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

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

Thank you, Heidi, 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, Charles. Good morning, everyone, and thank you for joining the SBM Offshore First Quarter 2025 Trading Update Call. I'm Oivind Tangen, CEO of SBM Offshore. And as usual, I'm joined by our CFO, Douglas Wood. So starting with our performance over the last quarter. Our teams continue to deliver strong results in line with the plan. We're pleased to report a directional revenue of $1.1 billion for the first quarter, up 27% compared to the first quarter of 2024. Our full year directional revenue and EBITDA guidance demonstrates the resilience of our business model and our ability to navigate macroeconomic uncertainty with confidence. As the world's offshore infrastructure expert, we run a global operation focused on excellence at every step of the FPSO life cycle. This translates to a pro forma directional backlog of $35.1 billion as of December 2024, backed by premium clients and with inflation protection. We continue to expect to deliver a minimum of $1.7 billion cash return to shareholders up to 2030. Our promise is to continuously enhance the quality and efficiency of our operations. The excellent performance achieved in all regions of the Lease and Operate activities attests to that with the fleet uptime standing at 99.5% at the end of first quarter. On the execution side, we are well on track to deliver 3 major units in 2025. First, FPSO Almirante Tamandaré achieved first oil in February 2025. This unit is followed by FPSO Alexandre de Gusmão, which arrived at its location in Brazil in March of this year. The hookup and installation works are complete and the FPSO is being prepared for first oil around midyear. The third unit to be delivered this year, FPSO ONE GUYANA, arrived safely in Guyanese waters where the installation and hookup campaign is progressing well. We're targeting first oil in the third quarter. We continue to progress as per plan on our 3 projects under construction. On FPSO Jaguar, the topside modules fabrication is progressing very well and first oil is expected in 2027. On FSO Trion, engineering and procurement are progressing as planned and the fabrication of the disconnectable turret mooring system has begun. Finally, the Fast4Ward MPF hull has been delivered to the FPSO GranMorgu project and the topside fabrication will start in the coming months. With a strong FPSO market outlook in the Atlantic Basin, we continue to follow our Fast4Ward model for the best competitive positioning. A total of 8 Fast4Ward hulls have been delivered, of which 4 are in operation and 4 have been delivered to projects. Another 2 MPF hulls have been ordered to support active discussions with clients on premium prospects. We are also pleased to share an important milestone in our offering of decarbonized floating solutions. Just last week, SBM Offshore received an approval in principle from the American Bureau of Shipping for our near zero FPSO design. This is an important step in the emissionZERO road map and the design is fully integrated with our proven Fast4Ward concept, delivering on our commitment to a market-ready near zero FPSO by the end of 2025. Building on our expertise in ocean infrastructure, we are partnering with other innovative companies to diversify our product offering. We have signed a strategic collaboration agreement with Microsoft to develop standardized AI-powered ocean infrastructure solutions. The first phase of the collaboration will focus on floating gas-to-power solutions, integrating our modularized carbon capture solution. Now to financials. For the first quarter of the year, the company's directional revenue increased by 27% to $1.1 billion compared with the same period last year, driven by directional turnkey, which stood at $627 million. The year-on-year improvement reflects the progress booked under the sale and operate model on FPSO GranMorgu and Jaguar. Directional Lease and Operate revenue was $476 million for the first quarter of 2025, approximately $18 million below the same period last year due to the sale of FPSOs Prosperity and Liza Destiny in Q4 2024. This was partially offset by an increasing reimbursable scope and FPSO Almirante Tamandaré joining the fleet in February 2025 as it entered on charter. Our net debt position has been stable since the end of last year and stood at $5.7 billion for the period up to March 31. Most of the debt is related to our projects in operation and the funding of our large FPSOs under construction. There is no refinancing risk related to this debt and all project debt becomes nonrecourse in the operating phase. Since the beginning of the year, we have also demonstrated our ability to diversify our sources of financing with the completion of the $400 million sale and leaseback transaction for FPSO Cidade de Paraty. This was completed in April. And we are pleased with the successful syndication of the increased revolving credit facilities, reflecting the strong support SBM Offshore continues to receive from financial institutions across the globe. Finally, regarding cash return to shareholders, at our AGM in April, the proposed EUR 150 million cash dividend was approved, which resulted in a dividend distribution of EUR 0.86 per ordinary share paid on May 6. We have also started EUR 141 million share buyback program after the 2024 program was completed. The new program is progressing and was about 7% complete as of May 14. To conclude, we are confident in our ocean infrastructure experience, the expert capabilities of our teams and the resilience of our business model. Our strategy of advancing the core and pioneering more delivers and at pace. This quarter's results provide evidence by: Reiterating the company's guidance for 2025 in a time of increased macroeconomic uncertainty; reconfirming our existing target to deliver $1.7 billion cash return to shareholders until 2030; maintaining high safety records and excellent uptime; successfully delivering FPSO Almirante Tamandaré and well on track for the deliveries of FPSOs Alexandre de Gusmão and ONE GUYANA; and we continue to diversify our sources of financing and creating new partnerships with innovative companies. This concludes today's call. Thank you for listening. Operator, we can now open the call for questions.

[Operator Instructions] We will take our first question, and the question comes from the line of Philip Ngotho from Kepler Cheuvreux.

I have 2, if I may. First of all, just on the general market. And I mean, we've seen, of course, a quite volatile oil price environment and it's down 15% year-to-date. I also understand that large-scale ultra-deep FPSOs that you're involved in usually operate at fields that sit within the first quartile of the cost curve. But nonetheless, I was just wondering if you have seen any hesitance or cautiousness from your clients in discussions on future projects or whether that could lead to any potential delays versus your initial time line? And if I may, I have one other question. I was just wondering in terms of the refinancing that you did on Cidade de Paraty, would there be any other FPSOs in your portfolio where you could do something similar in terms of refinancing and freeing up additional cash in the near term?

Philip, thank you for your questions. So oil price and the market ahead of us. So we don't see any shifts on the prospects we are working that are active in the market now. We follow prospects that inherently have very sound economic -- underlying economics. And we don't see any shifts that are being communicated by our clients. And I think you can see that in the public domain very well. So in the immediate, we don't see anything in the pace of awards planned. Douglas, on the #2.

On the second one, yes. So we're, of course, always reviewing how we optimize the financing of our portfolio so that we're effectively managing the cash flows. What I would say, though, is that in terms of cash acceleration, given that we see quite a lot of cash acceleration coming just as a result of the sale and operate model, I wouldn't say that we're prioritizing cash acceleration. This transaction also enabled us to prove, if you like, a new financing model that we hope to deploy to our competitive advantage in the future. And then, of course, we will always review if there's an opportunity to refinancing existing debt at lower costs. Definitely, that's something that we would consider doing and pursue.

We will take our next question. The next question comes from the line of Luuk Van Beek from Degroof Petercam.

I was wondering if you can tell a bit more about the cooperation with Microsoft? So when do you expect to do the first project? Can you give a rough indication of the typical project size that you expect and how it will develop?

Thank you, Luuk. So it's a collaboration where SBM's capabilities and Microsoft's projected demand for power meet. And right now, we are exploring into that collaboration, the economic viability and potential development of designated power badges with carbon capture to meet any electrification demands associated with AI-powered data centers. So for now, it's very early phases of that collaboration to understand whether there is a product offering that can match both companies like Microsoft needs and potential other players in the journey of energy needs for data and AI.

Your next question comes from the line of Thijs Berkelder from ABN AMRO ODDO BHF.

A question on Q1. Can you maybe disclose the direction of CapEx you spent in Q1 for the, let's say, remaining three FPSOs? And I recall you indicated something like $250 million still needed to be spent this year? Or am I wrong there? Further, did Q1 include some kind of delivery results or not because of the Almirante Tamandaré being producing now? And third question is do you see any impact so far from potential tariff measures by the Trump government.

Thijs, so regarding your question on the net equity investment, so we're not giving like quarter-on-quarter guidance. But what I would reiterate is that, yes, indeed, it's $250 million. Most of it, we anticipate to be spent this year. And I think we're trending on track there. Regarding Almirante Tamandaré, yes, it did have an impact in the first quarter. Of course, we're looking forward to seeing the impact from the other 2 FPSOs, which are due to come on stream in the coming periods. And that, by the way, is 1 of the big drivers, if you multiply our revenue for Q1 times four, you'll see we're a bit shy of the guidance, but that's because we haven't yet seen the impact of those big units, which are coming onstream later.

Thank you, Douglas. And then on tariffs, so as we've said previously as well, our existing backlog is not really subjected to trade across American borders. And in terms of generally inflation protection, that's inherent both through either reimbursable contracts or index adjusted contracts on lump sum stuff. So we don't see an exposure in existing backlog from the tariffs on new work. Obviously, any uncertainties in the world, and we manage that through how we lock in prices and then bid we're doing on upcoming commercial opportunities and the contractual structure supporting service work after delivery on those future opportunities. We'll also have measures that build in all the learnings we've done through other fluctuation naming COVID, naming Ukraine war and how we adjusted to these volatilities that we've seen over the last decade almost now. So we feel that our model is very resilient also from the underlying economics, the prospect we pursue and the contractual structure both in existing and new backlog, we have good strategies to manage that.

A follow-on. On your, let's say, announcement that you rent out your Normand installer, let's say, to BP for Gulf of Mexico. You don't need to have an installation vessel on your current project deliveries?

A very good observation. So obviously, the Normand installer is a great tool for us that we use on our installation of all our FPSOs. It's knows our design and gives us a very efficient and flexible way of planning our project schedule and giving project schedule certainty. Our own scope doesn't fill completely the workload of the Normand installers. So every time we have an opportunity between our own installation work, she's in the market, and this contract is a great example of how she could be -- how she is very useful tool also generating additional revenue to the company. So this is an example. We also had other awards for the Normand installer over the last few years. So she is a very good tool with a very good team.

The next question comes from the line of Quirijn Mulder from ING.

My question is especially with regard to the hulls under construction in China, I read there's some progression with regard to more focusing on clients. Is that correct conclusion? Or let me say, have you made some progression there, not only on the yes, not only on the construction, but also on targeting the clients?

No, I mean we're pursuing several commercial opportunities and these hulls is just following the same model as we've had done for the last 9 years. So we have 2 hulls that are unallocated and we are obviously, through any commercial work, we engage with our clients on potential technical clarification, et cetera. But these are 2 unallocated standard hulls that we are hopeful will help us to be securing future backlog growth. But there's no different strategies in terms of engagement or otherwise with the clients or prospects.

Your next question comes from the line of Jeremy Kincaid from Van Lanschot Kempen.

Just first line of questioning on the sale and leaseback. Could you just help us with the modeling of it? So am I right in assuming you're going to receive 400x by your ownership percentage in the second quarter? Is it inflow and then there will be steady cash outflows for the remainder of the life time of the vessel, which I think is until FY '33. Is that correct?

Yes.

Okay. Excellent. And then obviously, you still have a little bit of corporate debt. I think last quarter, it was around EUR 100 million. What's the ideal situation there? Would you like that number to be zero in the long term? Or are you happy to have some level or a small amount of corporate debt in the mid-to-long term?

So the corporate debt is really the RCF, so that's going to fluctuate depending on where we are with awards potentially bridging future financings if we have those or managing working capital. But we're comfortable with where it's at, and we're very happy that we have the RCF renewed to support our business.

And then one final question. From memory, I believe you calculate some contingencies in the backlog just in case things go wrong. But obviously, you have some vessels, which will be operational or becoming operational in FY '25. Do you release those contingencies in the backlog when they become operational? And are you able to quantify how much that might be?

So specifically, if we have some level of contingency for turnkey projects, then, yes, we would release that when the vessels come on stream. We don't give the specific details of all the contingencies. We just give the overall guidance.

[Operator Instructions] We will take our next question and the question comes from the line of Guillaume Delaby from Bernstein.

I think 1 year ago, in the specialized press, in Upstream, there were some articles mentioning that Brazil could -- or Petrobras could gradually shift to a more, I would say, SMO model. And I think last week at the OTC conference in Houston, Petrobras mentioned that again. So maybe could you give us a little bit of flavor when you are discussing with Petrobras, how they are evolving regarding the [ SMO ] model?

Guillaume, I think you'll see what they put out in the market now that there is a representation both EPC with Petrobras specification and BOT, which is a handover of the asset early in its operating life, and also some maybe lease and operate. But typically, the FPSOs in the market where we did, you see a shift from long-term lease and operate to a BOT model right now, and this is published by Petrobras themselves in recent articles in Upstream, you'll see they're quite explicit about the strategy, because also referring to other questions earlier about pace of awards, you'll see Petrobras is very much pursuing a high pace of awards. They got a lot of prospects to get out, so they're seeking models their contractors will respond to. Douglas, do you want to add something?

Just to be clear because we use the term BOT for Guyana, it's a slightly different, makes perfect sense for Petrobras to call it a BOT. But for us, that would be sale and operate because we're not going to have any financing, and we'll be booking the margin in turnkey and then they'll be operating part thereafter, should we, as we hope, be successful in winning some of these upcoming awards.

This concludes today's question-and-answer session. I will now hand back for closing remarks.

Thank you very much for your continued interest in SBM. And of course, as always, if you have further questions or want to seek more details, you could connect with our teams, and we'll be happy to explore and share information with you. Thank you very much, and have a great day.

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