SeaBird Exploration Plc (SBX) Earnings Call Transcript & Summary

Good morning, everyone, and welcome to this Fourth Quarter Conference Call for Green Energy Group. My name is Stale Rodahl, I'm the Executive Chairman, and I'm here or at different locations then with our Interim CEO, Finn Atle Hamre; and our CFO, Erik von Krogh. Before we go on with the presentation, I just want to make some initial remarks. And that is that 27 months ago, SeaBird set out on a major restructuring and cost-cutting effort. We have cut cost by 40%, putting us at the very bottom of the industry cost curve. We have relocated to 1 office, we have reorganized into a project-based organization and we have had some terrific improvement in operating efficiency and uptime following this. Furthermore, we have refinanced our bond loan, and we have scrapped 3 old vessels, thereby high grading our fleet. Furthermore, we have positioned the company for the green energy transition through starting up Green Minerals, which we are a company that we are really excited about. So in all, when we look back at the last 27 months then, we see the restructuring and repositioning of the company as very successful indeed. Cramming this was the outfitting of the Fulmar Explorer as a top-of-the-line OBN vessel for the future against a 12-month contract. It was therefore particularly frustrating and disheartening to see that the Fulmar contract got terminated just before start up in the end of last year. This has, of course, put a great strain on our organization and, of course, cost money for the company. Having said that and supported by the positive development leading up to the Fulmar termination, we are confident that our strategy is the right one, and we are firm in our commitment to carry through. On that note, we changed CEO to Finn Atle Hamre in the end of last year. And Finn Atle has his background of training then as a naval engineer and MBA and has been the COO for the company for the last 3 years. So with Finn Atle as CEO, we have a safe pair of hands making sure that our strategies are carried through. We were hoping to have some concrete news on the immediate future of Fulmar from this update. Well, that didn't happen. We still hope we can announce something in the not too distant future as I know that several of you are waiting for that. And believe me, we are as keen as any of you to do just that. So with that, I hand it over to Finn Atle and Erik, please.

Thank you, Stale. The agenda for the presentation will be as normal. We will start with the highlights for the quarter, and then move on to an operational update on the seismic activity and the deep sea mining activity, before we conclude with a summary. And then we will round up with a Q&A session at the end. Can you move on to the next slide, please. Okay. Then I will continue with the highlights for the quarter. The revenues were $10 million. The core EBITDA for the quarter was negative $1 million. And this core EBITDA that's adjusted for some extraordinary costs related to bunkering. And it's slightly up from a year ago when it was $1.1 million negative. The fleet utilization was 43% and the net asset value per share was NOK 8.74 at the end of the quarter. The major event during the quarter was that we completed the outfitting of Fulmar Explorer. Eagle Explorer had solid production and preceding contract extensions in the 2D. We, unfortunately, as Stale also mentioned, received a notice of termination for a 12-month OBN source contract. We raised $3.6 million in a private placement in January. And also subsequently, we received an LOI for another OBN source contract, while a 3rd party LOI for an OBN source contract has been canceled. But this will not have any impact on our old vessels. And we have also launched a strategic review of SeaBird Exploration to maximize shareholder value, which Stale will elaborate on. And we have initiated a key mineralogy project in marine minerals. And then the key figures for the quarter. The core EBITDA improved somewhat in the quarter and we expect further meaningful improvement in the first half of 2022. And the balance sheet was growing as a result of the Fulmar outfitting and equipment consolidation. The net asset value by year-end was $34 million. And yes, this figure shows the financials per segment. And the EBITDA for the seismic segment improved from negative $1.1 million to negative $0.7 million, while EBITDA for Green Minerals was negative $0.3 million. Yes, as I mentioned, the net asset value per share was NOK 8.74. Yes, NOK 8.74 per share and $34 million in total. And the net asset value is based on the book values for Green Energy Group adjusted for the market value of the shares in Green Minerals. Okay. And then Finn Atle will continue with an update on the operation.

Yes. Thank you, Erik. First, update on our fleet. We have our core fleet represented by the Eagle, the Fulmar and the Petrel. Fulmar being now fully updated with the source and ready for operation, with equipment and everything ready to start project works. We also were presented by 2 vessels of choice where we have inventory of equipment for source and streamer to fit 2, potentially 3 additional vessels. Next one, please. Utilization for the fourth quarter is represented by seasonal changes. Petrel coming off wind farm project, and the Veritas Viking completing, particularly in Nigeria, returned to Norway. Next, revenue for the fourth quarter are represented by strong operational and technical performance by the Eagle and also revenue streams from the source project with the Viking and the wind farm projects for Petrel. Operational update. The Eagle has been performing a 2D project in India. As I said, it's a strong technical and operational performance. Petrel completed our first year of the wind farm support work with a lot of good feedback from our clients. So we are positive and forward-looking for further work in that sector. The Fulmar has been updated and transited across to the Gulf of Mexico for the start of the project. That was unfortunately later canceled. Veritas Viking completed our project in Nigeria, returned to Norway and was handed back to her owners in the middle of November. Market trends. What we can see here and what we can deduct from what's shown here is I think compared to previous projects and seasonal changes, we saw that 3D tenders came out earlier than normal. We saw some of those came in, in the fourth quarter. And we see now following on to the first quarter more seasonal typical changes where we see a lot of tenders and activity in the wind farm market, Survey market, potentially work for the Petrel, but less 3D work has been received so far in the first quarter of this year. We also see continued strong demand for source vessel within the OBN market. And I would say rather now that this market for source vessel is more or less sold out.

Yes. We have commented on the revenues and EBITDA already. But I would just like to add that as you can see from the figure to the right, the underlying EBITDA is improving, even though it was somewhat hampered by the Fulmar cancellation in the fourth quarter. But we expect this trend to continue going into 2022.

Okay. On the strategic review then that was presented after quarter end. I just want to make some comments on that one. So the background here is that we have over the last year or so written in our report and also mentioned on conference calls that we are positive towards consolidation of the OBN source market. And we are positive towards consolidation there and we also believe that SeaBird is the most attractive platform to consolidate from for several reasons. We have done some consolidation there already, which is in line with our asset-light strategy as long as we're doing it on SBX only. And we are now able to outfit approximately 30% of the OBN fleet with our own equipment. So we expect then our strategy to -- we have seen some positive effects of it with third-party charters, and we expect to see more of this going forward. Talks are then ongoing with several potential partners. I would say that after we have announced it and being very open on this, we have received several interests on this. And both straight out sale, a trade sale, of course, at the right price, or a merger could be on the table here. And also after we announced a strategic review, I would say that there are also more -- there have been additional interests coming through to the company to look at this. When it comes to financing then, we expect a sale of the Petrel this year, that is whichever comes first. And of course, we have talks on several fronts here. So if the Petrel stays with the company, that would be because there is an order transaction happening. But for SBX alone, the intention is clearly to sell the Petrel and we have to develop on the market there. And I can say also that when it comes to the market, as Finn Atle mentioned, there is strong activity in the wind and survey market. The wind market has sucked up a lot of the survey capacity. So we see the Petrel now being -- and the fact that it's not outfitted, of course, oil & gas, means that it is an attractive vessel to bring into the survey market. And there, there is a certain gap between current demand and capacity to fill. We have positive discussions with the bank regarding maturity extension. As you all know, we have maturities coming up here starting next year, and we are looking to extend those. We have contracts then on 2 of the prime assets in the industry that implies substantial cash flow generation. And the current financing is equal to less than 2x normalized EBITDA, as we see it, and that is cautiously calculated based on current market conditions only. And that will be actually excluding the travel event. The market itself, as I touched upon, is improving. So the OBN market is tightening. Finn Atle mentioned that it's more or less sold out. So we think it's very attractive to have capacity available. And in that sense, actually, the Fulmar termination may -- we are not happy about it, of course, and it cost us money and put strain on the company, but as the market looks now, it might actually be an advantage to have maybe the highest end vessel in the market available in a very tight market. Demand growth is expected at around 25% this year, and we saw Magseis mentioned something similar in their update. 2D tendering is increasing. Finn Atle touched upon that, and it's particularly in the Asia Pacific region. And we think maybe it seems like the slight energy crisis that we saw some contours of last fall, has helped in particular, that region to take some projects off the shelf and get them started. So that's, I guess, what we can say here about the strategic review at this point. Again, we aim to explore all available options to maximize shareholder value, and we are going to engage with all the interested parties through this process. Okay. So then Green Minerals. The vision is to create a marine minerals value chain through partners and affiliations, where Green Minerals explores and operates the licenses. And on the Green Minerals home page, you will see this video that you see the front page of here, where we look at the entire value chain from exploration, production, through to processing of the minerals. The time line has been more or less completely unchanged, actually, since we presented it the first time. We are now in the phase of impact assessment, carried out by the Norwegian Petroleum Directorate. And we expect another public consultation by the end of this year. The NPD has informed that they will be ready with all their work and all the data by early 2023. Setting up the parliament then to take a decision probably in the second quarter or the third quarter. So either just before the summer holidays or just after the summer holidays next year. And that means that we are on track for our pilot production to commence in 2026 and full-scale production by the end of the decade. So this is unchanged from actually our first presentation. Expected key milestones during 2021 for Green Minerals, as you know, was very much about hiring top talent within geoscience and engineering and that has been completed. We listed on the Euronext Growth, and we have set up several partnerships. So working within this framework, then the key milestones for 2022 can be expected as follows: Our first research cruise will commence in only a few days from now, actually, and that will take place on the Mid-Atlantic ridge with ProjectULTRA. Further, we announced on the Green Minerals Q4 update that we have initiated a metallurgy analysis on SMS samples from the ridge. And that will start very soon, and we expect results from this in the second half 2022. This analysis will deepen our knowledge of the mineralogical composition and the commerciality of the resource and it's very important to inform our campaign earlier in this value chain, notably our exploration campaign. To the best of our knowledge, this study is the first of its kind on a commercial basis in the world. Further, we expect release of the Norwegian Petroleum Directorate data. They have been conducting research cruises since and including 2018. There is a large amount of data from these research activities, and we expect to get access to this data by the second quarter 2022, and that would be also an important building block for building our exploration campaign and will be integrated into our regional exploration models. Further, we will continue to expand our partnership model throughout the value chain. This not only in Norway, as we have informed previously, we are also working internationally along the same strategy, setting up partnerships and gaining access to licenses there. We have also done some extensive work on ESG or sustainability for this industry. As the marine minerals industry is very much in an embryonic phase, there's not much work having been done. And we believe that, with our report, I believe it's around 40 pages, we are setting the industry standard for ESG for our industry. And it's a comprehensive framework that incorporates ESG into all aspects of our business. That report will be presented together with our annual report in April. While on ESG, I just want to reiterate. Marine minerals then will significantly lower the environmental footprint for the mining industry. We have pointed to a report by [indiscernible] that came out almost 2 years ago. And it shows a 70% to 100% reduction in the environmental footprint for marine minerals. And this is important for us. You can't source green minerals without doing it sustainably. And marine minerals definitely does just that. And then, of course, there's a geopolitical aspect that has now been made even more important by these latest events. And again, China control. So if you look at processing of the key minerals that the energy transition and also the digitization of our world needs, then the processing of these minerals is very much controlled by China. We believe Norway is the best area to kickstart the deep sea mining industry from. I won't go through all of this, but we have a world-class offshore services industry in Norway, and we have more than 50 years of successful regulation. So we are confident that the Norwegian continental shelf is the best place in the world to really kickstart this industry from. We also have a very potent resource with up to 14% copper grade. I can mention that new mines onshore is up to 0.7% copper grade. So it's a huge difference. And that is a part of lowering the environmental footprint, of course, as well. And there are significant other minerals as well, notably cobalt. The estimated market value of this resource is more than NOK 1,000 billion. For this company, it means on 1 production system only, annual revenue of more than $550 million on copper alone with EBITDA margins above 50%. And I already talked about the ESG impact. IEA came out last May with a report supporting the arguments that we have been making for quite some while, and that is that there is a mismatch between the climate ambitions or the energy transition and the available or critical minerals. So on current capacities, these 2 simply don't go together. So just looking quickly at the copper market, which is the key enabler, as you know, of electrical energy and the most important 1 here and the 1 with less substitution potential. We can see that copper production -- and remember that production in the metals industry has very long lead times. So to start a new project takes between 8 and 15 years. So it's not like oil that there is automatically spare capacity and swing capacity that you can bring in. So with the data that we have, we can see that copper production looks set to peak in 2023, already next year, copper production is set to peak, while demand, of course, is taking off right now and a lot of it because of the energy transition that adds substantially to the map. So we are looking at an undersupplied market, the need for investment into additional copper resources and into additional other mineral resources is huge. We can see that the copper prices started to respond on this. Notably, last year, I think it's interesting to note that in a year where China withdrew liquidity in a big way for the third time since the financial crisis, copper prices actually managed to go up during the year. Previously, you've seen that in liquidity contraction cycles for China, copper price has been falling 20% to 30%. So I think it's a sign of the times. Markets outside of China have an increased significance for the copper market now. Yes. On the efficiency of onshore resources, of course, it's not big. This shows the Palabora mine in South Africa, ore grade of 0.7%. So it's fairly typical. And the ball that you see in the middle, the copper ball simply is the pure copper that you get out of all this excavation. It's not very efficient. If we were to do the same on the NCS and take the same picture, first of all, it wouldn't look like that at all because you don't need to go that far into the ground. But that ball would be up to 20x bigger. And on average, around 10x bigger than what you see there. So there is a significant gain to be had by adding marine minerals to the onshore mix that we have today. Aspirational targets for the company, 2025 target unchanged, that is to have secured several exploration licenses and identify the commercial SMS portfolio, putting us in place for a pilot system by 2026 and full-scale production by the end of the decade. On the financial targets, you can see them here. Copper, again, the most important resource and the resource that we are the most positive on, has to do with potential for substitution effects, grossing up to $800 million, including cobalt and some other minerals. And then EBITDA then, as you can see, more than 50%, giving quite spectacular economics in this project. So in summary then, for the group, we report net asset value of NOK 8.74 per share. The Fulmar outfitting to high-end OBN vessel has been completed. As Finn Atle mentioned, the vessel is now ready to start operating promptly. We've had strong production for the Eagle, preceding extension of the 2D contract. We had an OBN source contract terminated in the end of the quarter that I commented on. And we've had a new contract announced in the beginning of the year, along with this third-party cancellation of the LOI. We have initiated a strategic review of SeaBird exploration to maximize shareholder value, and the outlook both for the marine minerals and the seismic operation remains positive. I think we can say that outlook for seismic operation is more positive than it's been in the previous quarters. And we're looking at more or less sold out OBN market. EBITDA is expected to improve meaningfully from the first half of 2022. And finally, then, why invest in the Green Energy Group? The company has, through Green Minerals, a leading position in marine minerals on Norwegian Continental Shelf. This is a new multibillion-dollar industry in the making. It is a minerals company that is aspiring to unlock the most serious bottleneck, threatening the advancement of the green energy transition, as we saw in the copper graph, and you can do the same with the other of these minerals. The company has invested through SBX in the only niche in the seismic industry that is benefit from the change in spending from greenfield exploration to nearfield. Also, the price exposure to an agile seismic company with an industry-leading and flexible cost base and proven ability to cut costs early in downturns, as we did in late '19 and early in 2020, and ramp early when markets improve, as we did very early last year. And the key contract wins, we believe, improves the company's outlook. We are set to capitalize on an entrepreneurial cultural spirit in combination with marine minerals and energy market know-how backed by a broad shareholder base of 6,500 shareholders. And finally, but not least, we are running a return-focused business model with emphasis on capital efficiency and a lean organization. This is managed by shareholders for the benefit of all shareholders. And with that, we conclude the prepared presentation and move over to the Q&A. Are there any questions that has come in here, Erik?

Yes, there are a few questions. When will relocating from Cyprus to Norway be completed?

I guess I can comment on that. The relocation from Cyprus to Norway has been hampered by a few things. And we are basically organizing them away. And we hope to have the whole thing in place and then bolted on the AGM that is coming up this year. So that would conclude the entire move.

The next question is, looking at the tender activity, it seems like tenders for OBN source have decreased. Is this because of the season or other reasons?

Yes, I can answer that one. I think 2 items that I would like to highlight in that relation. I think what we're trying to do now in the Q1 numbers is to fit through sort of the diffracted numbers or unique tenders and not sort of the duplicate tenders that we see from various operators. Secondly, we need to see it in relation to what happened in the third quarter of last year, where there was an extreme high activity, which is done as secured projects and vessels for those projects, and these are now ongoing, i.e., the companies have full utilization of the nodes. So I think that will come back up again as soon as these projects are sort of at the tail end and are looking at new projects following that.

Yes. Can I just add? I mean just what you said about the third quarter. So if you put the second and the third quarter together and look at all the capacity soaked up by that, it wouldn't be possible, or at least if a similar tender activity happened, it would just be not fulfilled given the lack of additional capacity in the industry.

Okay. The next question is, will SeaBird soon be listed as a separate company under GEG like Green Minerals?

As we've said, earlier last year, we communicated that we are keen to -- and with this reorganization into Green Energy Group, we are setting SeaBird free. And what we meant by that is that we wanted to create the best possible platform for SeaBird to participate in consolidation of this industry. So we will see how that goes going forward, the consolidation and the strategic review that the company is now going through. But clearly, depending on which route is being chosen here, clearly, that may mean a separate listing of SeaBird, yes. And that would be with Green Energy Group then as a large shareholder, but Green Energy Group does not have a particular target or a particular need for a certain percentage ownership in SeaBird. We are very happy to develop the company for the best of the company and for the best of the industry, and if so needed, to become a minority shareholder in the company.

Okay. The next 1 is, is Voyager still part of the fleet?

Yes, I can cover that. Voyager is still a part of the flexible fleet, if you like. Rather than naming vessels in our fleet listing, we've 7 plus vessels to be named. But yes, Voyager is 1 of the vessels that we have tapped in that sort of pool of flexibility.

Okay. Next one. What is happening with the potential subsequent offering?

The potential subsequent offering is simply depending on price. So the pricing was done at NOK 2.25. If the share price trades meaningfully below NOK 2.25 for some time then, I mean that there is some volume there, the offering will be canceled, because then we will assume that the minority shareholders who has an interest are able to buy their shares in the market. Now that has not happened. The share price, I think, dipped below NOK 2.25 but only for a very, very brief period, and has since traded above. So as long as it trades above, we will stick to the plan and make sure that the minority shareholders are not being diluted there or that they get the chance then to buy shares at the same price. So it's just price dependent.

Okay. Do you expect consolidation in the near future? And can you mention any of the potential partners?

That is a very difficult question because I can say that we are involved in several discussions, naturally, as we felt that we needed to announce this strategic review to equalize information in the market. So I can say that we are in several discussions. I cannot say or give any time line on those discussions, as there are third parties involved here. So that I cannot do. And also, of course, who we are talking to is confidential. So we cannot disclose that either. And whenever we have something to disclose, of course, we will give the full information then.

Okay. Next one is, you say demand is expected up around 25% this year. What consequence will that have for you? And what is the capacity utilization in the current OBN fleet?

Finn Atle, do you want to?

I think capacity utilization on the OBN fleet, OBN fleet, 2 elements to that, the limiting factor for a number of OBN surveys at any 1 time, I guess, is based on how many nodes are available. And also when it comes to source vessels, I think what we see in discussions with clients is that when we introduced Fulmar now and when we get documented that she is fully available, we believe she will displace older and less capable tonnage in due time. Obviously, some of these vessels are currently on projects, but as soon as they are released, I think we would be in a good position to seize that opportunity.

Okay. Next one. When can we expect the contract on Fulmar?

Well, maybe Atre just threw some light there. So we hope to be able to announce something on Fulmar quite soon. I think we can say. We're working hard on that. And I think I commented that I was hoping that we would have something for today, actually, but we don't. So naturally, we are optimistic that we will be able to announce something here before long.

Okay. And do you think it's possible to get a new 1-year contract for Fulmar?

I might maybe comment on that one. I think yes. But I think initially, the first project for the Fulmar is probably going to be typical OBN survey of 90 to 100 days. And then when proven, I think definitely longer contracts are on the table and possible.

Okay. What is happening to rates?

Well, we've seen rates going up, I would say, around 25%, 30% without strong push back from our clients. I think definitely it's correlated to oil prices in general, which again is inflating rates for OBN operators and also for us.

Okay. Which vessel are you using for the OBN contract in Asia?

That's the Eagle.

And you say you have some of the very prime assets in your segment. Why is utilization still so low? And what can you do to improve it?

Yes. Maybe I can just comment on that. So the situation for the company, of course, has been that we haven't had Fulmar outfitted. So we had vessels that is a part of our fleet that has not been outfitted. So if you look at the ones that we've had, utilization has been very good. We've also done third-party contracts while waiting then to have our own vessels outfitted and that has also worked very well. So I think that is mainly the answer. I think if you look at our fleet now, in Petrel, of course, this is especially the case, so we market and then we put it up for sale. But if you look at the Eagle and the Fulmar together, we think those 2 are 2 of the really prime assets in the industry. And the industry has a very high utilization at the moment. We expect those 2 vessels to have a higher utilization than the industry average. And we also expect those vessels to benefit economically from being prime assets. Yes, so I think that is basically the answer. Now we have our vessels outfitted barring then Petrel and now is the time period to start measuring against our full capacity.

Okay. Is there an ongoing legal discussion for a compensation in the lost contract on Fulmar?

We cannot comment on that lost contract, unfortunately. So we hope we will have some news regarding the immediate future of Fulmar within the not too distant future.

Okay. What is your debt capacity? Are you planning to take on more debt?

Well, as you can see, the company still has very moderate debt. And certainly, there is room to carry higher debt. We don't have any plans whatsoever though to increase that debt. We are done with our investment plans. And we are confident that also the current debt levels are low compared to the, call it, projected normalized EBITDA from the assets that we have. But we have done investing and do not foresee debt levels going up from here on the contrary.

Okay. Yes, that is as far as I can see, no further questions.

Okay. Well, I guess that concludes the fourth quarter presentation then. Thank you very much for attending, and we will see you again in 3 months. Thank you very much. Bye-bye.

Thank you.