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

Ladies and gentlemen, thank you for holding, and welcome to the SBM Offshore Third Quarter 2023 Trading Update Conference Call. My name is Natalie, and I'll be your coordinator for today's event. Please note, this call is being recorded. [Operator Instructions] I would like to hand over the conference to Mr. Charles Alby, Investor Relations. Please go ahead.

Thank you, Natalie, 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 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'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, and good morning, all, and thank you for taking the time to join SBM Offshore's Third Quarter 2023 Trading Update Call. My name is Bruno Chabas, CEO of SBM Offshore, and I'm joined today by all members of our management board with Oivind Tangen and Douglas Wood. SBM Offshore delivered results in line with expectations for the third quarter 2023 as indicated in the half year earnings. ExxonMobil has confirmed we will exercise this purchase option of FPSO Liza Unity before the end of the maximum list term in February 2024. The sale is expected to be completed this month. Considering this transaction, the company's 2023 guidance has been updated. 2023 directional revenue guidance is revised from above USD 2.9 billion to around USD 4.4 billion. This comprised unchanged level guidance for the lease and operate of around USD 1.9 billion, and around USD 2.5 billion is expected for the turn compared to above USD 1 billion in the previous guidance. 2023 directional EBITDA guidance is revised from above USD 1 billion to around USD 1.3 billion. Another significant event this quarter is, of course, the award of fee contracts for FPSO in Guyana for the weaker development project. This project is subject to government approvals and final investment decision by ExxonMobil and is based on the new commercial model. At the end of the construction phase, the SBM sole ownership would transfer to ExxonMobil Guyana. The company will then operate the unit through integrated operations and maintenance model, combining SBM Offshore and ExxonMobil Guyana experience. The effect of this innovative ownership are already demonstrated by the current outstanding performance of the vessels in Guyana. Now a few words on the progress the teams are making across the business. On the execution side, we have 5 large FPSO under construction, including 2 vessels expected to reach first oil by year end. FPSO Prosperity has been successfully delivered only and is preparing for first oil date while FPSO Sepetiba in Brazil in September 2023 is in the final stages of the offshore installation campaign. The 3 remaining FPSOs under construction are progressing well. It stops trying more campaigns ongoing on unknown term under him and Alexander De Guzman. And the top 5, fabrication is progressing in line with plan for FPSO 1 Guyana. On top of this project, the company has 2 rails under construction. One allocated to the retail project for Guyana and one supporting our tendering activities driven by the strong FPSO market outlook. For the lease and operate activities, the fleet-up time stood at 99.3% at the end of the third quarter of 2023, reflecting the solid operational performance of the fleet. As for new energies, the company's construction and installations come for the 3 offshore floaters of the Provence Grand Large pilot project has been completed. The first in wind turbines have successfully and safely did anchored and looked up during October 2022. At 17 kilometers of the coast of Marseille and 100-meter water depth. Once commissioned, the project will have an installed capacity of 125 megawatts. Along with our good execution and solid operational performance, safety remains the company's top priority. Year-to-date, the total recoverable injury frequency rate was at 0.01% below our full year target. Now on the financial. Year-to-date, the company production revenue stood at USD 2,247 billion. This 11% decrease compared to the same period in 2022 is driven by the Turnkey segment, and reflects the partial divestment of FPSO Alliander; and Alison De Guzman will at the beginning of 2022. And the cooperation of the FPSO Liza Unity cost ratio in 2022. Reflecting the performance of the fleet, the full contribution of the FPSO Liza Unity 2023 and higher reimbursable scope, partly offset by the demonization of FPSO Sepetiba in 2022. Directional Lease and Operate revenue increased by 9% compared to the previous year, standing at USD 1.41 billion at the end of the third quarter of the year. Our net debt position stood at USD 7.5 billion at the end of September 2023 compared to USD 6.1 billion in December 2022. Reflecting the high level of activity and the investment in force. Most of the debt is related to our projects in operation and the forming of our large 5 FPSO under construction, which are linked to project specifically for lease contract. There is no refinancing risk. And our project debt becomes nonrecourse in the operating phase. Additionally, the company used interest rate swap to substantially hedge interest rate risk. To conclude, the company continued to deliver its strategy by progressing FPSOs under construction according to plan. Since it's fully installed in our first floating offshore wind project. A solid operating time was the fleet and a strong focus on safety. This reflected on the third quarter results, in line with expectation and the successful fleet contract award for the FPSO contract in Guyana. All of this demonstrates our ability to grow FPSO business using our new commercial model. So this concludes the prepared remarks portion of the call today. Thank you for listening. Natalie, we can now open the call for questions.

[Operator Instructions] Our first question comes from CKD Yong from The Telegraph.

This is [ Ithiker ] from The Telegraph. It's been a few years since I was in your call. But here I am again. A question in the Netherlands wants to cut off the guarantees for fossil projects of Dutch companies who are active in the world. What is the status on that? And what is the effect on your order book?

Okay. Thank you for your question. And the point you're making is something which we have been commenting over the past few years. In reality, there is definitely a change in what's happening in the way the ECA or the European government providing support to financing of the development project. It has no impact on our ongoing business or the project of finance. There is no exposure. And going forward, as you know, there is still a strong demand for FPSO and new ways of financing and developing this project as being placed.

We'll move to our next question from Thijs Berkelder from ABN AMRO.

Yes. It's Thijs Berkelder, ABN AMRO ODDO BHF. Bruno, first question, how is your health? Sounds like you got the cold.

Yes. I'm sorry, I lost my voice. So I'm probably not going to answer most questions this morning, but thank you for asking.

Okay. Well, I hope you get healthy soon again. Second question is on the transaction with Exxon. Well, good news that they agreed to buy -- they sold early -- earlier, can we maybe expect a similar event to happen with Destiny FPSO next year? And on top, upstream online reported that SBM Offshore was in talks with the Chinese bank on potentially divesting part of your, I would say, Brazilian FPSOs to the Chinese bank. Can you maybe give a bit of flavor there where we can expect these Chinese stocks already to lead to announcements be for year-end or that it's probably will be something like divest '24?

Okay. So I propose that Doug take those questions.

Yes. So regarding the Exxon contracts and purchases. Really, all that we would say is that our best estimate as per the backlog at this stage is to say that they run to the maximum time on the contract. So that's -- it's up to 2 years for prosperity and on Guyana and then it could be up to only 10 years for destiny, but it may seem that Exxon do have the option to buy them earlier, but that's really the best we can say. Then regarding the article you mentioned. Yes, I think we've been clear for some time now and actually linked to the previous question that as the financing market evolves, we're looking to diversify the sources of financing. So we have several angles, if you like, that we're looking at. But I don't expect any material news this year on that. But we are working very hard on a variety of different options.

[Operator Instructions] Your next question comes from Quirijn Mulder from ING

Yes, in principle 2 questions. My first question is about the guidance. So you gave a guidance for the EBITDA of USD 1.3 billion. And previously, it was over USD 1 billion. Is the conclusion right that you do gain on this transaction from Exxon is USD 200 million? Or is that the wrong figure? Can you maybe -- and what is -- why didn't you give that number in the third quarter numbers? Is there some -- still something to do about it? And so maybe you can elaborate that? And then my question on the prosperity. As I understand, the prosperity has just arrived and it's starting up now, as I understand. What is the reason that it took so long relatively compared to the Liza Unity -- because as I remember, Liza Unity arrived in October and it started up in February, and this one arrived in Guyana in April, and it starts in November. That is 7 months instead of 5. So maybe you can say what's happening there. And I think in the press release, you mentioned something like some variation orders. Maybe you can elaborate on that. That's all my questions.

Okay. So Douglas is going to take the first question. Let me comment just quickly on the second question. We mentioned the possibility of why that is preparing for first oil. As you can imagine, there are a lot of different contracts, which are evolved there with the full picture what the only comment that we can make is that we have the horizon we are projecting first. We don't have any comments to make on the overall planning. We can only comment on what we're doing in FPSO.

Yes. So Quirijn, as you surmised, the impact of the Unity purchase is around USD 300 million. It's a net number. So we've got the purchase impact that net of the fact that in Turnkey, never the fact they can Lease and Operate, we won't get the charter for the remaining period of the year after they purchase it. And I think if we hadn't had usage, we wouldn't otherwise have changed our previous guidance. So I hope that clarifies your question.

Your next question comes from Mick Pickup from Barclays.

Everyone, Mick here. Couple of questions, if I may, just on the future outlook. Can you just talk about availability of yards looking at the offshore market and the onshore market as strong as I've seen it in a long, long time. Lots of modular stuff going out and out there. So can you just talk about what you're seeing for your next projects on availability of yard space?

So yes, as you point out, the level of activity in fabrication yard is extremely high at this stage, not only for the offshore world, but also for onshore fabrication. So when we look at the potential market, which is fairly high for our case. So we always mentioned that we're going to be disciplined in taking new projects, which is not so many words, it means that we're going to have an execution plan, which is secure and for which we made will take in at least on fabrication and supply key equipment. But it's definitely 1 criteria, the decision-making going forward for new projects, 1 of the constraints.

Okay. And then the other one was just my own benefit. There was something the other week announced LTC Brazil SBM plus. Can you just tell me what that is and talk to it? I was a bit trying to work.

Definitely. So all these is going to expand on the East and what we are doing on the digital journey.

Yes. So thank you for the question. Part of what we're doing on the digital within the company is to drive development to transform the way we work in the Turnkey and the operating segments. And we also feel there is an opportunity to take some of those developments out into external market and SBM Plus which launches the portal for that, and we have a small organization that takes that value proposition out where we combine digital with our industrial knowledge to something to great enthusiasm in the external market. So that's the first step out into that.

So that's offering your digital platform to third parties?

Yes, it's a digital platform for products that combined our industrial know-how with digital products that lead the benefit of other operators or Turnkey providers.

Your next question comes from Quirijn Mulder from ING.

So with regard to your -- say your guidance underlying is still over USD 1 billion. Can you maybe elaborate on the difference in the second half compared to the first half as when we say, first half, your coverage of your overhead cost was not very great in that period. So can you maybe say something more on some exercise in the second half compared to the first half year? And then on the transactions in the M&A transactions in the oil industry, has it any consequence for you if all this, let me say, taken out by Chevron for your operations there? Is there anything you can say about, let me say, because Chevron is a completely different player than [indiscernible]. And it's less let me say, a smaller player compared to Exxon.

So you're on the game?

Yes. So on the -- I guess what I could say is I think the financials are evolving in line with expectations. You will have seen in Turnkey, we have a boost from the Unity sale, but there's also some increase there relative to commercial efforts. So we mentioned some of the variance orders we got in prosperity than as we tail were to take into account. So those are positives for revenue was remembering in Turnkey, largely margin translated.

And just.

And the second 1 was on [indiscernible] and Chevron, and I think the answer to that is no, we don't see any impact there .

We don't see any impact.

Our next question comes from Robert [ Mandas ] from [ Antares. ]

Robert here. My question is very simple. You have a huge cash inflow, obviously, from the Unity. You have said that you would use some of that to repay project debt, but there is something left, I think. What are your plans for that cash?

Douglas?

Yes, Robert. So indeed, yes, it's a substantial amount of money, but it largely goes to a substantial amount of debt where the repayment was basically back ended right to the purchase. It leaves us with an amount of cash around USD 100 million, as we've disclosed in our net cash backlog. And yes, we see that as really part of the operating cash flow with the company we've been guiding for the fact that we're in quite a substantial investment phase, so we've been working through that this year with respect to the net equity investment requirements continuing through next year for the existing vessels under construction.

Okay. And what is the next FPSO, the next option is exercised early? Will that change anything in your capital allocation?

Our capital allocation policy remains unchanged. So we've got a fixed amount that we're paying as a dividend, which we look to grow over time. And then we look at the cash as when we look at if we have excess cash above our needs. Then in principle, that could be applied to a buyback. So it's really all about the timing of when things happen relative to what else is going on in the business.

There are no further questions. Please continue.

Okay. So thank you very much for joining the call today. If you have any further questions, please contact us directly. Have a nice day, and you may all now resume your normal activity.

Ladies and gentlemen, this concludes the SBM Offshore conference call. You may now disconnect your lines. Thank you for your participation.