SeaBird Exploration Plc (SBX) Earnings Call Transcript & Summary

Good morning, everyone, and welcome to SeaBird Exploration's Third Quarter Conference Call. My name is Ståle Rodahl, I'm the Chairman of the company. I'm here with our CEO, Gunnar Jansen; and our CFO, Erik von Krogh. And before I hand it over to Gunnar, I just want to make some initial remarks, before doing that again, just want to make everyone aware that the Q&A session will be at the end of the call. There is -- you can write questions in the chat on the call, and we will answer them at the end of the call them. The quarter has very much been about COVID-19 and low oil prices still. So our main focus has been to safeguard our people and to safeguard our cash, as you can see it from the report today. We're happy to report no incidents, no corona-related incidents on our vessels. We continue to strong -- show strong operational performance. And I just want to highlight that all contracts written after November last year, has seen technical downtime in the low single digits. When it comes to the market, as you will see, the tendering activity was very low in the third quarter. We have seen an uptick in tenders in October. On September 29, we announced that the board had decided to do a feasibility study related to new business area. The board has now concluded on the study and have decided to move ahead with the project, which will be a new business area geared towards the green transition. We are, for competitive reasons, not in a position to elaborate on this today. But we expect to announce more details before the end of the year. So before I hand it over to Gunnar then, I also want to thank all the SeaBird employees for the strong spirit and a job very well done during these trying times. And with that, Gunnar, please.

Thank you, Ståle. So I guess we just go straight to the highlights in the presentation. As you can see, revenues -- we had revenues in the quarter of $3 million, which was significantly down from the $16 million last year; of course, that's impacted by the current market situation. However, we managed to improve on the EBITDA. We had a negative EBITDA of $0.6 million in the quarter, which was up from $1.6 million last year, which again also shows the improvement in technical performance, we believe, as well as the effects of the cost cutting that we have done. 28% fleets utilization in the quarter, of course, also reflects the current market situation impact by COVID-19 and the low oil price. That -- we also have managed to maintain the equity ratio of 46%. Major events in the quarter, of course, as Ståle mentioned and as I just said, the COVID-19 situation and the low oil prices continues to be sort of the main headlines in the quarter and presenting still operationally and also commercially, challenges when it comes to COVID-19. And of course, also the low oil price has had a significant impact on the market and demand for seismic services. However, we have managed so far or by the end of the third quarter, the first 9 months of the year, to have a positive EBITDA of $1.3 million. The comparable number last year was negative $0.7 million, and that's also with the reduced utilization. Contract awards in the quarter. We were very pleased to be able to secure a source contract in the Gulf of Mexico. The Eagle Explorer is underway, mobilizing for that project right now. And after the quarter ended, we also secured a 2D contract in the Asia Pacific region that is expected to start early or in the first quarter of 2021. We can also -- we're also happy and pleased to report that the cost cutting of the -- of operating costs have been significantly reduced, which, of course, also contributes to achieving the EBITDA level that we have. Just to going through the fleets and give a brief update on that. The Eagle Explorer is one of our owned vessels. It's source and 2D capable and rigged, built in 2009. So it is one of the more modern vessels globally, and we see that it's a vessel that is high demand among customers. And the ambition, of course, is to get the Fulmar Explorer rigged and ready for the market to be able to secure more contracts like the one we have on the Eagle Explorer currently. Otherwise, it's a modern flexible fleet. The fleet renewal program has been completed. The Harrier was scrapped in the quarter. So that was the last of the old SeaBird fleet. And we are now left with a flexible and modern fleet, flexible as both in -- both in respect to market segments, source and 2D, but also to a great extent, flexible in terms of that we have vessels on flexible charters or operation agreements that reduces our cost exposure when the vessels are idle. As we already said in the highlights, the utilization was 28% in the quarter. When calculating the utilization, we only include the old vessels, so the Fulmar, the Eagle, Petrel and also Voyager, which is on a bareboat charter, but we exclude the vessels that are on pure flexible time charter or pure flexible terms, as we don't have any costs associated with those vessels when they are not working. The utilization in the quarter was -- or the work that makes up the utilization in the quarter was a short source project in the North Sea in July. And of course, the ongoing source contract in Indonesia where Voyager Explorer has been on hire and working since May this year. Similarly, the revenue in the quarter was made up, it says other, it's actually source, it's made up by the source contracts. And of course, significantly down from previous quarters, but that's mainly attributable to the 3D survey that was carried out in Q1 and Q2, and which was subcontracted to a third party. Voyager Explore has been working in the Asia Pacific in Indonesia on an OBN source project for the -- a lease up. The -- it's expected to complete that now in Q4. It's been a very successful operation for us. As Ståle mentioned, a very low technical downtime and without any events or impact by COVID-19 or any other operational events. Eagle Explorer did the short source contract in July, it has been idle since then and mobilized for the OBN source contract in the Gulf of Mexico at the end of the quarter and early this quarter. And is now in transit to -- from Europe to the U.S. Petrel Explorer and Fulmar Explorer are still in lay-up waiting the decision, will be pushing forward on the rigging and outfitting of the Fulmar. On market trends. As you'll see, the tendering activity in Q3 was significantly down from previous quarters. That's probably partly -- Q3 is always a -- well, there's always less activity in Q3, mainly due to vacation season. But I think here, it's quite obvious that we did have the full impact of the COVID-19 situation and the low oil price in Q3 and that there was some delay in Q2 in that respect. However, we don't think that one poor quarter will have a long-term impact. The long lead time from the tender to contract award should definitely contribute to sort of make each quarter less significant on a stand-alone basis. And we also already have seen so far in this quarter, which is basically October, that tendering activity is returning, especially in the OBN segment. So far in this quarter, we have received almost as many incoming tenders or requests as we did in the entire third quarter and especially in the OBN source segments, which is also the segment that we expect is going to be very important for SeaBird going forward. The oil and gas companies do have a focus on increased recovery on producing fields as well as an near-field exploration. It's sort of where we can expect that there will be steady activity in the segments that SeaBird is operating in. And then at the same time, being able to take advantage of the 2D work that is out there. And it's especially then also pleasing to -- that we secured the large -- the 15,000 kilometer 2D survey in the Far East, which we also think illustrates our next point on 2D services that energy security is emerging as a demand driver and that in these regions, especially the Far East and Africa, it's more about -- or 2D demand for 2D seismic is more about energy security than it is about oil price as may be the case for the international oil companies. And then, Erik, I'll hand it over to you to go through the financials in more detail.

Thank you, Gunnar. Yes, we'll start with this slide, looking at the key figures for the quarter compared with a year ago, year-to-date and in 2019. Revenues for the quarter were $3.0 million, reflecting the lower activity in the market with mainly 1 vessel in operation and a utilization of 28%. And based on this, we are very pleased with the EBITDA of negative $0.6 million and that we were able to report a positive EBITDA of $1.3 million year-to-date. And as Gunnar also mentioned, this is a result of both good operating performance and that we have been able to reduce our SG&A expenses to a very low level. As you can see in the figure to the left, revenues dropped significantly compared with the previous quarters. But as we have mentioned earlier, large portions of the revenues in the first and second quarter was related to this 3D project that was subcontracted. And the EBITDA, as mentioned, is slightly negative, but still better than in the 2 last quarters of 2019. This figure shows the development of the SG&A expenses during the last 5 quarters. And as you can see, the expenses are down by more than 50% since the third quarter 2019. And this reflects the cost-cutting measures that have been implemented during the last 12 months, and going forward, we aim to reduce these even further. On the investment side, there is nothing new. We are still postponing CapEx in order to preserve cash. And this also includes the outfitting of Fulmar and the rigging of Geo Barents. And these are both subject to contract awards. And as mentioned earlier, we have -- we do have financing to cover these expenses. Yes. This shows our current balance. The equity ratio was 46%, the same level as in the previous quarter. But a large part of both receivables and payables relates to this outsourced 3D job that we have to keep in our books. And adjusted for this, the equity ratio would be approximately 63%. And we expect that this will be out of our balance by the end of the fourth quarter, and that we will see an increase in the equity ratio by then. Cash at the end of the quarter was $5.1 million, while interest-bearing debt was $7.8 million, of which $7.5 million relates to the bank facility and the remaining relates to a credit facility for bunkering. And this gives us a net interest-bearing debt of only $2.8 million. Yes. So that concludes my part of the presentation.

Ståle, do you want to summarize it?

Yes. Yes. Sure. I can try to sum it up. So to sum up the third quarter then, very low tendering activity, as Gunnar showed, activity returned somewhat in October. When it comes to operational performance, it's good. We have very low technical downtime. And as I said, this has been the case of all contracts signed since November last year. The cost cuts that we announced about a year ago has been implemented, and we're now starting to see full effect of this in our costs. We are prepared for low activity. As we've said, we have a hibernation mode, where we're able to run 2 vessels simultaneously on contract, indicating a cost level of less than $500,000 per month. And we also report positive operating cash flow. We are still in a cash preservation model, as you will see from our report. Still, we are ready to ramp quickly when activity returns. And on that note, just want to say that we have the main challenge here for us, we are pleased with the contracts that we have announced, of course, and Gunnar mentioned the 2D contract, 15,000 kilometers. Just want to draw your attention to that. We think we have 1 -- the 1 contract on 2D that we really wanted to have now during the last couple of quarters. So we're really pleased to see that. The main challenge here is, of course, to get more vessels out there. And in particular, the Fulmar and Barents, to get closer to contract situation on these 2 vessels is a main priority for us. We think that when we do, we will be offered to -- we will be able to offer 2 very good vessels in the market. And in the case of Fulmar, it will be one of the very high-end vessels in the market if not, regarded as actually the #1 vessel in its segment. So we are very keen to get on with the Fulmar project now and to make this happen. And seeing then the contract signed already, we think there should be opportunities there going forward. So I think it is time to highlight that now. We will be working very hard now the next few months to make this happen. Finally, we announced then this new initiative with this business area geared towards the green transition. There have been some questions on this. And as I said, for competitive reasons, we are not in a position at the moment to give a lot of details here. What I can say is that -- and related to the questions is that this is not about fixing a vessel as a walk-to-work vessel or otherwise in the offshore wind market, that is not the new business area that would just be a fixing. So we are talking about something different than that. We are talking about the whole new business area for the company. And I will leave it with that.

And then we have questions coming in. And Gunnar, I can be your assistant on this. So we can start with the first question from John Olaisen. Could you elaborate a bit on expected vessel utilization in Q4 and Q1, please? Gunnar, are you there?

Yes. I'm here. The -- I mean, what we have announced is, of course, the 2 contracts recently. It's the Gulf of Mexico OBN source contract, where the Eagle is underway. That's expected to start by -- or around the end of November, early -- very early December and has an expected duration of about 90 days. Then there is a 2D contract that was announced about a week ago or earlier this week. That's commencing in -- it depends a little bit on vessel availability, et cetera, but it's expected to commence or it will commence in the first quarter of 2021 and it has an expected duration of about 120 days. And finally, of course, it's the ongoing contract where the Voyager Explorer is employed right now, which is expected to continue until later this month. So that's sort of the employment situation as we see it right now.

All right. And then further, what is the status on the Fulmar vessel?

I think you already answered this one, Ståle, in -- when you did a summary, but the vessel is still idle outside of Bergen. The actual execution of the outfitting is still on hold. But as we now see the markets or we expect the market, especially the OBN source segment to improve in 2021. We will be putting our retrospect into getting the vessel rigged and ready for the market. We have already seen or identified opportunities where the vessel should be, will have a competitive advantage in -- especially in the OBN source markets.

Yes. All right. Good. And then we have a final question here on the new green initiative. Will it involve a transaction? So that's a good question, John. Unfortunately, I'm not at liberty to say at the moment. And we will leave it with the statement that we've given there already. And so unless we have further questions, I think we'll just round it up. As you know, we don't guide specifically and given the reasons for that many times before. I think what we can round this up with is to say that as you will understand, we are pleased with the contracts that we've gotten. And in particular, we're pleased with then this 15,000 kilometer survey, which really was the one that we wanted to have. I can also say that based on the strong operational performance that we've shown on the last few contracts, we are seeing more return interest from our clients that is making us more optimistic on our ability to convert Fulmar and Barents into money making objects for us. These should be assets that should be participating in generating revenues for the company. And we'll be working hard to make that happen in the not-too-distant future. So unless there are any further questions, anything to add from your side, Gunnar or Erik?

No, Ståle. It's fine.

No.

Okay. With no further questions, we thank you for your attendance and the interest in SeaBird Exploration, and we will see you again in 3 months. Thank you very much.