SeaBird Exploration Plc (SBX) Earnings Call Transcript & Summary

Good morning, and welcome to SeaBird Exploration's Fourth Quarter Presentation for the year of 2023. We are today represented by our Executive Chairman, Stale Rodahl, who will give us today's closing remarks; our CFO, Sveinung Alvestad; and myself, Finn Atle Hamre, the CEO. Next slide, please. SeaBird Exploration in brief. We provide marine seismic acquisition with the current fleet of 2 vessels, both are 100% owned by SeaBird Exploration. The Eagle Explorer is currently equipped to perform 2D streamer acquisition and source services. Currently, the vessel is demobilizing from a 2D project now currently and will be returning to Singapore soon. The Fulmar Explorer is equipped for seismic source services and currently engaged on a 2-year contract in the Gulf of Mexico. In addition, we have seismic equipment to rig chartered vessels, which again, enables SeaBird to, relatively quickly, increase its fleet. Next, please. Key events, fourth quarter. High utilization for all practical purposes, full utilization accounting for the cross docking and special periodic survey on the Eagle Explorer in October, November this quarter. Eagle Explorer completed its source project early October, started dry-docking and 5 yearly SPS directly thereafter and started a 2D project directly after the dry-docking completion. Fulmar Explorer commenced a 2-year contract in the Gulf of Mexico in September and continued that contract throughout the fourth quarter. Operational EBITDA for the quarter, $1.7 million, cash at quarter end, just shy of $2.2 million. And we are today happy to announce a proposed dividend of NOK 0.25 per share. Next, please. Contract coverage and backlog. Ongoing operations on our backlog for both Fulmar and Eagle currently. We expect the Eagle to be deemed globalized from current contract towards the end of February. Thereafter, we will keep vessel in warm stack in anticipation of future work in the Asia-Pacific region. We are working on several leads and are confident that we will secure something in the future. Fulmar Explorer continues her 2-year contracts. Outlook, delivering on our backlog, coupled with leads for both 2D and source work. More on utilization. Historical utilization in numbers. You will notice from this slide full utilization for the entire year of 2023, which is somewhat affected by the planned 5 yearly dry-docking. Next scheduled SPS for our fleet is the Fulmar Explorer in 2026. Next slide, please. A few words on the market and in the ocean bottom node market in particular. The ocean bottom node market is gaining market share of the total seismic market over the last few years, and we expect this to continue to grow at a sustainable level. The driver of OBN market is the infrastructure-led exploration, short -- ILX for short, where exploration and production companies are looking for ways to improve resource recovery on existing infrastructure, which is achieved by OBN superior image quality compared to conventional streamer technology. The volume of OBN projects is increasing and more and more baseline surveys are being done, which would strengthen this market going forward. For this market, SeaBird today delivers source versus, i.e., vessel seismic equipment, crude and related competencies. In addition, we expect a general increase in the seismic market to cover the gap between current oil and gas consumption and the new oil and gas discoveries over the past decade. This is a structural growth in the market that we expect will occur over the next year -- over the coming year or the next years going forward. Next slide, please. The source fleet. In brief, no significant changes. A few vessels have been taken out of a layup, others have been going into layup, so most streamer vessels have been taken out of the potential source market. So all in all, the market remains more or less stable. Also, we believe the influx of new vessels into this market is not going to happen anytime soon. I think there's going to be a steady increase, coupled with the seismic market in general. Then I will hand it over to Sveinung to give us the fourth quarter financials.

Okay. Thank you, Finn Atle. Now turning to the financials. Revenues for Q4 was $8.5 million, down slightly from $8.9 million in the prior year quarter. Revenues for the full year 2023 was $34.6 million, substantially up from $20.2 million in '22. Reported EBITDA for the quarter was negative $0.0 million while operational EBITDA was $1.7 million. The one-offs in the EBITDA includes a $500,000 loss related to a settlement of an insurance case for the Eagle Explorer that dates to an occurrence in 2021 and $1.5 million in legal provision relating to an adverse arbitration rulings against 2 nonactive subsidiaries. It is, however, too early to conclude on the final impact of this to the group, but we expect a limited cash effect from this. The Q4 net loss (sic) [ profit ] was $2.7 million, up from a loss of $3.8 million in the same period in 2022. Net profit for the full year 2023 was $6.8 million, up from a loss of $12.9 million in '22. Cash flow from operations was $0.8 million while net cash flow after CapEx and debt services was negative $2.0 million. Net interest-bearing debt at year-end was $13.9 million, and the equity ratio was 52%. Now looking forward, we continue to see SG&A in the range of $3.5 million to $4 million with quarterly fluctuation. The SG&A for 2023 was $3.7 million. We will continue to have a strong focus on working capital, and we are actively working to convert it to cash continuously. Revenues in the quarter was $8.5 million, resulting in the full year revenue of $34.6 million. The strong revenue for the quarter was despite Eagle's utilization of 56% due to the planned 5-year SPS classing. The Fulmar Explorer had close to 100% utilization for the quarter. The underlying EBITDA for the quarter was $1.7 million and $12.7 million for the full year. This is a level not seen by the company since the downturn hit the oil and gas industry back in 2016, and when SeaBird operated considerably more vessels. A full overview of the adjustments to the EBITDA is enclosed in the appendix of this presentation. SG&A for the quarter was $1.2 million and $3.7 million for the full year. And as I said earlier, the SG&A is expected to range between $3.5 million and $4 million on an annualized basis. Now to the cash flow. As you can see from the chart, Seabird started the quarter with a cash balance of $4.1 million. Operating cash flow was $0.8 million and the lion's share of the capital expenditure this quarter was related to the SPS of the Eagle Explorer, which was completed in early November. Furthermore, we repaid debt of $700,000 and we paid interest of around $500,000 during the quarter. Quarterly debt service cost is expected to be around $1.2 million going forward. All of this leaves us at a net cash outflow for the quarter at $2 million and a cash balance at year-end of $2.2 million. The net interest-bearing debt at the end of 2023 was $13.9 million, where the gross debt stands at $16 million. The debt comprises of $13.5 million of bank financing and $2.6 million in interest-bearing equipment financing, a level which have been reduced about 30% since the start of '22. Furthermore, we have reduced our net interest-bearing debt by $10.1 million since the start of '22 or around 40%. The majority -- the maturity of the bank financing facilities is in mid-2026 and the loan has a quarterly installment of around $700,000. The company is in compliance with all its bank covenants. With that, I'll leave the word back to you, Stale, for closing remarks.

Thank you, Sveinung. We can -- first, we can look at the dividend proposed. And as Finn Atle said, we are really pleased to propose this cash dividend of NOK 0.25 per share, leaving as we see it in terms of cash flow and cash balance, ample room for further dividends later in the year. Key details on the dividend. AGM is on the 6th of June, and the last day of trading, including dividend, is the 7th of June then. As we have said previously, the focus for this company is on generating cash and in particular free cash flow to equity, and the Board of Directors aim to distribute excess cash to shareholders through dividends on a quarterly basis, maintaining a solid financial position, of course. Next, please. If you look at the dividend capacity of the company, I just want to tie this back to Finn Atle's comment on the OBN market. The OBN market, I mean, there are many things that can be said about the seismic market overall. And of course, there are uncertainties, and we're seeing some changes, maybe little bit on business models, in particular on streamers. But one thing that appears very clear to us is that the structural growth that we've seen in OBN and ocean bottom seismic will continue, and it will continue for many years going into the future. And based on this belief, we have positioned the company in this segment as -- we see as the far most attractive segment in the seismic market. And what this slide tries to do is to put some numbers on the dividend capacity of the company than providing or given certain assumptions on utilization and day rate levels. I want to draw your attention to the second column. We, of course, have finalized the management accounts for January. And I think it's interesting to note, and we would like to share this with you that provided we have both vessels in operation and we have good operational performance, of course, which we have had over many contracts now, the company is able to generate dividend per share if we were to annualize the month of January, would be able to generate a dividend per share of NOK 2.8. Now it's important to note, that provides for full utilization, so no downtime whatsoever and good operational performance. But still, it gives you, I think, a good insight into the earnings capacity and the dividend capacity of this company provided this utilization of our vessels. The columns that you see to the right, 2D with 70% utilization and so on, these 4 columns, they are made on the basis of the following, and that is that -- for the long-term contract on Fulmar, where we have very good visibility on earnings, remains fixed. And then the variables change with the type of work that Eagle would be doing, OBN or 2D, and we have also provided some sensitivities on various levels of utilization, 90% and 70%, respectively. You should note there actually that this is not the high case. As we have proven in the past, the high case is for Eagle to have above 95% utilization. We've proven that in the recent past. And then you have the result in dividend numbers then coming out of that. And provided that Eagle were not to do any more 2D, only OBN and have a low 70% utilization, the dividend capacity of the company provides for a 23% yield on yesterday's share price. The high case would be 90% utilization and all of that in 2D. And that provides for a dividend of NOK 2.7 and resulting yield of around 60%. And I think it's interesting to note that in January, we produced above -- somewhat above the high case of 2D with 90% utilization. Also, you might want to take note, and this is back to the structural growth in OBN, we do continue this to last for many years into the future. And provided that holds true, I think it's interesting to go back to the previous peak in 2013 and the dividend capacity that the company would have, given that the market would go back to those levels. That's -- it's no certainty in that, but at least it gives you some feel for, call it, the capacity of the market. All the other numbers are based on what we see in terms of rate and earnings levels in the market currently. I should emphasize that. So I think that covers it, and we can move on to the next slide, which is the summary. As we have shown, the company continues to show strong operational performance. We see a strong market outlook. The Eagle is, for the first time in quite some time, not going directly to a new contract. We are moving her to Singapore, as Finn Atle said, in anticipation of the new contract, and we'll keep her warm there, and then we will announce, of course, as soon as we have news there. The Board focuses on cash conversion and free cash flow to equity. We are actively monitoring value-accretive opportunities, but those need to be value accretive, and they need to be value accretive on a cash flow per share basis for us to act on it. So happy to announce this NOK 0.25 first cash dividend for SeaBird. And if you add the Green Minerals distribution on top of it, we are -- over the last year, we have distributed about NOK 0.9 per share to our shareholders. And we aim to distribute all excess cash to shareholders through dividends also going forward. And we also have an opening for buybacks pending the share price levels. So we believe we set the company up now with a sound platform for profitability and consolidation. And we believe that this dividend supports that statement. And with that, I hand it over to you -- back to you, Sveinung Alvestad.

Thank you, Stale. I think you will get the first question from me. Obviously a lot of questions about dividend and shareholder distribution. Can you elaborate a bit more about quarterly versus annual dividends and the strategy of the Board there? And also you mentioned share buybacks. What's your considerations around that?

The considerations there is that we will pay out any excess cash on a quarterly basis. We see no reason to keep the cash for a whole year and do annual dividends. So we will make up some pending utilization, which we know that half the capacity of Fulmar is fully utilized up until at least September 2025. And then we'll see about Eagle where we are optimistic. But pending utilization and operational performance on those two vessels, we will distribute cash on a quarterly basis. When it comes to buybacks, we keep that open. We have chosen not to do it this time. And we have said previously that cash dividends is the preferred vehicle for us to allocate capital back to our shareholders. It is simply the best tool for an equal treatment of all shareholders. But buybacks will be considered. So -- yes, so I think I'll leave it at that.

Thank you. I will give you one more question before we turn to Finn Atle, and that's on the consolidation. We have quite a few questions on that, and what do we see in the market? And what kind of discussions is open at the moment? Not easy to answer that one, but at least it gives you an indication of where we want to -- about the question. .

Yes. No, of course, I can't really comment on the last one. What I can say is that we presented a slide at the Pareto Conference last fall, showing the industry structure and the industry players. And we also went through actually the history of M&A in the seismic business. So the overall seismic business is an industry that has been based on M&A. Many small upstarts that have found their home in larger companies, and there are new -- quite a few entities left. When it comes to our end of the market specifically, what we said at the time when we presented this at this conference was that we believe that none of the OBN players today have a sufficient size to operate optimally. So in order to optimize and create efficient and -- to create a sufficiently efficient company in this industry, we believe further consolidation needs to take place on the supply side. So -- and to comment on the various players there, I think is to take it a little bit too far. We're not in a position to do that. But this is something we have been very vocal about. And things take time, obviously, but we continue to pursue that objective.

Thank you. And then to you, Finn Atle. A lot of questions about Eagle, obviously. Can you give some more granularities of the opportunities you are chasing and the discussions you are entertaining?

Yes, we can give a bit more flavor on that. We have, as I said, several leads we're working on. This ranges from 2D leads to source OBN projects, VSP projects. And most likely, the next project is going to be a source project. Some of these 2D projects have a longer lead time and there's more licenses, et cetera, that needs to materialize before we are allowed to start projects. But certainly, there are multiple leads that we are working on, and these are overlapping in start time and duration. So it's interesting to see the number of leads. But timing-wise, it's unfortunate that we have a situation now where we're probably going to be off charter for some time, which -- well, we basically don't tell our clients on when they're ready to start more than anything else.

And can you give any flavors about the levels that you are discussing on rates? Do you see an increasing rate environment for 2024 as well? Or can you give some flavors around that?

I think rates in general are increasing. I see not a lot of pushback on the rates that we are discussing. Obviously, we are all interested in sort of increasing rates substantially. But I can't see rates sort of jumping significantly in the near future, that will have to be a structural growth on budget release from oil companies to sort of initiate such. Right now, it's going to be incremental tied into cost inflation, et cetera, and maybe a bit more.

Yes. And also, can we give some flavors about the third vessel? There is a couple of questions on that.

Yes. Well, I think we alluded to it, at least we mentioned it in our previous quarter report that some of these vessels that we've had our eyes on are no longer available as seismic vessels. They have been taken out of the market altogether. And there are far and few between those that are ready to become a seismic 2D vessel or a source vessel on a prompt notice. And these vessels have also maybe not the technical feature that some of our clients are looking for. So it's a bit of a more -- possible to put these things together than it used to be, but certainly something we have on the agenda and we are discussing with clients.

Thank you. So with that, I think we have answered out all of the questions posted. If there aren't anything more, I will just leave the word back to you, Stale. Yes.

Okay. Thanks, Sveinung. Yes. So I think there were good and relevant questions. So just to wrap it up, a couple of things here that we want to get across. Number one is the start of the cash dividend. And again, this is on top of the Green Minerals dividend that came in the beginning of last year. So over the last -- or based on what we've done over the last year, the company has paid out around NOK 0.9, which is close to 1/3 of the market capitalization of the company, a little bit over a year ago. We, pending the utilization on Eagle, of course, but given what we see in -- as current cash and likely cash flow levels, we believe we have room to continue to distribute dividends further already this year, so in 2024. The OBN market, we really want to emphasize this, is very strong. And we continue -- we see this as a multiyear growth story. OBN used to be 15% of the total seismic market. If you go back to the last peak, i.e. 2014 or thereabouts and it has now grown to around 40% of the total market, and we see OBN continuing to grow. So that is our chosen niche, has proven to be the right strategy and we continue to be very optimistic on that. So with that, we thank you all for your attention, and we'll see you again in 3 months. Thank you.