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

Ladies and gentlemen, thank you for holding, and welcome to the SBM Offshore First Quarter 2023 Trading Update Conference Call. At this moment, all participants are in a listen-only mode. [operator instructions] I would like to hand over the conference to Mr. Charles Alby, Investor Relations. Please go ahead.

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 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 2022 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 all, and welcome to our call. Thank you for taking the time to listen to our first quarter trading update. My name is Bruno Chabas, CEO of SBM Offshore, and I'm joined today by the members of our Management Board, Oivind Tangen and Douglas Wood. Over the first quarter of 2023, SBM Offshore delivered good results in line with expectations. Our 2023 full year guidance is on track. Since the start of the year, several important milestones have been achieved. Let's start with commercial activities. Based on the positive market outlook for large and complex FPSOs with low breakeven cost and low emission, SBM Offshore has ordered a new Fast4Ward MPF hull. This order brings the total number of hulls order today to 8. As a reminder, the 6 first hulls have been allocated to projects and exclusivity for the seventh one, which was order last year, has been granted to ExxonMobil Guyana. Another key achievement announced last week is the signature of the 10-year agreement with ExxonMobil Guyana for the operation and maintenance of Guyanese FPSO fleet. With an estimated impact of about $3 billion on revenue backlog, this agreement will add about 10% to year-end 2022 record order book of $30.5 billion. This contract, which acknowledge our operating expertise also includes an integrated operation model, combining SBM Offshore and Mobil Guyana experience and resources. It is the first of its kind. We believe this will set a new performance benchmark for the industry. Now let's now have a look at the progress the team are making across our project execution and operations. The company continued to grow through a major growing phase with currently 5 FPSO under construction and 2 new build halls order. The project teams continue to monitor impacts related to the ongoing global inflationary pressures and supply chain constraints on project execution. Overall, delivery schedules remain on track and margin is released at portfolio level. Let me now zoom-in in this quarter, main achievements for projects under construction. FPSO Prosperity arrived safely in Guyana Waters last month. The teams are currently completing commissioning activities. To Fast4Ward MPF, hulls have been delivered to the yields for FPSO Almirante Tamandaré and Alexandre de Gusmão. We closed the major project financing of USD 1.63 billion for FPSO Almirante Tamandaré. We have now one remaining project financing for FPSO Alexandre de Gusmão secure, which is expected to be closed shortly. On the operating side, the overall performance was strong with a fleet up time in line with the historical trend above 99% over the first quarter. On the renewable side, the construction of the 3 floating foundations for the Provence Grand's project was completed. After the integration of the 3 turbines, which with the capacity of 8.4 megawatts each, the team will take care of the installation phase before the commissioning of the farm scheduled by year-end. I would like to highlight that all this progress was achieved with a solid HSSE performance with a total recordable injury frequency rate of 0.07 over the first quarter of the year, below the 0.14 targets set for the year. As always, safety remains SBM Offshore's top priority. Over to the financials. The company generated a total direction of revenue of USD 742 million during the quarter of the year compared to USD 970 million in the same period last year. This decrease is driven by the turnkey segment, reflecting the one-off divestment of 45% interest in FPSOs, Alexandre de Gusmão and Almirante Tamandaré last year. The Lease and Operate segment increased year-on-year, benefiting from the full quarterly contribution of Liza Unity compared to last year. Net debt at the end of March stood at USD 6.4 billion compared with USD 6.1 billion as of the end of 2022, supporting the ongoing investments in growth. These good results, which reflect our high level of activity, the reliability of our fleet and the resilience of our Turnkey division are attributable to the hard work and talent of SBMs. The complete with our 2023 full year guidance. We maintain our 2023 direction of revenue guidance at above USD 2.9 billion, of which around USD 1.9 billion is expected from the Lease and Operate segment and above $1 billion from the turnkey segment. 2023 directional EBITDA guidance is also maintained at above USD 1 billion. The guidance considers the currently foreseen impact from both the pandemic and the conflict between Russia and Ukraine, both on project and operation. The direct and indirect effect of this event could continue to have a material impact on the company's business and results and the realization of the guidance for 2023. So in summary, we delivered, again, a strong performance and guidance is on track. We did deliver value to our shareholders with a dividend of USD 1.1 per share, representing a yield of above 7%. We demonstrated commercial success with the Guyanese O&M agreement signature, and we are ready to capture future growth with the new hull order. We are on track to deliver our record order book, which provide cash flow visibility up to 2050. Finally, we booked tangible progress in our energy transition strategy with [ compassion ] of the construction of our offshore wind floaters and delivery of FPSO meeting the highest current environmental standard in the industry. So this concludes the prepared remarks portion of the call today. Thank you for listening. And operator, now you can open the call for questions.

[operator instructions] We will now take our first question from Quirijn Mulder from ING.

Yes. Good morning, everyone. And congratulations with, in my view, an interesting first quarter. A couple of questions. You speak about the $3 billion contracts, and that's the first of it's kind in the industry. So maybe you can elaborate on what the differences are and what the differences are with your existing fleet in Brazil, et cetera? The second question is on Tamandaré. The first oil is now being postponed by petrobras in 2025, but the construction is going. According to plan in my view, is there any contractual change for you? It's the first oil as a later than expected because you can deliver [indiscernible] on time. And my final question on this one is, I know you] [cause is man ], so you're not speculating on any rules. Is there anything to say in what region, in what direction you're going to use this 8th hull in the future?

So thank you for your question and your interest. I'm going to take the last question first, and Oivind is going to address the 2 other questions on the operating contract in Guyana and the Almirante Tamandaré delivery. So when we look at the market today, we see a lot of opportunity. And those opportunities for us are really in the Alexandre basins from Guyana or even including, in fact, Mexico so from Mexico to Brazil. And when you look on the African side, you see opportunity, which could be in Namibia, which could be in Angola or other countries in Western Africa. All of these are areas where SBM Offshore believes that the know-how that we have, the experience and the ability to deliver value to all the stakeholders, including our clients is important. And as such, positioning ourselves in advance of phase on this market is important. And that's the reason why we decided to make this investment into the. So time will tell where this herd is going to be going, but we believe that the market interest and demand is such that we're going to have some news in the coming few months. Oivind?

Yes. Thank you, Bruno. Thank you for your questions. So on the O&M agreement we reached with Exxon is different in a way that we've built an organization together with a client, eliminating past efficiencies in a typical client contract or organizational structure and integrated elements of the Exxon's into our own organization, giving -- making it a really competitive organizational structure and combining the competencies between ourselves and the client. And then around that, we built a compensation structure that rewards greatly the excellence in performance, and we hope to harvest more value out of this contract structure than the classic O&M in the lease and operate structure contract. For the [indiscernible], the project -- sorry, [indiscernible question to the question...

Yes. No additional then. So there is a difference, let me say, for lease a destiny compared to what you have serviced this far for that kind of flow...

The new contract structure will buy to all existing and future contracts in Guyana.

Yes, sorry. Okay.

For the [ AT ], we remain on track as per the reports and the view from Petrobras is from a field perspective. So we don't comment on that. Our position commercially then will be once we are ready, we enter into the compensation on the lease and operate structure. So our readiness hasn't changed. So the economic situation remains unchanged.

Next up, we have Thijs Berkelder from ABN AMRO, ODDO BHF. Please go ahead.

A couple of questions. First, you talked in the press release, extensively on profit impact. China as well as inflation taken in on the cost side. There is a bit more flavor on what -- where inflation is higher than in your assumptions and maybe what kind of impact we should expect? Second question is what I missed in today's press release is what is the current value asset under construction? And what is the net debt relate on the project that's related to these assets in the construction right now. You have that as a constructionrates as well? And finally, apart from Provence Grand Large, is there any progress to mention in the closing wins segment?

I'm sorry, could you rephrase the last question? We could not hear you.

Apart from the Provence Grand Large project, you had an update there in the Q1 release, is there anything else to mention in terms of progress on the floating wind side?

Yes. Yes. So again, I will take the last question first, and Douglas is going to go through the first 2 questions with pleasure. If we look at the floating offshore wind activity, I mean, as you know, we were doing the construction of this pilot project, and we have been at it for the past few years. On this, we have learned a lot of less inland and we announced last year a version 2 of the concept that we're developing. Now version 2 is an evolution on technology and simplification, certainly, but that's only one step to make those products competitive in the market. So on this, we're making a lot of progress from an industrialization of the concept to interface with clients are to make sure that we make the footing offshore wind within the economic parameter, which are set by the market today. We can see that there are opportunities in the market coming up. And we still believe that there is a forecast that 6 gigawatts of capacity will be installed by the end of 2030. But at this stage, I would say that the market is fairly -- there is a lot of excitement, but limited concrete opportunities at this stage. So we see how things are going to develop. We are early in the maturity of the market in the early phase, but we expect that things are going to develop in the coming few years.

Yes. So relative to your first question, there's no new message here. We're just being consistent with the message that we've been bringing for multiple quarters, first on the pandemic. And then obviously, we have the Russia Ukraine war, which has bought supply chain and inflationary impacts. We've got multiyear projects. So we're still living with the impacts of those. And as we've been highlighting the degree to which it's possible to mitigate the impact, it varies from project to project. But overall, we still see a robust project margin. And yes, you could see that at the end of last year, if you look at the IFRS gross margin, that was 18%. So we're just simply reiterating the same message from the previous quarters there. Then on the second question. So yes, for a trading update, we don't give that degree of specificity, but you will see that in a few months' time when we do the first half update, and we'll give you the information then.

Next we have Andre Mulder from Kepler.

Two questions from my side. The first one on China. What status is there on the stake that Chinese companies are taking your floaters? Secondly, do you sense that any European measures to curb China influence might have an impact in that? That's the first question. Second question is on the O&M contract. To what extent is this a change in the strategy for ExxonMobil, implying that also for any new floaters, the O&M activities will be included in future contracts.

So on the last question, with regard to ExxonMobil, I mean, this question is well you going to be better answered by them. And we cannot comment on what they intend to do in the future and where they want to go. What we can comment on is working together over the past few years, in fact, many years, both of us have realized that there is a better way to execute and to perform on those type of projects. And this better way is really by combining the best of both companies in order to earn operation, which is outstanding. And that's what we're doing at this stage. And we believe that there is a lot of value to be brought to the market by doing so. And obviously, if this model delivers as we expect, we should see a continuation of this model with a lot of other clients, not only with ExxonMobil, but with a lot of other clients. With regard to China interest, Douglas, do you want to take this, including the political side.