SeaBird Exploration Plc (SBX) Earnings Call Transcript & Summary

Okay. Good morning, everyone. Sorry for the delay. We had some technical problems connecting to Teams. My name is Ståle Rodahl, I'm the Chairman of SeaBird Exploration. And I'm here with our interim CEO, Gunnar Jansen; and Erik von Krogh, our CFO. So there are still some problems. I have the sound coming back to me here now. But anyway, I hope that's over now. So let's kick off then. Before I hand it over to Gunnar, just some initial remarks. In the first quarter, we talked about our main priorities being safeguarding our people and protecting our cash, and that is what we have done in the second quarter with both our people and our cash levels, as you can see in the report. And I'd like to thank Gunnar and the entire team, all of our employees for a job well done, so far, during these trying times. And we are pleased to announce a breakeven EBITDA, as you've seen from the report for the second quarter. So we'll talk more about the outlook, and what we see in our segments later on. But with this, I'll hand it over to Gunnar, please.

Is that the right slide here? Next one, please. There is one more. Yes, thank you. So the highlights from the second quarter, we had revenues of slightly above $17 million versus $9.2 million last year, for same quarter last year, and the breakeven EBITDA as opposed to negative 1.7 last year. And that was even -- or the breakeven was even then with a 30% fleet utilization and an equity ratio of 47%. We'll get back to that also later on in more detail on the financials. Major events in the quarter. The refinancing of the bond loan was completed, and we implemented further measures for cost reduction to mitigate the impact of COVID-19 and the fall in oil prices. The COVID-19 impact has been mainly -- well, first and foremost, on an operational level, mainly related to crew movements, crew changes and mobilization of vessels and crew. But of course, also, it has impacted activity levels since surveys have been postponed, including one survey that was supposed to be conducted in the quarter. Despite the impacts -- of the operational impact of COVID-19, we have still seen a stable tender activity across all of our segments in the quarter. So the fleet status is the Eagle Explorer is currently onshore in Norway. Fulmar Explorer has also been stacked in Norway. Petrel Explorer was redelivered from EMGS in accordance with the contract in -- at the end of May this year, and it's also idle in Norway. And the Geo Barents remains idle in Ålesund. The Voyager Explorer is currently working on an OBN/source project in Indonesia. And the Nordic Explorer completed the upgrade 2D survey for Schlumberger in April, transited to Europe and has been and was redelivered to the ship owners. As mentioned, initially, vessel utilization in the quarter was 30%. That's down from last quarter, obviously, impacted by COVID-19 and the general activity level in the seismic market. The Harrier Explorer and Geo Barents are not included in our utilization number. Harrier Explorer has been -- a decision has been made to decommission the vessel. That will happen this quarter. And Geo Barents is on a flexible time charter party with no fixed cost settlement for SeaBird. So that's the reason why she is not included in the utilization numbers. Next, please. Operating activity in the segments like Q1, we also had the 3D contract in India. That was also conducted in the second quarter. So a significant portion, $12.5 million of the total revenue stems from that contract. We had $1.5 million revenue from the Otway 2D survey also in the first quarter, even though that was a small portion of the survey conducted this quarter, and $3.1 million from EMGS and source contracts. So as mentioned, the Voyager Explorer started the OBN/source project or OBN/source contract in Indonesia in May this year. Rather the contract started in May, the actual project started in late June and is still ongoing. The Harrier Explorer is being prepared for recycling, decommissioning. Hope -- the intention is as soon as all permits are in place that will happen towards -- for this quarter towards the end of this month. Eagle Explorer started mobilization for a - well, finished aborted demobilization for the project that was postponed or delayed in South -- in West Africa and then has been idle for most of the quarter until we had a short source contract, not an OBN contract, but source contract in the North Sea. Mobilized in June and the contract itself was conducted in -- the survey was conducted in July. Petrel Explorer redelivered from EMGS in May according to contract, and the Nordic Explorer completed Otway in April, transited to Europe and as was redelivered to the owners. And Fulmar Explorer is laid up in [ that side of the market ]. The market -- the seismic market is still heavily marked by the negative impact from COVID-19 and the low oil price. In the short term, as I mentioned initially, the COVID-19 has primarily affected operations, crew changes, logistics, mobilizations, but has also led to surveys being postponed. The tendering activity, however, although we shared in Q1 or at the end of Q1, we shared that Q2 would be a very slow or will have a very low tendering activity. We see that it continues at a moderate relatively stable pace, but that the lead time from tender to contract award and/or project start continues to be long. And also, in some instances uncertain again due to COVID-19 and the low oil price. In ocean bottom seismic, it's still the oil companies focus on increased oil recovery that is the main driver for our source vessel or demand for source vessel services as well as near-field exploration. The source vessel market is or has become more competitive over -- well, during the previous and especially, this quarter, again due to vessels becoming available as surveys has been postponed. However, we see that we are in a position -- or we are providing more integrated and high-end total surveys or more turnkey surveys in the source segment than our competitors, and we believe that, that is one of our strengths. At the same time, we are able to be competitive on price. Proprietary 2D and niche 3D surveys, main driver of demand for these are the energy security policies of various countries, especially in the Far East and Africa, making these surveys or whether these surveys go ahead or not, less reliant, or less depending on the prevailing oil price. They are often also driven by license obligations. The conversion ratio from a tender to an actual contract or survey is high, but the surveys are often relatively or mostly relatively smaller surveys. And then just to illustrate, this is the graph that we've been using for quite some time. As you see in the second quarter, OBN/source tendering was very stable. 2D tendering down. What -- we received for tenders or invitation to tenders for 2D project, which is relatively good and also a few niche 3D tenders. But overall, it's relatively stable from the preceding quarters. And then I'll pass it over to you, Erik.

Thank you, Gunnar. Yes, I'll start with the key figures. And then as you can see, the revenues for the quarter were relatively high at $17.1 million. And as in the first quarter, a large part of booked revenues and the OpEx is related to the outsourced 3D project. And in the second quarter, it accounts for more than 70% of the revenues. The activity level for the fleet was relatively low at 30%. And based on this, we are very pleased that we are able to report positive EBITDA, even though it's only marginally positive. I will come back to the balance figures. So I'll just move on to the next slide. In the figures to right, you can the EBITDA for the -- that has been positive for the last 2 quarters, and it's, of course, significantly better than it was in the last quarter last year. And once again, in the figure to the left, you can see the effect of the 3D contract on the revenues for the first and second quarter. As in the first quarter, there haven't been any CapEx in this quarter either, and that is also in line with our plan to postpone all CapEx in order to preserve cash. And this also goes for the remaining outfitting of Fulmar and the rigging of Barents that has been postponed, and that will take place when we have been awarded contracts for these vessels. And as communicated earlier, this will be financed through the new credit facility. The current equity ratio is, as you can see, 46%. However, I would like to comment that according to the IFRS accounting standard, we need to include the outsourced 3D survey in our balance. And the effect of this is that the balance is boosted by approximately $24 million, and this has a negative effect on our equity ratio. So if you exclude this, then the equity ratio would be in excess of 60%. And following the refinancing of the bond loan, our current interest-bearing bank debt is $7.5 million and the net interest-bearing debt is $5.5 million. Yes, that concludes my part of the presentation. I guess I'll pass it over to Ståle for some final comments.

Yes. Sure. Can we have the next slide, please? I think there are some bullet points behind the summary. Here we are. Yes. Okay. So if we go through this summary slide then, as Erik already talked about, we had a high share of 3D in Q2 that increased the volume of the business significantly, both from a revenue and balance sheet point of view. I think the main point, other than the 3D activity is, again, the operational performance, where we're seeing very low technical down time, actually even lower than what we reported for the first quarter. We continue to deliver on costs as we have guided on, and we are then increasingly prepared for very low activity in the market. At the moment, it's still a lot about the COVID-19 situation and handling that for us, both from an operational perspective and also in terms of managing our tenders and project portfolio where, as you know, some business have been -- that we have previously reported have been delayed. And we are very much still in cash-preservation mode. As you will see from the second quarter numbers, we're reporting a cash level above $3 million. We're doing this still with an aim to be in a position to ramp quickly when activity returns. I'm not going to make many comments about the oil market. We did that to some extent, in May, other than just noticing that the oil price last time we met was $31 and the oil price at the moment is $45. And we are optimistic that this is only -- that $45 will not be the end of the oil price rise as we've seen it so far. So to sum it up, then the cost cuts, 0 CapEx. Our new financing, as you saw, replacing the bond loan in June, the new fleet strategy. All these elements have now started to come together, helping the company to show resilience amidst these adverse market conditions, and we are very pleased, again, to show a breakeven EBITDA for a very difficult quarter. If you look at the comparison slides, you will see that we have reported breakeven EBITDA with a utilization of only 30%. If you compare that to the second quarter last year, utilization was 68% with an EBITDA loss of $1.8 million. So for the second half, we're going to continue to focus on our cost, where cost levels are already down to where we guided them in the beginning of the year. And we are very close then to -- depending on market activity, as we see it, we're very close to taking them down to the announced hibernation level of around $400,000 per month. But as Gunnar showed, when it comes to tendering activity, although we saw a break in the positive trend that started in the third quarter or the bottom was in the third quarter last year, we saw an uptick in tendering activity in the fourth and the first quarter, and the break in that trend in the second quarter, but still with a level that held up better than we anticipated when -- when the corona situation broke loose here in the first quarter. So given what we see there and given the signals that we get from our clients on the projects that we are involved in at least, we are looking at a situation where these projects are, to a greater extent, postponed than actually canceled. And then, of course, the question is how long that postponement will be, and when they will come back. And on that, we don't have very good visibility at the moment. So I will leave it with that and open up for questions. So back to you, Gunnar.

Thank you, Ståle.

Do we have any questions or not?

Not yet. Not yet.

Okay. So we'll give it a few minutes. Hopefully, our -- the start of the presentation didn't come so late that people thought it was not going to happen.

Okay. Well, I don't know. So there seems to be no questions. There are no questions yet. There are callers online, but...

Okay. We'll -- just again, we give it 20 more seconds to ask questions. And if none appears in the chat box, I guess, we just close it for here. So let's just give it a few more seconds. So well, in case it's not, I guess, we'll see that from -- we take that as a positive. Report and presentation is crystal clear so that there is nothing to ask about. Okay. As there is nothing there, we will just say that that's it. Thanks for attending this quarterly conference call for SeaBird Exploration. And sorry again for the delay, we will make sure that, that does not happen the last time -- next time. And we will see you again on the third quarter report. Thank you very much.