SeaBird Exploration Plc (SBX) Earnings Call Transcript & Summary

Good morning, everyone, and welcome to this third quarter presentation for Green Energy Group. I am here or at different locations then with SeaBird Exploration CEO, Finn Atle Hamre; Stale Monstad , the CEO of Green Minerals; and Sveinung Alvestad, who is the CFO of both companies. So today, well, as usual, we will give you an update on SeaBird and Green Minerals operational update and some more, but we'll start with a strategic review and capital allocation. So for the beginning of the quarter, that was some start, I would say, as we were ready to put pen to paper just as we enter the third quarter on the sale of the seismic business at the price of more than 100% premium at then prevailing share price, only to see that put on hold. July thus became a really busy month for us, and I am really, really pleased to say that not only did it turn out very busy, but also very successful as we secured a backlog that has created the best visibility in the company's history, we believe, and there is an EBITDA contribution from that backlog, as we communicated, of around $18 million. These are key contracts with good length for the company. Also, we managed to sell the Petrel Explorer, and we raised [ $80 million ] in new equity to take on the significant amount of new business that we won. On top of this, Green Minerals then signed an MOU with a world-class consortium led by Oil States Industries where Oil States also becomes a shareholder in Green Minerals. So these are major strategic advances for the company, giving impetus to streamlining the group. And we're doing that by spinning off Green Minerals to shareholders, and this is on track for the fourth quarter. Other than that, the numbers you can indulge in, we had a very low utilization, of course, for the corporate, 27% fleet utilization naturally as we have been busy mobilizing both the owned vessels for new business. Next, please. The company with this -- or the companies rather with this all ready for the next step. Green Energy Group changes its name to SeaBird Exploration. Green Mineral shares to be distributed then pending court approvals in Cyprus, and the distribution will be 1 Green Mineral share per 12 GEG shares. SeaBird Exploration will remain a pure-play seismic company. It has strong positions in an improving seismic market through owned and flexible capacity in OBN and 2D. The focus going forward and on the back of the substantial backlog that we are working on is to serve our financial stakeholders. Green Minerals. We are really pleased to see that the OED yesterday sent environmental impact assessment out on public consultation with a deadline for 27th of January next year, so 3 months away. This is really important and it means that the parliament should be in a position to take an opening position already late in the second quarter. So Green Minerals positioning for a license win immediately thereafter and now this is only a few months away. I already mentioned the consortium that we signed, and also we will continue to work with our ULTRA partners for research cruises, and we are working on analyzing the results from the cruise that we embarked on earlier this year with very promising results so far. Next, please. A couple of words on sourcing and uses of funds as there was a significant sourcing of funds for the third quarter then with a total of more than $15 million coming from the sale of the Petrel and the equity issue. The funds have been used as follows. We have repaid bank debt with approximately $5 million. We have mobilized for 2 significant contracts and this mobilization includes yard stay for the Eagle and also some waiting time to get final clearance into India with a total of $8 million. Further, there is a CapEx of $1 million and other working capital of less than $2 million. Importantly here, the majority -- just to understand the cash use, the majority of the mobilization costs will be released over the contract period. So this is cash on top of the communicated EBITDA from the order backlog. And with that, I hand it over to Finn Atle for -- or actually, key figures. We can -- or when it comes to the key numbers then, just reflecting a quarter of mobilization then. I will limit it here to draw your attention to the net interest-bearing debt, which is below $13 million. And we then have a contracted EBITDA backlog of around 50% more than the net interest bearing debt at this juncture. And we have a solid equity ratio of 48%. And with that, I hand it over to Finn Atle. Finn Atle, you are muted.

Sorry for that. Thanks, Rodahl. Yes, please, Sveinung, can you go to the next slide, please. So for third quarter, we've now commenced operations for the contract backlog, both Fulmar and Eagle have operations. We saw a slight delay during the repair and maintenance work we did on the Eagle in Singapore, followed by about 2 weeks of delay during the importation into India. However, we still hold our EBITDA contract guidance. Outlook, 23 months of backlog coupled with an interesting leads portfolio, seeing both 2D and source work in the pipeline. And we are entertaining early discussions for flexible charters, which we will -- which we intend to tie into the leads we're working on. Petrel Explorer was sold in late August and will be removed from further presentations. For financials, I will pass it on to our CFO, Sveinung, for the next few slides. Thank you.

Thank you, Finn Atle. So as we already heard, the Q3 utilization was at an expected low of 27% this quarter. This reflects that the Eagle Explorer's planned yard stay in Singapore, the mobilization to India and the unexpected delays due to the bureaucracy outside our control. The Fulmar Explorer completed her contract of Egypt in July and steamed directly to the Gulf of Mexico, where it is currently operating. And finally, as Finn Atle said, the Petrel Explorer was laid up until she was handed over to her new owners in late August. As a result, this quarter's revenue declined to USD 3.5 million in Q2 -- pardon me, from $3.5 million in Q2 2022 to $2.8 million in the third quarter. The last 12 months revenue contracted somewhat to around USD 20 million, which still is considerably higher than the trough we saw in Q2 2021 at $10 million. Looking forward, we expect that the Q4 revenue will increase substantially as both vessels are expected to be operating for the majority of the quarter. The Q3 EBITDA was negative at around USD 600,000. This is a sequential increase from $900,000 loss in Q2 2022. Looking forward, we expect Q4 EBITDA to show a significant improvement driven by the contract I just discussed on the previous slide and favorable pricing development on both contracts. The SG&A for the quarter was around USD 1 million, which is representative for the quarterly level we expect on an annual basis going forward. And lastly, as already mentioned by Finn Atle and Stale, I want to reiterate that the 23 months of contract backlog we are now executing on continue to have an estimated contribution on our EBITDA of around USD 18 million, despite the delays we already mentioned. Finn Atle, back to market development.

Yes. Thank you, Sveinung. As we alluded to during our last quarter presentations, we have no reworked or market trend statistics. You will now see from the left-hand index and represented by the bars in the chart. The leads received in the various quarters in vessel months rather than just a number of leads. And from the graph, on the right-hand index, read the average duration of these leads. To us, this is a clear trend that the leads we are seeing have a longer duration. We see this as a positive trend as it brings visibility and stability in the market on the backlog that we're looking forward to build forward. The mix between 2D and source seems to be more or less on the same trend as before. Next slide, please. It's interesting to couple on the previous slide with available source fleet development since 2018. As you can see, the fleet has reduced by about 50%. Worth noting that this overview does not include the Russian nor the Chinese operators. And the only 2 vessels of the shareholder's fleet has been added as these are dedicated source vessels, although we don't normally compete with these share order vessels as they are dedicated to work for share order. Also keep in mind that some of the today's dedicated source vessels are 3D streamer vessels by design. And as such, in a strong total streamer market, we can see that these vessel may move back into the total streamer market. So that will affect the available source fleets remains to be seen, though. The next slide. It's been a while since we mentioned anything about the multiclient data sets, but I wanted to bring your attention that we do have ownership in -- with partners in various multiclient data sets. One of these data sets sits in the U.K. where the U.K. authority has just released a new licensing round, which is open until January next year. We are hopeful that this will run to some revenue, but not able to guide on any details. Next one, please. As you know, closing our restructuring and strategic review, we would like to emphasize recent events. We've secured backlog, $18 million worth of contract contribution. We see a strong market ahead of us and improved profitability already from the next quarter onwards. Thank you. I'll now pass it on to Green Minerals, Stale Monstad.

Thank you very much, Finn Atle, and welcome to everyone to this Green Minerals presentation. Next slide, please. The outline of the presentation is a little bit around the new industry that might be opening for Norway and the highlights from this quarter. I will touch upon the milestones for the year and strategic priorities going forward. The next, please. So Green Minerals is a company with a vision to create a complete marine minerals value chain. We're going to do this through partners and affiliations, and we're going to cover the entire spectrum from exploration to production, transport, processing to defined product. And this will have -- potentially have quite a large impact also on other parts of some industry in Norway, everything from exploration, where we can work together with existing offshore industry to research, both in private and government research production, rig owners, drill ships and transport and processing is an important part of the industry, and processing is the majority of emissions and also the majority of money spent on CapEx. And we see a great market for the products of Marine Mining in -- both in Norway, in Nordic countries and in the EU, in general, exemplified here by the battery factories we all know are under construction. So we believe that it's possible to create a quite low emission value chain in the Nordic countries with a relatively short sailing distance from the Mid-Ocean Ridge compared to other projects in the Pacific. We have good harbors, good infrastructure in both railways and others to Sweden and to other parts of Europe. And we know that there is, like I mentioned, a number of battery factories under construction in Norway. There's one active already in Sweden. There is a number of existing processing facilities in the Nordic countries, both in Norway and Sweden and Finland. And we also know that the Norwegian government are -- have increasing focus on the mining industry, both offshore and onshore. And also, importantly, in -- at least in Northern Norway for the time being, there is abundance of cheap and emission-free energy, which contributes to this very low footprint, so to say, carbon footprint, of this Nordic value chain can offer. And of course, the markets are very close, both in country and also in EU. The next slide, please. So I think I hand it over to Sveinung to take this one.

Thank you. So the revenue for the quarter remains at 0 as the previous quarters. The operating expense was close to NOK 600,000. This, however, includes a positive impact for a noncash adjustments on the company's incentive program. By adjusting for this, the cash cost in the quarter was NOK 2.5 million, which is in line with previous quarters. And we continue to see this as a representative burn rate going forward. As already mentioned by Stale, we saw an opportunity in September to strengthen our balance sheet by issuing 1.2 million additional shares in a private placement with a total proceeds of 11.6 million. As such, the cash position increased from NOK 14.2 million in Q2 to NOK 23.6 million by the end of Q3, and we continue to be debt free. With this, we are fully financed for all planned activities beyond the expected opening in Norway. Stale, back to you.

Thank you very much, Sveinung. So what have we been doing? This is an example of what we have done. This is an example from what I see from massive sulphides that we have been characterizing together with the Finnish geological survey. And on this animation, you actually see, for every turn you strip away the nonvaluable minerals like silicas and so on, then you end up with the sulphides. This study is going to be published. It's going to be the first of the kind that is going to be published, and it's an important sort of foundation to actually prove that we can process the ore from the deep sea in the existing facilities onshore, which has a huge impact, of course, on potential CapEx for that part. To use existing facilities, it's both environmental friendly and it's very good economics. Next please. So this is quite a complicated slide. It's just, again, a little example of what we're working on when it comes to the material from the deep sea. Because it is really important to plan out the right processing schedule or processing techniques in order to get as much in this instance, copper, out of the ore as possible. Currently, we -- you've seen on the right-hand side of the graph, poor liberation, what we've done so far is not satisfactory. We are working to improve that early process before we send the material to the smelters. And we are working towards this theoretical stipple line, which is sort of the maximum recovery you can expect. I'm not going to go very much in detail. It's quite technical, but it's an example of things we're working on at the moment. So like I said, the reason for doing this study is actually to make sure that we can take SMS ore directly into existing processing plants in the Nordic countries. But could be in -- like in this example, the Boliden, which is an active processing plant in Sweden, and there's also been discussions on reopening with slight modifications on existing processing facilities in Norway. It could be like this one [indiscernible]. The next one, please. So yesterday is big news, which was very positive for the industry. The Norwegian Oil & Energy Department have sent the environmental impact assessment out for a public consultation with a 3 months duration, which means that will end in January next year, late January next year. Also included, facsimile from the impact assessment documents in the region. But according to this, it is progressing as planned, and everything is on track and the schedule from the authority side. It's a strong push we feel from both political and from the authorities handling the deep sea mining, and the petroleum directorate and the Oil & Energy Department, which is all very positive. Next one. So this is the road map that we have used since the beginning. And as you can see, all the -- all the green little tick offs illustrate that it's right on track like we have used it from the beginning. The public consultation is maybe 2 weeks delayed compared to what we put up here, but it will be completed by January in next year. And most likely, we will have a discussion in the parliament before summer and the decision in parliament for opening before summer 2023. Next one, please. Also the key milestone we set out before the year has been completed. The first one with a research cruise to the Mid-Atlantic Ridge with Project ULTRA has returned successfully and is working to analyze the data collected. We have completed the first phase of the metallurgic analysis and study together with GTK in Finland. And also this summer, NPD released a huge amount of data from research activities by NPD themselves and also Norwegian universities, totaling more than 2.5 terabytes of data from the Mohns Ridge and the Knipovich Ridge in offshore Norway. And when it comes to the last milestone with partnerships, as Stale had mentioned earlier, we have sign a MOU with a consortium led by all states, and we are continuing to work on partnership all through the value chain. The strategic priorities remain unchanged. We are focusing on Norway. We are -- that is our main focus and that is, like I already mentioned, going according to schedule. We are also talking to international players, both on nodules, but also on SMS in the area or in international waters. Aspiration targets has been shown before by on these quarterly presentations, if everything goes as -- or if we make a big discovery early on in the exploration phase, we might be ready to start pilot production already in 2026. That is a stretch target, but that's where -- that's what we're aiming for. We will be really focused to do all the processing in the Nordic countries, being Norway or Sweden. ,But having a short distance to processing plants and as low as possible emission in this process is important to us. We will also, of course, continue our immense focus on the ecosystem in the sea and make sure that the activity that Green Minerals embark on will be done sustainable and responsibly. Just stay on this a little bit. On the right-hand side, just a few points to illustrate what has happened externally since Green Minerals started. And everything that has sort of major impact has been in our view, positive. It started with the change of government and the political platform from the Hurdal, which explicitly stated that mapping of metals and minerals, both offshore and onshore, is going to be strengthened and it's going to be focused for Norway. And also support from the important labor unions. We have a strong technical team in place. We have already established the partnerships -- started to establish partnership on a value chain. We have received all the data from the authorities, and very important, the time line is holding up. So to sum up, for Green minerals, we are a pioneer and frontrunner in the marine minerals industry in Norway. The news yesterday about the public consultation on the impact assessment is very positive, and as it looks now, the opening decision is a bit more than half year away. The geopolitical situation in the world, as you know, is quite tense when it comes to access to critical minerals. And this is increasingly clear to more and more countries, and both the U.S.A. and the EU have made declarations in that direction. Also important to remember, Norway's actually has the second longest portion of a spreading ridge where you find these SMS within our exclusive economic zone after Fiji, which is the only one of us a longer spreading ridge. So we are well positioned from sort of the natural side of things. The investment case for relatively low investment at this time into one of the few actors that is possible to invest in. There is a real option with the payout of up to USD 400 million. And we see that large oil and gas contractors are starting to take position inside the industry, which is also quite interesting. We completed the first research cruise, and we have done the first phase of the metallurgical study, which is important. And all our 2022 targets have been reached. So back to you, Stale, for concluding remarks. Stale, I send it back to you.

Okay. Thank you, Stale. Yes. As you understand from all of this, the third quarter was really a major quarter for us, where we significantly advanced our position, both in seismic and the Marine Minerals. And the next few quarters, then we're set up to show the results of all of this. In the seismic, we'll be able to pay down all our bank debt on current contracts if we choose to run the business for cash only. More importantly, these contracts solidify the company's position in these markets and makes us an even more attractive partner for flex contracts going forward. We believe, we are bullish on the oil share of the energy mix going forward. And we hope and intend to be able to serve our shareholders well with strong cash generation in the years to come. If there is one slide that I would like to take one more look at here, it will be the timeline slide in the Green Minerals section that we see here. It's -- I think it's quite notable that this slide is exactly the same as Øyvind and me presented 2 years ago, where we invited investors into Green Minerals for the first time. And I'd like to comment the steadfast and predictable work by the OED and the Petroleum Directorate over this period. As we can see, the 2 impact assessments have now been carried out and the public consultation, the papers for that has been sent out and with the deadline of 27th of January. And as Stale Monstad said, that means that the parliament should be in position to take the decision already in the second quarter next year. And I think to put that in perspective, this is super important, of course, for the company. And it is a key to understand the timing of the demerger of Green Minerals from SeaBird. We believe that the GEG shareholders could benefit substantially by owning a pure Marine Minerals business when the opening decision comes. And with that, I hand it back to you, Sveinung for Q&A.

Thank you, Stale. So quite a few questions in the chat today. So maybe we can kick off with a question for you, Stale Rodahl. For about the consolidation, we have talked about in the industry -- seismic industry over the past few quarters here. There is quite a big question. What -- how is the discussion with potential players in the market going? And are there any more players worth having the discussion with and so on? So maybe you can just elaborate a bit about the consolidation of the seismic market for us.

Right. So just to recap a little bit, I think the first time we started talking about this, and we said that we would set SeaBird -- we had the intention of setting SeaBird free, which we are, by the way, now doing -- was in the second quarter last year. So during this time, of course, we have had many discussions on many different levels with several different players. Out of that came an offer for the entire seismic operation, which then was put on hold as we have reported, and we have since said that, that takes us out of the exclusivity of course with that player, and the field is now completely open. So it's hard to comment on sort of ongoing talks here before we have something concrete to present. But what I can say is that there is, we believe -- we strongly believe that in particular, the OBN market will benefit from further consolidation, and we are a strong advocate for that to happen. We think that there are other players in agreement with us on various levels, and we think that having SeaBird Exploration in its pure form listed on the stock exchange is something that may help those discussions come to a conclusion. I think I will leave it with that at this juncture. But as Finn Atle said, we have then with this streamlining of the group, we have then concluded the, call it, the formal strategic review. But again, as you understand from what I said, the work on consolidation of the OBN market continues unabated.

And then there is a couple of questions on when we expect to go distribute Green Mineral shares from Green Energy Group. I can answer that. As we said in the presentation, we still target Q4 as we did last quarter as well. The distribution is pending some formal legal work in Cyprus, and we are still firm believers that we are able do this in Q4. So there is no change in that. The exact date for going x, it's not ready, but of course, we will inform the market as once we get that date ourselves. Furthermore, there is quite a few questions about the markets. And you touched upon it, Finn Atle, in your presentation on a number of investment months in the leads slide, but maybe you can elaborate a bit more how do you see these potential leads matching up with the contract duration we have on our fleet at the moment.

Yes. We see some of the leads are tying in nicely with the completion of the project we're doing now in India, which is encouraging. We're hopeful that we can go directly from where we are now and completing into a new project. Bearing in mind that also the Eagle is Q4 dry docking next year. So we might want to do that in between projects just to utilize the time, if there is time between projects. But obviously, we want to tie things nicely together to avoid any slack between. For the Fulmar, we see leads tying nicely into the completion of the current contract and also discussions on extension or smaller part of extensions. So I think it's always difficult to predict now where sort of projects are only completing towards the middle of next year, and now we're in late October where things will pan out in the end of the day. But definitely, that's what we're aiming to do and trying to guide our clients to sort of fill it in and match our timeline. But of course, we are not really entirely in the driving seat of that.

And maybe you can give a bit more color on the performance on the Fulmar as since started operation in the Gulf of Mexico as well.

Indeed, the Fulmar, the vessel has performed really well since we started the first operation in April, March this year. And now in the next second project for a new client with the in-house SeaBird source in the water, she's been performing good and as expected. The client is content and happy with the performance.

And also, there is quite a few questions about the flex capacity we have. Can you, Finn Atle or Stale Rodahl, gives us a bit more flavor around the discussions we are having on potential flex charters. And also, maybe, if possible, give us a bit more color on the potential EBITDA contribution for that kind of contract setup.

Yes. Obviously, difficult to predict the timing of when these things can match together and materialize. But what we're doing and we have discussions with both vessel owners, with clients and trying to match these together. When it comes to the EBITDA contribution, obviously, it will be slightly reduced because there's going to be a bareboat element in the chartering of a vessel that comes on top of that. And what I bet what right might be, we have -- obviously, we have discussions going, but I don't think I should guide or -- but it will be in a similar range, less bareboat element. I don't think I'll leave it like that.

Yes. If I can add to that, Finn Atle, that certainly -- so we are having early stage discussions. So it's too early to guide on this with any timing of this. What I can say, though, and I think this is really interesting in order to understand the contribution of the flex capacity is that we are in discussions on longer leads than we actually originally anticipated. And this is really important in order to understand our ability to plan and also the earnings out of such contracts. So if you take -- we have previously guided on the market -- how we see the market in the second half of '22 about the earnings contribution on an OBN vessel would be at that time. So I think if you use that guidance and maybe then, as Finn Atle said, subtract a little bit for a bareboat higher. So -- but if you use that guidance and also think about this as probably longer-term contracts, you should have -- you should pretty much be able to arrive at the number there. And of course, we're taking one at a time. We are currently in discussions on one, but we have the capacity to do 2 of these.

And this brings me into the next question. Where do you see the rates in the market moving? Are they -- yes, just some comments around that maybe, please.

Yes, I can do that. We -- again, we don't usually guide for rates. So it's not something we are going to be pressed to do at any point in time. We felt the urge to do this back in March this year because the company simply -- everybody understands is underfollowed and underanalyzed and we felt that there were developments in our markets that were not fully understood by our shareholders. So we've had an obligation to guide on that. We guided then what we saw as an earnings potential for OBN and 2D vessels in the double digits, so between -- somewhere between $10 million and $15 million for both in the second half of this year. Of course, if you go back and look at peak rates, where they peaked the last time in 2013, and I think I should underpin that the market we're seeing now is at least as strong as the one that we saw then. In terms of demand, and Finn Atle has already shown you the quite dramatic reduction in the supply side. So given that and given where rates were in 2013, we simply don't see any -- and the vessels are, by and large, the same. We don't see any good reason why rates couldn't go at least back to that level. And in 2013, they peaked at around $80,000 per day. So yes, that's where we are. And we're seeing -- we don't see very much pushback on rates or we haven't seen that so far, at least, and have the -- we have the clear sense that rates are still moving upwards, but we'll see when we do the next fixture.

And then a question to Stale Monstad in Green Minerals. In August, you announced the consortium with OSI, maybe you can give us a bit update on that one and the timeline for that going forward.

Well, we are in continuous discussions with OSI, and they have prepared a master document register for a steady and harsh environment production system for deep sea mining in Norway. And that study has a kickoff meeting scheduled for next week with the entire consortium. So that's the immediate plan. Yes. Was there anything else in the question?

Duration maybe of the plan and how you see that cooperation going forward?

Well, we think it's important to have that kind of a study in place before the license round. It's a very important part of the industry. How do we want to produce and particularly in an environment of the Norwegian Sea, which is quite rough for most part of the year. So the duration of the study is approximately half a year. So that will be -- if we start now, we'll be in perfect timing for the application round.

That's good. And also, we already talked a bit about the opening process in Norway already. But maybe can you give us a bit more flavor of when you expect to have the -- receive the first license on minerals, like awarded the first license?

I can give my perspective, but that will be speculative because it's really out of our control. But the experience from oil and gas is that the Norwegian Petroleum Directorate is quite an effective organization. They have shown all along that they are working very good also with deep sea minerals. If we assume a decision in the parliament just before summer, I expect that the license round will be announced next year -- towards the end of next year. Typically, that will take a couple of months and then a couple of months of evaluation from the Directorate side. So just a guesstimate from my side would be around summertime 2024, first assets on board.

And with that, I think we have covered all of the questions we have here and the ones which we haven't repeated was answered in the prepared remarks. So with that, Stale, I will hand it back to you to close the call.

Yes, sure. If the questions have been rounded off, I guess we're done for the day. I just want to add to what Stale said, he commented on Norway. And we are, of course, and as we've presented previously, we are working also on potential license awards internationally. So we'll see which one comes first, but at least we're very pleased with what we're seeing from the NPD and OED in Norway and the timeline being followed. So with that, I guess, we close the presentation for today, and we'll see you back in 3 months. Thank you.