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

Hello, and welcome to the SBM Offshore First Quarter 2022 Trading Update Call. My name is Josh, and I will be your coordinator for today's event. Please note that this conference is being recorded [Operator Instructions] I'll now hand you over to your host, Mr. Ludovic Robino, to begin. Thank you.

Thank you, operator. 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 Mr. Bruno Chabas, 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 2021 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 Bruno.

Thank you, Ludovic, and good morning, and thank you for taking the time to join SBM Offshore First Quarter 2022 Trading Update Call. My name is Bruno Chabas, CEO of SBM Offshore. I'm joined today by 4 members of our management board, Philippe Barril, Douglas Wood and the recently appointed Øivind Tangen. Before going through the company's performance, I would like again to highlight the fantastic growth done by all SBMers throughout the world. They have been facing not only the COVID restriction, but also are facing the challenges arising from the conflict between Russia and Ukraine. In summary, despite those challenges, SBM Offshore delivered good results over the first quarter of 2022, in line with expectations, and the 2022 full year guidance is maintained. The year started with 2 major milestones: First, the successful delivery of FPSO Liza Unity; and second, the confirmation of the FPSO ONE GUYANA award. The team managed to extend a solid safety performance, which remains our top priority, especially under today's circumstances. Let's look at the progress the teams are making across the business. On the Lease and Operate segment, following FPSO Liza Unity delivery, we are now operating 16 units. The COVID situation continues to be controlled by our onshore and offshore teams and the overall performance remains strong. The reported 94.2% fleet uptime over the first quarter of 2022 was impacted by the shutdown of FPSO Cidade de Anchieta. Replay are currently being performed and the restart of production is being planned in the second half of this year. The fleet's underlying performance was 99.6%, excluding FPSO Cidade de Anchieta. On our Turnkey activity, the company continued to go through a major growing phase with currently 5 FPSOs under construction. The project execution continued to impact -- to be impacted by various measures taken to control -- taken to the ongoing pandemic, especially in China with difficulty to travel and partial or complete closure. We are also witnessing some supply chain issues combined with inflation, which was all as a consequence of the pandemic and the conflict between Russia and Ukraine. We continue to work closely with clients and supply our teams to mitigate these insights. I would like to reiterate here that the profitability of SBM Offshore's overall project portfolio remains robust. A quick update on our projects under construction. On FPSO Sepetiba, the topside modules have successfully and safely been lifted on board. Integration and commissioning activities are ongoing. The work scope in dry dock was completed for FPSO Prosperity and the topside fabrication is ongoing in the yard in Singapore. Based on progress to date, first oil is likely to occur before year-end 2023. On FPSO Almirante Tamandaré, the topside fabrication and the Fast4Ward MPF hull's construction are progressing in China and Brazil. FPSO Alexandre de Gusmão site construction activity in fabrication yard in China and Brazil of are progressing. And finally, the engineering and procurement have started on FPSO ONE GUYANA and the project is progressing as per plan. Over to the financials. The company generated a total underlying directional revenue of USD 970 million during the first quarter of the year. This is an increase of some 80% compared to the same period last year, mostly due to the Turnkey segment, we showed the effect of the 45% ownership divestment in FPSO Alexandre de Gusmao and Almirante Tamandaré, in combination with the ongoing construction progress. The Lease and Operate segment also increased year-on-year due to the contribution from Liza Unity joining the fleet during the first quarter of 2022, partly offset by dependent projects, which led to the fleet last year, and the earlier mentioned Cidade de Anchieta shutdown. The net debt position at the end of March was USD 5.1 billion compared to USD 5.4 billion at the end of 2021. SBM Offshore continues to position itself as a technology leader in the energy transition. We advocate for a responsible energy transition by reducing emissions related to fossil fuel and developing competitive renewable solutions. On the latest, we have joined force with a partner to develop the world's largest floating offshore wind turbine to be deployed in Norway. This pilot project consists of 16-megawatt turbine to be installed on the Float4Wind Tension Leg Platform technology. The project remains subject to final investment decision. So we conclude with our 2022 full year guidance. We maintain our 2022 directional revenue guidance at about USD 3.1 billion of which around USD 1.6 billion is expected from the Lease and Operate segment and about USD 1.5 billion from the Turnkey segment. 2022 directional EBITDA guidance is also maintained at around USD 900 million. The guidance considers the currently foreseen impact from both the pandemic and the conflict between Russia and Ukraine on project and fleet operation. The company highlights that the direct and indirect effect of these events could continue to have a material impact on the company's business end results, and the realization of our guidance for 2022. So this concludes the formal presentation. So we open now the call for questions.

[Operator Instructions] So we do have a question in the queue, and it comes from the line of Quirijn Mulder from ING.

Yes. So in the results, let me say, revenues, and there was an increase of about USD 400 million for the Turnkey. Is that purely the USD 400 million increase, is that purely related to the 45% stake being sold to the Japanese? Is that the USD 400 million? Or is there an organic growth in Turnkey as well? That's my first question. And then my second question is about the wind. When do we expect an FID? And I would like to read it like this.

Okay. So thank you, Quirijn, for your question. Douglas is going to go through the revenue side of the question on revenue. With regard to the Float4Wind pilot project that we're looking at in Norway, the idea would be to seek to have FID before year-end.

Okay. Quirijn, on your question on turnkey revenue, yes, it was really good to get both of the divestments closed as planned in the third quarter. And relative to revenue, these, I would say, added booster to the underlying performance from Turnkey, so IT'S a mixture of the 2 and not just the sell-down effect.

Our next question comes from the line of Andre Mulder from Kepler Cheuvreux.

Two questions. So first question, on your slim design of the Float4Wind, can you give us a bit more detail what kind of weight decrease have you achieved with this 2.0 version? What does it do to the price? And any other changes that you've made? Secondly, on the Norway project. What size are you envisaging? So you're taking the 16-megawatt turbine into account, but how many of these units will be deployed at that field?

So Andre, few elements to answer this question. The concept that is evolving is the second version of the TLP concept. And the idea there is really to go to a system or technology, which is much better fitted for industrialization. And as such, I mean, you probably have seen in our website on various publication, the design of the new floater, which is much simpler, and also, which is taking lot of standard component that you can find in the market with already existing supply chain, with limited fabrication subject to that. So the main focus was already looking at industrialization, being able to adapt to the requirement of the market. The project that we're looking at is a pilot project. It would be for one porter at this stage, but definitely the idea there is to learn from the pilot project in order to be competitive in the coming industry and farm, which are going to be coming in the near future in Norway or elsewhere in the world.

Okay. So can you mention any, let's say, the decrease in weight that you have achieved? Or maybe the shortening of the production time? What's the effect there?

We have not provided any particular guidance on this. We're providing more information on our website. There is actually a video on the design of it, which will provide some information. But we have not gone on the specifics. We're probably going to go more into the specifics once we will have done all the FEED study and the detail study. There is -- one of the things which characterize SBM, I believe, is the ability to have a steady engineering to be able to prepare things in advance and not to overpromise. So at this stage, in particular, on new technology like the floating wind turbine, which is quite risky technology, much more than what people expect, we're going to take a prudent approach on this, and we're going to really provide the information to the market when we're certain that we can deliver.

Okay. And then the partner you've been working with, is that a turbine manufacturer?

It's a partner. We have not disclosed who the partner is. We cannot disclose it at this stage.

Okay. Maybe a last question then. Can you give a bit more detail on the role that McDermott is following in your projections?

Today, we announced that we have done a joint venture with McDermott on FPSO ONE GUYANA. So we're working with an integrated product team on the design and construction of the ONE GUYANA FPSO. They have their particular scope. It's a standard joint venture with 70% on the construction side for SBM and 30% for McDermott. Nothing more to say there.

[Operator Instructions] Our next question comes from the line of Thijs Berkelder from ABN Amro.

Maybe I'll be a bit more explicit in what effects on which FPSO projects you see relate to the China lockdowns? And secondly, similar maybe on Russia, Ukraine, where in the supply chain is that particularly hurting you? Third question is I saw [indiscernible] that according to MODEC, you're in a [indiscernible] on the next GUYANA FPSO, I think it's named Guara. Can you confirm that you're working on a pre-FEED there? And maybe you're reporting a net debt number of USD 5.1 billion. Can you maybe split it between debts related to Lease and Operate and related to projects under construction as well as give me a number for the assets in the construction end of the Q1?

Yes. Okay. So on the debt, Douglas is going to take the debt. But I believe probably what you're looking at is certainly the debt which is recourse and nonrecourse, so that might be one way to look at it at this stage. So in the meantime, let me take the few other questions that we -- you brought to the table. So if you look at China, a number of our FPSO are being built in China. There is a number of the closure that some of them are being mitigated by people staying onboard of the yard, or inside the yard. We're trying to find ways to mitigate, but there is a certain amount of disruption, which is impacting us, but it is impacting the industry at large. But so far, so good in terms of mitigation. What we can say about Russia and Ukraine, it's -- you see impact across the industry. You see an increase in inflation, that's for certain. You see some disruption in terms of some components. For example, nickel is becoming more an issue for some of the suppliers. We have some of the supplier who used to have manufacturing capacity, both in Ukraine or Russia. So all of this is creating disruptions. Again, we're trying to plan in advance. We're trying to find ways to mitigate. We're trying to see what can be done. I'm not saying it's easy. I'm not saying it's simple. And one of the things that is certain is creating disruption in our way of executing project today. But I would say that our execution model today is demonstrating our capacity to deliver. And as we mentioned to you, our portfolio remains solid. With regard to Guyana, without going into the specifics of the commercial activity there, what can be said is, today, we have delivered 2 units, Destiny and Unity, both unit has been delivered on time. Unity has been delivered actually early February, as you know, and to the satisfaction of our clients, to the satisfaction of the local government is producing. You need to put this in perspective. If you look at all of the FPSO, which have been delivered since 2018 till now, out of all the FPSO delivered, only 4% have been on time. And those 4% actually have gained FPSO. So we have a client who is satisfied, was extremely satisfied and the award of ONE GUYANA is a side of it. Then after you -- it's difficult to comment on that right now. And we go on to the debt position.

So when we publish the full [indiscernible] financials at the first half, we'll provide the split again because I think, indeed, as a certain analyst has highlighted, it's very instructive to look at the EBITDA, which comes from the operations versus or -- largely operations versus the, let's say, the debt in operations and take out the construction debt. It's a good metric to look at. So we'll do that at the first half. But what I can say, though, it's a big change since the end of the year. There's some working capital effects because really, again, this catch-up impact of the divestments of Almirante Tamandaré and Alexandre de Gusmão, where at the end of the year, we had them at 100%, and now we've got only 55% of those. So maybe that helps somewhat.

Yes. Okay. Then maybe a follow-up question. I believe that the full year results, you still expected on Anchieta to be back in operation in Q2, now I'm hearing second half. Can you maybe explain what -- why the delay in the restart? And second question is on your guidance. You maintained the guidance as it is. Theoretically, without China lockdowns and Ukraine, Russia, Q1 would have been strong enough to lift your guidance or not?

We can make a lot of hypothesis about number of things. And obviously, if we didn't have COVID and Russia and Ukraine war at all, the situation would be different, but we might be facing other situations. So it's really impossible to comment on that. Probably the only thing which is possible to comment is the strength of our execution model, which has been challenged throughout the past few years with all the external crises that we have seen, and yet with the ability for us to keep delivering. Maybe we could provide you a bit of a highlight of where we stand on Anchieta. And Øivind, if you want to take the floor on that?

Yes, yes. Thank you, Bruno. So the nature of the problem on Anchieta is localized corrosion points in the [indiscernible]. So as we mature understanding of the problem, we're now going through a very detailed verification process across the whole before we restart to make sure we don't have any further environmental exposure. The nature of that work is that there's a limited number of people that can actually execute the work in order to do it safely. So as a diligent operator, we go through it, follow that process. The quality of the verification program has to be done at 100% through and through. So as we project the remaining work, we now have quite good confidence level that it will be ready in the second half of this year.

Okay. Very good. And then you maybe related to that, tell me whether you're also doublechecking other Brazilian FPSOs for these potential problems?

Yes. So the nature of our work is that every time we face a problem, we always assess the rest of the fleet for whether this problem could apply. Now as we've understood the nature of the problem, we have verified that this is the problem that is isolated to [indiscernible].

[Operator Instructions] Our next question comes from the line of [indiscernible] Financial.

I was wondering if the higher revenue is also related to the higher oil prices at the moment? And I am wondering if you expect higher revenues in the second and third quarter of this year as well because of these higher prices?

Thank you, Douglas?

Yes. The nature of the contracts we have is that they're fixed contracts. So they don't carry an element linked to oil price. So the answer to your question is no, there isn't a boost from the oil price, and we don't foresee an impact from that in this coming year.

[Operator Instructions] We have a question online from Quirijn Mulder from ING.

First question is about the part of Hong Kong stepping in at the end of December with 30.5% in one of the Brazilian floaters. So can you maybe update us -- I think they can get a prepayment of USD 15 million. So maybe you can update us on what's happened in the first quarter with the definitive situation there? That is my first question. And then with regards to the -- what I call, the [indiscernible], given the fact that the Exxon has plans maybe to FID at the end of the year, [indiscernible] project. Have you already considered to order a [indiscernible] because compared to the past, you haven't any, let me say, on -- with a potential client or on spec or whatsoever. So maybe you can update us on that fact as well.

Yes. Let me take the second question first, and Douglas will take the first question later on. If we look at the market today, there is a high demand of -- high level of demand in the market. And we believe, in fact, that there is probably not enough supply or competent supply capacity in order to meet this demand. We have always stated for the past few years that we're going to remain disciplined, we're going to be extremely focused on what we're going to do, in order to be able to deliver to the satisfaction of all stakeholders, including clients and to provide value to them. So as such, we're obviously looking at the market. We're looking at the positioning, what needs to be done, taking a number of elements into consideration. And once we will make a decision, if we were to make a decision on ordering held in anticipation, we will make an announcement like we have done in the past. But we have never provided in the past, and we will never do so any positioning on what we're planning to do. Suffice to say that we're going to remain extremely prudent.

Yes. So on the question on China Merchant coming in to Sepetiba, that was a prepayment. So we booked it as a prepayment. Now we're going through some consents, et cetera. But remember also that the idea is that they come on board post completion.

Our next question is again from Andre F. Mulder Kepler Cheuvreux.

Yes. Now a question on the floater projects. Your products in the Celtic and Irish seas. Can you give us a bit more information about when you expect an FID for those projects?

I mean, those projects, we -- at the year-end, we told you that we had made some progress. We'll keep progressing on this. It's in line with the expectation. We have not provided any particular guidance with regard to FID, but it's progressing according to plan today.

[Operator Instructions] We do have another question from Thijs Berkelder from ABM.

Yes, one add-on question on, let's say, the gas LNG market and the crisis happening there. Do you see any new project traction on FLNG or LNG to power?

We can see some revenue activity in the FPSO market, that's for certain, and it's in a price that everybody will see in particular in Europe. Like for the FLNG market, those are 2 markets that we are -- which is not in the call where we want to be. And therefore, yes, we're seeing some activity, but it's not activity that we're going to go through.

Okay. And maybe related to that, then maybe give a short update on what the progress is in terms of carbon capture related projects?

Yes, on carbon capture. So our positioning, we have 2 positioning there on carbon capture. First of all, what we're doing on board of our fleet, and we are doing significant carbon capture on both of fleets in Brazil. And that keeps going. And obviously, we're looking at ways to expand this in order to reduce the CO2 footprint of our FPSO going forward. The second element is using this experience of operating carbon capture technology offshore, how could we implement this technology with projects, which could be onshore with transfer offshore. So there were -- the looking terminal facility, which could help to reinject the CO2 into reservoir. We're also looking at ways to capitalize on our operating skills on that. That's the positioning that we're looking at having, and we're looking at different ways to position ourselves there. We're not looking -- just to be clear, we're not looking at doing the carbon capture elements. It's not -- there are plenty of technology on this in the world. So we're looking at working with different partners. We're not looking at the transportation of CO2. We're already looking at the reinjection and the operation of the overall -- and the facility and operation of all this carbon capture activity.

So we have no further questions in the queue. [Operator Instructions]

So maybe since no further questions. So thank you very much for joining us today. If you have any further questions that you can think of, don't hesitate to contact the company directly. And in the meantime, have a nice day, then you can resume your normal activity. Thank you.

Thank you very much for joining the call today. You may now disconnect your handsets.