibility through 2024. In addition, Seven Seas will be deployed to Brazil for approximately one year to complete the remaining stub period of the old contracts for the 3 vessels.Along with the Seven Cruzeiro, which will continue on its existing contract until the end of 2022, we will have 5 vessels working for Petrobras next year. Each of the newly contracted vessels will undergo some modifications before commencing the new contracts, amounting to a total of approximately 240 days downtime and $30 million of capital expenditure. This is reflected in the guidance for 2022 that Ricardo has just discussed.We are pleased with the outcomes of the PLSV tender in Brazil. It gives us long term revenue visibility, whilst retaining some exposure to a potentially improving PLSV market in '24-'25 onwards. This continuation of our successful relationship with Petrobras is a testament to the strong performance of our team and our vessels in Brazil.On Slide 14, we have a quick recap of our combination with OHT to create Seaway 7 ASA, which completed on the 1st of October. From Q4 onwards, we will be fully consolidating Seaway 7 into our results in the Renewables business unit, as well as reporting Seaway 7 separately.Stuart Fitzgerald and Mark Hodgkinson, CEO and CFO of Seaway 7 will be hosting an investor presentation straight after ours today. And so to avoid repetition, I encourage you to follow their results and listen to their conference call for more details of the outlook of our Renewables business unit.Finally, before we turn to our customary prospect slide, on Slide 15, I want to highlight our recent commitments to achieve Net Zero by 2050, with a 50% reduction in emissions by 2035. These targets are the result of detailed planning by our operation team in both Subsea Conventional and Renewables. With 98% of our emissions coming from our fleet, the plan focuses on decarbonizing our offshore activity based on increased digitalization, hybridization, shore power and the use of clean fuels.We're reporting our progress over the coming years, and our emissions data will be published annually in the sustainability report.And so we move on to the maps outlining prospects in Subsea and wind over the coming 12 months. I will focus today on the Subsea map on Slide 16, and let Stuart and Mark talk you through the prospects in wind showed on Slide 17.The industry recovery in Subsea and Conventional continues to gain momentum, very much along the lines that we have discussed in previous quarters. The most active markets remain Brazil, the Gulf of Mexico and Norway. Overall, the value of tenders in-house has increased 70% since the low point in May 2020 and is up 20% from the levels seen before COVID in December 2019. As well as active tendering, we are experiencing higher levels of early engagement and engineering, and we talked last quarter about the increased headcount in these teams to meet demand.We've previously noted that given the long term nature of our projects, this upturn will take time to feed through the higher vessel activity. But based on our existing backlog and potential new awards, this is expected from the second half of 2023 onwards. In the meantime, we continue to plan to rationalize our fleet in 2022. Overall, we are encouraged by the way the recovery is progressing and remain confident in the outlook for Subsea and Conventional.On the next slide, we have the wind prospects. As mentioned, I'll leave the details to Seaway 7 to discuss, but we continue to see strong demand centered on the U.S. and the U.K. with high levels of bidding activity to-date and awards expected from 2022 onwards.To wrap up, I'll turn to our final slide on Page 18. In summary, our core Subsea business is experiencing recovery, focused on 3 key markets. With early cycle activities increasing compared with both the lows of 2020 and also when compared to the pre-COVID levels at the end of 2019, the recent awards of the PLSV contracts and Sakarya give us enhanced visibility for 2022, and we expect an improvement in the dynamics of our offshore activities to make a positive impact on our results from the second half of 2023 onwards.In offshore fixed wind, we have completed the combination with OHT and our Renewables business unit to create Seaway 7. With a full suite of installation and heavy transport vessels, Seaway 7 is well placed with leading-edge capabilities to address this high-growth market.Finally, we're making good progress ensuring we are well positioned in the emerging markets of floating wind and carbon capture that offer both subsea set exciting long term growth prospects.With that, I'll be happy to take your questions.

[Operator]

[Operator Instructions] Your first question comes from the line of Nik Konstantakis from Exane.

[Nikolaos Konstantakis, Analyst of Oil and Gas]

I just want to start with you, actually, and a comment you made around the working capital investments that could increase next year. Do you mean that there will be further working capital absorption versus where we are today? Or we should look at a higher outflow versus what we have seen so far?Then secondly, I guess, on the Renewable business, nice to see some positive contribution there. Would you say the 3Q performance is indicative of what you can deliver? And, I guess, could you give us a bit visibility on what -- if you have any revenue, and margin in there into next year and how to think about that?And then lastly, can you just remind us a little bit the basis on which the PLSV is being bid? Just trying to understand around what is the cost base? What kind of EBITDA margins are we thinking? I know, historically, it was a 50% type of business, so just want to get an understanding there as for thinking about the mix and the bridge into next year?

[John Evans, Chief Executive Officer]

So Nik, okay, I think there's 3 questions in there. If I suggest that I'll take the Renewables and the PLSV first, and then I'll hand over to Ricardo to talk about the working capital, if that's okay with yourselves. The Renewables business in Q3 was performing well. And in my prepared script, I talked about the various projects that we were working on. And we do expect an improvement in Renewables next year to continue. And we, hopefully, have a clear path to conclude the work in Taiwan for next year. So for us, we would expect to see that our ambition to have a $1 billion business at a 10% EBITDA, should be well on the way next year. So we do expect the renewables business to make an improved contribution next year.In terms of the PLSVs, as I mentioned in my prepared script, we're pleased with the renewals that we have. There is a change in the structure of those contracts. There's some capital expenditure to spend on the assets to get them upgraded for the new 3-year contract, which will be taking them out of service for a period of time next year to do so and tie that in with a statutory drydocks.We also have them [ revved ] Brazilian flag. So there's some friction cost in the [ revving ] in our process, which all 3 vessels will go through next year as well. But we are comfortable that we were awarded those. They were public openings. So you could see what the margins are for ourselves and our peers there. And we're very pleased that we have 3 years firm on those with a one year option on each of those.And I think the other important thing to think about is each of those contracts, where they completed had a stub length of a few months on the end of each of those. And we've been able to deploy the seas into the market next year in Brazil to collect the number of months of work on each of those contracts that could have been lost had we converted the vessels immediately to the new contracts. So there is some changes in the vessels for next year, but we're very pleased with what we've got there. And I think it's a good position that we've got the awards for those sectors. I'll hand over then to Ricardo to talk a little bit about working capital.

[Ricardo Horacio Rosa, Chief Financial Officer]

Thank you, John. As you say, we did see an increase in our working capital quarter-on-quarter of about $230 million, and I've set out in my prepared comments, the drivers of that increase. We are working hard on improving the position in fourth quarter, and we do expect an improvement in this period. I do want to assure you too, that we have robust controls and processes in place to record and monitor our receivables and importantly receive payment.Looking ahead at 2022, we are expecting an increase in working capital. And if I understood you correctly, because the line was somewhat muffled, yes it does imply an increase in receivables that were delayed in cash inflow. And this is because we are going to be executing large EPCI projects with adverse payment terms, particularly in the Middle East with its customary extended payment terms and Brazil, where we'll be executing Mero-3, in particular, for Petrobras.As we have previously flagged to the market on a number of occasions, Petrobras has been insisting on extended payment terms from its EPCI contractors. All the major contractors have been awarded work with Petrobras -- major EPCI work, and they, therefore, face the same challenge.On a more positive note, we are starting to see that Petrobras is proposing less onerous payment terms in more recent invitations to tender. And we will continue, of course, to engage with them on the topic and convince them to consider better and more equitable payment terms for its contractors.And lastly, I just want to emphasize again that in addition to the efforts and controls and processes we have in place, we have sources of liquidity to address the working capital needs of 2020, and we'll only draw on them if they're required.

[Operator]

Your next question comes from the line of James Thompson from JPMorgan.

[James Thompson, Analyst]

Just a follow-up on Nik's point on the working capital in the third quarter. Ricardo, are you able to sort of give us some guidance about those 3 buckets gone, so the Middle East work and Taiwan, kind of which are the most significant there, which may well help us think about kind of what it might look like in the fourth quarter?My second question is really around Turkey. I mean, obviously, it's a large project, which is being executed in a very short time frame. I was just wondering, John, if you could give us some reassurances around delivery here and what sort of protections you might have in place? I mean, because we're reading pretty often about logistical issue, supply chain issue, things like that, affecting kind of global industry. And so does that put you at risk in such a short duration projects?And I guess my final question is really on vessel CapEx. It was a little bit higher in 2022 than my estimate. Does that mean that really the bulk of the new build CapEx is coming in 2022, and therefore, 2023 should be materially lower?

[John Evans, Chief Executive Officer]

I'll do Turkey first, and then Ricardo can cover the CapEx and working capital. We, as I mentioned in my prepared remarks, I had been working in an early engagement mode with Turkish Petroleum and Schlumberger on this opportunity. And that has been going for the bulk of this year. We have secured all the materials -- prime materials that we need for the project, including lined pipe, coating, umbilicals, flexibles are all being ordered and we're ordered in a sequenced approach with our clients backing throughout that process. And we have a full team mobilized. We've subcontracted part of the pipe lay work to one of our competitors, and that's fully signed up as well as the commitment for our vessels. So we have been very engaged in the Subsea Integration Alliance model of working with our clients early and this is a great example of how that work manifests itself when you can get all the stars to align. So we're very comfortable that we have a good project there.I was in Istanbul with Olivier in talks with Schlumberger about a month ago when we signed the contract and spent time with the senior team there for the clients. And it's a highly focused team, working very efficiently and in a very aligned way to achieve quite an ambitious deadline. But all the right things have been done at all the right times. And so for us, we look forward to executing that. I'll hand over to Ricardo to cover the CapEx and the working capital.

[Ricardo Horacio Rosa, Chief Financial Officer]

Touching first on working capital. I do want to emphasize that, although we are working hard to achieve an improvement in the fourth quarter, and we are expecting it, do not expect a reversal of the working capital outflow that has occurred in the first 9 months of this year. I think that I'd highlighted essentially 3 elements to the outflow. The milestone payments in the Gulf of Mexico, and those we view as relatively short term and effect a number of clients.With regards, more importantly, to the Middle East, as I'm sure you're aware, there's one client in particular that has a very complex and paper heavy approval process. We have a detailed time line and have assigned resources to accelerate as much as possible that approval process. And we are hopeful of improving our profile there, but there's always an element of risk associated with it.And lastly, I mentioned the Renewables projects in Taiwan. And as you would know, progress in the fourth quarter tends to be adversely affected by the seasonality of the bad weather, and which affects the offshore execution installation of the various -- of the various structures. So on that front, we don't expect to see resolution until 2022. So I hope that provides you some additional color for what we're seeing in the short term. And I've already commented on what we're expecting for 2022 as a whole.As far as capital expenditure is concerned, as we -- as John has mentioned, we are investing in the construction of the Alfa Lift and subsequent to that Vind 1. And the expenditures that we're envisaging would essentially be disgorged sequentially with the bulk of the Alfa Lift being -- or the bulk of the Alfa Lift being covered in '22 as we're expecting delivery of the vessel. But most of the expenditure on the Vind 1 will take place in '23. So don't assume, therefore, that the capital expenditures will decline very significantly in '23 with respect to those 2 new builds.

[James Thompson, Analyst]

Just one final question, small follow up, if I may. In terms of 2022 in the Renewable segment, do you think it could be EBIT positive next year?

[John Evans, Chief Executive Officer]

As I said earlier to James, it's well on its path to being an EBITDA business in the $100 million range is what we are targeting for that business and be well on that path next year.

[Operator]

Your next question comes from the line of Vlad Sergievskii from BofA.

[Vladimir Maximovich Sergievskii, Research Analyst]

The first one, would you be able to discuss profitability drivers, positive and perhaps some negative going into 2022 compared to this year?Secondly, you are tracking to achieve a very strong order intake in 2021 already. Is there a room to improve order intake further next year?And then lastly, Ricardo, if you could perhaps give us some additional color on the magnitude of potential net working capital outflow next year. Are we talking about low 3-digit number, mid 3-digit number, any color would be super helpful.

[John Evans, Chief Executive Officer]

Okay. If I take your questions there, Vlad. So order intake, as we show in our map of the world, we remain confident that there's a good pipeline of projects there for us. And we feel comfortable that we will again achieve next year a book-to-bill of over 1. We can see that there are good opportunities there. And we've talked earlier about we expect to see Scarborough sanction subject to Woodside and their partners by the end of this year. Pecan is a project in Ghana, where we have been a favorite contractor for couple of years, and there will be an opportunity to see whether that project sanctions next year. And the usual pipeline that we talk about is very strong here.We also expect next year the contract for difference awards, which have been delayed in the U.K. The U.K. government are pretty clear that they will be awarding the contract for differences in middle of next year, and that then should allow probably half a dozen U.K. based very large Renewables projects to be awarded to the industry.We are also seeing the Renewables in the U.S. market, where there's, again, half a dozen very large projects there, running in parallel. Our discussions with clients say that they'll be reaching a crescendo on those next year. So we feel comfortable that we've had a very good year this year, and we expect to see next year being certainly as good as this year, hopefully better.Profitability drivers for 2022. I think 2022 is, just thinking about it in the mix of the work that we do. As I explained to James earlier, we expect to see renewables doing better next year. And, hopefully, the challenges that Taiwan threw us last year -- or this year will not reoccur. But we see next year that our offshore fleet is a smaller fleet next year. As we've discussed consistently, that we would reduce the fleet for 2022. And as a result of the no awards, major projects in 2020, meaning there's not much work taken offshore in 2022. So we'll adjust the fleet size in Subsea and Conventional to suit.And as I discussed earlier, on the PLSVs that Nik had asked, we have all 3 of our PLSVs out to service for a period of time next year, whilst they have their dockings and CapEx, which then allows them then to start a new 3-year period ahead. So we'll see the profitability in oil and gas go down a bit next year, and we expect to see Renewables coming up, and that's why we're guiding next year that our EBITDA is broadly in line with this year. So they are the moving parts of next year. I now hand over to Ricardo on the working capital.

[Ricardo Horacio Rosa, Chief Financial Officer]

Yes, Vlad, your question has been couched in terms of that are difficult to reply to with any clarity, because I don't know what you mean by low to mid triple digits. But assuming that it's taking the triple digits, then I would say that it is in the order of low to mid.

[Operator]

[Operator Instructions] Your next question comes from the line of Frederik Lunde from Carnegie.

[Chr. Frederik H. Lunde]

Could you comment a bit on how you think on cash allocation next year given the build in working capital, could also Seaway 7 being partly on its own balance sheet?

[John Evans, Chief Executive Officer]

Yes. Frederik, we, as always, as a company, have 3 sides of a triangle that we've always looked at. The first is invest in the business, and that's why we are investing in Seaway 7, because we can see a very clear lack of supply and a huge increase in demand in that Renewables business in '25, '26 and '27, and our discussions with our Renewables clients are very clearly now focused around that gap, and that's why those assets are being invested in for that opportunity.The second one then is, we've always had a very strong balance sheet, and we continue to protect our balance sheet. And lastly, our Board will sit down, as we always do, to look at returns to shareholders. We've been pretty consistent year-on-year and always having a view on that, be it through a share buyback or through dividend. And that conversation will take place, I'm sure, in the first quarter of next year.And just to remind everybody, over a decade, we have given $2 billion back to our shareholders and we're clear in our minds that there will be shareholder returns as a key priority over the next few years for us. So I think the key thing for us is that Renewables it's about targeted investment in specific top end assets that are very focused on that gap that is very clearly opening up from '25 onwards. And we also know that there's another big gap opening up from 2030 onwards as well. So that's how we think about capital allocation inside the group at the moment.

[Operator]

There seems to be no further questions. Please continue.

[Katherine Tonks, Head of Investor Relations]

I think we might have one question from Citi. Could you just take that last one?

[Operator]

The question comes from Michael Alsford from Citi.

[Michael James Alsford, Director]

I've just got one really just on the Renewables business, and maybe it's a question for later on. But just a question around the supply chain in the U.S., there's obviously a big pipeline, but I'm just wondering how you -- and are getting comfortable with managing what are clearly extra supply chain challenges in the U.S. with the Jones Act et cetera, when it comes to bidding for those projects going forward?

[John Evans, Chief Executive Officer]

Yes. Thank you, Michael. Well, 2 things. I think we've been in the U.S. for over 30 years, so we're fully conversant with Jones Act, and we understand the complexity of that and the subtlety of how that works. But the one thing that is very important for us, again, is the fact that we also have in the Alfa Lift the ability to transship materials from Europe or from Canada into the American markets, which again is a certain way of working through the Jones Act complexities. And we also are aware of the fact of how to work in the Jones Act and how that can be orchestrated.We also are looking at our U.S. renewables bids in making sure that vessel owners who've been partners for us for over a decade, 15 years in some cases in the U.S. work with us on those Renewables projects. So, again, we very much take a proactive approach of making sure that we have Jones Act compliant support vessels from existing suppliers that we're very comfortable to work with, and they're comfortable to work with us as we've used in oil and gas as well as looking at the benefits of potential transshipment opportunities that the Alfa Lift allows us to do.

[Michael James Alsford, Director]

And just maybe a follow-up on the fleet for next year on the more Subsea part of the business. Could you just remind me or us of what exactly you're going to be doing on managing the fleet down next year? Is it just -- simply just not chartering the third-party vessels? Or can you maybe elaborate on how you're going to scale down to, then scale back up again in '23 and beyond?

[John Evans, Chief Executive Officer]

We'll be returning a number of chartered tonnage to their owners next year, and then we'll use the flexibility that we have in the market. Then as the market picks up from mid '23 onwards to bring tonnage back on board as we need to. So it's really around the last step of what we discussed 18 months ago with the market.And I think it's very important to remember, there's 2 different things actually happened here. In terms of the offshore fleet, we are pretty much continuing downwards in terms of adjusting to [ suite there ] and that's about working the asset base that we have out at work at a very high level next year. But, equally then we've seen, as we've discussed in the last couple of quarters, the need for project management, engineering, supply chain skills, fabrication skills coming into the business, to be ready for this uptick in work that we are seeing from mid-2023 onwards. And let's remind ourselves what does that look like. We have firm work in Brazil through Bacalhau and Mero-3. And we continue to bid future projects that come off the back of that in the sequence of bidding that's coming.We already have Barossa in Australia, and we do expect to see Scarborough sanction this quarter. So that will give a continuity work down in Asia and in Australia. And last but not least, we are getting ready for quite a round of awards in Norway in 2022, which is around the tax break that exists there. We're currently working as the exclusive partner with Aker BP on its portfolio, and those projects will come to sanction next year. And we are working with Equinor on a set of bids that will come out there.So we are again tuning the fleet to where we expect it to be in terms of awards in 2022 that then lead to work back end of '23, early '24. So that's the exercise that we're doing then, Michael it's a controlled contraction to then go in to a growth mode afterwards.I believe that's the last question. Well, thank you very much. What I'd like to do just in closing, though, is to thank Ricardo for his very, very much valued service to Subsea 7 over just a shade under a decade. I've been a colleague with Ricardo throughout his time here in Subsea 7 and I very much value Ricardo's support and inputs into the business over the last decade.We very much wish Ricardo well in his retirement, and we look forward to Mark joining the team, and he will take the next quarter's call. I'm sure each of you will get an opportunity to speak individually to Ricardo and to make your wishes known. But we very much thank you, Ricardo, and look forward to a healthy and prosperous retirement. Thank you, Ricardo.

[Ricardo Horacio Rosa, Chief Financial Officer]

Thank you, John, and good luck, everyone and in your respective careers.

[John Evans, Chief Executive Officer]

Thanks a lot, and we look forward to talking to you in Q4.

[Operator]

That does conclude our conference for today. Thank you all for participating. You may all disconnect.