SBM Offshore N.V. ($SBMO)

Ladies and gentlemen, thank you for holding, and welcome to the SBM Offshore First Quarter 2026 Trading Update Conference Call. [Operator Instructions] Just to remind you, this conference is being recorded. I would now like to hand the conference over to Mr. Charles Alby, Investor Relations. Please go ahead.

Thank you, Manana, 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 principal risks are described in SBM Offshore's 2025 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 taking the time to join the SBM Offshore First Quarter 2026 Trading Update Call. I'm Oivind Tangen, CEO of SBM Offshore. And as always, I'm joined today by our CFO, Douglas Wood. Starting with our performance over the last quarter. Our teams delivered a solid start to the year, driven by continued strong performance. For the first quarter of the year, we are pleased to report Directional revenue of $3.5 billion, an increase of over 200% compared with the first quarter of 2025, mainly driven by the FEED contract award for the Longtail development project and additional scope of work secured over the period. We've increased our directional revenue guidance for the year from around $6.5 billion to above $6.9 billion. Additional upside for revenue will materialize to the extent we are able to finalize new awards. Our performance reflects disciplined execution and operational excellence and underscores the resilience of our business model. Based on what we know today, we do not anticipate a material impact from the current geopolitical situation, including tensions in the Middle East on our operations, projects or financial position. Moving to the execution side. Our turnkey portfolio is on track with our 3 projects under construction progressing as planned. On FPSO Jaguar for our client, ExxonMobil, the topside fabrication is nearing completion and the topsides module lifting campaign along with their integration continues to progress well. First oil is expected in 2027. The keel laying milestone has been achieved for the hull of FSO Chalchi for our client, Woodside. Both the disconnectable turret and topside fabrication continues to progress well. Finally, on FPSO GranMorgu, for our client TotalEnergies, the work on the Fast4Ward hull and the topside fabrication continues per plan. First oil is expected in 2028. On to operational excellence, our strong performance achieved throughout SBM Offshore's fleet resulted in uptime of around 98% at the end of the first quarter, which means safe and reliable operations for our clients and predictable long-term value generation for our shareholders. By combining our industry-leading Fast4Ward program with our integrated life cycle approach and disciplined execution, we continuously improve our ability to deliver large and complex deepwater solutions, both on schedule and within budget. This reinforces SBM Offshore's strong position in a robust FPSO market that is increasingly characterized by projects with significant gas handling requirements. Thanks to this expertise, we were awarded in March the FEED contract for the Longtail development project in Guyana. Subject to final investment decision and government approvals, this project would result in the construction of an FPSO with the highest gas handling capacity ever deployed. Similarly, the 2 FPSOs in the Sergipe-Alagoas basin in Brazil for which we are currently tendering are designed with substantial gas processing capacity and the commercial process is progressing well. The integration of gas treatment and export infrastructure enhances the overall value of the development by monetizing gas alongside oil production and represents a step forward in the treatment of gas on board SBM Offshore's FPSOs. Considering the robust market outlook, we've ordered 2 additional Fast4Ward hulls to support ongoing tender activities. Of the 4 hulls on order for future projects, one has been allocated to support the Longtail development projects in Guyana for our client, ExxonMobil. Given our confidence in the FPSO and broader ocean infrastructure market over the long term, we are also working towards the replacement of our joint venture-owned installation vessel towards the end of the decade. The new vessel will enable us to maintain our full life cycle EPCIO offering and to create additional competitive advantages to improve reliability and the integration of more offshore installation work scopes. This, in turn, reduces execution risk for our clients and improves predictability of our EPCIO schedule and costs. Looking ahead, we will continue to advance our core FPSO business, while selectively expanding into ocean infrastructure opportunities across the blue economy, deploying our proven capabilities where we see attractive growth opportunities. Now to the financials. For the first quarter of the year, the company's Directional revenue increased by over 200% to $3.5 billion compared with the same period last year, driven by Directional turnkey, which stood at $2.9 billion. The year-on-year improvement reflects the sale of FPSO ONE GUYANA in February 2026 and the allocation of the Fast4Ward hull to the Longtail development project. This was partly offset by the delivery of 3 FPSOs last year, which contributed in 2025, Almirante Tamandare, Alexandre de Gusmao and ONE GUYANA. Directional lease and operate revenue stood at $610 million for the first quarter of 2026, a 28% increase compared with the year ago period, reflecting the 3 FPSOs that were delivered in 2025, while FPSO Aseng and the semisubmersible floating production unit Thunder Hawk left the fleet in the fourth quarter of last year. The sale of FPSO ONE GUYANA enabled further balance sheet deleveraging and was the main driver behind the reduction in Directional net debt to $3.2 billion as at March 31, 2026. This represents a 43% decrease compared with the year-end 2025. A large part of the debt is related to our projects in operation and considered nonrecourse. There is no refinancing risk related to this debt. Finally, regarding capital allocation. During the first quarter, we increased shareholder returns through $100 million cash dividend payable on the 13th of May and the launch of a $270 million share buyback program. In addition, an interim dividend of $100 million is scheduled to be paid in September 2026. In aggregate, this represents a 57% increase in returns compared with last year. To conclude, our first quarter performance reflects SBM Offshore's capabilities and our leading position in the ocean infrastructure market. The results delivered this quarter clearly demonstrate the strength of our disciplined execution and the resilience of our business model as evidenced by increasing Directional revenue guidance for 2026, reflecting strong underlying performance and increased confidence in the project pipeline. Reaffirming our capital allocation framework with at least $2.1 billion of cash return to shareholders targeted over the 6-year period to 2031 with further upside potential. Strong execution across our turnkey portfolio with FPSOs Jaguar, GranMorgu and FSO Chalchi progressing in line with plan. A robust market for large and complex FPSOs increasingly characterized by significant gas handling requirements, supporting a strong tendering pipeline across key regions. Continued balance sheet deleveraging, providing financial flexibility to support near-term Lease and Operate opportunities. A strong focus on safety and operational excellence, delivering consistent high uptime across the fleet. This concludes today's call. Thank you for listening. Operator, we can now open the call for questions.

[Operator Instructions] First question comes from the line of Guilherme Levy from Morgan Stanley.

I have 2 questions, please. First one on Venus. Are there any new developments on that bidding process that you can share with us? And how should we read you ordering a new hull to the potential outcome of this negotiation? Secondly, thinking about the replacement of your installation vessel, how should we think about the capital commitment for this new unit and also the pace of capital deployment to build it? And just to confirm, this will continue under the JV structure, right? So continues to be a 50-50 investment? And then thirdly, if I could squeeze in a third one. I appreciate that you are a bit late cycle compared to others. But following the recent development in the Middle East, thinking about the long-term opportunities in other regions, how global companies will look at their investment portfolio post these events? How do you think that we should expect the frequency of calls that you get from prospective clients to evolve over the coming years on the back of that?

All right. Thank you, Guilherme. So -- Venus, so it's an ongoing commercial process. As usual, we don't really comment on the specifics of that. We are excited about the opportunity and hope that we can be successful when it comes to conclusion. For the MPF ordering, that's a reflection of how we see the market evolve and the maturity of some of the discussions we're having on existing prospects. So no specific comments on the MPF, but it's a good indication on how optimistic we are about the market opportunities. On the installation vessel, I will just reiterate that installation vessel is something we've had in the SBM capability over the last decade. It's always been both a technical add-on and a commercial parameter for us that's been successful that we want to continue as we see the ocean infrastructure play over the next decade. For the capital allocation, I will give that to Douglas once I will just comment on this, the Middle East. So the only thing we can comment on the Middle East is we don't see any exposure on our ongoing projects or operational activities either from a financial or a supply chain or an operational consideration. Whilst in the consideration around what does it do to our market, I think that in the world is rather a growing focus on diversification of energy sources and -- rather strengthening the deepwater play in the Atlantic Basin, as one of those growth opportunities for further oil developments in that mix. So we kind of see it as a strengthening of our core market. So on the installation vessel, JV structure, negotiation, Douglas?

So it would indeed be structured as a joint venture. So similar kind of JV setup, similar dedicated financing, meaning as such, would have no material impact on the net cash picture. We're talking tens of millions for SBM that we showed in February over the next 6 years and the timing of kind of the process of building the vessel will be about 3 years. So it would fall within that 6-year window.

Our next question comes from the line of Philip Ngotho from Kepler Cheuvreux.

I have 3, if I may. The first one is on the guidance upgrade. I was just wondering if you could maybe elaborate a little bit on the revenue guidance increase also on the Lease and Operate segment. I understand that for the turnkey, it also probably related to the Longtail, FEED. But I was wondering what is driving the L&O upgrade? And also maybe just on that on -- why there isn't an EBITDA guidance upgrade, given that you still expect $ 400 million higher revenue? And to what extent does it also relate to you not recognizing any earnings before you have completed 25% of a turnkey project. So just some clarification on that. And then maybe also a question on the net debt. It has fallen materially since year-end. Can you help us understand how you expect it to progress the rest of the year, also given the new orders and ongoing shareholder returns? And then finally, the last question that I have. You mentioned as well, you made a reference in the press release that you're also looking at advancing or selectively expanding into adjacent ocean infrastructure opportunities across the blue economy. It seems like it's a little bit more prominent than in earlier previous press releases. Is there anything that's in the pipeline there that you're looking at from a capital allocation perspective? Those are my questions.

All right. Thank you, Philip. I think -- Douglas, I think this plays well into your quarter.

All right. So on the guidance, so indeed, Lease and Operate is up a little bit. That's a function of having agreed a little bit more reimbursable scope with some clients on a few FPSOs. As you noted and as we said, Longtail is really driving the overall increase, it's the FEED contract. So for a FEED contract, we just book the revenue relative to the cost. And then as anticipated when following FID that will then roll into the project and when -- we then start to earn a margin after 25% around that percentage of completion. On the net debt, so the evolution is very much in line with what we expect and what we've factored in both to our net cash outlook and also the guidance that we've been giving around the leverage ratio of staying below 3x. Of course, there's a lot of activity at the moment. So you can expect a little bit of fluctuation up and down in terms of the direction of travel. There's no change to that sort of steady deleveraging over time. And again, we anticipate to stay below 3x. Yes, maybe just a comment on the blue economy. So we -- and ocean infrastructure capital allocation so there is -- as you know, we're working on a number of ocean infrastructure solutions at the year-end. We talked around water and CCUS, carbon capture and storage as themes that we're working on. There are other things in the background. But from a capital allocation perspective, our approach is that we very much look to advance those based on studies for which we're paid. And then the base case for now for all of those solutions as we get an order, it will be on a kind of EPC basis. If there are any changes, we'll let you know, but that's basically the philosophy. So as of now, we don't anticipate any call on capital to fund that over and above the OpEx that we have for the teams that are looking at those things.

Our next question comes from the line of Guillaume Delaby from Bernstein.

One or 2 questions for you, Oivind. Since the beginning of the war, have you noticed when you speak with clients, what I would call a step change in their mindset. A few CEOs, who I had the chance to speak to over the past few weeks, have told me that when meeting with governments, there is now an urgent need to build new infrastructure of all types. So I just would like to get your own personal take on that. And second question, which is about the 4 hulls. So there is 1 for Longtail, 2 probably for the 2 Sergipe Brazilian contract, 1 for Venus. So I think it would be reasonable to expect that you order further new hulls in the second part of the year. I'm not sure you are going to answer the second question, but at least I tried.

Guillaume, the conversations that we have with our clients are always kind of about development pace, managing the cost base, derisking projects and delivering reliably. So the nature of the discussion hasn't really changed because that's always what we seek to do. I think maybe the overall theme is when you look at us and our portfolio that we are not -- we don't directly subject to the Middle East exposure is really about reinforcing our existing value proposition. But as I said earlier, we -- there is not just talking to clients, but in general, in between the countries we interact with through partners, equity partners, et cetera, we see that there is a much stronger drive for securing energy, the energy mix into the future that gives us further substantiation to the longevity of oil. And we know that the oil play is very much driven by deepwater, low cost per barrel, low emission factors and therefore, strengthens our value proposition. But these are long-term developments, less so influenced by months and weeks events. But overall, you could say from a macro picture, we see it as reinforcing our value proposition. And we keep looking for further ways to develop that through our advancing the core strategy. So it plays well. On the hull, I think that's an assessment you make. We have, as always, on the back of ordering 2 new hulls. We said on the last quarter update as well that we will engage with the third yard for that. So we've expanded our ability to -- or our capacity for new hulls through that -- through those awards. So we keep at the same kind of risk tolerance, and we keep the same kind of level of readiness for new prospects. So we know there is a concentration of prospects through this time line right now, and we'll be comfortably able to go after further awards for hulls, as new prospects materialize. So I think we're well positioned for what's in our portfolio, and we're well positioned for the prospects ahead of us.

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

Just one question from me this morning on your decision to replace your installation vessel towards the end of the decade. Is the reason for this because that vessel is at end of life? Or is it because you need to improve the capabilities of that vessel to be able to service the broader ocean infrastructure market that you're looking to target?

Yes. Thank you, Jeremy. So it is indeed coming to -- after a very successful long life and a good partnership, we have with Solstad, coming towards that end. And there is -- it could successfully continue to install the infrastructure project we foresee into the future. But what we have -- so it's a replacement in that context that we see. But of course, we're building in new capabilities as we take the opportunity, while designing this new vessel to bring in all the learnings we've had through the long and successful life of the Normand Installer.

[Operator Instructions] We have one more question. And this question comes from the line of Thijs Berkelder from ABN AMRO ODDO BHF.

Strong Q1. Three basic questions. Can you confirm that the 4 hulls, you have under construction, are still with your existing yards, SWS and CMHI and not yet at the COSCO yard? Then secondly, can you confirm that delivery of the FSO offshore Mexico in principle is planned for end of '27 and/or maybe early '28. Then thirdly, can you explain how you are handling all the extra -- new extra work, which is now coming to you in terms of hiring of people? How much people do you need? How far are you in recruiting those persons? And where are you adding that personnel?

All right. So yards, MPF, so the 2 awards were in COSCO. So as I said earlier, that's the third yard. So we're doing currently one in SWS, one in CMHI, and we awarded 2 for COSCO. So that has expanded our capacity. On the delivery of the Chalchi, whatever dates we've communicated...

Yes. No, I can comment on that one. So as we said, it's progressing on plan, but we always align with the client in terms of timing. And so they prefer not to give a timing.

That's right. And on the preparedness of our organization for what could be a successful year and years ahead. When we go into prospects and hand over and make commitments to tendering, we always bid with high sort of organizational readiness to start execution. So the recruitment for the scope that is potentially right ahead of us is pretty much already concluded and the execution model is a standard execution model. So some will be led by Kuala Lumpur, some will be led in Rotterdam. All of it will be backed in substantial -- in a substantial way by our teams in Bangalore, and we are keeping a very sort of standard -- sticking with a standard project execution model with already well-versed project management team for each of those already allocated to the prospects we've put into the market. So it's a very well-advanced sort of growth process that we've worked on last year and the early part of this year for the prospects ahead.

Our next question comes from the line of Edward Donahue from One Investment.

A couple from my side. It's reference to you were saying through the presentation about the increased size, but also the word complexity used quite a few times with regard to the gas component of projects going forward. How has this sort of changed the sort of the risk management operating processes that you have in place and also looking down your supply chain and the build-out in the supply chain, the understanding of this? And then how does that potentially have any implications with uptime profiles, adding a gas component? I'm not an engineer at all. So any help would be most welcome. And then the second question is just -- I mean, okay, going back to the Middle East, the impact of inflation or latent inflation building in the supply chain and therefore, contract structures and pass-through ability.

All right. Thank you. So gas handling, so maybe important to differentiate between sort of novelty technology and sort of gas handling volumes. So when we're talking about increased gas handling capacity, it's about sizing up what is already well proven technologies. It's about the scale of the assets and the throughput. So it's all within well-known and already sort of existing technology portfolio or assets. So it's more about scaling up and the ability to do that in an economic way. And this, of course, leverages exactly the same supply chain and the same equipment manufacturers that we are already used to working with. So from a risk perspective or a, let's call it, operational availability and operational capability, this doesn't represent a significant step out for the company. And therefore, we don't consider it as a particular emerging risk from that perspective. So it's not business as usual because these are bigger and they will take that diligence into the gas system, but it's not creating a novelty for us from that perspective. On the Middle East and the supply chain, so for what is the sort of Directional -- the direct impact on our backlog, we are inflation protected on most of our backlog on the operational contracts. And on existing projects that are the 3 projects we mentioned on this presentation, they are already significantly advanced and past the procurement part of the project phase. So it's really a build and these are all lump sum contracts and not really impacted by the inflation in the supply chain. On tendering work, of course, when we put in tender work, we build in allowances and contingencies for unforeseen. So that is one part of our production. And we always bid on the high maturity of our engineering, which means we have a high maturity of the underlying supply chain offers we have to support our tender work. So we've assessed all of those, and we found that the situation today is well within the contingencies that we put in place on the commercial prospects that we put into the market.

There are no further questions, Mr. Tangen.

All right. Well, thank you so much for joining us today. As always, if you have further questions, our teams are there, and you can contact them directly. Thank you for your interest in SBM, and have a great day.

Ladies and gentlemen, thank you for attending. This concludes the SBM Offshore event call. You may now disconnect your line. Have a nice day.