SeaBird Exploration Plc (SBX) Earnings Call Transcript & Summary

Good morning, everyone, and welcome to this fourth quarter conference call for SeaBird Exploration. Unfortunately, we have just been made aware that this is a one-way call. We would very much like to have it open for questions in usual fashion, and we'll make sure that for the next call that, that will happen again. Meanwhile, a sort of backup solution here is to send e-mails to our CFO, [email protected]. Just send e-mails again during the call and we will bring those questions up in the end of the call and try to answer them as best we can. Other than Nils, of course, I have Gunnar Jansen, our Acting CEO, present. The agenda here, as you can see on the first slide, we're going to go through the update on the new strategy communicated on the 7th of November. We will go through the market and our own operations and financial review, and we'll be talking a little bit about what we see coming over the next few quarters. If you go to the next slide, Slide #5, highlights, I think the -- I think this presentation should really be divided into 2. There are 2 main topic areas. One is that we -- in the fourth quarter, we're still dealing to some extent to the past. And secondly, we are -- we have been working very hard for the last 4 months to prepare for the future. And this can be summarized as you see on this slide with the key financial and operational numbers. You see we have a negative EBITDA of $3.8 million for the quarter. We have very low fleet utilization of only 42%, reflecting for tendering trends that we have been reporting throughout last year, the same with the 3- to 6-month lag and then there's CapEx of $1.5 million. So in the main -- I think a comment on the fourth quarter is that we have been -- there have been some aftereffects of the very poor contracts entered into in Q2 and Q3 last year on a number of issues. These issues are now over and done with. And if we look at -- we don't normally report technical downtime numbers. But as you can imagine, they were, in some cases, very high for the second and the third quarter. If you look at the new contracts entered into and the job start date from November onwards, I can report that in the fourth quarter, the technical downtime on those jobs were 7%, and that trend has continued into the first quarter this year. So by the end of February, the technical downtime is actually 5% on the jobs we're currently doing. So I'm saying that because we are amidst the reorganization. We have also managed to take down and get effect of the reorganization through a more markedly lower technical downtime over these last 4 months. Prepared for the future then. As you know, we are both relocating. We are reorganizing. We are cutting costs. We are renewing the fleet. And we've been able to do so, as you saw in the release here a couple of weeks ago. We've been able to do so without major CapEx. And on top of that, we have also agreed to a $16 million credit facility. That means that the company is now fully financed for the projects we have announced. And we see all the vessels ready on the water by the third quarter this year. So I think I want to leave it with that and hand it over to you, Gunnar, to go through the presentation, also to Nils for the numbers here in front.

Thank you. So as Ståle already sort of mentioned, we are in the middle of implementing the restructuring program. The cost reduction that we have announced is progressing as planned. The main effects, we should expect to see in the next couple of quarters. The operations moved to Bergen in December, January, and the move is expected to be completely -- or complete in April this year. As part of that, we're also reorganizing so we are focusing more on being project-based in the way we work. And as already mentioned, the technical downtime has dropped significantly. And I think it's also worthwhile to add that this is both on the source contracts as well as distributor contracts where we had significant downtime in Q3 and Q2 last year. The fleet renewal is ongoing. We have added the Geo Barents to our fleet. She will replace the Osprey Explorer. The Geo Barents is 2007 built. It's a modern vessel that fits or can work in all of our segments, in source, in 2D and also in niche 3D. So it's -- as a replacement for Osprey, it's more versatile. It will be a more preferred vessel due to age and also due to being able to work in the 2D and 3D markets as well where the Osprey would have had limited capacity. And we also secured the $16 million debt facility that will be applied towards repayment of the bond loan and also the seismic rigging of the Fulmar Explorer, which we are proceeding with immediately to prepare for and expect to have that vessel online and ready for the market by the end of second quarter 2020. On the fleet updates. We are now at the -- sort of currently at 7 vessels, so at the high end of the 5 to 7 vessels range for the flexible fleets that we announced in November. All vessels potentially will be, with the exception of the Petrel Explorer, will be available for both source and also 2D work and most vessels for niche 3D as well. So quickly, the -- what would be in the highlight here is that we have the owned fleets, the Eagle Explorer, the Fulmar Explorer and Petrel Explorer, all high-end modern vessels. And we have the flexible fleet consisting of the Geo Barents on a flexible time charter, the Voyager Explorer on the flexible bareboat contracts from the owners and also the Nordic Explorer on the flexible time charter as well. And then Harrier Explorer, which is also owned but sort of remaining from the older vintage fleet. So the graphs are, of course, self-explanatory. Revenues went down. What I think is important to highlight here is that in Q4, we still saw a healthy balance or a good mix between streamer and source projects, $4.4 million in revenues from source projects and $3.2 million in revenue from 2D contracts. We think that's supporting a trend that 2D is becoming relatively more important for the company, although source will still be an important segment for us. We also see from the geographic allocation of the revenues that the -- there's a relative pickup in activity in the Asia Pacific region. That's also supported by recent tendering activity that we've seen both in Q4, but also in Q1 this year. So Asia Pacific is also emerging as a more active region for us in addition to what we expect to see in regions like in West Africa, South America and the Gulf of Mexico. In the quarter, we had several vessels completing projects and 1 vessel commencing new project. That was the Voyager Explorer, started an OBN survey in Asia that was recently completed. Very good technical performance on that project, good feedback from the client and the oil company on performance. The Osprey Explorer completed an OBN source projects in the North Sea in October also with good overall performance and according to plan. The Harrier Explorer completed the 2D project in South America in October as well. And the Eagle completed a 2D project in the North Sea that was started in Q3. Petrel Explorer has been operating on a contract with EMGS first in completing a survey in Malaysia and then transited for another work in or another job in the Americas. And the Nordic Explorer completed a shorter 2D project in Namibia in West Africa and has started mobilizing towards the work in the quarter, mobilizing for a relatively large 2D project in Australia that is still ongoing and also with very good performance. And I think it's then also worthwhile to mention that the equipment that's being used on the Nordic Explorer is coming from the same pool of equipment that we previously had issues with. And the performance now strongly indicates that these problems have been rectified and that the efforts and mitigating activities that we've done actually have had the intended effect on the equipment. Market trends. Source vessel demand was still driven by ocean bottom seismic. It's again driven by the focus on increased oil recovery but also near-field exploration. We do still see a tendency for increased multi-client activity in OBN. And we expect also to see moderate growth also in this segment in 2020. Tendering activity both in Q4, but also now in Q1 is supporting that view. But of course, there's always a risk that projects are postponed or delayed in terms of when we expect them to materialize. Demand for proprietary 2D and the niche 3D surveys are largely driven or primarily driven by license obligations that the oil companies have to shoot seismic. The conversion ratio or these tenders tend to, to a high degree, turn into actual contracts on surveys being performed, but the surveys are normally small or relatively small. So we are talking about maybe around a month's work for each survey in general. So they're smaller jobs, but they tend to actually happen or go ahead. We also see that energy security is emerging, and that's been confirmed also by activity -- or tendering activity and also contract survey activity that we see, especially in the Far East and Africa. So that's also a trend that we expect to continue. And again, it ties back with the comment from one of the previous slides that we do see a relative pickup in activity in the Far East.

Before we go on, there are changes at Nils' e-mail address. There is a dot in that. So it's [email protected]. Thank you.

So this is again a graph that probably, those of you who has been -- or have seen the presentation before are acquainted with. It's logging the leads or request tenders that we receive in each quarter and divided between the different segments. It's -- we consider it very positive that, first of all, there is a stable OBN-related tendering activity. The 2D tendering is a bit up. It continues at a moderate pace. And again, we do expect more of these surveys we'll realize than before. We also see an increase in some of the niche 3D or the niche 3D market. And the Q1 tendering activity so far supports that we are on a slightly upward trend compared to the downward trend that we had in -- from the quarters Q1 '19 to Q3. And we also see that compared to [Audio Gap] The unfortunate thing still, even though we do see also some improvements in that, is that the lead time from contract award to project start-up is short, whereas the tenders do tend to take time to mature. Again, this creates challenges that we are improving how we handle and in terms of mobilizing and starting up projects. Okay, Nils, then over to you.

Thank you, Gunnar. Turning over to the financial review. On Slide 15, just a summary of some of the stats we have mentioned already. So revenues for the quarter, on the top left, $7.6 million. And there are no multi-client sales involved, and that -- we'll come back to that a little later. But as you recall, our multi-client library at this point is only about $0.4 million on the books. So not expected to have significant contributions coming from that. So all contract sales in the period, $7.6 million, leading us to an EBITDA of -- adjusted EBITDA of $3.8 million, I will come back to that a little later, or reported EBITDA of $5.5 million negative. On the capital expenditure side, we had $1.5 million in the quarter. This is a bit of a mix, about half -- or sorry, 1/3 or so of that is on the maritime side, a lot of that related to some engine work done on the Voyager and otherwise generally pool seismic equipment. Vessel utilization of 42%. Going to the next slide, Slide 16, just to see the development over time. So you get 42% of utilization, and we had no yard stays in this period either. Slide 17, I know there are a lot of numbers here and we can talk to those. If people have questions, we can go into kind of the details. But obviously, as a part of this continued restructuring and changing in fleet and so on, there have been a number of impairments and charges taken here. So overall, you'll see $4.3 million that we have kind of classified as nonrecurring charges here. And the big items in this is really the Osprey as the #1, which is about $3 million of this. And then we're taking a restructuring provision of $1.2 million. And the number that's going the opposite direction is a reduction in SG&A. It's related to options. And you recall, we have 2 plans, sort of option, a plan A and a plan B. And in instituting the plan B and also as a result of the number of people leaving the company, there have been 4 fitting options here, and that is resulting in a reversal of the option expenses of about $0.5 million, which is why you'll see we have a reported SG&A of $1.5 million. But if you adjust for that, that reduction in option expenses, we would otherwise have been at $2.1 million. Going to Slide 18 on the balance sheet. We're now seeing property, plant and equipment, so in essence, the vessels and equipment at $53.9 million. The multi-client investments, as I mentioned earlier, is now at $0.4 million. There are no substantial changes otherwise here. We might want to note the cash and cash equivalent at $3.6 million and restricted cash at $0.2 million, which leads us to total assets of $70.9 million for the quarter. On the liability side, I think there are a couple of things that are worth pointing out. One is on the trade payables. In the trade payables is this Glander credit facility as well. And that's linked with the SBX04 bond. So there will be a refinancing of that. We'll come back to that a little bit later. That has a maturity of June 30 of this year. And it stands at about $0.4 million, and we'll come back to that topic. But that is in trade payables from a reporting point of view. You'll notice that the current borrowings is on the SBX04 bond, but that's the booked value. We'll again come back to that, but that leaves a lot of current liabilities here, and we'll come back to how that changes in -- as we look to refinance these things also in the -- with the credit facility that Gunnar discussed earlier. It still leaves us with an equity ratio of 66%. We'll go to Slide 19. On the cash flow side, since we also finished a number of projects in the earlier part of this quarter, you'll notice that cash from operating activity actually is 0. So this is not a big cash drain in the quarter, which is also why we're maintaining the cash balances that we have. On the capital expenditures side, below the $1.5 million there, we have a small income from a long-term investment we received some payment on, but that's a minor amount, leaving us a net negative or a net spend of $1.4 million there. You'll notice on the cash and financing activities, the $0.4 million, that's really related to IFRS 16 issues or Voyager in this case. But that leaves us with a cash at the end of the period, and this is available cash of about $3.6 million. Moving to Slide 20. Here is a summary of the borrowings. And it's just to highlight this for everyone what is included and what is not and what's booked value and what's actually nominal value. So on the left side, we'll try to highlight. If you look at as of 31st December, the booked value, which you saw, is $5.2 million, the nominal value of the bond is $5.3 million. If we were to do nothing with the bond and pay in kind until maturity, which is 30th of June, it would be at $5.5 million. So the payment required to take out the bond between now or end of Q4 and the end of Q2 is somewhere between $5.3 million and $5.5 million. On the Glander credit facility, we have an outstanding amount of $0.37 million, but there's also a peak interest component to that, which takes it to $0.4 million at the end of Q4. And again, this is a credit facility, so this can move up and down. So the assumption here is that if we do not change the outstanding amount from the end of Q4 but we continue to pay in kind at the end of June 30, 2020, that amount due would be $0.46 million. So just as to give a sense of what it is that we will look to address in the refinancing and it's just summarized below in the bullet points. Turning back over to Gunnar for the summary.

Okay. I can do that next. So on the summary page, you can see we have that -- the first point is, that we're stating again, the fourth quarter EBITDA was hampered by low utilization of only 42%. I can also add that the aftereffects of these very unfortunate contracts that was entered into in Q2 and Q3 also had some impact. We feel that -- we want to say that we are done with all that now. We have signed and started to produce all new contracts as of November. And as already stated, the project performance on those contracts have been satisfactory. On the market, I think there's been a lot of talk about day rates trending a lot than they did, I guess, from '18 to '19 for the last few quarters. I can't say that we have seen much growth in day rates, but the market is good. As you know, it gives a $20,000-plus margin on OBN contracts. It gives you $30,000 or more on 2D contracts and a much higher rate on 3D contracts. So providing we get the contracts and can speak to the performance that we've been showing over the last 4 months, the market is there to provide a good result for the company. And then, as we said, we've started to deliver on the new strategy. And over the last 4 months, a lot of things had happened here apart from dealing with the aftermath of these short projects from Q2 and Q3. We have been reorganizing SeaBird not only in terms of relocation, but also in terms of the way we manage projects. We have been doing this, and it's been a quite a big job, while cutting the technical downtime a lot, as you can see. So I think that's -- want to give a lot of credit to Gunnar and the whole SeaBird organization for a job well done since implementing the new strategy here. And also, I'm very happy to see that we've been able to already renew the fleet with the Geo Barents in a way that we have been communicating, that is by flexible in charters, so that we add modern, versatile capacity without expanding the balance sheet and through this, becoming a more flexible -- a company with a more flexible cost side and also with a lighter balance sheet, which should provide for better return metrics going forward. And then lastly, of course, the financing puts us now in a position to finalize Fulmar and get Fulmar out in the market. And we see both Barents and Fulmar ready to go probably by the end of the second quarter. Before that, the Barents and around that time, for Fulmar. So starting from the second half, we will have a fully financed, upgraded, modern and competitive fleet ready to compete. And I know there were questions now that will be around guiding on the next few quarters, the backlog, the contracts, et cetera, and I think you understand very well where the company is now. We have been dealing with these short projects that is now behind us. We will report continued low utilization for the first quarter, as you very well know. You know the contracts that we're operating on there. But so far, at least, with a very promising project performance. The second half will continue to be hampered by these upgrade projects. And so the first half in total will be covered by this low utilization in the first quarter improving in the second quarter, the upgrade projects taking a lot of time to focus than from the second half. We are in a position with all our vessels ready to be marketed. So we are quite optimistic that the company will start to show very different set of numbers as of that. So I'll leave with that, and then we'll see if there are questions. Nils?

Yes. So the first question we have is in regards to vessels. And the question is, what's the status on the Asia 3D job? What's the duration and which vessel are you looking to use? I'm not sure if this is referring to Asia 3D job. There's a 2D job.

I'm assuming this refers to the 3D job that we announced in January in Asia that we -- what we said we would use a third party to perform the work. So this is a job for -- in India. It has a duration of about 60 days. It's about to start very soon. And we have -- due to vessel capacity and how to perform or optimize our allocation of fleet and equipment, we have subcontracted a third-party subcontractor to do this work. And they are using the Vyacheslav Tikhonov to perform this, which is a high-capacity 3D vessel that will be in a position to perform this work more efficiently due to stream accounts than we would have had with our niche vessels. And that also meant that we were able to have the Voyager Explorer available for the 150-day contract that we announced the [indiscernible] for about a week or 2 ago and also in Asia.

We've not received any other questions so far. If there are any other questions, please forward them. But so far, we've not received.

Okay. I can just add that -- to what extent people have -- have you seen one more?

Yes. We have one more question just came in here as well. Have you started marketing Fulmar and Geo Barents? Is there any interest in the market for those vessels? And then you just answered, I think, what's the size of 3D job in Asia?

So the answer to both -- or to both those questions regarding Fulmar and Barents is yes. We have started to market both vessels for work in -- starting at the end of -- well, for Fulmar, starting end of Q2, early Q3; Barents, starting early -- late Q1, early Q2. And the interest is good. I mean they're both modern or will be modern vessels with good capacities. We see interest in Barents on especially maybe on the 2D opportunities. And we also see a lot of interest from -- especially from the OBN contractors when it comes to the Fulmar, which should be a high-capacity, high-quality OBN source vessel. So yes, I think that should answer it.

We are getting a couple of other questions in as well, so I'm just trying to answer these as well. Sorry, just give me one second. So okay. So one question coming in is in regards to liquidity for Q1. And as you know, we don't generally do guiding on forward numbers. But I think it's fair to say given that this obviously, say, it's a general concern that the cash numbers we had in at Q4 we're, I think, quite comfortable for us. And at the end of Q1, I think they'll be slightly lower but not substantially less. They will be somewhat down from what we had at the end of Q4 though. And again, this, of course, before any of the refinancing and this credit facility, so this is just as is.

Can you just add there, on the working capital, you've -- in total, not only the cash. But as you would see, there's been a swing in the fourth quarter. I think when you look at those numbers, remember that around $6 million of those are being refinanced into the long-term credit. And then you can add around [ $2 million ] that, for IFRS reasons, are in the current liabilities. But we don't see them as being an issue over the next 12 months at least. So just some color there on the working capital situation as well.

We have a couple of more questions coming in as well. On the CapEx side, how much will the Fulmar outfitting cost in CapEx after Q4? We start with that.

Can you repeat that?

Yes. Sure, sure, of course, sorry. How much will the Fulmar outfitting cost in CapEx after Q4? So the CapEx, upgrade cost in Fulmar.

Well, we have total budget of about -- and previously communicated about $8 million. Some of that has already incurred. We are also looking at ways of getting that budget count, but exactly how much remains after Q4, it's a bit difficult to estimate right now. But in terms of what we have incurred, there should remain about $7 million in addition or in CapEx after Q4. But some of that will -- of course, the cash will be paid also in Q1, Q2 in connection with the financing.

Just a related question maybe on this -- on the operations side. It says Q1 and Q2 work at the moment, what is the secured work for Q1 and Q2? Can you please go through?

Yes. So in Q1, we have the ongoing 2D survey in Australia. We completed -- Voyager Explorer completed an OBN/source program or job in Asia. And for Q2 -- late Q1, early Q2, we have the Eagle Explorer doing an OBN/source contract in West Africa that will have an approximate duration of 80 to 90 days, excluding the transit time. And we have the Voyager Explorer commencing also in early Q2, the 150-day contract in -- source contract in Asia. So that's confirmed or the -- what is firm or awarded at this time, in addition, of course, also to the 3D survey in Asia that we have mentioned before that will be ongoing as well.

There is a -- just as we deal with the operational question, we'll come back to some financial questions coming as well. But one question that's coming in on the operations side is, have you seen any impact on the corona issue? What do you think will happen to your market if oil prices were to stay around current levels for the rest of 2020?

Market-wise, I would say that we have not seen a direct impact on our market from the corona, whereas there are some operational effects, but they are, I would say, marginal and absolutely manageable. It has more to do with crude changes and some preventive actions more than anything else. Of course, the market for seismic will always be affected by oil prices. And in the long term, I don't see why there should be a lasting negative effect by the coronavirus. But I think that would be a lot of speculation on anyone's behalf or by anyone.

I guess what we can say is that when it comes to oil prices, have we seen any effect of dropping oil price so far? No, we have not. Discussions with clients are continuing at the same pace as before. As Gunnar has already tried to indicate, that pace is a little bit switched now, especially on 2D seismic than what we see before. What the future will hold, of course, anybody knows -- and I don't think we're in a better position to help it out than anyone else. But the areas of the growth where we're operating, there is an issue of energy securities in many of those places. And I guess that's what we are trying to help them with.

There is another question that's on the financial side. Just coming back to that while we wait we other questions, if there are any. And that is in regards to the provision. What's in the provisions here? And this is a combination of things. The biggest item, of course, is the restructuring provision. So that's $1.2 million in there. There's also a portion of the Osprey cost that comes into the provision side. So that's the #2 largest item. Then there are 2 smaller items in terms of provisions for either the potential obligations, we have outstanding receivables, payables, those kind of things -- or receivables, I mean. So that's -- those are the items that are in the provision. But the 2 big items in there is the restructuring provision and then cost related to the decommissioning of the Osprey. I don't think we're receiving any more questions here.

Okay. And then, I guess we'll -- we will leave it with that. Nothing more kicking in on the SMS, nothing on that. So I think we will just deal with that. We are, of course, available on the phone, both Gunnar, Nils and me, if anybody wants to discuss further. As Gunnar was saying, I hope that by the next quarterly conference call, we will be back with a live Q&A session as well. So thanks a lot, and we'll see you back in 3 months.