Q3 2024 Borr Drilling Ltd Earnings Call
[music].
Okay.
Good day, and thank you for standing by.
Unknown Executive: Welcome to the Borr Drilling Limited third quarter 2024 results.
Welcome to the Board drilling Ltd third quarter 2024 results presentation webcast and conference call. At this time, all participants are in a listen only mode.
Unknown Executive: Webcasting. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 and 1 on your telephone. You will then hear an automated message advising your hand. To withdraw your question, please press star 11 again.
Unknown Executive: If you wish to ask a question via the webcast, please use the Q&A box available on the webcast link anytime during Please be advised that today's conference is I would now like to hand the conference over to your first speaker today, Mr. Patrick Schorn, CEO.
Patrick Schorn: Please go ahead. Thank you. Good morning and thank you for participating in the Borr Drilling third quarter earnings call. I'm Patrick Schorn and with me here in Bermuda today.
Patrick Schorn: Following the Borr Drilling board meeting is Bruno Morand, our Chief Commercial Officer and Magnus Vaaler, our Chief Financial Next slide, please. First covering the required disclaimers. I would like to remind all participants that some of the statements will be forward-looking. These matters involve risks and uncertainties that could cause actual results to differ materially from those projected in these tight I therefore refer you to our latest public filing. This quarter's results were as expected, though slightly below the prior quarter. Recall that Q2 results were boosted by one-off benefits related to our Mexico contracts and suspension of the Arabia One.
Patrick Schorn: Without these one-off items, Q3 adjusted EBITDA of $115 million was essentially flat with Q1. Our core operations performed strongly with a technical utilization of 98.7% and an economic utilization rate of 96.9%. In terms of contracting, we have commenced new contracts at the creative day rates for the Sculpt, Norva and Net. Three other rigs, the Gunlod, GERD, and Arabia One, had fewer operational days quarter over quarter as they undergo preparation for upgoing accretive contracts scheduled to start in Q4 and Q1 2025. Our contract portfolio has strong revenue visibility into 2025, with 78% of our fleet contracted through 2025 at an average day rate of $148,000 per day, which is 10% higher.
Patrick Schorn: than in 2024. With the delivery of the DARN, the VAR next week, our new build program will be complete, bringing Bors fleet to 24 premium rigs, the youngest fleet in the industry and a clear competitive advantage. The VAR is now expected to be contracted by early 2025, rather than by the end of 2024 as previously anticipated. The completion of our new build program, along with a reduced number of special periodic surveys in 2025, compared to this year, is projected to increase cash flow in 2025.
Patrick Schorn: However... The concept of near-term oils is exceeding demand and recently driven oil prices lower, leading customers to act with greater caution in confirming rigged contracts and options. And in some instances, Delaying the start of new projects, this coupled with the lingering impact of rig suspensions in Saudi earlier this year and potential suspensions in Mexico is creating uncertainties in the jackup market in specific regions. Consequently, there is a risk of contract delays and potential gaps in activity in the coming quarters. Due to these developments. in the market. We have updated our full year 2024 adjusted EBITDA guidance of 500 to 550 million to be at or about the lower end of the range.
Patrick Schorn: This is a dynamic situation where headwinds may also abruptly abate.
Patrick Schorn: So we are managing the situation closely and will provide a 2025 adjusted EBITDA guidance on the next earnings call in February. From a cash perspective, we are well positioned for the future. Last month, we tapped out 20 to 30 bonds to finance the VAR. Our final new build, raising $175 million at more economic costs than the available shipyard finances. We have an undrawn $150 million revolving credit facility, a $45 million guarantee facility, and $185 million in cash at the end of the quarter, resulting in a total liquidity of approximately $335 million.
Patrick Schorn: The board has decided to continue with a quarterly total shareholder return of $25 million. an amount similar to previous quarters. The board has declared a cash distribution of two cents per share. for a total of $4.8 million for the third quarter and committed to buy back $20 million in shares under the company authorized share buyback program before the end of 2024. The fundamentals of the global jack-up rig market remain supportive in the medium and long term, favouring Borr, with an ageing global fleet, 30%, which is over 35 years old, driving additional retirements, and now, no new orders in a decade, conditions support our position as the operator of the youngest fleet of 24 premium rigs.
Patrick Schorn: In closing, I would like to extend our gratitude to the Euronext Oslo Stock Exchange. for their support of Borr Drilling since our listing in 2017. They have provided a supportive environment as our company has grown over the years.
Speaker Change: of bore drilling since our listing in 2017. They have provided a supportive environment as our company has grown over the years.
Patrick Schorn: With the OSE approving our delisting application, our final trading day there will be December 30th, 2024, after which Borr Drilling will maintain a single listing on the New York Stock Exchange.
Speaker Change: With the OSE approving our delisting application, our final trading day there will be December 30th, 2024, after which Bohr Grilling will maintain a single listing on the New York Stock Exchange.
Magnus Vaaler: Magnus will now discuss The financial details of the quarter. Thank you, Patrick. Going into the financials in a bit more detail, the Q3 2024 total operating revenues were 241.6 million, a decrease of 30.3 million compared to the second quarter. The quarter-on-quarter variance was mainly due to two one-off items in Q2 that did not repeat in Q3, related to the recognition of accelerated amortization of deferred revenue, namely $17.5 million related to the contract termination for the rig Arabia 1 and $10.6 million as a result of the amendments made to the operating structure of the Mexico JVs which became effective April 1st, 2024.
Magnus will now discuss the financial details of the quarter.
Magnus: Thank you, Patrick. So going into the financials in a bit more detail, the Q3 2024 total operating revenues were 241.6 million, a decrease of 30.3 million compared to the second quarter.
Speaker Change: The quarter-on-quarter variance was mainly due to two one-off items in Q2 that did not repeat in Q3, related to the recognition of accelerated amortization of deferred revenue.
Speaker Change: Namely, $17.5 million related to the contract termination for the rig Arabia 1 and $10.6 million as a result of the amendments made to the operating structure of the Mexico JVs which became effective April 1st, 2024.
Magnus Vaaler: Total operating expenses decreased by 9.5 million compared to the second quarter. Of the overall change, 7.5 million is related to the Arabia one. The prior quarter included a one-off impact of 4.5 million associated with the recognition of the accelerated amortization of deferred costs, and the remaining decrease for Arabia One relates to lower operating costs as a result of the rig preparing for its upcoming complications. Net income for the third quarter was $9.7 million, a decrease of $22 million compared to the second quarter. Adjusted EBITDA for the third quarter was 115.5 million, a decrease of 20.9 million, or 15% compared to the second quarter.
Speaker Change: Total operating expenses decreased by 9.5 million compared to the second quarter.
Speaker Change: Of the overall change, 7.5 million is related to the Arabia One.
Speaker Change: The prior quarter included a one-off impact of 4.5 million associated with the recognition of the accelerated amortization of deferred costs, and the remaining decrease for Arabia One relates to lower operating costs as a result of the rig preparing for its upcoming contract.
Speaker Change: Net income for the third quarter was 9.7 million, a decrease of 22 million compared to the second quarter. Adjusted EBITDA for the third quarter was 115.5 million, a decrease of 20.9 million, or 15 percent compared to the second quarter.
Magnus Vaaler: Our free cash position at the end of the third quarter was 185.7 million. In addition, we had 150 million undrawn under our RCF facility, resulting in total available liquidity of approximately $335.7 million. Cash decreased by 7.8 million in comparison to the prior quarter and consists of the following elements. Net cash provided by operating activities was $48.4 million, which includes $6 million of cash interest paid and 9.7 million colleagues from Patrick Schorn. Net cash used in investing activities was $187.4 million. This includes 173.3 million in addition to new buildings, of which 160 million relates to the payment of the final delivery instalment for the valley, which was delivered in August 2024.
Speaker Change: Our free cash position at the end of the third quarter was 185.7 million. In addition, we had 150 million undrawn under our RCS facility, resulting in total available liquidity of approximately 335.7 million.
Speaker Change: Cash decreased by 7.8 million in comparison to the prior quarter and consists of the following elements.
Speaker Change: Net cash provided by operating activities was $48.4 million, which includes $6 million of cash interest paid and $9.7 million of income taxes paid.
Net cash used in investing activities was 187.4 million.
Speaker Change: This includes 173.3 million in additions to new buildings, of which 160 million relates to the payment of the final delivery instalment for the valley, which was delivered in August 2024.
Magnus Vaaler: The remaining $13.4 million relates to the activation cost for the two new drilling rigs, Vaali and Baar. We also had 14.1 cash costs related to special periodic surveys and long term maintenance costs in the quarter. Net cash provided from financing activities was 131.1 million.
Speaker Change: The remaining $13.4 million relates to the activation cost for the two new wheel rigs, Vaali and Baar.
Speaker Change: We also had 14.1 cash costs related to special periodic surveys and long-term maintenance costs in the quarter.
Net cash provided from financing activities was 131.1 million.
Magnus Vaaler: This consists of 154.4% in-debt proceeds from the issuance of $150M principal amounts under our bonds due in 2028, less $23.9M used for the payment of cash distributions to shareholders.
Speaker Change: This consists of 154.4% in-debt proceeds from the issuance of 150M principal amounts under our bonds due in 2028, less 23.9M used for the payment of cash distributions to shareholders.
Bruno Morand: With this, I will pass the word over to Bruno. Thank you, Magnus. I'll begin by covering our recent contract extensions and rig movements for our fleet. I'll then discuss global and regional markets, recent contracting trends, and certain specific events that are of interest to our business. Since our last quarterly quote, I'm pleased to report that we secured contract extensions for the MIST, Prospector 1, and HIELD, all with current customers. These extensions are a testament to the strength of our performance and the trust with our clients, enabling us to maintain both operational efficiency and consistent revenues across our fleet.
With this, I will pass the word over to Bruno.
Bruno: Thank you, Magnus. I'll begin by covering our recent contract extensions and re-movements for our fleet. I'll then discuss global and regional markets, recent contracting trends, and certain specific events that are of interest to our business.
Bruno: Since our last quarterly quote, I am pleased to report that we secured contract extensions for the NIST, Prospector 1, and HIELD, all with current customers.
Bruno: These extensions are a testament to the strength of our performance and the trust we build with our clients, enabling us to maintain both operational efficiency and consistent revenues across our fleet.
Bruno Morand: The MIST operating Valura Energy Offshore Thailand received a one-year extension, keeping the rig active through the third quarter 2026. The unique offline capabilities of the unit, combined with the strong collaboration of our operational teams, enable us to consistently deliver wells ahead of schedule and generate substantial value for our customers. The Prospector 1 in the North Sea has further options exercised by O&EDS, securing the rigs contract through July 2025. We're currently working with our customer on certain upgrades to the rig that will enable it to operate with 100% green energy supplied from a nearby wind farm and deliver this project at near-zero-emission levels.
Bruno: The MIST Operating Valua Energy Offshore Thailand received a one-year extension, keeping the rig active through the third quarter 2026.
Bruno: The unique offline capabilities of the unit, combined with the strong collaboration of our operational teams, enable us to consistently deliver wells ahead of schedule and generate substantial value for our customer.
Bruno: The Prospector 1 in the North Sea has further options exercised by O&E Diaz, securing the rigs contract through July, 2025.
Bruno: We're currently working with our customer on certain upgrades to the rig that will enable it to operate with 100% green energy supplied from a nearby wind farm and deliver this project at near-zero emission levels.
Bruno Morand: Finally, in Mexico, the hilt was extended for a period of five months. The rig is now firmly committed to Q1-26. We're particularly pleased to see Feudwood's commitment to extend the rig more than a year in advance. Now, regarding recent movements within our fleet, I'll start in Asia, where I'm delighted to update that the gun lot has commenced operations with ExxonMobil in Malaysia earlier this month. Also in Asia, the TOR concluded its contract in Vietnam and returned to Singapore earlier this week. We're actively pursuing opportunities for this rig. And while we anticipate some idle time in the near future, we remain confident that we'll be back operational in the early part of 2025.
Bruno: Finally, in Mexico, the hilt was extended for a period of 5 months. The rig is now firmly committed to Q1-26. We are particularly pleased to see a fieldwood commitment to extend the rig more than a year in advance.
Bruno: Now, regarding recent movements within our fleet, I'll start in Asia, where I'm delighted to update that the gun lot has commenced operations with Exxon Mobil in Malaysia earlier this month.
Bruno: Also in Asia, the TOR concluded its contract in Vietnam and returned to Singapore earlier this week.
Bruno: We're actively pursuing opportunities for this rig, and while we anticipate some idle time in the near future, we remain confident that we'll be back operational in the early part of 2025.
Bruno Morand: The GERD is currently en route to Congo and is expected to commence its contract with DNI later this month. And lastly, our teams remain on track with the contract preparations for the Arabia 1 in Bali race. Both these units are expected to begin mobilization in Q4, ahead of their respective contract starts in Q1 next year. On a global basis, we continue to experience healthy jackup utilization levels. Modern rate utilization levels remain strong above 94 percent and around 90 percent if fully adjusted for aroncho-sustained. While there was some commodity price uncertainty in the quarter, the range of current and future Brent prices has held consistently above $70 per barrel, a level where the majority of the shallow water projects not only remain viable, but commercially attractive, providing a solid foundation for continued demand in the South.
Bruno: The GERD is currently en route to Congo and is expected to commence its contract with D&I later this month.
Bruno: And lastly, our teams remain on track with the contract preparations for the Arabia One and Vale race. Both these units are expected to begin mobilization in Q4, ahead of their respective contract starts in Q1 next year.
Speaker Change: Patrick Schorn, Magnus Vaaler, Patrick Schorn, Magnus Vaaler, Patrick Schorn, Magnus Vaaler,
Speaker Change: On a global basis, we continue to experience healthy jack-up utilization levels. Modern rate utilization levels remain strong above 94% and around 90% if fully adjusted for around those suspensions.
Speaker Change: While there was some commodity price uncertainty in the quarter, the range of current and future Brent prices
Bruno: has held consistently above $70 per barrel, a level where the majority of the shallow water projects not only remain viable, but commercially attractive, providing a solid foundation for continued demand in the sector.
Bruno Morand: At regional level, utilization and day rates across Africa, North Sea, and Americas have remained steady at levels comparable to those we saw earlier this year. In contrast, Asia and Middle East have experienced a softer environment due to risks from the Middle East pursuing contracts aggressively within the region. We expect this trend to moderate and likely reverse as supply of available rigs is gradually absorbed through 2025. As we look back at the third quarter, customer concerns around commodity price, along with supply chain constraints, drove delays in commitment and partner approvals, resulting in slowing contract activity. Despite this, outstanding standards and inquiries, along with a visible pipeline of opportunity, point to a reversal of this trend as we progress into 2025.
Bruno: At regional level, utilization and day rates across Africa, North Sea and Americas have remained steady at levels comparable to those we saw earlier this year.
Bruno: In contrast, Asia and Middle East have experienced a softer environment due to risks from the Middle East pursuing contracts aggressively within the region.
Bruno: We expect this trend to moderate and likely reverse as supply of available rigs is gradually absorbed through 2025.
Bruno: As we look back at the third quarter, customer concerns around commodity price, along with supply chain constraints, drove delays in commitments and partner approvals, resulting in slowing contract activity.
Bruno: Despite this, outstanding standards and inquiries, along with a visible pipeline of opportunity, point to a reversal of this trend as we progress into 2025.
Bruno Morand: In fact, we have noted an increase in tender issuances in Q3-24 compared to the same period last year.
Bruno: In fact, we have noted an increase in tender issuances in Q3-24 compared to the same period last year.
Bruno Morand: Now, before I hand the call back, I'll provide some commentary around the recent development in Mexico. We are aware of reports suggesting PMAC intentions to reduce spending levels in Q4 and potentially short-term reductions in JACCP activity levels. Following a recent change in executive management, we understand that PMAX will be focusing its year-end efforts on projects that reserve maximum short-term value with emphasis on cost management. However, at this time, we have not received any formal communications or notifications from PMAX regarding any changes to their budget or potential re-sustainability. Based on the government and PMAX restated commitment to increase reserves and maintain production levels at 1.8 million barrels per day, we expect that reductions in activity, if any, will be likely short-lived.
Bruno: Now before I hand the call back, I'll provide some commentary around the recent developments in Mexico.
Bruno: We are aware of reports suggesting PMAC intentions to reduce spending levels in Q4 and potentially short-term reductions in JACCP activity levels.
Bruno: Following a recent change in executive management, we understand that PMAX will be focusing its year-end efforts on projects that reserve maximum short-term value with emphasis on cost management.
Bruno: However, at this time, we have not received any formal communications or notifications from PMAG regarding any changes to their budget or potential rate suspensions.
and Patrick Schorn.
Speaker Change: Based on the government and PMAX restated commitment to increase reserves and maintain production levels at 1.8 million barrels per day, we expect that reductions in activity, if any, will be likely short-lived.
Bruno Morand: And based on open inquiries and ongoing discussions, we remain optimistic that, in fact, activity levels in Mexico for 2025 will remain strong, on par with, or above 2024 levels. In line with the administration's stated goals to focus on high-value activities, we believe our high-performing and prudent fleet is well-positioned to continue to serve BMAC. Further, we highlight that initial indications have been positive in relation to the commitments of the new administration of PMAX to find a constructive solution for issues associated with delayed payments. This is clearly a fundamental aspect to support our activity levels in the country going forward.
Speaker Change: And based on open inquiries and ongoing discussions, we remain optimistic that in fact activity levels in Mexico for 2025 will remain strong, on par with or above 2024 levels.
Speaker Change: In line with the administration's stated goals to focus on high-value activities, we believe our high-performing and proven fleet is well positioned to continue to serve BMEX.
Speaker Change: Further, we highlight that initial indications have been positive in relation to the commitments of the new administration of PMAX to find a constructive solution for issues associated with delayed payment.
Bruno Morand: In closing, we will enter 2025 with nearly 80% coverage for our fleet's available days at a strong average day rate of $148,000 per day. With this robust revenue visibility and strengthening pipeline of opportunity, I remain confident that we're well positioned to maintain strong fleet coverage to 2025 at levels comparable to those we achieved this year.
Speaker Change: This is clearly a fundamental aspect to support our activity levels in the country going forward.
Speaker Change: In closing, we will enter 2025 with nearly 80% coverage for our fleet's available days at a strong average day rate of $148,000 per day.
Speaker Change: With this robust revenue visibility and strengthening pipeline of opportunity, I am confident that we are well positioned to maintain strong fleet coverage through 2025 at levels comparable to those we achieved this year.
Bruno Morand: With that, I'd like to hand the call back over.
Unknown Executive: Thank you, Bruno.
Patrick Schorn: With that, I'd like to hand the call back over to Patrick.
Patrick Schorn: So, in conclusion... We have confirmed that the guidance for full year 2024. which has been the guidance put in place at Q3 2023, will be at or around the lower end of the original 500 to 550 million dollar range. Considering the flurry of downward guidance revisions given by our payers during the year, I feel Borr Drilling delivers very well in comparison. Looking at the backlog for 2025, both qualitatively as well as quantitatively, I think we are in a good place again.
Thank you, Ronald. So, in conclusion...
We have confirmed that the guidance for full year 2024
Speaker Change: which has been the guidance put in place at Q3 2023 will be at or around the lower end of the original 500 to 550 million dollar range.
Bruno: Considering the flurry of downward guidance revisions given by our payers during the year,
I feel more drilling delivers very well in comparison.
Bruno: Looking at the backlog for 2025 both qualitatively as well as quantitatively, I think we are in a good place again.
Patrick Schorn: Lastly, the board has decided to continue with a quarterly total shareholder return of $25 million, an amount similar to the previous quarters. The board has declared a cash contribution of two cents per share. totaling $4.8 million for the third quarter of 2024 and committed to buyback $20 million in shares under the company's authorized share buyback program before year-end.
Bruno: Lastly, the board has decided to continue with a quarterly total shareholder return of $25 million, an amount similar to the previous quarters. The board has declared a cash contribution of two cents per share.
Bruno: totaling 4.8 million dollars for the third quarter of 2024 and committed to buy back 20 million dollars in shares under the company's authorized share buyback program before year-end.
Unknown Executive: I would like to leave it at this and continue with questions and answers. Thank you.
Speaker Change: I would like to leave it at this and continue with questions and answers.
Unknown Executive: As a reminder, to ask a question, you will need to press star one and then one on your telephone and wait for your name to be To withdraw your question, please press star 11 again.
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Unknown Executive: Please kindly ask one question and possibly a follow up question at a time to leave room for other participants. If you have any further questions, you can please rejoin the queue.
Speaker Change: Please kindly ask one question and possibly a follow-up question at a time to leave room for other participants.
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Unknown Executive: We will now compile a Q&A roster, please stand.
We will now compile a Q&A roster. Please stand by.
Truls Olsen: Our first question comes from the line of Truls Olsen of Fernley Securities. Please go ahead your line. Thank you.
Speaker Change: Our first question comes from the line of Truls Olsson of Fernley Securities. Please go ahead, your line is open.
Bruno Morand: Good morning, Patrick, Magnus and Bruno. And this question perhaps is for you, Bruno, thinking about the, call it the dialogues with the various clients out there. How is that called dynamic change through the, call it evolution of the year? In as far as we're seeing a lot of tenders or tender activity being called it postponed, delayed and re-tenders, tenders, I guess that leads to changing dynamics. Yeah, Truls, thanks for the question. I mentioned in the early notes that we've continued to see programs shift to the right. I think this is a fair statement. But equally, I think the pipeline continues to grow positively.
Truls Olsson: Thank you, and good morning Patrick, Magnus and Bruno, and this question perhaps is for you Bruno, thinking about the
Truls Olsson: call it the dialogues with the various clients out there. How is that?
Truls Olsson: called dynamic change through the, call it, evolution of the year in as far as we're seeing a lot of tenders or tender activity being, call it, postponed, delayed and re-tenders. I guess that leads to changing dynamics.
Speaker Change: Yeah, true, thanks for the question. I mentioned in the early notes that we've continued to see programs shift to the right. I think that this is a fair statement, but equally I think the pipeline continues to grow positively. So
Bruno Morand: So we mentioned we see some risk of near-term idle time for rigs that roll off contracts in the early part of the year. That seems to strengthen as we get to the back end of the year. In terms of the dynamics in general, we mentioned in earlier notes that some regions have been more sheltered from these near-term concerns about supply. In West Africa and Mexico, we have continued to fix rigs at levels comparable to those we've seen earlier in the year. Inevitably, the markets that are perhaps a bit more assessed, more benign, like Southeast Asia, have seen a bit more of an aggressive contextual behavior.
Speaker Change: We mentioned we see some risk of near-term idle time for rigs that roll off contract in the early part of the year. That seems to strengthen as we get to the back end of the year.
Speaker Change: In terms of the dynamics in general, we mentioned in earlier notes that some regions have been more sheltered from these near-term concerns about supply, in West Africa and Mexico we have continued to fix.
Speaker Change: Rigs at levels comparable to those we've seen earlier in the year. Inevitably the markets that are perhaps a bit more assessed, more benign like Southeast Asia, have seen a bit more of an aggressive contextual behavior.
Bruno Morand: That said, if I reflect a little bit on Southeast Asia, obviously, our rigs are mobile. We continue to look the best employment opportunities for them across the globe. That said, Asia is a key market for us, and our rigs have very unique features. So we'll play by the constraints that exist in the region, but we feel very positive that this unique position that we have will continue to allow us to stay at the leading edge and have better utilization for those rigs than our peer groups.
Speaker Change: That said, if I reflect a little bit on Southeast Asia, obviously, our rigs are mobile, we continue to look for the best employment opportunities for them across the globe. That said, Asia is a key market for us, and our rigs have very unique features. So we'll play by the constraints that exist in the region, but we feel very positive that
Truls Olsson: This unique position that we have will continue to allow us to stay at the leading edge and have better utilization for those rigs than our peer groups. So that's kind of, in short, what we're seeing at the moment, Ruth.
Bruno Morand: That's in short what we're seeing at the moment. And thank you.
Bruno Morand: And as a follow up, and as far as you think about the market and the incremental demand, if you, where do you see, call it the strongest incremental demand, heading into 25, and then also glimpsing into 26? And secondly, as part of that question, what about the call it Middle East and then any view on Aramco and when they are going to sort of change tactics again. Yeah, sure Truls. And we kind of gave a play by play before on demand and I think that remains quite a bit unchanged. I think in the Middle East there are some interesting pockets of activity that are in the horizon and that includes, as I said earlier, Kuwait, KJO, and obviously we see ONGC now resuming as well, contracting.
Truls Olsson: Secondly, as part of that question, what about, call it Middle East, and then any view on
Truls Olsson: Aramco and when they are going to sort of change tactics again.
Yeah, sure, it rules, and we've kind of...
Truls Olsson: Keep a play-by-play before on the man, and I think that remains
Bruno Morand: So there's some pockets of demand in the Middle East that are quite interesting. In terms of Aramco specifically, it's hard to put The reality is that they are back at activity levels now that are not much superior to where they were before they start contracting rates. So I think we're at a point that we are at or at the floor or activity level that we would expect from Aramco. I don't think there's a lot of change. Now, I think if oil price improves during the year, I think there is a good chance that Aramco could be resuming that.
Truls Olsson: and obviously we see ONGC now resuming as well, contracting, so there's some pockets.
of demand in the Middle East that are...
Truls Olsson: quite interesting. In terms of Aramco specifically, it's hard to put...
Truls Olsson: a view on what our uncle was going to be doing.
Truls Olsson: The reality is that they are back at activity levels now that are not much superior to where they were before they start contracting rates. So I think we're at a point that...
Truls Olsson: We are at or at the floor or activity level that we would expect from a run, but I don't think there's a lot of change.
Truls Olsson: Now, I think if oil price improves during the year, I think there is a good chance that Aramco could be resuming then. I think that this is probably more a second half of 2025 event than it is the first half of 2025.
Bruno Morand: I think that this is probably more a second half of 2025 event than it is the first half of 2025 event. But that's something that we're monitoring as things move along. Now, in terms of the other regions, we do see interesting pockets of activity in West Africa, and we do believe that America, including Mexico, will provide some potential upside in demand in 2020 and 2025 as well. And in both regions, I think we're quite well positioned to tackle that. Asia, we do see some demand. It's a bit more discrete. I don't think that we are looking at very long programs, and that's likely to absorb some of the excess capacity that is in the region as we go into 2025.
Patrick Schorn, Magnus Vaaler
Truls Olsson: Now, in terms of the other regions, we do see interesting pockets of activity in West Africa, and we do believe that America, including Mexico, will provide some potential upside in demand in 2020 and 2025 as well, and in both regions, I think we're quite well positioned to tackle that.
Truls Olsson: Asia, we do see some demand, it's a bit more discreet. I don't think that we are looking at very long programs.
Bruno Morand: That's why I said earlier that the first part of 2025 looks a bit more challenging for Asia, but that should normalize as we get into the year and the pipeline.
Truls Olsson: And that's likely to absorb some of the excess capacity that is in the region as we go into 2025. That's why I said earlier that the first part of 2025 looks a bit more challenging for Asia, but that should normalize as we get into the year and the pipeline strengthens.
Unknown Executive: Excellent. Thank you for a detailed answer. Thank you guys. Thank you.
Thank you. Have a great day.
Excellent and thank you for a detailed answer.
Unknown Executive: We will now take our next question. Please stand by.
Thank you very much. Thank you.
Speaker Change: Thank you. We will now take our next question. Please stand by.
Fredrik Stene: Our next question comes from the line of Fredrik Stene of Clarkson Securities. Please go ahead, your line Hey Patrick and team, hope all is well. And I thank you Bruno for good market commentary on Truls' question. I have two things that maybe more relate to the balance sheet and the shareholder returns. First, could you maybe elaborate a bit on on not the change in distribution policy, but you know, why you felt like it was right to to actually swap quite a bit out of the cash dividend and put that into share buybacks. That's the first.
Speaker Change: Our next question comes from the line of Frederick Steen of Clarkson Securities. Please go ahead, your line is open.
Hey Patrick and team, hope all is well.
Speaker Change: And I thank you, Bruno, for good market commentary on Truls' question. I have two things that maybe more relate to the balance sheet and the shareholder returns. First, could you maybe elaborate a bit on...
Speaker Change: on not the change in distribution policy but you know why you felt like it was right to to actually swap quite a bit out of the cash dividend and put that into share buybacks. That's the first one.
Fredrik Stene: Hi Fredrik, thanks. So I think with the recent developments that we've seen in the share price and the pressure and the share price going down quite substantially over the past months, the board was of the opinion that to maintain the gross amount of a share of returns is appropriate. However, that it would be more attractive for our shareholders if we buy back our shares at what we see as very low and attractive levels and at low and high values of our rates. So I think that is the main reason for this sort of change in and that.
Thank you for your time.
Truls Olsson: to maintain the gross amount of a share of returns is appropriate, however, that it would...
Truls Olsson: be more attractive for our shareholders if we buy back our shares at what we see as very low and attractive levels and at low and high values of our rigs.
Truls Olsson: So, I think that is the main reason for the sort of change in that.
Fredrik Stene: strategy on the returns. So I think also going forward is going to show that we can be dynamic when it comes to either shareholder returns through dividends or to buy back shares if we find that more attractive.
strategy on the returns.
Truls Olsson: So I think also going forward this is going to show that we can be dynamic when it comes to either shareholder returns through dividends or to buy back shares if we find that more attractive.
Fredrik Stene: Okay, thanks, that's very helpful. you know, the potential swap or, you know, ability to go between pure dividends and share buybacks. Should we read anything into that in terms of you know, the gross amount that you plan to distribute, or is this more about allocating to what you think is accretive also going forward? I guess my question really relates to you know, what should we expect of stability around those gross returns? Yeah, I think it's important to re-emphasize that the gross amount that we are distributing is the same. So although the cash amount in dividend goes down, we are compensating for that through using the same gross dollar amounts to buy back the share.
Speaker Change: Thanks, that's very helpful. Do you think the potential swap or ability to go between pure dividends and share buybacks?
Speaker Change: You know, the gross amount that you plan to distribute, or is this more about allocating to what you think is accretive also going forward?
Speaker Change: I guess my question really relates to, you know, what should we expect of stability around those gross returns.
Speaker Change: Yeah, I think it's important to re-emphasize that the gross amount that we are distributing
Speaker Change: the same. So although the cash amount in dividend goes down, we are compensating for that through using the same gross dollar amounts to buy back the share. So that's important in the communication from the board here.
Fredrik Stene: So that's important in the communication from the board here that the distribution amount in gross term is the same.
Unknown Executive: So it's more about finding the most attractive way of Thank you for joining us.
Speaker Change: that the distribution amount in gross term is the same. So it's more about finding the most attractive way of...
Unknown Executive: Thank you for joining us.
Unknown Executive: Thank you.
Fredrik Stene: And second theme, you've, you know, done kind of re classify the way you book revenues from Mexico and how you've structured that. Pemex has in general been a bad Peer of Receivables. And I think kind of the amount of planning on your receivables side increased quite a lot this quarter. So you're kind of building working capital. Is that mostly Pemex related as well or are there other things that have impact? That's the movement right now. And I totally get the comments before that, you know, Pemex wants to work on this in the future, but just want to get a clear picture of the current state.
returning that to Sherwoods.
Speaker Change: Second theme, you've reclassified the way you book revenues from Mexico and how you've structured that. Pemex has in general been a bad...
Speaker Change: I think the amount of planning on your receivables side increased quite a lot this quarter. So you're kind of building working capital. Is that mostly Pemex related as well, or are there other things that have impacted that movement right now?
Speaker Change: and I totally get the comments before that, you know, Pemex wants to work on this in the future but just want to get a clear picture of current status.
Magnus Vaaler: Yeah, no, it's true. Mexico is, has a fluctuating way of paying off. And so it's true that over the past two quarters, we have received lower payments from Mexico than we would have expected when looking at what we have invoiced. So Mexico is definitely part of the build up in the accounts receivable that you see. We are actively looking into ways to monetize all the receivables. There are several other service or larger service companies that have been successful in obtaining factoring agreements with PEMEX. And this is something we're actively looking at, optimistic that we can get something done there.
Speaker Change: have a fluctuating way of paying off and so through that over the past two quarters we have received lower payments from Mexico than we would have expected.
Speaker Change: We are actively looking into ways to monetize all the receivables. There are several other services.
Speaker Change: are larger service companies that have been successful in obtaining factoring agreements.
Speaker Change: with ChemX and this is something we're actively looking at and I'm optimistic that we can get something done there.
Magnus Vaaler: I think the second part is accounts receivables also increase due to fluctuations. And there's natural fluctuations in the accounts receivables due to when invoices go out, when invoices are approved and sent to customers, and obviously when they pay. So we kind of have a situation also where we have some collections outstanding from a large IOC in Africa that has been slower than expected over corporate.
Speaker Change: I think the second part is counter-steer was also increased due to fluctuations and
and Patrick Schorn, Magnus Vaaler.
Speaker Change: some collections outstanding from a large IOC in Africa that has been slower than expected or record current.
Fredrik Stene: All right, perfect. That was very helpful.
Unknown Executive: Thank you very much and have a good day.
Thank you for watching!
and the other one.
Speaker Change: All right, perfect. That was very helpful. Thank you very much and have a good day. Thank you. We will now take our next question. Please stand by.
Unknown Executive: Thank you.
Unknown Executive: We will now take our next question. Please stand by.
Chris Lee: Our next question comes from the line of Chris Lee of Evercore ISI, please go ahead, your line is Hi, team. Thank you for taking my question. Just following up on Pemex. I know you guys gave out a lot of commentary around your expectations, but you know, just kind of curious to know if there isn't a major change to their capital plans for 2025. Is it fair to assume Pemex rigs could potentially get an extension? It seems like the five rigs in Mexico have been extended over the past three years. So just any color around this would be appreciated.
Speaker Change: Our next question comes from the line of Chris Lee of Evercore ISI. Please go ahead, your line is open.
Hi team, thank you for taking my questions.
Speaker Change: Just following up on Pemex, I know you guys gave out a lot of commentary around your expectations, but you know, just kind of curious to know if there isn't a major change to their capital plans for 2025, is it fair to assume Pemex rigs could
Speaker Change: potentially get an extension. It seems like the five rigs in Mexico have been extended over the past three years, so just any color around this would be appreciated.
Bruno Morand: All right, Chris. Indeed, our rigging in Mexico continues to deliver quite successful programs for PMAGs. They've been instrumental in assisting PMAGs in maintaining production levels. So, in general sense, I do believe that based on the state commitment from the government administration to maintain production levels, that those rigs will be a key component in the future of the activity in the country. So, we remain optimistic that there is obviously a long-term future for those rigs in Mexico. Clearly, Mexico activity level is not at peak levels, and PMAGs have been fighting hard to offset depletion levels, which are quite high in the country.
Speaker Change: All right, Chris. Indeed, our rigging in Mexico continues to deliver quite successful programs for PMACs. They've been instrumental in assisting PMACs in maintaining production levels.
Speaker Change: So, in general sense, I do believe that, based on the statement coming from the government administration to maintain production levels, that those rigs will be a key component in the future of the activity in-country.
Speaker Change: Clearly, Mexico's activity level is not at peak levels, and PMAX has been fighting hard to offset depletion levels, which are quite high in the country.
Bruno Morand: So, I think the general statement of the ambitions of the government in terms of production levels with increasing reserves continues to point actually towards the potential for an increase in activity in Mexico in 2025 and beyond. How we tackle that and how much of that we could be looking to obviously is a function of several things, including how the payment situation resolves. But we remain optimistic that we have a long-term outlook in Mexico, indeed.
Speaker Change: I think the general statements of the ambitions of the government in terms of production levels with increasing reserves continue to point actually towards the potential for an increase in activity in Mexico in 2025 and beyond, right? How we tackle that and how much of that we could be looking to, obviously, is a function of several things, including how the payment situation resolves. But we remain optimistic that we have a long-term outlook in Mexico indeed.
Chris Lee: Gotcha. And also, it seems like 2024 is particularly a CapEx heavy year, driven by SPS. How should we be thinking about incremental CapEx for 2025? And what it really means for, you know, the cash flow in 2025 versus, you know, 2024? Yeah, so definitely we have lower capex into next year. First of all, because of the two new builds that we have delivering this year. It's a large part of our capex both on the delivery installment and on activation costs also to get them ready to drill. We budget around 20 million per rig in activation costs.
Speaker Change: Gotcha. And also, it seems like 2024 is particularly a CapEx heavy year driven by SBS.
Speaker Change: How should we be thinking about incremental capex for 2025 and what it really means for the cash flow in 2025 versus 2024?
Speaker Change: Yeah, so definitely we have lower traffic in the next year. First of all, because of the two new builds that we have delivering this year. It's a large part of our...
Speaker Change: CapEx both on the delivery installments and on activation costs also to get them ready to
Magnus Vaaler: So at least we will spend that on the first rig, the Vaali, which has an upcoming contract. Additionally, as you said, we have a quite heavy SPS program now in 2024. Going into next year, we have a budget for around two rigs going through SPSs. And typically we say it's around five to six million dollars per SPS. I think also we have obviously some regular long-term maintenance over the fleet, which we typically say is between one and a half million dollars per rig per year. So I think that's the area you can expect capex to be going into next year.
Speaker Change: to drill. We budget around 20 million per rig in activation costs, so at least we will spend that on the first rig, the Vaali, which has an upcoming contract.
Speaker Change: Additionally, as you said, we have a quite heavy SPS program now in 2024. Going into next year, we have budgets for around two rigs going through SPSs.
Speaker Change: and typically we we say it's around five to six million dollars per SDS.
Speaker Change: which we typically say is between one and a half million dollars per rig per year, so I think that's the area you can expect CAPEX to be going into next year.
Chris Lee: Gotcha. And I guess lastly, if I could squeeze in another question. Bruno, during 2Q, you mentioned there was an incremental demand of 15 to 20 rigs over the next 12 to 18 months. Could you provide additional color in this? Or if there's any changes made to this outlook? And what kind of commercial opportunities are you seeing on the longer term? 2026 plus type of in the longer term period?
Speaker Change: Gotcha. And I guess, lastly, if I could squeeze in another question. Bruno, during 2Q, you mentioned there was an incremental demand of 15 to 20 rigs over the next 12 to 18 months.
Speaker Change: Could you provide additional color in this or if there's any changes made to this outlook and what kind of commercial opportunities are you seeing on the longer term 2026 plus type of in the longer term period?
Bruno Morand: Sure, Chris. And it's a good point because the situation in the market is fluid and we continue to review our demand outlook to make sure that we have a good grasp on it and we understand how it's been changing. And we conducted a very similar exercise to what we've done last quarter, this quarter. And I think the general conclusion here is that in order of magnitude, the numbers of the incremental demand that we see in the kind of next 18 months remain largely unchanged. But as I said earlier in the call, I think what has changed and we need to acknowledge is that some of these demands that were expected to be a bit on the front end of these 18 months seems to be pushed a bit more towards the back end.
Speaker Change: Sure, Chris. And it's a good point because the situation in the market is fluid and we continue to review our demand outlook to make sure that we have a good grasp on it and we understand how it's been changing.
Speaker Change: And we conducted a very similar exercise to what we've done last quarter, this quarter. And I think the general conclusion here is that...
Speaker Change: in order of magnitude, the numbers of the incremental demand that we see in the kind of next 18 months remain largely unchanged.
Speaker Change: But as I said earlier in the call, I think what has changed and we need to acknowledge is that some of these demands that were expected to be a bit on the front end of these 18 months seems to be pushed a bit more towards the back end, right? But in general, in terms of order of magnitude of demand, we are
Bruno Morand: But in general, in terms of order of magnitude of demand, we are tracking along what we said in the earlier quarter. So that's positive. And for us, when I look at 2025, we have a little bit of exposure in the front end of the year. And I think the door that has become idle is an example of that. And that's that's largely our focus. I think as we go into the back end of 2025, that exposure is definitely less concerning for us. We do see quite long term programs now starting to shape in 2026. And I had mentioned a few earlier in the call, like KOC, KJO, and frankly, I think things remain quite fluid.
Speaker Change: We are tracking along what we said in an earlier quarter, so that's positive.
Speaker Change: For us, when I look at 2025, we have a little bit of exposure in the front end of the year. And I think the door that has become idle is an example of that. And that's largely our focus. I think as we go into the back end of 2025 that
that exposure is definitely less concerning for us.
Speaker Change: We do see quite long-term programs now starting to shape in 2026, and I had mentioned a few earlier in the call, like KOC, KJO. And frankly, I think things remain quite fluid, but it wouldn't surprise me if we start seeing potential upside even in Saudi activity levels recovering as we go towards the back-end of 2025 into 2026, Chris. So that's kind of the way we see it at the moment.
Bruno Morand: But it wouldn't surprise me if we start seeing potential upside even in Saudi activity levels recovering as we go towards the back end of 2025 into 2026 grid. So that's that's kind of the way we see at the moment.
Chris Lee: Gotcha. Really appreciate the color.
Unknown Executive: I'll turn it back. My pleasure.
Unknown Executive: Thank you.
Speaker Change: Gotcha, I really appreciate the color. I'll turn it back to the Qt board.
Unknown Executive: There are no further questions.
Unknown Executive: Speakers, please. In this case, we would like to thank everybody for for their attention and listening into the call and we look forward to providing you with further updates to the business here in the coming months. Thank you very much.
Thank you.
Speaker Change: My pleasure. Thank you. There are no further questions. Speakers, please continue.
Speaker Change: In this case, we would like to thank everybody for their attention and listening in to the call. And we look forward to providing you with further updates to the business here in the coming months. Thank you very much.
Unknown Executive: This concludes today's conference call. Thank you for participating. You may now
Speaker Change: This concludes today's conference call. Thank you for participating. You may now disconnect.
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