BW Offshore Limited (BWO) Q4 FY2025 Earnings Call Transcript & Summary

Good morning, and welcome to our update of the fourth quarter as well as the full year 2025 results of BW Offshore. My name is Marco Beenen, CEO, and I'm here together with Stale Andreassen, our CFO. As always, at the end of this call, there is the opportunity to raise questions through the Q&A button and Stale and I will be happy to address those questions. Then please note our disclaimer, and then I will start with the highlights. We delivered a strong fourth quarter with high uptime and also strong full year results with EBITDA in line with our guidance at USD 240 million and an annual net profit of USD 134 million. And based on that, we will pay a cash dividend of USD 33 million in this quarter. Commissioning and ramp-up of our BW Opal is progressing with the first LNG cargo now delivered from the Darwin LNG facility in late January. Our 2026 EBITDA guidance is USD 340 million to USD 370 million. And as communicated in December, we initiated a strategic review, and that was a response to incoming interest for the company, linked to the strong FPSO market outlook and also our strong position within that market. I want to emphasize that this is not a situation where we're addressing a problem. Rather the contrary, we very much see this as an opportunity, and therefore, we engaged in this process. I don't have any further comments at this stage. Our main strategic focus of growing the FPSO business supported by an optimized capital structure and strong partnership remains unchanged, and we can deliver on those growth ambitions with our current structure. Moving on with an operational update. First, Opal. Opal is now ramping up its gas production, and we expect the output to reach 100% in the next quarter. As mentioned, the first LNG cargo was now delivered from the Darwin LNG facility. But during the fourth quarter, commissioning was delayed by 2 connection failures on the utilities and firewater piping system. And this resulted in a campaign to strengthen similar connections across the FPSO. And then in January, we had to follow the manufacturers advice to replace the gas compressor seals, and that impacted the available gas export capacity. So as a consequence, we've been producing between about 1/3 and 2/3 of the max capacity during most of this quarter. And we're now completing these seal replacement activities in the coming weeks and will then ramp up towards 100% in the next quarter. From mid-March, we will transition to a volume-based day rate, and that replaces the fixed commissioning day rate of 60%, which we received since September last year. And then revenue recognition will also start from that date. After completion of the remaining commissioning activities, we will reach the practical completion milestone, and that marks the formal commencement of the 15-year fixed contract period. And this is now because of these mentioned delays expected in Q2. Again, an excellent quarter with 100% commercial uptime of the fleet as we had no planned maintenance shutdowns in this quarter. We remain focused on maintaining a strong safety record, and we pay full attention to the trending up of the statistics, as you can see in the graph. The most important metric is the HPI, high potential incidents, and the increase in the high potential incidents was due to 2 new cases on BW Opal, linked to the pipe and connection failures I just mentioned. This did not result in any injuries, but it triggered a focused campaign to strengthen these critical connections across the FPSO facility. The incident count remains at a stable level, while actual hours of exposures are being reduced. So that brings the HPI frequency up as well, as you see. The high commercial uptime across the fleet in Q4 delivered also strong cash flows, and that underpins the operating cash flow backlog. BW Adolo production was a bit more than 30,000 barrels a day, higher than in the previous quarter, and this drives the production tariff we received in addition to the bareboat charter. BW Catcher also delivered high commercial uptime. And based on the current oil price and reservoir performance, we now expect that Catcher will remain on contract through 2029. We're also having ongoing dialogues with our client, Harbour Energy, about potential contract extension if that makes sense for both parties. We're proud that BW Catcher obtained the environmental ABATE notation from DNV last quarter. It's the first FPSO in the North Sea to receive this environmental notation, and it recognizes that the Catcher FPSO is leading in the industry with regard to managing and reducing emissions. And on Pioneer, we continue to provide O&M services under a 5-year O&M contract. And our client, Murphy Oil has confirmed drilling of a new well, and that may provide a production-related upside to our O&M fees. Going into 2026, the operating cash flow backlog is now USD 2.2 billion, of which 77% is firm, and that backlog includes the expected additional year of contract duration for Catcher. A few words about the Bay du Nord project for Equinor. This is really our next new undertaking that we're doing together with Equinor. The pre-FEED phase has been completed and the bridging phase is currently ongoing. The FEED is planned to commence in the coming months, and that's subject to final agreements between the partners and the local government. All technical and commercial discussions with Equinor are progressing well and are on schedule. And we also have started to engage with the supply chain and the expression of interest process for major equipment packages are ongoing. This project will expand our footprint into Canada, Newfoundland, and we're planning to open an office in St. John's in the first half of this year. And with that, I hand over to Stale to take you through the financials.

Thank you, Marco, and good morning, everyone. Starting with the EBITDA performance as we usually do under the financial section. Q4 EBITDA was $48 million, which is an increase quarter-on-quarter, driven by the strong fleet performance where we were able to deliver 100% commercial uptime. Again, worth reminding you that this does not include contribution from BW Opal, even though the FPSO is earning 60% of full charter rate during commissioning as the lease have not started from a financial reporting perspective. 2025 EBITDA or the full year EBITDA reached $240 million, which is within the guidance we have given in the past, although it's in the lower range due to the prolonged commissioning activities on BW Opal as Marco took you through earlier. Then for 2026, we guide on an EBITDA in the range of $340 million to $370 million. We expect BW Adolo production to reflect normal field decline before increasing towards year-end in line with the guidance given by BW Energy. Contribution for the year should be in the range of $60 million to $70 million. Catcher is anticipated to provide steady high commercial uptime throughout the year with a contribution of $160 million to $170 million under the current contract. Pioneer contribution should be $4 million to $8 million under the O&M contract with Murphy. The upper part of the range will depend on successful drilling and additional production being brought to the unit. For BW Opal, we are transitioning to a volume-based rate from mid-March, as earlier mentioned. From this point onwards, we earn charter based on gas volumes delivered to the client. Assuming gradual increase of production towards full capacity and start of the contract in the second quarter, we expect an EBITDA in the range of $160 million to $180 million for 2026. Additionally, we have planned SG&A, we have tender costs and also planned R&D activities, which is estimated to cost in the range of $40 million to upwards towards $50 million for 2026. And otherwise, please see the analyst slide in the appendix for more details on the units. Going to the income statement, which is pretty self-explanatory. The Q4 income statement reflects stable depreciation on the fleet. But from an EBIT perspective, an increase quarter-on-quarter to $27.5 million. There are relatively small movements this quarter on the financial items with net interest expenses being stable. And as we move to net profit, as mentioned earlier, that ended up being $24.1 million for Q4 and $134.2 million for the full year of 2025, which is again is reflecting an earnings per share of $0.13 for the quarter and $0.74 for the year. We are pleased to deliver another good quarter from a cash flow perspective. As you can see, we are able to deliver strong cash generation from the fleet with operating cash flow being $108 million for the quarter. This does include $46 million from Santos, which is prepayment related to the project. Santos is, as I mentioned before, and which has been mentioned a couple of times before, paying 60% charter rate as well as they pay for operations, which is included in the operating cash flow. Investments of $55 million were primarily related to BW Opal as we capitalized cost, and we had some additional costs related to extended commissioning and repair work as well as a smaller part, which is connected to ongoing investment in the Bakken project under BW Ideol, which we also consolidate into our cash flow. During the quarter, we closed a transaction with Holcim, which brings them in as a shareholder and strategic partner for BW Ideol, which combined brought in around $9 million in new proceeds. Under financing elements, you can see we amortized another $50 million on the Catcher loan facility. And after dividends and other recurring items, we ended the year with $395 million as our net cash position. Looking at the balance sheet, not much movement quarter-on-quarter. We continue to maintain a very strong financial position, where we are in a consolidated net cash position of $212 million, and equity ratio continues to trend in a very stable way and stood at just over 30% by end of the year. Liquidity remains robust at $635 million. This includes available capacity under our committed RCF, which is completely undrawn. All-in cost of debt continued to be very competitive. It was at 4.9% all in as our debt is fully hedged. As you can see on the right-hand side, we have limited consolidated debt maturities over the next few years. For Q4, we are increasing our dividend payments as we will be paying out $33 million, equivalent to $0.18 per share. So we continue to operate according to our strategic capital allocation framework, where we have substantive cash flow from the FPSO fleet to build on. Our objective is to grow the business pipeline with focus on FPSO projects being priority, but manage that in a way where growth does not compromise our promise to balance this with increasing dividends to shareholders over time. Q4 distribution have been adjusted, as mentioned before in part of our -- in our communication and is based on distribution of 50% of net income, which is the maximum allowed we can do under the bond covenants that we have. Thus, full year dividend totaled $67 million or $0.37 per share. This itself is up 12% year-on-year and in line with our target to provide growing dividends over time. With that, I'll hand it back to Marco. He should give you then an update on market and further outlook.

Thank you, Stale. The FPSO market remains strong with more than 75 projects between now and 2030 planned in various stages of maturity, and this is led by Brazil and then Asia and West Africa. As I have commented in previous updates, the FPSO market has changed with larger and more complex developments, and that drives a shift from the conventional lease and operate contracts to the EPCI plus O&M model. That reduces the need for project finance and also allows for more aligned partnerships during all phases of the project. There are still also opportunities for hybrid models where we own and operate the asset, while the clients take 50% or more of the project financing through prepayments, like we did with Santos and also now again with Equinor for the Bay du Nord project. And this reduces the financing constraints and increases the capital efficiency for those developments. We're taking a different approach to risk management and risk sharing with partners, which allows us to take on and better manage the larger FPSO projects. And with that, we're well positioned for both new build FPSOs and also redeployment projects for smaller developments. We have proven this through the delivery of BW Opal for the larger new build projects, but we also have access to a high-quality FPSO hull for redeployment following our acquisition of the Nganhurra early this year. And we can apply flexible execution and financing models, including strong partners to projects that meet our selection criteria. Of those 75-plus projects between now and 2030, I mentioned, there are about 12, which we think that there is a good probability that these get to an FID and where we have a good chance to win, and that's the projects we're focusing on. And as we have shown in past years, we maintain a disciplined approach towards new projects while we have a strategic target of winning one new project every other year. Currently, we're working actively on a number of selected projects, which is led by Bay du Nord, which we actually consider our next project. But in addition to that, the Kan prospect in Mexico and also the Albacora tender in Brazil. And the Brazil tenders will be done in an EPCI and O&M partnership. For BW Nganhurra, we see good opportunities in Mexico and Southeast Asia to redeploy that hull and then deliver a fast-track solution for smaller developments. We continue to leverage our FPSO expertise to develop low-carbon energy production solutions and create future growth opportunities in parallel to the FPSO segment. We're taking a disciplined approach, though, with selective allocation of capital and focus on creating sensible returns. Today, we have a position as a majority owner in a floating offshore wind specialist, BW Ideol. And that company has a clear focus on the France and U.K. market. In France, 3 floating substructures for the EolMed pilot floating wind farm have been completed and the 10-megawatt turbines have been installed end of last year. BW Ideol holds a 5% ownership stake in this EolMed development. And then in November, the Fos3F project for developing a fabrication line for concrete floating foundations in Fos-sur-Mer, France was selected by the European Commission Innovation Fund for a grant of up to EUR 74 million. And by year-end, also a EUR 53 million grant was awarded by the French government also for the Fos-sur-Mer fabrication line. And then as Stale already mentioned, in December, Holcim became a minority shareholder in BW Ideol as part of a strategic partnership to accelerate the industrial scale-up of concrete floating foundation for offshore wind. So based on that capital injection and also the conversion of the shareholder loans, BW Ideol is now fully financed through 2026 and BW Offshore owns 68%. We continue to progress our desalination joint venture with BW Group. That joint venture is called BW Elara, and it was established end of 2025. And here, we leverage BW Water's technology and market access. We have now taken an investment decision to invest in the construction of the first unit in 2026. And we're also monitoring opportunities within the FLNG and gas-to-power segment where we can leverage our FPSO expertise to develop floating energy production infrastructure. Looking back at '25, we are pleased with our achievements on project delivery, progressing new business, also delivering strong cash flows within our guidance and shareholder returns. We achieved first gas on BW Opal, delivering a state-of-the-art gas FPSO and the largest undertaking in BW Offshore's history. We secured the position as selected FPSO contractor to continue to progress the Bay du Nord project with Equinor. And that's a project where we can leverage our core capabilities with developing and operating harsh weather FPSOs with disconnectable mooring systems. And we continue to deliver attractive shareholder returns, including a 12% increase in dividend year-over-year. And then going into '26, we're building this out with our key priorities, completion of the commissioning and delivering at full production capacity, our BW Opal flagship, commencing the Bay du Nord FEED and progress that opportunity to contract award, maintain the target of signing one new FPSO project during the next 12 months and bring the first floating desalination unit to the market and then maintain an attractive shareholder return program and long-term value creation. And with that, that concludes the update, and we're happy to take on any questions you may have.

Okay. Great. We're over to the Q&A section. So we have some questions that has come in, and I'll read them out and then we'll distribute those between us. First question, given the strong cash flow visibility, long-term contracts and the current trading level relative to book equity, can management comment on whether you believe the current market valuation reflects the underlying intrinsic value of the company? I can start on this. Generally, we don't comment or have a strong opinion about market valuation. It's up to the market to decide. Our focus is generally always it is to execute on the strategy that we have communicated. It is to deliver on the operational aspect and optimize the capital structure of the company, do what we can control. Then it's up to the market to make a consideration about what the overall market valuation should be. What of course, we can say is that at the current level, the market valuation is still below the current book equity of the company. Next question. Can you update investors on the current operational status of BW Opal and whether the project is progressing in line with internal expectations? And to help investors understand the remaining milestones, can you share your current internal expectations regarding timing for IPT and provisional acceptance? It's practical -- sorry, regarding timing for IPT and provisional acceptance and whether there are any factors today that could materially impact that time line. I think the first is maybe practical completion. I was a bit confused.

Yes, that's practical completion. But as we -- as I said in this update, the expectation was to have -- to achieve practical completion by the end of this quarter. That's what we guided on before. But during this quarter, we faced some setbacks on the commissioning process first with repair of seawater lines and firewater lines and then we got this advice from the manufacturer to replace dry gas seals all compressors to avoid bundled damage, which, of course, would have a bigger impact on production. So that's what we have been focusing on this quarter, and that means that everything shifts now to more like end of next quarter. So in that sense, not fully in line with expectations. But on the other hand, yes, this is a big machine. There are a lot of commissioning activities, and we're still in the commissioning phase. And in that sense, yes, that's how these things run. What's important is that we get paid a commissioning day rate since September, and that's how the contracts have been structured that we do receive revenue during this duration, that is not super accurately to plan. It's commissioning duration. And we continue to get paid. And as Stale explained, then from mid-March, we'll enter a performance regime, which will be similar revenue levels. And then we continue to do practical completion by end of next quarter.

Okay. Next question. You announced a strategic review in response to market rumors back in December. Without commenting on counterparties or pricing, can you clarify whether the process is still active today and whether management and the Board are currently evaluating concrete alternatives? I also see the next question from another person is also quite similar. If no transaction is concluded, should investors expect the BW Offshore to continue as a stand-alone dividend focused cash flow company with the same strategic direction as of today? I think those questions kind of quite interlinked.

Yes. I can -- repeating a little bit what I said earlier in the call, I mean, we're responding to incoming interest. So again, this is much more responding to an opportunity than that we're actually addressing a problem. And both the Board and management are approaching this strategic review with just one simple objective, and that's to evaluate options that can deliver the best long-term outcome for all shareholders. And we do that while we ensure an equal treatment and full compliance with our disclosure obligations. That's why I can't comment on any of those questions in specifics. I mean I understand that the shareholders want more detail, but this is how the process is run and should run. But what I can say again is that our strategic focus is on growing the FPSO business, and we want to do that with an optimized capital structure and strong partnerships. And that focus remains. And in the current structure, we can deliver that as a listed company with a supporting major shareholder. But if there's ways to optimize this, we will take that. And that's exactly what this process is all about.

I think the only thing I could add would be that the strategic review may consider a range of outcomes. This could be M&A related or it could be a take private scenario, but it's also as well a possibility that there is no change. We continue in the existing setting as a public listed company.

Yes.

Next question there. Following some media reports describing advanced talks with Carlyle and references to potential additional interested parties, can you clarify whether the strategic review currently involves multiple counterparties and whether the Board has received any formal indicative proposals or nonbinding offers as part of the process?

As I explained, I mean, we can't -- if you would try to answer this, we go into a level of details that we should not go to at this stage. So we can't really comment on this question.

And the next one, without commenting on specific counterparties or pricing, can you clarify whether the Board and a majority shareholder currently see the strategic review as an active value maximizing process or whether the primary focus remains on executing BW Offshore stand-alone strategy. You have answered it already. I don't think we can't comment on behalf of the majority shareholder. What we can comment on is the fact that for sure, for the Board, exactly as you said, the objective here is to evaluate various options to increase long-term value creation for all shareholders, full stop. And if the process doesn't lead to that, I think we assume we continue in the current state. And while all this is ongoing, our focus is to execute on the strategy as we have communicated earlier. So just repeating what you've already said. Next question there. Beyond the strategic review, how does management view the value creation potential from the existing FPSO backlog and upcoming projects such as Bay du Nord? And should investors expect a step change in earnings visibility over the next few years? So how does management view the value creation potential from the existing FPSO backlog? What we do in the backlog is that we provide a number that includes what we believe is reasonably certain that we will get, as Marco was referring to earlier. What we do not include in our backlog, which I would say is value creation potential is for instance, a longer contract term on Catcher beyond 2029, as we were guiding on earlier or a redeployment of Catcher in the future, which we believe will be a case and which is something we are going to work quite hard to watch going forward. It also does not include additional value from the option period for BW Opal. We only include the firm contract period in the backlog. And we also, as of this point in time, does not include any value from Bay du Nord. So at least from our perspective, we are pretty sure, we believe there's significant value creation potential compared to existing backlog going forward, both from existing units and from new projects. Next question. It's stuck here. Sorry. First of all, congratulations on delivering solid and consistently good results and showing positive development and future prospects. Second -- okay, same. The obvious elephant in the room, I understand the companies need to keep any discussions with potential acquirers private. Nevertheless, I would like to request the company's statement regarding progress and possible milestones and the time when you can receive information about the given outcome of these possible talks and negotiations. There's not really much to add, which haven't been said already. When it comes to time line, what we will do is that whenever there is something relevant to share, we will share that with the market. We will do that through a press release. If there's a need to engage with shareholders, we will do that at the right time to make sure it's a transparent process where everyone who should be involved will be involved in this. Next question. Is there any plans or thoughts of premature payment of the bond, which is held by the bondholders who blocked possible amendments of the terms that limits the dividend payments to 50% annual profit. I would say we have not been very active on this, the last quarter we've taken in the feedback we got when we engaged with bondholders where we, at the time, did not see it as accretive for all stakeholders to accept the proposal that we left the covenants as they are. It doesn't mean we will not look at it going forward. As of now, that's not high on our list. But yes, we will continue to look at this and see if there's a way we can work to agree with bondholders on the mandates. And we will come back to the market if we're able to find a way to make changes or do something, which brings value to everyone. The next question. Is the dividend of this size expected in the coming quarters as well? There we can say -- no generally because what we do, what we have done over the last few years is that we follow a fixed dividend structure based on $0.25 per year, divided by $4, which we announce and pay for the first 3 quarters and then we adjust our dividend based on what we can do on the covenants in Q4. So I would say shareholders should expect that the dividend will go back to the normal Q1 to Q3 announced dividend in the coming quarters. And then the aim will be to deliver 50% on an annual basis with adjustment coming in Q4. Yes. That's the last question. It seems to be, unless there's any other questions.

Yes, let's see if there's anything else. We are through the list of questions. So if anyone still has a question, then it's a good time to raise it. No. If not, then I would like to thank everyone for participating in this call and wishing everyone a good day ahead. Thank you.