SBM Offshore N.V. (SBMO.AS) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for holding, and welcome to the SBM Offshore Third Quarter 2025 Trading Update Conference Call. [Operator Instructions] I would now like to hand over the conference to Mr. Charles Alby, Investor Relations. Please go ahead.

Thank you, Razia, and thank you all for joining us today. This call is being recorded and will be available for replay on the company's website. Today's prepared remarks will be delivered by our CEO, Oivind Tangen, followed by a Q&A session. Before we begin, I would like to point out the disclaimer at the bottom of our press release and remind participants that some of our comments today may include forward-looking statements reflecting SBM Offshore's view of future events. These matters involve risks and uncertainties that could cause our results to materially differ from our forward-looking statements. The risks are included in detail in SBM Offshore's 2024 annual report, which can be found on the company's website. Once again, we will welcome your questions after the conclusion of the prepared remarks. I will now turn the call over to Oivind.

Thank you, and good morning, everyone, and thank you for taking the time to join SBM Offshore's Third Quarter 2025 Trading Update Call. I am Oivind Tangen, CEO of SBM Offshore, and I'm joined today, as usual, by our CFO, Douglas Wood. Starting with our performance over the last quarter. Our teams continue to deliver strong results in line with the plan. We are very pleased to report a directional revenue of $3.6 billion for the third quarter of 2025, up 26% compared with the third quarter of 2024. As a direct result of this strong performance, we have increased our EBITDA guidance for the year from above $1.6 billion to around $1.65 billion. The increase reflects our ability to execute complex projects across the globe despite challenging global economic and geopolitical conditions with consistency and reliability. The remarkable performance achieved in all our regions of the lease and operated activities attests to the quality and efficiency of our operations with the fleet uptime standing at 99.4% at the end of the third quarter. On the execution side, we have delivered 3 major units in 2025. After FPSOs, Almirante Tamandaré and Alexandre de Gusmão reached first oil in February and May, respectively, FPSO One Guyana successfully achieved first oil in August. These units have demonstrated excellent track records in terms of installation efficiency, pace to flare out and ramp up to full production. In October 2025, FPSO Almirante Tamandaré was producing 270,000 barrels of oil per day, well above its original nameplate capacity of 225,000 barrels of oil per day. This was achieved in less than 8 months after first oil. These 3 vessels bring the size of our fleet to 17 FPSOs with a total installed production capacity of 2.7 million barrels of oil per day and a daily production above 1.8 million barrels of oil per day increasing and increasing with further ramp-up ahead of us. We continue to progress as per plan on our 3 turnkey projects. On FPSO Jaguar, the topside modules fabrication is progressing as per plan and first oil is expected in 2027. On FPSO Chalchi, following the first steel cutting milestone in the last quarter, construction activities are progressing as per plan, including the fabrication of the disconnectable turret mooring system. On FPSO GranMorgu, engineering and procurement activities are well advanced and vessel work and topside modules fabrication continue to progress as per plan. Under the Fast4Ward program, a total of 8 hulls have been delivered, of which 6 are in operation and 2 have been completed and delivered to projects under construction. MPF hulls # 9 and 10 are under construction, supporting active discussions with clients driven by a strong FPSO market outlook in the deepwater segment. We see increasing market activities -- activity in our key regions in the Atlantic Basin, and we continue to remain disciplined in pursuing only the highest quality projects in the market. Our recent tender submission for the SEAP 1 and SEAP 2 FPSOs were the most competitive bids in an open competition for Petrobras. These units are large and complex FPSOs with significant gas treatment facilities. This demonstrates SBM's industry-leading position and expertise of the market. We're also pleased to share another milestone in our offering of floating solutions with reduced emissions. In September 2025, SBM Offshore secured the American Bureau of Shipping approval in principle for the design of a blue ammonia FPSO, marking a key step in the company's road map to contribute to the energy transition. By integrating carbon capture and ammonia production technologies, the design enables offshore production of low-carbon ammonia. This innovative design complements SBM Offshore's portfolio of solutions aimed at reducing greenhouse gas emissions and reinforces its strategy to bring to market more sustainable ocean infrastructure options for our clients. The ambition to increase operational efficiency and improve asset life cycle performance has also prompted the signature of 2 strategic collaboration agreements in October with Cognite and SLB. These partnerships will enhance digital asset management of our fleet by deploying an AI-driven data platform designed to improve operations. Through our respective domains of expertise, we are elevating fleet performance to higher standards of safety, efficiency and reliability. Now to financials. For the third quarter year-to-date, the company's directional revenue increased by 26% to $3.6 billion compared with the same period last year, driven by directional Turnkey, which stood at almost $2 billion, an increase of 90% or over $900 million compared to the same period in 2024. The year-on-year improvement mainly reflects the progress booked under the sale and operate model of FPSOs GranMorgu and Jaguar. Directional lease and operate revenue was $1.6 billion, 11% below the same period last year due to the sale of FPSOs, Prosperity and Liza Destiny in Q4 2024. This was only partially offset by FPSO Almirante Tamandaré, Alexandre de Gusmão and One Guyana joining the fleet in 2025. Our net debt position was $5.8 billion for the period up to September 30, 2025, a very slight 2% increase compared with the same period last year. This reflects a high level of activity and some temporary financing requirements between milestone payments under the sale and operating model. ExxonMobil Guyana has indicated that it could exercise its contractual purchase option to acquire the FPSO One Guyana in early 2026, ahead of the end of the maximum lease term. This is a clear vote of confidence in our sale and operate model where we transfer ownership of the asset and continue to provide operation and maintenance services, leveraging the gains of SBM Offshore's Fast4Ward design and cumulative operating experience of our fleet. An early purchase would result in an accelerated reduction of our total debt by $1.7 billion as the project loans will be repaid in 2026 and have a positive effect on the results and operating cash flow in 2026. This contract will then move to an O&M-only basis, in which case, we will update the backlog accordingly. Finally, regarding cash return to shareholders, the EUR 141 million share repurchase program is progressing and was circa 71% complete on November 12, 2025. Following partial completion of the program, SBM Offshore canceled 5 million ordinary shares on November 3, 2025, representing 2.8% of the company's issued share capital. We remain on track to distribute a minimum of $1.7 billion for the period of 2025 up to and including 2030. Given the strong market outlook I just mentioned, we would expect to add more projects in the coming years. And this, plus the flexibility that we have in the existing backlog means that we remain confident in our ability to grow our returns beyond the $1.7 billion. To conclude, we're confident in our ocean infrastructure experience, the expert capabilities of our teams and the resilience of our business model. The strong results for this quarter clearly demonstrate that our dedication to excellence in every aspect of our work is a strategy that pays as evidenced by increasing the company's directional EBITDA guidance for 2025 to around $1.65 billion, reconfirming our existing targets to deliver a minimum of $1.7 billion cash return to shareholders until 2030 with upside from the existing backlog and anticipated new orders. A strong market for new build large and complex FPSOs with tendering levels rising across key regions. Successfully delivering episodes on Almirante Tamandaré, Alexandre de Gusmão and One Guyana in a 6-month time span, all while maintaining high safety records and excellent uptime. This concludes today's call. Thank you for listening. Operator, we can now open the call for questions.

[Operator Instructions] We are now going to proceed with our first question and the questions come from the line of Guilherme Levy from Morgan Stanley.

I have 2, please. The first one, if you can comment on the environment for new orders over the coming quarters. You have obviously placed the best bid for Petrobras SEAP FPSOs. And at the moment, you have 2 MPF hulls under construction. So also wondering how quickly could you order additional hull into next year depending on the progress that you make on the next orders and on the next bid? And then secondly, if you can comment on working capital moves now in the fourth quarter? And where do you see your directional net debt falling into by year-end?

Thank you for your question. So new orders coming quarters. So we see, as I said, a very lively market. It's been coming for some period. We are active in discussions with, of course, Petrobras on the -- following the lowest bid on the SEAP 1 and 2. And then -- so we'll see and hopefully, we can achieve success on that. We are also, as we indicated before, in the bidding process of the Venus development for Namibia. And then we're seeing more in the pipeline in -- happening in Brazil and also we hope to see the Guyana pipeline continue to develop. So I would say right now, from an MPF perspective, we have 2 under construction, and we are well positioned with slots for all the prospects we see emerging as well ahead of us. And in terms of award date, that is not in our court. That is really in our clients' court, but we do hope that both '26 and '27, we should be able to add to our backlog. Douglas, on working capital?

Yes. So especially with the new sale and operate model, it introduces a bit of short-term volatility because sometimes we need to bridge between milestone payments from the client. So that's basically the variable that we have depending on whether some fall just at the end of the year or slightly afterwards. But I would say, overall, we would expect then debt level to be stable or maybe a bit lower. As I project forward, though, just to reemphasize, the direction of travel remains that we're deleveraging in the context of the award landscape being sale and operate only. So all of the projects, the lease and operate projects we have are continuing to pay down. And to the extent that the purchase from Exxon of One Guyana goes ahead, as Oivind mentioned in his remarks, we would see instantaneously a $1.7 billion reduction early next year. So yes, there can be some sort of swings as we go, but the trend to 2030 remains very consistent with what we've seen and we expect a significant deleveraging.

We are now going to proceed with our next question. And the questions come from the line of Philip Ngotho from Kepler Cheuvreux.

The first question that I have is on the recent announcement that you -- announcement of the agreement with COSCO construction of new hulls. Could you maybe elaborate a little bit on the thinking behind it, why you're adding another supplier and a partner to this? And is that related to just seeing more potential work or less capacity at your other partners that you're working with for the whole construction? And the other question I have is more -- I've been also reading that there is more interest now also from financial institutions potentially looking to reengage again in the sector with financing potentially FPSOs. And maybe in that sense, the lease and operate model that might become a bit more attractive. How do you see that? Is it -- are you already seeing indications of that, that potential clients are actually also looking at more of lease and operate contracts? And maybe the last point, I know it's early days, but if the sale does go ahead of FPSO in Guyana, and that means accelerated cash flow to the company. Would you also be considering doing additional share buybacks on top or special dividends in some form? Those are my questions.

Thank you. All right. So the first one, COSCO. So our strategy Fast4Ward and is about thinking ahead. And of course, as we said, we see a very good market ahead of us. And then we have -- I want to say we are very happy with the partnerships we have with existing MPF builders, SWS and [ CNHI ]. There is a lot of construction activity, not only in the oil and gas. So when we project forward, we obviously look at award rates and line it up with the capacity projections in our partnership yards. COSCO is a yard. We had a very good development of our relationship there to the Alexandre de Gusmão project. And having an agreement on potentially also building MPF in that yard is just a way of anticipation and planning ahead on capacity needs. So it's a strategic move in line with our thinking over the last decade already. On the other 2, I will leave Douglas answer that.

Philip, so on your first question about lease and operate. So I would say relative to the banks, I think we've continued to see a good level of appetite. So there are some banks that we were working with that pulled back, others came into the market. And you saw that on the Jaguar construction financing that we did, that was -- there was a lot of appetite for that was oversubscribed. So we still see a strong level of appetite there. I guess the one thing that changed and does have quite big impact was the fact that most export credit agencies pulled back. But let's see, but I'm not seeing a lot of indications that, that is changing. And export credit agencies have had quite a role to play in the past for long-term financing, especially in places with below investment-grade rating, which is pretty much everywhere where we operate. But that said, we've been working very hard to broaden the relationships with financial institutions to allow us to be very much in the long-term lease and operate financing market. You saw that we did the refinancing of parity with the Chinese leasing houses earlier this year. So that's one long-term opportunity. And on the financing that we're working on at the moment for the Chalchi FPSO, we're looking there to do a multi-tranche financing, including infrastructure funding. So I think we still have a lot -- many tools that we can offer to be able to offer long-term lease and operate. As I mentioned, right now, all of the prospects that are in our kind of pipeline that we're pursuing are on a sale and operate basis, but potentially with maybe some softness in the oil price, clients -- some clients may appreciate a financing option. So we're ready there. And so I wouldn't say that it's the end of the lease and operate, and we're ready to support our clients with financing and looking to use that actually as our capabilities there as a differentiator to secure new awards. Then you had the question about what's the thinking around the One Guyana purchase. But of course, we've been really focusing on that 6-year period from this year to 2030, the overall cash flows there, the $1.7 billion that we've committed and then there's upside beyond that just from the existing backlog of $1.1 billion in the existing backlog plus, of course, we're planning to win new awards. So One Guyana is then already because it was supposed to be purchased 2027 latest. That was already in the thinking. So it's kind of already there. And as we mentioned, if we have an acceleration into 2026, yes, that means we'll get more money in 2026. we'll be able to repay the debt a bit earlier than previously anticipated. But then as Oivind mentioned, the contract changes to O&M. So that will mean for the remainder or going forward will be on an O&M basis. And then for the period up to 2027, we won't have the charter that was currently in the backlog. So there's kind of pluses and minuses in the whole equation there. As Oivind mentioned, the $1.7 billion is a minimum. We're looking to -- we see upside in terms of returns, we should be able to deliver this timing of the purchase doesn't really change our overall planning.

We are now going to proceed with our next question. And the question comes from the line of Luuk Van Beek from Degroof Petercam.

Two questions. First of all, I suppose that you win the 2 Petrobras FPSOs, which you are the lowest bidder. How -- is it a capacity constraint for all the other things that you have in the pipeline? Or does that match timing-wise with your capacity of 2 complex per year at maximum? And my second question is about the addition of COSCO for the hull construction. The other 2 yards have gone through the learning curve and I think have become more efficient. Will there be a significant impact of COSCO during the first and maybe some learning to do?

Okay. Thank you, Luuk. So SEAP 2 and 1 capacity. So if we are successful in both, it is within -- of course, within the existing capacity. We just delivered 3 units, and it doesn't mean that we have to be more selective than previously on the prospects that are in the market. So you mentioned our capacity is limited to 2 per year. I don't think that's what we said. I think we said 6 in parallel. So -- and then we have other avenues if there is upside about that, then it could be through partnering or other execution models to be opportunistic while staying disciplined. So for sure, it doesn't limit our pursuit of other prospects in the market. COSCO and efficiency gains. So the learning on the MPF isn't inherently only in the yard. It's in the overall sequencing and the way we execute the hulls. The engineering lies within SBM's realm. So -- and we have very successful work executed by COSCO, including the integration of the MPF and the topside modules on the Alexandre de Gusmão. So I don't see bringing COSCO has any loss of efficiency more on expansion of capacity.

We are now going to proceed with our next question. And the questions come from the line of Mick Pickup from Barclays.

A couple of questions, if I may. Just on the SEAP project. I think Douglas, you say everything in the pipeline is sale and operate, but the SEAPs appear to be built, operate, transfer projects on a 6.5-year basis. That looks like an old-fashioned lease to me. So why if everything is sale and operator, we're going after those 2, particularly. On those 2 SEAP projects, I was intrigued to see a new competitor bidding and fairly close list, but you haven't done anything of that complexity. So can you just talk about the competitive landscape if new Indians can turn up? And then I've got a final one on AI afterwards, but we'll start with those 2, please.

All right. Thank you, Mick. So I'll let Douglas talk to the BOT and the lease and operate similarities.

So the term is you build, operate and transfer. But it's basically a sale and operate contract, not be confused with our own BOT that we were using in Guyana. So the way it works is you get milestones from the client through construction. There is 0 debt. And then you have an operating contract, an O&M contract for 6 years. So it really is, if you like, classic sale and operate with maybe a shorter operating period than some of the other projects.

Okay. The press I've been quoted is day rates of like $1.7 million a day, which would look like a typical lease type number?

No, they were separate. We did separate contracts. There's basically an EPC contract and an O&M one.

All right. Competitive landscape. So I think there is -- there was no surprises to us as to who participating there, who we see elsewhere in the competitive landscape. I think we're really happy to see that we came in with the most competitive bid on the SEAP development. I mean you can always say that as we progress and on more larger and complex units that it's good to have some benchmarking on whether we -- how we stand competitive-wise. And the tender was a good testament that we have managed to stay very good in combining technical solid solution with economical solid solution. So there's always been in the FPSO companies coming and going. So I think we'll see that dynamic continuing as well. And we believe in our value proposition standing out to take the prospects that we pursue or fair market share at least.

And then can I just push on to -- obviously, you made a couple of moves on the digitalization and AI front and I struggle with digitalization and AI intersect. Given that your uptime is 99.5% already, what are the big benefits from this?

Yes, very good. So it's a generally mix. So what we do is talk about life cycle optimization. You got a few levers, right? One is to use data and the scale of data that we have to make sure you have the best availability of your systems, but combined with that at the lowest operating cost, of course. That's the margin generated. Then you have as well the way you manage integrity scopes on larger units and very much of the scope offshore is linked to risk-based modeling. And the better data you have and your improved ability to use data is how you can optimize scope and effectively do the right scope, because as you know, as regulations and systems evolve, there is always layers of conservatism that are in the systems. And by the right use of data, you will be able to peel those away and demonstrate the integrity of all the barriers and efficiency gains to that. So the journey has been structuring data, then industrializing our ability to leverage those data through the implementation of data platforms that is giving you better access to all your data. And then -- so that is, you can say, is the Cognite element. And then SLB is efficient tools to plug into your data platform in order to effectively make decision-making how to use the data and translate it into reduced scope or better monitoring. So it's about protecting the upside, 99.4%, as you say, is very good. It's about cost levels associated with that, keeping in mind that on the fleet to 17 FPSOs, the running OpEx is quite high. And there is, we believe, significant value creation in lowering that on average over the next 25 years that our fleet is running currently...

We are now going to proceed with our next question. And the questions come from the line of Thijs Berkelder from ABN AMRO ODDO BHF.

Congrats with the strong performance again. First, let's start again with SEAP on simply explaining the timing, maybe that everyone understands it. Am I correct in concluding that SEAP in principle is a sequential project, meaning that you, in principle, would start up SEAP 1 first and then a year later would start up SEAP 2, meaning that production dates are also 1 year after the other? And secondly, according to my understanding, the only thing which Upstream did on your, let's say, bidding amount is divided by the number of days of 6.5 years, and that explains the concluded day rates according to that magazine. But of course, has nothing to do with your contract. Am I right in those conclusions?

Okay, sorry.

No, let's do it one by one. Okay.

So thank you on the recognition. Yes, we do feel the company continue to perform very strongly operationally. So that is an evolution we want to carry forward. And then when it comes to SEAP, so I think the sequence the way sort of materializing today is probably SEAP 2 and then SEAP 1. These are 2 separate awards that spacing in between is driven by Petrobras. And we can argue if there were to be 2 awards, what will be the optimum of that and in order to leverage synergies, et cetera. At the end of the day, the time schedule on any of these 2 awards and how they connect is really down to Petrobras, but we do feel that there is really good traction in the dialogue we're having with Petrobras in order to find the best development solution to create a win for them and for us. Sorry, what was the...

It was the Upstream.