SeaBird Exploration Plc (SBX) Earnings Call Transcript & Summary

Good morning, everyone. My name is Stale Rodahl, I'm the Executive Chairman of SeaBird Exploration. And I'm here with our CEO, Finn Atle Hamre; and our CFO, Sveinung Alvestad. Before I hand it over to them, I just want to make some initial remarks. And before I do that, just a heads up on the Q&A function in the webcast, so you can put questions in there and then we'll answer at the end of the call. When we distributed Green Minerals to our shareholders in January, we said that we hope that this would only be the first of many such to come from SeaBird. On the heels of significant revenue receivables to be released over the coming months, a solid 2-year contract for the Fulmar Explorer and a debt refinancing taking maturity to 2026, we are pleased to guide today for a new round of significant distributions to take place end 2023, early 2024. The exact timing and amount is dependent on the timing of the release, the employment status of the Eagle Explorer and, of course, operational performance under the contracts we are engaged in. With the Eagle turning in another back-to-back contract following the large 2-day project in India and considering continued strong interest in the vessel from several projects, we have no reason to believe other than that we will swiftly mobilize for a new project following the SPS planned for September this year. Just a quick comment on our Flex strategy. In general, the markets we operate in are continuing to tighten. And with that, we have been informed that some vessels that would fit our Flex strategy will be sold for prices that are significantly higher and those implied by the market value of our shares. Therefore, while still monitoring opportunities for accretive growth and certainly being hopeful that we will be able to conclude business on this, we believe there is no more accretive use of our cash flow to buy back our own shares. Finally, I'd like to thank everybody at team SeaBird for your unwavering commitment to get the job done also when the seas are rough. And with that, I hand it over to Finn Atle and Sveinung, please.

Thank you, Stale. SeaBird Exploration provides marine seismic acquisition with a current fleet of 2 100% owned vessels. The Eagle Explorer is currently equipped for both 2D Fulmar acquisition and source services. Currently, the vessel is performing OBN/source work. The Fulmar Explorer is equipped for seismic source services, currently engaged in projects in the Gulf of Mexico. In addition, we have sourcing equipment to read charter vessels, which again enables SeaBird to relatively quickly increase its fleet by up to 2 additional vessels with a limited capital expenditure. Next slide, please. Second quarter '23 key events. First of all, third consecutive quarter with a positive EBITDA. Operational, good performance overall, somewhat affected by [ lightnings ] outside our control during the 2-year operations in India. We would also like to highlight the 2-year contract starting in the 1st of September this year for the Fulmar, which gives us good visibility at healthy project economics. Financials. Our CFO will elaborate on these numbers, but I would like to draw your attention to bank financing now being secured until June 2026. Also note that third quarter EBITDA will be adjusted due to events outside of the company control. And again, the CFO will elaborate on these topics. Next slide, please. Contract coverage and backlog. We expect Eagle to complete production of current projects in early September. Thereafter, the vessel will proceed to Singapore for a 5-year leads special periodic survey and dry docking. This is estimated to take about 3 weeks. Fulmar Explorer has secured backlog into September 2025 and is performing very well. Outlook. Deliver on backlog coupled with interesting leads, both 2D and source work. We are positive and that we will secure work for the Eagle in the future. And we are entertaining discussions for flexible charters, which will be tied into leads we are working on. Next slide. Utilization. Second quarter utilization was affected by operational matters outside our control during the 2D operations in India. This reduced utilization slightly during the quarter. Otherwise, we are very happy with the performance and operations and utilization overall. Next slide. A few words on the vessels and assets. Eagle Explorer, currently equipped with 2D streamer operations and source operations. The vessels performed excellent during recent 2D project and is currently doing source work in Malaysia. The vessel was built in 2009, and that's now due for a third special periodic survey and dry docking. Outlook, interesting leads on both 2D and OBN/source markets. Next slide. Fulmar Explorer. Vessel is a dedicated source vessel for OBN/source. Vessels performed excellent during our recent projects on secured backlog until September 2025. Worth noting, the vessel has not only operationally and technically performing well, which is also proven to be very fuel efficient for the operations it had. Fulmar's next planned dry dock is in 2026. Few words on flexible capacity and our equipment pool. We reiterate our ability to charter in available vessels and to equip these from our equipment pool. This slide is meant to give you an understanding of how this will be done structurally and how -- and our related considerations. Worth noting that available tonnage has been reduced, sold over the past few months at valuations that our current share price do not justify. And a few vessels have been sold out of the market completely. We continue to have dialogue with several vessel owners, but we remain firm that we will not take on the risk of a third vessel without having substantial back-to-back agreements with clients. Next slide, please. Market development in short. Market trends and indicators are strong. Third-party analytics continue to guide industry growth in both OBN market and conventional streamer markets. In particular, we see strong demand, tender activity OBN surveys in all major regions. And as more and more OBN-based service are done, we believe the volume of projects in this market would stay healthy in the years to come. Next slide, please. Supported with the leads received on our end, market trends based on actual leads received by SeaBird. Number of leads remain at high level and normal seasonal changes seems to have a small effect on the demand. Again, we see clear plan at least have a longer duration and operators want to secure vessels for longer-term charters. The tender mix between 2D and source seems to be more or less the same as before. Next slide, please. The source fleet. As I alluded to earlier, there has been some changes in the available fleet and the mix of fleet. There's been some transactions, vessels have been sold, and we've adjusted the covering and available fleets. There's a strong demand for source vessels and few available. Those available now are older age most of them, but there's still some available or the coming available in the future. So we have a strong lead and working on these with the various ship owners. And then I would like to hand it over to our CFO, Sveinung. Please, go ahead.

Thank you, Finn Atle. So turning to the financials. Revenue for Q2 was $9.7 million, up from $3.5 million the prior year quarter. Revenues for the first 6 months of 2023 was $19.6 million compared to $8.5 million from the -- for the same period in 2022. EBITDA was $4.6 million in Q2, up from negative $1.2 million in 2022. For the first 6 months, it was $8.9 million compared to negative $1.1 million in the previous year. Net profit of $2.1 million was recorded in the quarter, up from negative $4.6 million in the same period in 2022. Net profit for the first 6 months was $9 million that was positively impacted by a $5 million noncash gain related to the distribution of shares in Green Minerals during Q1. The comparable figure for 2022 was a loss of $6.5 million. Cash flow from operation was $0.9 million, while net cash flow after CapEx and financing activities was negative $0.3 million. Net interest-bearing debt was $15 million, down from $19.4 million in the prior year period. Now to the looking forward. As Finn Atle stated earlier, we expect some one-offs in Q3, and this is due to events outside of the company's control. We estimate the noncash impairment of receivables of around $2 million, which will affect the Q2 EBITDA. This relates to the project we recently completed in India, where the result was negatively impacted by foreign fishing activity that added costs to the project and reduced total volume. Furthermore, we continue to see the full year SG&A of approximately $4 million with quarterly fluctuations. We expect a strong financial performance to continue, resulting in further strengthening of the balance sheet and substantial release of working capital in the coming months. Consequently, the company is now approaching the next phase, which will enable shareholder distribution. After a challenging 2022 with declining revenues, Q4 marked the inflection point for SeaBird and Q2 has continued the same -- at the same pace. Strong utilization during the quarter resulted in revenues of $9.7 million. This contributed to a continued upward trend for the trailing 12 months revenue, which now stands at $31.3 million. This is a level SeaBird has not seen since 2020 when the company operated 7 vessels. More importantly, the profitability remains solid as well. Q2 EBITDA was $4.6 million, up sequentially from $4.4 million and from negative $0.9 million the prior year quarter. The rolling 12 months EBITDA increased to $10.8 million, substantially increased from the prior year quarter and is now at the level not seen since the downturn hit the oil and gas industry back in 2016. At that time, we had 5 2D vessels operating on contract. That said, we continue to believe there is still upside to this as we are executing on our solid backlog and as the market fundamentals continued to develop favorable. SG&A for the quarter were $0.7 million, broadly in line with our full year guidance. Now to the cash flow. As you can see from this chart, SeaBird started the quarter with a cash balance of $2.5 million. Operating cash flow for the quarter when excluding working capital was $4.7 million. Working capital position increased during the quarter, mainly due to revenues being tied up in the India project and reduction of trade payables. We continue to have a strong focus on the working capital situation and are actively working to convert our position to cash continuously. Thus, we expect to see an unwinding of this over the coming months. Capital expenditures for the quarter was around $400,000, which is a mix of normal maintenance and preparation for the dry docking of Eagle in Q3. Furthermore, we repaid just north of $300,000 of debt during the quarter and paid about $400,000 in interest. Please note that this is lower than the previous quarter as the refinancing closed in July and one of the scheduled repayment was done in Q3. All of this leaves us at a net cash flow for the quarter at negative $300,000 and a cash balance of $2.2 million. Net interest-bearing debt at the end of the first half of 2023 was $15 million, where the gross debt stands at $17.2 million. The debt comprises $14.6 million in bank financing and $2.5 million in interest-bearing equipment financing. We have reduced our net interest-bearing debt by $9 million or around 40% over the past 6 quarters. Please note that the refinancing of our bank facilities were finalized during July and is now comprising of one loan facility of $14.2 million and one guarantee facility. The maturity of the facilities is in mid-2026, and the loan has a quarterly installment of $0.7 million. The equipment financing relates to a purchase of equipment during the upgrade of Fulmar in 2021, 2022. This has previously been included on the balance sheet under other payables but was reclassified to interest-bearing debt in 2023. The loan carries fixed interest with voluntary repayment profile. With that, I'll leave the word to Stale for closing remarks.

All right. Thank you, Sveinung. I think we can move -- yes, we have a summary or strategy slide. Thank you. So yes. As you've heard, Finn Atle talk about strong operational performance. And I was just thinking, when I heard the presentation, I'd like to tie some comments to that performance, the charge and the overall profitability of the 2 projects that we have now -- that we are now about to conclude, and that is Fulmar is still working on its project. This goes back to the guidance that we gave a little bit over a year ago of an EBITDA backlog of $18 million. So I think one should understand here, when Sveinung talks about the $2 million charge in the third quarter, that is because we were tracking higher than the $18 million. So going into the latter part of the 2D project, we were booking revenues and tracking well above -- about 10% above our $80 million. As these unforeseen events then came up in the tail end of the project, we need to walk back the tracking that we had on the project. So that means that the charge of about $2 million is from a higher level than the $80 million guided. And to put a number on it, the combined 2 projects then barring any unforeseen events on the Fulmar that needs to conclude this project, but the 2 projects will deliver an EBITDA about 3% or so below the guided $18 million. And if you look at the split between them, around half of that is due to the mechanical issue with Fulmar that took us down one week in the fourth quarter that we talked about in the fourth quarter presentation. About half of that is that. And the remainder is the Eagle project. So I'd like to commend the team for a very strong performance in particular on the 2D project when these incidents occurred, meaning the company being able to largely deliver on the guidance. Then going forward, just this point on focus on cash flow, yes, we -- that is a strong focus for the company. Still the charge is then a noncash charge. If you look at the third quarter numbers, the impact -- the negative impact there will be -- if you look at the third quarter cash flow numbers for the company, the negative impact there will come from the classing of the Eagle in September that we have guided for. But remember that the Eagle is working and with good performance in July and August, and the Fulmar is going back to back into a new contract, which is higher paid. So overall, the cash flow for the third quarter will be good. And then we go into the fourth quarter. And then, of course, we're dependent on what is still outstanding is an Eagle contract. But what we see in the market now and provide that Eagle, we're able to fit Eagle into one of those leads. I think we can already now say that from the fourth quarter onwards, we should see a step-up in the cash flow generated by the company. Yes, and that's -- so I guess that's a comment on attractive contracts as well. We see several opportunities. And I think we have -- we can safely say that we have one -- at least one of those contracts with the 2-year work for the Fulmar, which is unusual length in our industry and is sort of evidence of the strong operational performance that we're talking about. Actually, monetary value accretive opportunities, we are -- we have talked about vessel transactions now taking place at -- and just a reality check on our own pricing means that there is no doubt in our mind that rather than participating or with our own equity price where it is, we simply can't participate. We will have much better use and much better return for our shareholders by spending our cash, buying our own much lower-priced vessels. That doesn't mean we are not seeking to do business, we are, just in a different way. And we're hopeful we will get there, taking some time, though. Yes. And I guess the capital distribution we have talked about. So it is dependent, of course. We need to release the working -- the revenue receivables that will gradually happen over the next few months. And of course, it's as usual dependent on normal performances on the vessels. But the past few quarters or the past many quarters at least give some evidence that we have been able to do that so far. So with that, we feel that -- and we're very pleased to report back to our shareholders. We have said that we have a sound platform in place for some time. We have said that we are the lowest cost provider in the industry and that we will be able to provide good margins and cash flow provided that the market came back, enabling us to find work for our high-class vessels. And that is the situation that we know in, and we just repeat that as evidenced by these numbers and by what we plan going forward to serve our shareholders, we think, indeed, we have a sound platform for profitability for capital distribution and for further consolidation in place. And on the latter point, I won't comment anything further than what I've done before, but those comments still stand. We believe the industry will benefit from further consolidation. All right. So with that, I hand it back to you, Sveinung for the Q&A.

Thank you, Stale. Quite a few questions. [Operator Instructions] Okay. So first question goes to you, Finn Atle. It's regarding the Eagle. So when should we expect the SPS or the special purpose servers for the periodic or service for the vessels to be finished? And what do you see the vessel doing afterwards? Is it 2D contracts or OBN contract? And also, there is quite a few questions about what kind of opportunities you will see. Is it 1 year opportunities or more? Or was the 2-year contract we recently signed on Fulmar, a special opportunity type of situation?

Yes, a question frankly to one, Sveinung. The Eagle Explorer and duration of the dry docking is about 3 weeks. We expect to dry docking and commence around the 20th of September, i.e., all depending on the final date of completion of the current project. Where I think stands now, this is most likely and then 3 weeks following from the 20th of September. So early October, some time. Following work to the Eagle, we have discussions with clients for longer-term source projects and we have 2D leads not also in advanced discussions. So I think first come first served both seems to be potential opportunities just now. And on sort of too much information, I think we are confident and we will secure work for the Eagle in their future.

Thank you. And maybe do you have a bit more flavor on the duration of the opportunities? Or do you want to leave it with this?

Source opportunities have longer durations. We're talking -- some of them are 1- to 2-year opportunities, others are sort of typical OBN serve duration, which is typically 3 to 4 months. So we will see both 2D opportunities. They are more related to particular surveys, and they have a tendency to be around 4 months, 90 days of operations for some standby. So all in all, maybe 4 to 5 months of duration, all in all. These are more complex projects were involved, a lot of operational issues that need to be cleared. So the total duration of 2D, one thing is the acquisition period as such, but there's always periods of mobilization and getting the survey on the road.

Okay. And Stale, there's a question for you. In the beginning, you talked about several transactions in the market that has been done for a similar vessel as we have. And the question is really, are these comparable vessels to SeaBird? And what price range are you referring to? And I guess that also ties up to the question about why do you think your share price is not reflecting the vessel transactions really. So maybe for these 2 questions, you can shoot at it.

Yes. So okay. So there has been some transactions done. That's right. Second -- I would say, from this spring, it started to become a quite lively market if you look at comparative -- comparable vessels. So I just need to add a little bit there. One transaction that's been done, we think is -- has been done for strategic reasons. It's out of the industry. We are a bit puzzled about the transaction done because we think we could have given owner and even better return. But that's a different issue. What we are learning now and the latest the pure sort of S&P transactions that are taking place now, these are not confirmed transactions, but these are vessels that we have been closely involved with in order to execute on our Flex strategy. And we have been told that the vessels are no longer available to us, and we have also an understanding of the price there. I think until these transactions have been concluded, it's not our job to bring out the numbers there. But I think what's important here, the essence here is that these prices are so far away from what our own vessels implicit their price in the market. That is just not possible for us to compete. Our strategy, of course, is to charter in. But even if you convert it a bareboat charter, it is just not possible to compete. And then we need to -- we are thinking about generating as much value as we can for our shareholders. And then that is just a data point that convinces us that buying back our shares or dividending out our cash, and at today's prices, buyback our shares is the most value accretive to our shareholders.

Good. And then there is a couple of questions on the financials around it. So first of all, about loss carried forward. SeaBird has a substantial loss carried forward in the Norwegian entities and some of the international entities as well. So we do not foresee that we are getting into our tax position anytime soon. That said, we are also optimizing our tax strategy here. And so these are like -- two points of the same question is that we are optimizing how the taxes are done, and we have loss carried forward. So should not expect any tax cost anytime soon. And then -- and there was a question about the $2 million we talked about that will come in, in Q3. And the question is, this is related to Q2 activity, why is it not booked in Q2? And the reason is that we haven't fully completed the project. So we need to finalize the financials for the project, and then we are in a position to book the cost. So that are -- we are doing that now and will be recorded in Q3. And then maybe a question on the distribution again. And I'll pass this on to you, Stale. There is a couple of questions about what kind of risks are associated with that and the potential size of the distribution.

Right. So on the latter, the size of the distribution, I think we -- or I said in the initial remarks that we're looking at sizable distributions relative to our market value. The exact size of it, I think, is a little bit too early to say this is simply just to do with uncertain about -- uncertainty is about the exact dates for releasing the revenue receivables and also new contract for Eagle when that starts, et cetera. So the exact size on it, we will get back to. And yes, so the specifics there in terms of how this will happen, any split between buybacks or dividends and the exact size, we will release more information in due time when we have the exact visibility on that. The risks to the dividend, I still can't see much actually other than the normal -- or what I just talked about, timing of the revenue receivables and also the normal issues around operational performance. Of course, that will impact the size of the dividend. But other than that, it looks -- yes, it looks pretty clear from the cash flow that we have already -- the cash we have already earned and the long-term cash flow that we have coming in. So it's -- should be -- yes, should -- I don't think there is that much risk to it.

Okay. And then a couple of questions about the net interest-bearing debt slide I showed earlier. So just to be clear that the equipment financing facility, which we included as net interest-bearing debt as of Q2, that was included on the balance sheet from the end of 2021. But as the slide laid out, this was included under other payables, but has been restated now as the agreement was finalized as an interest-bearing facility. And for illustrative purposes, I have restated net interest-bearing debt slide so to reflect this equipment financing back to the end of 2021. And that's the discrepancy of which there was a couple of questions with that. The Q1 net debt was $12.5 million. And if you add this, it becomes $15 million, as shown in the graph. And I think already covered what this facility includes. And just to repeat, it's equipment, which was both -- relates when we did the upgrade on Fulmar in 2021 and 2022. Also, there was a couple of questions about our book values for the vessels. And the question is within oil service, vessel values have typically increased 50% to 100% last year. Will SeaBird consider to write up its vessel values? This is always a discussion with our auditors and everything. We had a good impairment test during the latest annual report. There was no question about the values on our balance sheet. And of course, this is a discussion going forward. We see that our market price for the vessels are far higher. But as of now, we are depreciating it as we have done going forward. But there always something, which will come up as a discussion. Then I think there is a couple of questions about consolidation. You touched upon it, Stale, but maybe do you want to elaborate a bit more on the consolidation topic?

Yes. Well, so I can say we are -- we've said this over a few quarters. So -- and certainly, things have happened. As most people know, there was a bid for the whole company a little bit over a year ago that failed for reasons outside of the buyers and the sellers control. So yes, so things have happened and they are certainly happening there. And I will also talk about the vessel transactions, which in support of this. So -- and we are here, we are open for business. We are in all these type of discussions. We are having the interest of our shareholders in mind, and that means that we are quite restrictive in terms of how a deal would be done and both, I would say, structurally and of course, in terms of values. So it's not straightforward. So I think -- but the way I think -- I'd like to conclude on it is that we think the market would do well to be further consolidated. We think there are large synergies to be taken out from such consolidation. We are the only listed player in this industry. And we think we are the best platform to consolidate from. And we'll do our best to do value-accretive transactions on that note.

Thank you. And then one more question on the debt facility we recently refinanced. The facility is expiring in 2026. It bears a quarterly repayment profile of $700,000 per quarter. And then Finn Atle, there is a question, I don't know if we don't have disclosed this earlier and probably not going to do it now. But can you elaborate a bit of the contract value for the 2-year contract we recently announced on Fulmar?

No, for various reasons, I'm not able to sort of give exact numbers. What I can say, it's in -- within the range of what we've guided earlier in terms of our expected rate levels going forward. Obviously, now with the general inflation and cost increases, we've had some increased -- marginally increased operational costs. So I think I'll just leave it at that. And then I think you can deduct yourself what the margins are.

And then maybe the last question for the day here, and it goes to you, Stale. We have talked about the Flex charter opportunities for quite some time now. Is there any material changes? And what is the probability to achieve such an added business?

Right. Yes. So we have spoken about -- a little bit about it already. So just let me sum up. So there has been some puzzling -- a couple of puzzling transactions where we think have been value destructive for its owners previously, a few months back. That has reduced the number of available candidates. Then there has been a quite considerable tightening of the market in terms of additional interest on candidates that we have been engaged with to conclude business, but that has happened just recently. And I think there will be -- the values here will be clear to everybody probably before long. So of course, that also takes out available candidates. So to conclude here, the number of available candidates, which you can also see from the slide, by the way, that Finn Atle showed on the supply side and quite dramatic reduction. We're talking about more than 60%, actually now almost 70% only in a few years, reduced -- reduction in available vessels in this segment. So because -- of course, because of that, the tighter market, it means that it is less available candidates. We're still looking and hoping to conclude. But there are less available candidates, and the pricing is differ. So that means we need to do more work and get our clients with us on the other side to conclude business that is attractive to us. If not, we want it. So it needs to be meaningfully accretive before we go ahead with it. Let me just comment one other thing because a sharply tightening market is -- of course, if you're looking for vessels who want to add vessels, that's not good news. So in terms of the number of vessels, it makes a little bit harder for us, but don't forget that there is another side of this equation and that is the pricing of our existing vessels. And for those who have been following us for some time, you will remember our slide showing the illustrative EBITDA. I can say that we are now concluding business on our wholly owned capacity that takes the company EBITDA up to a level where we were hoping to be including one Flex chartered capacity. So there's 2 sides of this equation. And of course, we're very pleased to see tighter market and better profitability on the capacity that we have. We just need to work to say a little bit outside of the beaten path, a little bit smarter and be a little bit -- yes, more creative to try to conclude business then on Flex capacity.

Good. There was 2 more questions coming in here at the end. So I just throw them out as well, and then we will conclude the call. So first, what was the reason that you put your Q2 to report forward? That goes for you, Stale.

The reason we put Q2 report forward is simply that we saw that we had the numbers ready and also we actually got some practical internal things for us that made it more convenient to do it this week than the next week. Nothing over and above that. But having the information at hand and we -- and in particular, the information on that is easy to see that the company is starting to amass a certain amount of cash. We felt there was no reason to be delaying the report.

Yes. And the last one for you, Finn Atle. How many players are competing in the vessel market for 2D and source?

Good question. For source vessel providers, there are 3. In the 2D market, well, it's difficult to answer really because any 3D vessels is also a potential 2D vessel and I guess also there are also potential source vessels. So it's all sort of interlinked in that regard. Obviously, if you have a 3D vessel fully equipped for 3D streamer operations, you don't want to go down to 2D or source work because it will run around good economics with all our assets onboard. So pure 2D players, I don't know, maybe -- I mean, there are some 2D players in Russia, but currently, they're not operating in the international market. So when they are out of the equation, I would say, maybe 2 or 3 players in the 2D market. And then obviously, the 3D operators are sort of time to time providing to deploy as a part for 3D scope. There might be portions that are as 2D work. Pure 2D work is becoming rarely for the 3D operators and would become more rare in the future, I believe.

Okay. Thank you. So this concludes the second quarter and half year report and presentation for SeaBird Exploration. Thank you all for your time.