SeaBird Exploration Plc (SBX) Earnings Call Transcript & Summary

[Audio Gap] And at the same time, minimize the damage on the company and then, in particular, our cash position. I would like to thank all our people for a tremendous job done and a positive attitude that has been shown during these trying times. While our plans only 3 months ago centered around upgrading our assets, to add quality and flexibility to our fleet with an eye on starting to reap the benefits of this as of the second half year, we have since then pushed out our CapEx plans while preparing the company for very low activity levels over the next few months and in order then to preserve cash. However, our long-term plans are intact. We intend to finish the upgrade program in due time and when the market allows us, and we will present an offering to our clients that consists of a modern, versatile and competitive fleet managed by the lowest cost organization in the industry. That is our value proposition. And as our first quarter report shows, the company has begun to show resilience during these adverse market conditions that we operate under, bolstered by an intense focus on costs, a strong balance sheet and a strong position in our niche markets. With that, I hand it over to Gunnar, please.

Thank you, Ståle. Then I will move on to...

[Foreign Language]

Yes. So key financial and operational figures. First quarter this year, we had revenues of $25.3 million, which were significantly up from $12.3 million in Q1 2019; and EBITDA of $1.8 million compared to $2.7 billion last year. Fleet utilization was at 44%. Get back to in more detail what the vessels were doing during the quarter. And significantly, we also experienced continued improved productivity on the surveys that we were working on. And the company's solidity is very good with an equity ratio of 57%. During the quarter, we have signed a loan agreement for the $16 million credit facility. We have put into place contingency plans for further cost reductions, basically to mitigate the effects of COVID-19 and the fall in oil price. At the same time, we also have postponed our CapEx plans pending market improvements. The COVID impact has been both operational in the very short term. We have had changes on logistics, in particular, crude changes and crude mobilizations that we have been able to solve in a very good way, as Ståle also said. We've also seen COVID-19 impact on the contract situation, unfortunately, with one COVID-19-related cancellation. The Geo Barents was added to the fleet, as previously announced, and we have also completed the decommissioning of the Osprey Explorer. On the strategy, the restructuring and relocation of the organization to Bergen has been completed, and we expect to see the full effect of the cost reductions from the reorganization and restructuring, starting from Q3 2020. We're still experiencing some lag in cost reductions in Q1 and also in -- to a lesser extent, but still some in -- until Q3. As I just mentioned on the previous slide, we are also planning for and have started to implement some measures to align the cost with the reduced activity that we see and expect to see from the COVID-19 and the OPEC+ breakdown. We will be able to have vessels idling at a very low cost. We are positioning the onshore organization for a minimum in order to reduce SG&A even further. And the result of this will be that we should -- we will be able to operate the company for about $400,000 per month fixed cost while still maintaining capability to operate 2 vessels simultaneously. As Ståle also mentioned, we have postponed the outfitting of Fulmar, even though our long-term plan remains firm. The Osprey has been decommissioned, and we have prepared the Geo Barents and equipment to -- for rigging her as a source and 2D vessels. So the fleet -- the SeaBird fleet remains -- the Eagle Explorer, owned vessel, capable to operate in all 3 segments: source, 2D and 3D. The Fulmar and Petrel Explorer -- or the Fulmar Explorer, as I said, scheduled for conversion or outfitting at a later point when the market improves. Petrel Explorer is -- has been operating on the EMGS charter. The Geo Barents is ready for operations also in all -- or will -- or is ready to be rigged for operations in all 3 segments. And the Voyager Explorer remains on a flexible bareboat charter, also capable of operations in all 3 segments. Similarly with Nordic Explorer and Harrier Explorer, which is an owned vessel capable of source and 2D. The vessel utilization was 44% in Q1, slightly up from Q4. We had no yard stays during the quarter. The segment operating activity was -- we had a -- the source and time charter with -- for the Petrel was the smallest portion of -- or represented smallest portion of the revenue in Q1. We had significant 2D activity that was the -- or has been the Nordic Explorer survey in Australia. And then we had also the outsourced -- the 3D survey that had been outsourced -- subcontracted to a third-party in the far -- or in Asia Pacific. In the quarter, the Voyager Explorer completed an OBN/source project in Asia Pacific. We had the Harrier Explorer transited to Norway for a low-cost layup in order to reduce the total cost. Eagle Explorer had a very successful -- or operationally very successful mobilization for an OBN/source project in West Africa that was canceled at almost very last minute, unfortunately, and has returned also to Norway for a low-cost idling. The Petrel Explorer has been operating -- was in Mexico to do an EM survey for EMGS and then sailed to the North Sea, where she has been operating on another EM survey. And as already notified, she will be redelivered probably from -- redelivered from EMGS later in this quarter. The Nordic Explorer started the 2D project in South Australia in January, which was completed in this quarter. Seismic market has, obviously, like the rest of the oil and gas industry, been negatively impacted by COVID-19 and the OPEC+ breakdown. In the short term, the operational effects of COVID-19 or the COVID-19 restrictions, in particular, has led to surveys being delayed and contracts canceled. And this is -- what we see this is all over the market. You also see that the COVID-19 and the OPEC+ breakdown, of course, has effects on oil price, which again affects demand for seismic. Despite this, we are still -- or we still receive in Q1 and also into Q2 tenders and see that new projects are also being awarded after COVID-19 and the OPEC+ breakdown. It's very difficult to estimate the long-term impact of COVID-19, but we do not expect any immediate upturn following relaxation of the restrictions. Apart from this, we consider that the long-term fundamentals are relatively unchanged, ocean bottom seismic. There will still be a focus on increased oil recovery from producing fields as well as near-field exploration. Tendency for increased multiclient activity relative to proprietary surveys. We see some -- there are some very large multiclient OBN surveys out there, and this is, of course, what drives, in particular, demand for source vessel services. Then we also expect that license obligations will still be driving the proprietary 2D and the niche 3D surveys. We have seen and still expect to see, at least in some of the regions where oil and gas production is developing was more politically driven, a high conversion ratio for these surveys, especially since energy security or energy politics is the main demand driver perhaps in regions such as Far East and Africa. But of course, in the short term, we also see some effects of the COVID-19, in particular, on these surveys -- or timing of these surveys. Incoming tenders in Q1 was slightly up from the preceding quarter. It's relatively stable also across the segments, source, 2D and 3D. Of course, the effects of COVID-19 and the OPEC+ breakdown came late -- relatively late in the quarter. So that may not be sort of evident from -- or realized itself in the Q1 tendering activity. The main -- or one of our main challenges, of course, is that we still see that there was very short lead time from contract award to project start-up, which again means that visibility is low. And then I will pass over to you, Erik.

Thank you, Gunnar. Yes, if you could move on to the next slide, please. Thanks. I'll start by going through the key figures at Slide #18 (sic) [ Slide #16 ]. As you can see, total revenues for the quarter was $25.3 million. And as Gunnar mentioned, a significant part of this relates to the 3D contract in India. Despite being outsourced, this is booked at gross levels and is, therefore, boosting both the revenues and the operating expenses for this quarter. The EBITDA was positive at $1.8 million. And unlike the previous 2 quarters, we have not recognized any restructuring cost or impairments in this quarter. EBIT was negative $0.7 million, and the quarter ended with a net loss of $0.3 million. Looking at liquidity, we had $4.1 million of unrestricted cash, which is up from $3.6 million in the previous quarter. And net interest-bearing debt was $1.2 million, and the equity ratio for the quarter was 57%. Next slide, please, Gunnar. This slide shows us a couple of charts showing the historical figures for revenues and EBITDA. And as you can see, the revenue for this quarter is very high compared to the previous quarters, and that is mainly, as we have already mentioned, this 3D contract. The EBITDA is significantly better than in the previous quarters, and that is -- can be explained both by higher activity, but also due to good operational performance and low technical downtime. Next slide. There has not been any CapEx for this quarter. And as we have stated earlier, we have postponed our planned investment in order to preserve cash. So that means that the outfitting of Fulmar has been postponed and will be put on hold until the vessel has been awarded a contract. And the same goes for the rigging of Geo Barents. Both the outfitting of Fulmar and the rigging of Geo Barents will be covered by USD 16 million credit facility. Next, please. One back, Gunnar. Yes, here we are. As mentioned, we have signed a loan agreement for the $16 million credit facility. And this will be applied to refinance SBX04 bond loan, which matures in -- at the 30th of June and also, as I mentioned, for the investments related to the outfitting of Fulmar and Geo Barents. With respect to the facility, we expect this to be closed and that we will be able to draw on the facility within a couple of weeks. So that concludes my part of the presentation, and I hand it back to Gunnar.

One more slide, Gunnar. All right. Thank you. So the last slide, just summing up the presentation. As Erik said, we've had a high share of 3D in the first quarter. We have shown a positive operating cash flow, which we are satisfied with. Also, importantly, the operational performance is satisfactory. We continue the trend that we have commented on previously, the trend that started from November -- contracts started upon from November with low technical downtime, and that effect is starting to see its effect in our cash flow numbers now. We continue to deliver on costs, as Gunnar went through and we have also guided on minimum cost level in case of a prolonged period of low activity. So we are prepared for this low activity. We are not guiding for such low activity, but our mantra is to hope for the best and prepare for the worst. As of March or at least the second half of March, it's all been about COVID-19 and the breakdown of the OPEC+, which have affected both our operations and our market outlook. So again, that means that we have gone into cash preservation mode. Everything we do, everything we look at is what -- is with this in mind and that is to preserve cash to make sure that we come through this period unharmed or as little harm as possible. Also, I would like to say that the way we organize this now, we also have an eye on being able to ramp activity quickly as soon as we see the market returning. We don't have a crystal ball, unfortunately. We can't tell you when the market will return. We think it's reasonable to assume that when restrictions are being lifted that the activity will return, but maybe not fully right away so that it will take some time to see activity return to previous levels. But again, we simply don't know. We just need to plan for the worst. Also, we don't forecast oil prices at SeaBird, although oil prices, of course, are extremely important for what we do. But we have seen 2 reports come up this week that I would like to draw your attention to, that is both the Energy Administration -- the U.S. Energy Administration report and also later on the IEA report that came out yesterday. There are some interesting numbers there, both in terms of changes to the demand outlook and also the very swift production cutbacks that is happening across the globe now and what that will mean for the oil market balance going into the fourth quarter and 2021. So we are hopeful, certainly, when we see those numbers. And as has been seen often before, maybe it will work this time as well, that is that best recipe for high oil prices is low oil prices, actually. So with that, we have opened up for questions. So I will hand it back to Gunnar. Are there any questions that have been asked?

Let me see, and if everybody can just bear with me if I'm not completely in control on the technology yet. No questions so far.

All right.

Gunnar, there are 6 questions. Do you want me to...

There are 6 questions now because it was hidden by -- now I can see them, sorry.

Okay. Good.

Okay. Maybe I need a little bit of assistance from you on this.

Okay. Do you want me to read the questions out loud?

Yes, please.

Okay. So we have question number one. What is the plan for the Petrel vessel once she is returned to you?

Okay. Yes, now I can see, and I figured that. The immediate plan for Petrel is that she will be going to a low-cost idle mode. And we have an efficient -- cost-efficient setup where the vessels will be in the same place so that we will be able to take down and use a skeleton -- idle crew for all of the vessels combined. Then of course, we are looking at alternative also employments for the Petrel and both -- I mean in the short term, that would be outside of our traditional markets. So it will continue to be on a more traditional or conventional time charter -- maritime time charter basis. And then the next question was, how much of the 3D job is left for Q2? When we started Q2, the 3D survey was, I believe, if I recall correctly, around 60% complete. It's now about 95% complete. So it should be completed within the next couple of days. Apart from the rigging - next question, apart from rigging of Geo Barents and Fulmar, which have been put on hold, is there any other CapEx for 2020? There is not any significant -- I mean, there is always a bit of replacement of equipment and things that, for accounting purposes, are considered CapEx, but we are not planning for any CapEx -- or significant CapEx for 2020. And the next question is, did you say that you expect to draw on the USD 16 million credit facility in Q2 even if Barents and Fulmar are not rigged? Yes, we do. We will draw on the loan in order to repay the bond loan and also to finance parts of the investment orders that have already been placed, as previously communicated, for the Fulmar conversion.

Okay. Any more questions?

Any more? Yes, we have one here. Could you please indicate how second quarter will be in EBITDA terms given what you know today?

Well, if you want me to shoot it, we don't guide on EBITDA, specifically. And as we said before, we have -- it's not only due to the market, but we operate in a business with very short lead times. So for us to guide specifically on the KPIs like that would not be of much help, we are afraid. So we would like to refrain from that.

And the next one, given that any quarter turns out without any activity, what would then be the operating cost base, assuming that no change has been done to the fleet from today's situation and outfitting? As I said earlier in the presentation, we expect that if we go into a situation where we don't have any operation ongoing or service ongoing, we will be able to operate the company for around $400,000 per month. That is both SG&A for a minimal organization and idle OpEx for the fleet as it is. Then there is a question here. Is the USD 16 million facility open for funding operating cash flow or only for outfitting vessels? The facility is linked to the repayment of the bond loan and the outfitting of -- or the completion of the outfitting of Fulmar, the rigging of Barents, and there's also included a guarantee facility in there to pick up performance bonds, bid bonds, et cetera. Status of source job for Voyager Explorer. The Voyager Explorer is still standing by in Indonesia, and the announced source job is scheduled to start in early June. That vessel is not working as such does not mean that we are not getting compensated for the vessel time while we are standing by. And then there is one question here also. Will there be any payment on the Eagle job that was canceled? The -- we expect and we have put forward -- and invoiced the client. We have a contractual claim for payment that we are pursuing, and we are in a good dialogue with the client. They're also in a good dialogue with the end client, the oil company. And we expect also to be compensated for the canceled contract. And then there is a final question here, Erik, which I think maybe is a bit...

I can give a comment about that. If you just read the question...

I can publish -- it's -- tell about the balance sheet, the liabilities.

Yes. As you may have noticed, our liabilities have increased significantly from the previous quarter, the current liabilities. And so the major change as compared to the previous quarter is that the contract liabilities for this outsourced job is included. So that's the main difference from the previous quarter.

That was the last question.

Okay. That was the last question. All right. Okay. Should we -- we say that we wrap it up with that. And then I would just like to thank everyone for attending our presentation. And we will see you or hear you again in 3 months. So see you there. Bye-bye.

Thank you. Bye-bye.

Bye.