SeaBird Exploration Plc (SBX) Earnings Call Transcript & Summary

Good morning, everyone, and welcome to SeaBird Exploration's First Quarter Conference Call. My name is Stale Rodahl. I'm the Chairman of the company, and I'm here with Gunnar Jansen, our CEO; and Erik von Krogh, our CFO. We have a thoughtful agenda today. We're going to present the rebranding of the company. We're going to give you an operational update in the 2 business areas that we had, marine minerals and seismic; financial review; and of course, a Q&A session at last. And then you can ask questions on the screen. As you've seen by the end of the first quarter, estimated value by market value spent by business area, 25% in seismic and 75% in marine minerals. We are today announcing that we are rebranding SeaBird Exploration into Green Energy Group. A quick explanation for the name. Energy then emanates from our roots in the energy business, of course, almost 1/4 of a century there through SeaBird Exploration. While green, in the broader sense of the word, is our future. Mission for the rebranded company. We build sustainable businesses. Our strategy is to capitalize on the group's entrepreneurial culture and spirit, our marine minerals and energy market know-how, our research and M&A capabilities, our funding access and our 6,500 shareholders. We will start and build. As in the case of Green Minerals, we will transform and build. As in the case of SeaBird Exploration, we will also buy and build, and we have also launched disruption as a strategy as a central element in the group's new strategy. And this can be exemplified in the minerals business, starting up offshore means that we disrupt the onshore business from an environmental and social cost point of view; also, in terms of geopolitics, that is simply the geography that our operations lie within; our much lower cost of capital; super ore that we bring to market, 10 to 20x more efficient than onshore ore; our possibilities to extend lifetime a lot for existing facilities; and also the profitability in this type of operation versus onshore. Seismic services, the same. Turning the business model upside down with an asset-light approach; growth through alliance and partnerships; flexible charters, that is pay-as-you-go contracts; very lean and cost-efficient organization, by far, the lowest one on the cost curve; we also seek to leverage up on key competencies by bringing these into other market niches, as mentioned there. So this is central focal point of the way we think around how we approach the businesses that we enter into. When it comes to the organization, of course, rebranding the group does not just mean putting a new name on the holding company. So this rebranding is for real. It is a different way of operating the company, where, today, we have more or less a dormant holding company, SeaBird Exploration Plc, which is domiciled in Cyprus. This dormant holding company is renamed into Green Energy Group and made active. So finance and administration will be in the holding company, along with the new business development unit that we are announcing today and where we're also making our first key hires, as you will see in a separate announcement today. So we have great expectations for the contribution from this new business development unit. When it comes to the operating activities, then SeaBird Exploration will be operating as it is today from Norway. So SeaBird Exploration Norway is the operating entity and will be a sister company to Green Minerals rather than the owner of Green Minerals. And then, we will seek to add other businesses under this umbrella as we move forward. Apart from business development, the main responsibilities for the holding company is capital allocation, finance and administration. And just a couple of words on SeaBird Exploration then. Doing this change means that SeaBird Exploration will be set free from the straightjacket that the holding company status has had on it. SeaBird Exploration will now be free to form alliances to the best for the company and also for its industry. So with this change, we also marked to start of a much more active approach when it comes to consolidation in our industry, and that is, in particular, the OBN market. And we think that under this structure, SeaBird Exploration will be in a much better position to form those alliances or that could also include bringing in other owners into the SeaBird Exploration subsidiary. And also, of course, there is the possibility of direct access to the stock market for SeaBird as well as the other subsidiaries in the group. We think this move strengthens SeaBird a lot and increases the scope of -- or increases the opportunity set for the company. Other than consolidating on the corporate level, on the SeaBird Exploration level, we -- the company is also free to partner up on its various assets, as you see at the lower left hand with Fulmar, Petrel, Eagle and also flex time charters, which the company has already started doing. So we are very excited about this change in strategy, about this rebranding. It will allow the group -- or it strengthens the group and it will allow the group to grow more than what has been the case so far. And with that, over to Gunnar, please.

Thank you, Stale. So apart from what was mentioned as the background or rationale, the company is -- the holding company, SeaBird Exploration Plc is, today, a Cyprus company and for corporate purposes, it is domiciled in Cyprus. However, the connections to Norway are, of course, much stronger. The shares in the company are listed on the Oslo Stock Exchange, and the bank and the company has a Norwegian bank finance. The administration and the Board is, of course, located in Norway. And as Stale mentioned all seismic activities or all the activities are run out of Norway. In addition, the company -- for these reasons also, the company is already tax resident in Norway and not in Cyprus. So the rationale between the relocation from Cyprus to Norway is to have a more efficient operation, it's -- which will be achieved by also having then the company subject to Norwegian company law, tax rules. Audit processes will be simplified and corporate governance will simplified. When looking at how to do the relocation, we have considered a few -- the 3 core factors that we have considered is corporate and private law issues to ensure that there is continuity in the company's contracts and rights and obligations. Also to, of course, to maintain the listing without interruption on the Oslo Stock Exchange. And also, very important, continuity or no change also in terms of taxes, both in relation to the company, but also in relation to our shareholders. Next page, Stale. So the model we have chosen, and will be presented to the general meeting later this summer, is to convert SeaBird Exploration Plc to a European company or so-called SE and then to do the relocation. This is the SE model maintains or to accommodate -- take care of all of those 3 main issues that we have considered, the continuity on the private law side, the simplification in relation to the Oslo Stock Exchange and also the tax continuity. It will be a 2-step process that will take a few months to complete. So we expect to have completed the relocation in November this year. The first step is to -- is for general meeting to resolve the actual conversion. And then, the second step, at a new general meeting, after the summer, to resolve the relocation. So -- and then there is a -- also after that, a procedural process is Cyprus and Norway, which then takes us, as I said, to about November this year. Thank you, Stale. Back to you.

Okay. Thank you, Gunnar. So just to sum up then on the rebranding. So the rebranding and reorganizing into Green Energy Group is to be proposed at upcoming AGM on the 25th of July. The rebranding marks a change in strategy and a commitment to the Green Energy transition. And I can also say that it marks a change in -- or it's also done for governance purposes, moving all operations in the company closer to home. And Green Energy Group relocates from Cyprus to Norway on that account. When it comes to the highlights for the first quarter, we have it here, EBITDA of $0.5 million loss on a low 33% fleet utilization. Still, a strong balance sheet, with equity ratio of 64%. Major events, completed listing of Green Minerals, as promised, before the end of the quarter. SeaBird also distributed shares in Green Minerals to SeaBird shareholders. We've been onboarding key hires in Green Minerals and entered into a letter of intent with OSI Industries U.K. Limited, for a harsh environment deep sea mining system for exclusive use in Norwegian waters. And we've been awarded 90 days OBN survey in the Eastern Hemisphere. That was before the end of the quarter. In total, 2 business areas then. First, Green Minerals. We had a presentation on the 23rd of April. So I'm not going to repeat all that. Just quickly, take you through the steps that the company has moved through so far with an initial capitalization of the company, starting with 5,000 shareholders with a listing and a market cap around the NOK 350 million. With that, with only deep sea mining globally with the stock exchange listing as of the listing data. To understand Green Minerals, you need to understand the asset-light partnering strategy of the company. We think this is key. Our approach is to move as much CapEx to OpEx as possible. And you've already seen the letter of intent with OSI to that effect. A second point in understanding the company is our focus on marine minerals then as a resource. This is not oil and gas. This is not a homogeneous product. So marine minerals, especially its competency, is needed to solve the challenges that lies ahead of us in terms of producing this. Also, the partnering approach then, we previously mentioned the study where we show an engineer leverage ratio of 10:1 back into the company. So with our set -- with the way we operate, we feel that we gained a lot of capacity outside of, but still close to the company. And we have a well-defined road map up until the opening of -- on the Norwegian Continental Shelf, which we hope will -- hope and think will happen in the first half of 2023. Just quickly on the demand side. Some of you probably saw the IEA report that came out a couple of weeks ago, pointing to the lack of key minerals to enable the green shift. This is exactly what Green Minerals has set out to do. This graph shows the CapEx need to stay within the 2-degree scenario, $1.7 trillion up until 2035, for which current committed CapEx is less than 10% of that. So here, this is really crucial to understand the bottlenecks in the Green Energy transition. It simply won't happen at the speed most market participants seem to expect, unless we get CapEx in this bottleneck in the raw materials needed for this transition going. This needs to happen. So one of the key metals in the energy transition is copper. As of the second quarter 2021, the current quarter, the copper market went into -- or is going into the deficit in this cycle, and it will stay like this for the foreseeable future. The difference between copper markets and oil markets is, of course, the cycle, you don't have the switch that the oil market has in terms of some short-duration capacity like shale in U.S. You just don't have that in the copper market. So the cycles are very long. And Goldman Sachs has put up a 10-year supply gap showing the link between the copper price and this gap. And this gap going forward to 2028 is going to be at twice the level it has been at previous peaks in the copper market. So twice the gap. So -- and it takes 7 to 10 years at least to get the new copper mine going. So here, we do have an issue in terms of solving the resource need for the green shift. Just quickly on environmental issues. We keep getting questions on this. Let me just briefly say, there are 2 questions here. Number one, do you want the green shift to happen? If the answer to that is yes, the question is then where do you want to source the minerals needed from? And what we can say is that sourcing these minerals will need -- means that you need to touch Mother Earth in some shape or form. Doing it in the deep sea means cutting the environmental footprint with more than 90% on most accounts. The company has come far already with its partnering approach. We are very pleased to show this slide, where our partners on exploration and offshore production and logistics have started to come in place. We announced an agreement with National Oceanography Center and the University of Southampton and Professor Bram Murton, evolving the Project Ultra. So we will be out on our first research crews already this fall through this agreement. Offshore production, a consortium led by Oil States Industries that includes top competencies on everything from excavation, pump, riser systems and also surface equipment through Stena. And then, what is remaining -- so we are covered in terms of partners all the way into shore. And then, what names -- what remains to be partner up is then on the onshore processing facility. So we're hopeful that, that will come into place later. Our exploration targets, we have lifted them through the first quarter, so far, only on the basis of the rapid advancement of metals prices, notably the copper price basis for this calculation is $9,000 per tonne. And as you know, it's even higher now. Also, we have just exemplified what the cobalt content in the SMS deposits will mean. It could be up to 1% cobalt. Physical tests have shown that. But adding 0.25% cobalt means lifting revenue targets with almost 50%. And so -- and the revenue per tonne ore will be 10 to 20x higher than similar metrics onshore. So the super ore that we are approaching here, we expect it to be very, very profitable for the company. And with that, I hand it back over to Gunnar and Erik for seismic market and operational review.

Thank you, Stale. Yes, the SeaBird fleets. Maybe to start with just to highlight one change from previous presentations. We had the Geo Barents on a flexible time charter that has been suspended due to that vessel having secured work outside of seismic and it has been replaced by the Veritas Viking that is now mobilizing for low-band source contract in West Africa. The SeaBird fleet is flexible in terms both of the segments in which you can operate within seismic, both 2D and OBN source, but it's also flexible in a sense that we own approximately 50% of the vessels on this -- on next slide, the Eagle through [indiscernible], whereas the remaining capacity is chartered in tonnage with a flexible cost base, which means that the company only carries cost on these vessels when we have actual projects or work for them. We also have an equipment tool that we are able to outfit chartered-in vessels and our whole vessels. The Eagle Explorer is currently mobilizing for 2D survey in India and Petrel Explorer is working now on a -- outside of seismic, which is the first for SeaBird, but on the wind farm maintenance campaign in the Baltic Sea. Next, please, Stale. The vessel utilization in Q1 was 33%. The utilization includes only the vessels that the company carries cost on. So as I mentioned, the flexible or chartered-in tonnage is not calculated into the utilization statistics. The utilization in the quarter was slightly up from the previous quarter and stems from the Eagle Explorer's operation on an OBN source contract in the Gulf of Mexico. Next, please. And again, the revenues, also up from the previous quarter and relating to the contract for the Eagle that I already mentioned. Next, please. The contract, the OBN source contract, that the Eagle completed in April in the Gulf of Mexico, was a very successful contract for SeaBird. The vessel had very good performance, with, what I would call, minimum downtime or below sort of what we could have normally expect. And so that was, I think, marks a sort of continues the improved performance of the fleet that we have seen over the past 12 months or so. As already mentioned, the Petrel went out of layout in April and started an accommodation wind farm support contracts in early May. The Fulmar Explorer is still laid out in Norway. We are making preparations to sort of be able to quickly reactivate the vessels either to -- for conversion or activating to seismic but, at the same time, we're also exploring and in discussions on opportunities outside of the seismic segments. Next, please. Market trends in seismic. We are still sort of the main volume of the company's business activities in the seismic segment is expected to come from ocean bottom seismic, and that's driven mainly by the oil and gas companies focused on increased recovery from producing fields, as well as near-field exploration in order to take advantage of investments already made in existing infrastructure. Our delivery to the OBN segment is source vessels. That market remains competitive. But what we do see now is that size of the global fleet being reduced with vessels being decommissioned as -- or permanently decommissioned as seismic vessels and entering into other market segments. We also see that proprietary 2D surveys, there is a stable activity level there. Mainly -- it's a relatively smaller segment in terms of active days, but it's driven mainly by energy security in regions in the Far East and in Africa. What I also would like to is to draw your attention to the graph to the right. Tendering activity in Q1 was continued to increase from Q4. What I think is particularly interesting and sort of reason to be positive about is that the last column shows the tendering or the lease logged up to date for this quarter where we are not quite 2/3 from yet. We have already accomplished almost the same or have the same level of -- received tenders or requirements as the previous quarter. And with June left and also a few leads added after this graph was prepared, I think we are -- we will see a significant uptick in tendering activity in Q2. Next, please.

Okay. Then, I'm going to put this on hold just for 30 seconds, while I up this. Okay. Erik please.

Thank you, Stale. Okay. I'll start with the key figures. Revenues for the quarter was $3.7 million and EBITDA negative $0.5 million. And then, of course, reflects the low activity with only one vessel in operation and a peak utilization of 33%. And next, please. I think you see from the graph to the left, the revenues and activity level have been quite low for the last 3 quarters, reflecting the downturn in the market. I'll also mention that in the first 2 quarters of 2020 includes a 3D job that was outsourced and -- which boosted both the revenues and operating expenses for those quarters. And EBITDA as mentioned was negative $0.5 million. I will also mention that the EBITDA for the fourth quarter of 2020 has been adjusted after the auditing that was completed yesterday. And that -- those adjustments includes increased impairments and accruals and some reclassifications, and that has a negative impact of the -- for the EBITDA of about $1.1 million. Next, please. And the SG&A was $0.9 million. And this figure is adjusted for one-offs, which is mainly related to the listing of Green Minerals that impacts in the first quarter. And if we include these expenses, the SG&A was about $1.1 million. Compared to the first quarter last year, there has been a reduction of more than 40% in the SG&A. The capital expenditure was low as in the previous quarters, and that is also part of our earlier announced strategy to -- in order to preserve cash. And we don't expect any major CapEx before the outfitting of Fulmar. Next, please. The equity ratio is 64%, up from 57% in the previous quarter. We have an interest-bearing debt of $8.5 million and a cash position of $4 million. That gives us a net interest-bearing debt of $5.6 million. Okay. That ends my part.

Okay. Thank you very much, Erik. Let me see. Okay. So we are into the summary section then. The summary for this presentation then, we are rebranding and reorganizing into Green Energy Group for the reasons given. Green Minerals were listed on Euronext Growth, signed this letter of intent with OSI for a harsh environment deep sea mining system. Oil prices and tendering activity are turning up. And the company is changing focus from restructuring to profitability and growth with these changes then. In the end, just want to show one slide on investment thesis for Green Energy Group then to be renamed from SeaBird, as explained on the AGM. The company has a leading position in marine minerals on the Norwegian Continental Shelf, which is a new multibillion-dollar industry in the making, we believe. Company is aspiring to help unlock the most serious bottleneck threatening the advancement of the green energy transition. The company is also the strongest player in the only niche in the seismic industry that is benefiting from the change in spending from greenfield to infield exploration, and that is the OBN market. And with this restructuring, SeaBird has now been set free to take a more active role in consolidating its segments. The company will seek to capitalize on the entrepreneurial culture and spirit, in combination with marine minerals and energy market know-how backed by its 6,500 shareholders. And last, but not least, we're pursuing a return-focused business model with emphasis on capital efficiency and a lean organization as proven after the restructuring. And this is a company, which I think is important that is run by shareholders for the benefit of shareholders. And with that, I think we're over to the Q&A section. Do we have any questions, Erik, that has come in?

Yes, Stale. It's Gunnar. We have some questions. I suggest I will just read those out and then try to answer. The first question. If the seismic market is improving, will SeaBird ramp up and lease more third-party vessels? The answer to that is, yes, on flexible charters in order to get as much leverage on our organization and equipment pool as possible. Another question. If more SeaBird vessels are activated, will SG&A increase accordingly? And what is the expected level of SG&A with all 6 vessels active? The -- it's -- the answer to that is if we -- as -- there is a significant element of fixed costs in the SG&A because we need a minimum organization and certain infrastructure to operate, whether it's 1 vessel or 2 or 3 vessels and more. So there is no one-to-one relationship or correlation between the number of vessels and the SG&A. Most of the additional costs that will come from operating more vessels would be directly linked to the projects because we have established a more project-based organization. But of course, if all 6 vessels are operating over time, then there will be an increase in SG&A, mainly because we would need more manpower on the maritime and seismic operational side. To quantify it, I would guess maybe a sort of -- I think it will be marginally reducing as we approach 6 vessels in operation, but the 5% to 10% increase in SG&A perhaps per additional vessel in operation which, of course, could also be accompanied by increased revenues. Question three. It seems like the Voyage release has been changed from flexible variable to flexible time charter. Would this change reduce lease costs? Yes, in a sense that the operational costs that we carried, while on the bareboat, is now carried by the vessel owners. So there is a reduction in fixed cost on that vessel, which is the same on all vessel on flexible time charters. Question four. Sorry, something happened. There we go. In SeaBird reporting, there are sometimes impairments. Are these impairments related to vessels, contracts or equipment? Would you respond to that?

Well, the impairments that we've added last year has mainly been related to older equipment, and we have also had some impairments related to older vessels that has been scrapped.

Thank you. Question five. What is expected CapEx for the rest of 2021? I think we already touched upon this, Erik, but maybe you can repeat?

Yes. That's -- the remaining CapEx is related to a potential outfitting of Fulmar. We don't know and not decided yet the timing of that, but the estimated cost is about $5 million.

Questions -- next question. How many source vessels are available worldwide? When is demand expected to catch up with supply? Dedicated source vessels are about 10 to 12. Some of these vessels can move between segments, like the SeaBird fleet that can move between 2D and source. Sometimes we also can see 3D vessels operating as source vessels for shorter period of time. As mentioned, we've also seen that some source vessels have been decommissioned, both older vessels, but also newer tonnage have been decommissioned and access the -- the seismic segment and will be operating outside of seismic going forward. It's difficult to predict sort of when we will have an equilibrium in the source vessel market. What I can say is that we -- when we started at the outset of 2020, we expected the market to improve, but then we had the COVID-19 situation and in combination and sort of also working together with the fall in oil price, we now see that, that market return. We see signs of that market return now in 2021, 1 year delayed. And I think it's fair to say that and -- the market situation will improve in the second half of this year and then -- and that we should see a more stable improved market in 2022. Next question is, today, SeaBird has a 55% stake in Green Minerals. Will SeaBird consider to reduce the stake and invite Green Minerals partners to the shareholders? Would you like to answer this, Stale or...

Yes. Sure. I can do that. So SeaBird intends to remain a large shareholder in Green Minerals, but the company has not committed to a specific level of ownership. What I can say is that SeaBird welcomes Green Minerals partners to become shareholders, if they so like. And also, I see that there is a question on consolidation in the seismic industry. I can just comment briefly on that. We touched upon it when we talked about the rebranding and restructuring then into Green Energy Group, setting SeaBird free to also take a more active role to consolidate its industry. So that is essentially the answer to that. I can say that we think that the seismic industry will benefit from further consolidations. If you look at the OBN market, there are many. It is a very fragmented market. It's not particularly strong players. We think that the market or the segment, in itself, shows some very interesting characteristics when it comes to how spending -- how the spending is being changed within the oil industry. We think this segment is going to benefit from that change, i.e., more infield exploration. And we very much want SeaBird to take a more active role and to build a larger presence in that segment. And also, I see that there is a question here on dividends. The question is, if 100% of free cash flow will be paid out as dividend. And I think the correct answer there is to say that any excess cash in the company will be distributed through buybacks or dividends. Which one of these has not been decided on. But any excess cash in the group will end up with the shareholders. And again, the philosophy of the company is one of the companies being run by shareholders for the benefit of shareholders. So a shareholder return is definitely on the top of the agenda for this company. And yes. I think I can't see any -- can -- are there any other questions?

Yes. Yes. So we have 2 or 3 more questions that have come in. Do you have contracts enough to get profits next quarter? In Q2, we will be starting to -- I mean, the Petrel is on contract through the quarter. We are mobilizing and getting -- or for 2 other contracts, the 2D contract in India and the OBN source contract in West Africa. So the activity level is good. And then we will see the results. Then there is another question, Stale, which I think you should answer. Will this -- will the transition to Green Minerals involve dilution of the shareholders?

I guess the question is if the transition into Green Energy Group will dilute shareholders, right? Because there's nothing happening with Green Minerals. Green Minerals is a subsidiary today and now SeaBird Exploration takes the same status as Green Minerals, becoming a subsidiary and a sister company of Green Minerals. So the question is really, if there is a dilution for the SeaBird shareholders through the transition into Green Energy Group, then the answer to that is no, there is no dilution whatsoever. And Gunnar went through the relocation of the company, and all these considerations have been made very carefully, and we are moving this without any impact to speak of for the shareholders whatsoever.

And the final question, Stale. How will you get enough money for -- to proceed with the Green Minerals plan or production? I guess, the question is how do you -- I mean, to get to the production stage, is the question.

Yes. Yes. So what we have done at Green Minerals has [indiscernible] earlier during the winter, indicated that the total CapEx to put one system, one Green Mineral production system out on the Norwegian Shelf, with -- have CapEx up to $1 billion with everything included. The letter of intent that we signed with OSI removes that CapEx from Green Minerals. So the Green Minerals' CapEx is now concentrated around the following, and that is the research studies being done to close the gaps or to innovate them on these existing mining and subsea technology that we have, to optimize the solution for what we are going to do. It is CapEx related to that. It is CapEx related to some exploration. This is research cruises and is also we will try to get out also on the [indiscernible] in -- we hope, in 2022. But then there is a licensing round. So there is actually no other CapEx in the company up until the licensing brand over and above what I talked about now. And what you can quickly conclude from those numbers or from those activities is that we're talking about a very small single-digit million dollar number in CapEx in order to get into licensing position. And then there is a license. And after the license have been made and if the company then wins a license, then we get into the exploration phase. And then we're talking about CapEx of some tens of millions of dollars. So let's say, for regional survey, we're talking about low double-digit million dollar number. And then, for a full exploration campaign, which means the second license, an E&P license having been won, we're then talking about somewhat more than that. But that is then the CapEx that will be on the company's hand, that, that will arrive after the license wins. So we are not -- to conclude, the company is -- has been able to direct this business model in such a way that the bulk of the CapEx is not on the company's hands. And we are not concerned about the relatively small CapEx number related to exploration as when the exploration happens, the -- it will be a natural consequence of a license win. So we are very pleased with the way that we've been able to -- that we're able to arrival at a target through our partnership approach. I hope that answers the question. Are there any other questions?

No, that was the last one, Stale.

Okay. Well, I guess that concludes today's call then. And thanks for all the questions, very good questions. And with this, we conclude then the last ever actually, SeaBird Exploration conference call as the holding company in this group at least. As of next time, it will be Green Energy Group holding its second quarter conference call. So we'll see you back then. Thank you.