SeaBird Exploration Plc (SBX) Earnings Call Transcript & Summary

Good morning, everyone, and welcome to this Q2 Conference Call for Green Energy Group. My name is Stale Rodahl, I'm the Chairman of the company. I'm here or at different locations with Finn Atle Hamre, CEO; and Stale Monstad, CEO of Green Minerals. Agenda today, we're going to talk about the strategic review that we have had going for some time and we will have an operational update on the 2 businesses. First of all, it was a very busy summer as most of you know who follow us and I'm pleased to say that the company has been able to deliver on its strategy on several fronts. Most importantly in Green Minerals establishing an industrial framework through the agreement with Oil States Industries, establishing a world class consortium then around the company. Oil States will take a 4.3% ownership in Green Minerals with shares issued at NOK 15 per share. In seismic, as you know, we had a bid for the entire seismic business at $53 million. That was put on hold. And since then, we've had a very busy period in the company and I'm very pleased to say that we have been able to sign up 2 key contracts for the Eagle and Fulmar securing a total 23 months of backlog with an estimated $18 million in EBITDA contribution. Also we have sold the Petrel and that transaction was finished as of yesterday and this will allow the company a rapid repayment of debt. So these are major strategic advances during the quarter, which gives impetus to finally separating the minerals and seismic businesses as we've talked about before. On the strategic review then, just a quick recap. On 26th of January, we announced that such a review would take place. On the 28th of April, we announced that we had entered into a letter of intent regarding a sale of the company's seismic operation for a cash consideration of $53 million. On the 30th of June, we announced that an agreement had been reached, but thereafter put on hold abruptly due to events outside of both parties' control. On the 18th of July, we announced that we had reached an agreement to sell the Petrel Explorer. On August 16 the Board received a letter from its larger shareholder, MH Capital, urging a separation of the 2 businesses. On the 29th of August, this Monday, Green Minerals announced a memorandum of understanding with Oil States Industries establishing an industry consortium. And finally, today we announced an intention to separate the minerals and seismic businesses by way of spinning off Green Minerals to shareholders. This will give shareholders access to 2 pure exposures, one in minerals and one in offshore seismic, and we believe that this will contribute to a more efficient pricing of both companies and also importantly, it will create a better platform for ongoing industry consolidation as we have talked about previously. When it comes to capital allocation and funding, just want to say a couple of words there. First of all, as previously, all holdings are funded separately and of course with the split, this will be even more pronounced. But this has been the case all along as both of these businesses has needed capital. Now the situation is that the cash flow profile of the 2 of them will be somewhat different. With SeaBird starting to generate cash, this will be used for repayment of debt and dividends and buybacks and indeed we asked for a buyback authorization in the AGM earlier this year and this was approved. When it comes to Green Minerals, the strategy here is to position for a license win with a minimum capital use. And in this context, the OSI agreement is important for the company and the costs here are to be covered by the consortium partners. When it comes to the actual production system, we've had a few questions on this, we are targeting a model similar to the one that we've established now for the concept study. So Green Minerals will not fund their production system in itself. Upon license win -- upon an expected license win I could add, there will be additional funding required. This will be to conduct the exploration campaign for the company. We've had some questions about how much this will be and it's hard to say. We haven't done the -- we haven't designed the actual exploration campaign yet, but to give you some figures to hold on to. We would estimate in the area of $30 million to $50 million, but again this will be after license win. We aim to source that funding through our partner network or with new equity. So the pointer is that while the holdings have been funded separately all along, separating the businesses will create clarity for all shareholders in the phase that we're now going into. Company, with this, is ready for the next step with Green Energy Group then aiming to distribute the Green Minerals shares in the fourth quarter this year pending normal closing conditions. Green Energy Group will then become a pure-play seismic company. And as I said before, cash will be used for repayments, dividends and growing the business in case we find attractive transactions to participate in. Green Minerals to position then for a license win that we expect to come in the first quarter 2024 with the authorities opening up for marine minerals in the third quarter 2023. So that time schedule is unchanged. And also importantly for Green Minerals, an agreement with Green Energy Group or SeaBird Exploration on everything; HSEQ, maritime, operational, everything in regards to survey licensing, admin, reporting, et cetera; will be signed then with SeaBird Exploration. And with that, I hand it over to you, Finn Atle.

Thanks, Stale. So highlights for the second quarter. Reflected by the relatively low utilization, we had a EBITDA loss of $1.2 million, however, still remaining a strong balance sheet. We had 3 -- during the quarter we had 1 contract signed for the Fulmar, subsequent we had 1 2D contract for the Eagle and the sale of the Petrel was announced. We have now also in the last few days signed an MOU, as Stale indicated, for Green Minerals with Oil States Industries and there will be more information on it later in this presentation. So next one, please. So Stale, can you flip to the next one? Key figures. As we already indicated, EBITDA loss of $1.2 million with strong output. So most of interest here is the net interest-bearing debt of only USD 19 million. We're now in a position with a strong contract coverage. I believe this is the best we've seen since 2015. We have reduced our SG&A from about USD 2 million 2 years ago and now it's USD 1 million per quarter. So a significant improvement in the cost base. We've included 1 slide here more for reference to indicate the history of our current fleet and now the present status. So I'll leave that as it is without any further comments. Revenue, we see the key points here as it bottomed out in the second quarter of 2021 and with focus on the trend line the last 12 months, we see a positive trend going forward and we believe this to continue. Reflecting the same in EBITDA bottoming out in the second quarter in 2021 and a positive trend since and we believe this will further improve going forward now with the sale of Petrel. Market trends, similar slides and information that we've shared before. But I think what's of key importance here is that we see maybe less number of tenders and request for quotations, but the requests we receive have longer duration. I think that's a key for profitability going forward also, securing longer and stronger contracts over time saves us time between contracts. Improving market. We've moved -- SeaBird's moved from a somewhat asset-heavy with older vessel position to an asset-light and renewed fleet, improving our company for operating leverage also with the flexible fleet and equipment we have to do that. We've seen this slide before I believe. Implied market value of our fleet today of about USD 15 million using an economic value-based net present value. The depreciation would imply a 4x value of that. So there's certainly a lot of hidden value there. So key from restructuring to cash generation and highlights the graphs on the right-hand side of this slide. We've got a reduced SG&A, low break-even point and improved quality of our operations, which we believe will create or -- and it will be creating solid platform for profitability going forward. So thank you and I'll leave it for Stale Monstad to continue with the Green Minerals slides.

Thank you very much, Finn Atle, and Good morning, everyone. Green Minerals; if you go to the previous one Stale, just a comment on that one; is a company that is taking the entire value chain into consideration everything from exploration to production, transport and processing onshore. And this is also reflected by the fact that we have entered into the consortium that is designing a production system from ore at the seaport to port. Next, please. So the highlights of this quarter is of course the MOU signed with the OSI-led consortium. We have also received a large amount of data released from the Norwegian Petroleum Directorate. We started integration into the exploration framework of Green Minerals and we are still working on the rock characterization study on actual seafloor massive sulphides material from the Atlantic. When it comes to the run rate or burn rate of the company, we had NOK 2.5 million in second quarter and we expect that to be sort of on the mark going forward as well. Stale already touched upon this consortium. It is very important because it is a consortium that will cover most of the sort of disciplines needed for an effective and successful production offshore and it will start in October this year. Norway is at the forefront. We're one of the first countries that is likely to open its exclusive economic zone, but there are also going on some activity internationally. We have the international Seabed authority, which is taking care of the sort of international waters. But also Cook Islands have opened up their exclusive economic zone for deep sea mining. And interestingly enough if you look at the OMLUS, the Moana Minerals win when they took 1 of the 3 licenses in Cook Islands, that actually triggered Transocean to take a minority stake in the company at an estimated value of $10 million in cash and $10 million in kind. And it's interesting to look at the valuation of the company, which is now indicated at USD 125 million for a relatively fresh company with 1 license in the Cook Islands. And the table to the right compare one or OMLUS and The Metals Company and Green Minerals. So we expect also [indiscernible] to win at least 1 license when it's opened up in Norway and so the market cap is expected to rise accordingly. Next, please. The road map towards exploration. As it is now, we have an impact assessment that's been carried out by the authorities. Importantly as well is that all the dates that has been sort of scheduled is kept. This timeline is holding up so far. We expect an opening decision to be taken in the parliament in Q3 next year and a very quick turnaround to announcing a license round and a license award. And this makes it possible to have a pilot production going on in Norwegian waters already in 2026. The key milestones for Green Minerals in 2022 was presented in the previous quarterly presentation. We have completed the research cruise together with the university in Southampton and the results are not final yet, but the preliminary results are very sort of interesting and encouraging actually. This is the cruise that went to the Atlantic down in the TAG area on seafloor massive sulphides. We are still working on the rock characterization study, which will be sort of the first of its kind and will make it -- it's a very important step towards blending marine minerals together with onshore minerals in the existing processing facilities onshore, which is a very important sort of CapEx reducing factor to be able to use existing processing facilities. The NPD did release data as promised in early June, which is good news for us who is a geologist and also interested in taking part of all that research that has been done. It's a huge set of data with a very high value that has been made available to Green Minerals at no cost at all. And also we continue to working on partnership. We are going to be an asset-light company and we will form partnership through the entire value chain of deep sea mining. Next, please. So just a little glimpse into the NPD data and what we have done with it so far. This is an image of the Loki's Castle and Mohn's Treasure discoveries that has been made by University of Bergen in [indiscernible] and it's quite detailed and at least in part of the most very high resolution data available now for us and we have started to integrate that into the workflow. I won't actually go into the different sensors used, but the value of these data are quite high. And this is one of the qualities of being in Norway that actually the authorities are releasing data as they come in, which is to the benefit of course for everyone participating in the industry. So we're quite happy and sort of it's very interesting to look at all the data that just received. There's a lot of data, it takes some time to get it all under our skin, but we are getting there. Next, please. So the aspirational targets. It is still a plan for a pilot system to be ready to operate by 2026 and we intend to do the processing in the Nordic countries, which is why we do the rock characterization to prepare for that. There are a number of different options and possibilities, but a short transport distance from the production offshore to processing is important from both a commercial and environmental point of view. We will of course also have an immense focus on the ecosystems and biodiversity in the area where we operate and we intend to be able to be in a full-scale production at the earliest 2028, which might be a stretched target, but towards the end of this decade. And the revenue sort of looks still very, very promising for this industry. If we assume 1.5 million tonnes per year production of ore, we're looking at EBITDA above 50%. Since the start-up of the company, there has happened quite a few things, which is important for Green Minerals and for the industry. First of all, the Hurdal platform, which is the political platform of the new government in Norway, specifically mentioned the need to increase the mapping of minerals and metals both onshore and offshore. The LO, which is the Workers' Union, is also very positive towards this industry. Green Minerals have established a good technical team and we have started entering into important partnerships. To add on to that, like I said, we have had released a huge amount of data from the cruises that have been conducted by academia and authorities and more data will come. So this gives us a very good chance of getting a good understanding of the geology and prospectivity before we start the exploration campaign. And lastly, the timeline is kept. The authorities are keeping the time. They're putting pressure and they are doing as they plan to do, which is very good news for us as well. Next one, please. And the floor I hand it back to you, Stale.

I can sum it up there, Stale. Thank you. So just in summary then. The company is reporting net asset value of NOK 6.5 per share as of the end of the second quarter. This NAV is based on book values on our seismic assets only and the market value on Green Minerals. As I said, I think the major point here is that the company has made really great strides and had major strategic advances over the summer. This is both in the minerals business and in the seismic business and that enables us then to finally separate the 2 businesses. We've seen key contract wins in OBN and 2D as we talked about. The visibility that this gives is sort of unprecedent for the company at least seen over the last many years, at least the last 9 years. Green Minerals signed an MOU with an OSI-led consortium and OSI becomes a shareholder and I'm really pleased to announce this agreement and the increased industrial ownership then of Green Minerals through this. GEG announced today a spin-off of Green Minerals to shareholders targeting fourth quarter distribution. The outlook for the marine minerals and seismic businesses remain very positive indeed. We haven't spent too much time on the market today, but we certainly are seeing very promising signs in seismic then for continued rate increases. And in the minerals business, there is a gap between planned projects especially in terms of the green energy transition and the actual minerals available for this. So it certainly looks like a bottleneck that Green Minerals will try to help solve over the next few years. And then lastly as before, we want to end this presentation by stating that we are running a return-focused business model with emphasis on capital efficiency and a lean organization. This company is managed by shareholders for the benefit of all shareholders. And I think today's news on the way we intend to run these 2 businesses going forward certainly underlines that statement. So that concludes our presentation and we'll open it up for Q&A. Are there any questions that's come in?

Yes. First, we can take a couple of questions on Green Minerals. The first question is which companies are investing in the marine mineral business now. Stale, I guess that's for you.

Yes, sure. That's a good question. We have seen this industry has developed a lot since we started up 2 years ago. That was at the very early point. There have been lots of developments since then. And I think it's interesting to see that companies like Maersk has been investing significant amounts in this business, Allseas, Transocean has started as of this year to invest significant amounts, Technip is doing the same, Deep Ocean is involved and is investing in the business and we've just announced our consortium so Oil States Industries investing in this business and of course Deme is investing and has been doing so for many years and Deme's probably invested more than $100 million into this business already. So these are all solid companies and we are very pleased to see their interest and to see their commitment towards the marine minerals business.

And this question goes to Monstad. When do you expect to get the rock analysis return and be able to share that with the market?

The analysis is entering into its final stage. There's been a slight delay due to some problems at the laboratory, but we expect to have the results next month within the end of September.

Good. And this Rodahl, I guess is for you again. What is the main risk with Green Minerals?

The main risk with Green Minerals is of course the milestones we need to go through here is number one, Norwegian authorities need to take an opening decision. We expect that to happen in the third quarter in 2023. What I can say there is that the NPD has informed that they will be ready with all the material going over to the parliament and they will be ready doing that in the first quarter of 2023. So in principle, I guess that decision could happen in the second quarter. But the authorities have been working really well on this. There has been great visibility I think in the work that has been done by the OED and the NPD and we've been really happy to work with them on this process. So I think everything is there and all the parties, as Monstad mentioned, have voiced positive opinions about opening for this industry. So we definitely think it will happen. And I also touched upon this as well. I think the fact that the timeline has been more or less locked since we started 2 years ago in itself is a very positive sign. But that is one risk. And then the other one major risk of course is for this company, for Green Minerals, to actually win a license provided that the NCS is opened. On that note, we feel that our opinion is that Green Minerals has the first-mover advantage. We were the first ones out there. We've capitalized the company and made a commitment to this. We've been working with the authorities and with our partner network for the last 2 years and put a lot of effort into this. So we feel that our first-mover advantage has led to a leading position on the NCS and we certainly hope and we think that that will be reflected in the license awards when they come sometime between Q3 next year and Q1 2024.

And then we will jump over to the seismic business. We have a couple of questions regarding consolidation. Maybe you, Rodahl, can give some color on what we see in terms of consolidation and if we are still engaged with talks with other parties.

Yes, right. We didn't spend much time on that on the prepared presentation. But the announcements that we made basically speaks for the advances there. What I can comment in addition is that what we said then on, I guess, it was the 30th of June was that the cash bid for the seismic operation had been put on hold. We have not received notice that it has been taken off hold so by definition, it's still on hold. But of course the company has made great advances since that bid was launched and now has -- so I basically think that the pricing there needs to be seen up against the contract backlog that we have and then I think anyone would see that the price certainly well could be higher if that bid came back on the table. That is my opinion at least. Otherwise, there is -- we also announced that the exclusivity had lapsed and that we then would enter into talks with other potential suitors and that has also happened. And our goal, which is to consolidate in particular the OBM segment, still stands. So we hope to be able to do just that. We don't have anything firm to announce to you yet. This is a process that's been moving ahead. Now in hindsight I would say it has been moving slowly ahead. We started these discussions more than a year ago and they are still ongoing. But as you understand, there is progress. There has been one concrete offer coming out of this and we'll just wait and see what happens going forward. But the initiative from our side is still ongoing and we hope to be able to announce something before too long.

And then I have a couple of questions to Finn Atle. Now as you are sold out of in-house capacity, there is many questions about when we can expect new contracts to be announced and what's the status of leased in or chartered in flexible vessels?

Good questions. We are just now operationally working hard to get the Fulmar starting on the first job, but also the Eagle to start her 2D job in India, which takes a lot of effort from the organization operationally. Commercially, we are working on flex charter arrangements and discussions with both clients and boat owners. So difficult to really predict when these can materialize. We need to tie them with operational and administrative capacity. But I think realistically hopefully sometime this year without giving too defined data on that, but certainly something we're working hard on securing now on as soon as we get the other vessels working.

And there is a couple of questions regarding CapEx levels. Can you give any expectation of where you believe the CapEx will be in the coming quarters?

Well, quarter-by-quarter, I don't have a number. We look at the CapEx investment on each vessel on an annual basis and I think we've indicated previously it's around $600,000 per vessel in CapEx. Certainly when we're looking at flexible charters, there might be items that we need to pick up there that we don't foresee in our predictions just now. But that's in the region we're looking at for our budgets.

And in regards of the completion of the Petrel Explorer sale, can you give some color about how you will use the proceeds from that sale?

Well, most of the proceeds will be payback of our bank mortgage and there will be [ 1.3 million, 1.4 million ] returned to the company as cash.

Very good. And I think I have one more question for Stale from the Green Energy Group perspective. When will we have the subsequent offering in GEG?

Right. So the subsequent offering will take place as soon as possible. So just to update you on that. We will call for an AGM for a few businesses that need to be conducted and in that amongst others, we will be asking for authorization to issue shares. That will be in there and then there is this usual process then with the authorities on that. So we expect to be able to handle that by certainly the early part of Q4.

And one more on the seismic market. Can Finn Atle or Stale give us a bit more flavor around the market for the source contracts and 2D contracts? Where do we see rates at the moment and what do we expect to see in the going 3 to 6 months?

Right. We can I guess flip back to this slide. I guess the question is more or less in relation to this one. We see, but we haven't been guiding the market on rates or our own backlog or EBITDA going forward and the reason simply being that visibility has been really low. In March this year we decided to design this slide then and to talk a little bit about our expectation for the market and the reason was simply that we saw emerging market trends that were really strong and that we felt that we had an obligation to update the market on. And what you see on this slide then is that back at the last peak, which was in 2013, the market was paying around $85,000 for an OBN vessel, returning about $20 million EBITDA for such a vessel back to the owner. In 2020 at the market trough, rates were around $30,000 returning hardly a couple of million dollars back to the owner. Now mind you, these are vessels that today easily cost between -- if you look at the Fulmar for example, you could easily get to between $70 million, $80 million construction cost all included. If you look at a vessel like Eagle, we are talking about well above $100 million for a vessel like that. So the $2 million should be seen in that context. The market improved then in 2021 and in March we went out and guided the following and that is that we see rates going to a level around $60,000 for the second half of this year with utilization around 80%. I'm very pleased and I mentioned this on the first quarter call as well. I'm very pleased to say today then that what we guided then has actually already happened not necessarily in terms of the rates, utilization, the mix might be a little bit different. But if you look at our guidance for the contracts that we have achieved, you will see that necessarily the EBITDA guided level per OBN vessel in the double digits is already there. So we're really pleased to see that. And then the question is okay, what now? So we don't see any -- what we see is that the OBN market, as we said, is sold out. Our capacity is certainly sold out. We will try to do more as we said and we think we can do more by doing partnerships then on flex capacity. So we don't see any -- and in particular in relation to new building cost, we don't see any reason why rates couldn't reach at least the previous cyclical high around $85,000 certainly. And for every $10,000 that you increase this rate, you increase the expect or the EBITDA potential then per vessel in the order of $3 million to $3.5 million. So that is certainly an interesting outlook. And that would take us back to the EBITDA that we saw on these vessels in 2013. By all means, we are not there. We don't have any concrete guidance that this is going to happen or that we are signing contracts on that level. But as a matter of looking at where the market is now, looking at the tendering activity and, as Finn Atle mentioned, longer duration on the tenders; we certainly see no reason why we wouldn't go where the market was when it was tight in the last upcycle. I don't know, Finn Atle, do you want to add on that?

No, I think that pretty much covers it, Stale.

And I see we have time for one more question for rounding off I think and this goes to the scheduling of the contracts. And Finn Atle, maybe you can give some indication of when you expect both of the contracts to be working and fully contributing to the group's P&L.

Well, we expect Fulmar to be on hire now any day this week. Eagle we expect to be on hire starting the 2D contract in India late September, first few days of October. We listed a bit of payment terms so cash starting to roll in October, November.

Okay. Then we hand it back to you, Stale, for closing remarks.

Well, if there aren't any further questions, I guess we've gone through all the major points that we had for today. I guess I just want to end this where I started it and that is that we have seen major -- and I think this is really the main point for the company. We have seen major strategic advances for the company over the summer and we have seen this both in SeaBird Exploration in the seismic business and we have seen this in Green Minerals. And these are really all events that is changing the outlook for these 2 businesses, that is strengthening the outlook and changing the outlook up to a higher level. I think that is really the main point to take away from this. And we are taking the consequence of that now by doing something that I guess started with the Green Minerals shareholders asking for a separation of the business and that is now also true for GEG shareholders that would like to see a pricing of the seismic business in its pure form. So now we're able to do this. We are really pleased to have come to this stage and we look forward to executing on this. So with that, we will call it a day or we'll call it a presentation at least and we'll see you again next quarter. Thank you very much.

Thank you.