Ventura Offshore Holding Ltd. (VTURA) Earnings Call Transcript & Summary

Good morning, good afternoon, and welcome to Ventura Offshore's Q3 2024 Earnings Call. My name is Guilherme Coelho. I'm the CEO of Ventura Offshore, and I would like to thank you all for joining us today. Before we start to go through our quarterly results, I'd like to take this opportunity to express my gratitude to our teams offshore and onshore for their dedication and hard work, which is really what allowed us to present the solid results that we achieved yet again this quarter. And also to thank our shareholders, partners and customers for their continued trust in Ventura Offshore. Joining me today are Marcelo Issa, our CFO; Gunnar Eliassen, our Chairperson; and Olav Hamre, our financial adviser, and we'll provide you an overview of our performance between July and September this year. And at the end, we'll open for questions. [Operator Instructions] And at the end of the session, we're going to go through the questions and answer them to the best we can. Okay. Thank you. Can we move on to the next one, please. Yes. So that's our standard disclaimer. Okay. So starting off and just before I talk about our main highlights, just a quick reminder about our fleet status. So as you guys know, we have 4 units, both Carolina and Victoria, both are operating for Petrobras in Brazil until mid-2026. The Catarina is on a 4-well firm plus 4 optional well-based contract for ENI in Indonesia. And our managed rig, Zonda, I'm happy to announce that it has just arrived in Brazil yesterday on the 28th. It is now in Brazilian waters to start the acceptance tests and then her 3-year contract with Petrobras with an option for additional 3 years. So basically, full utilization, all rigs under contract until 2026 and beyond, assuming the optional wells on the Catarina are exercised. Now diving into the key highlights of this quarter. In Q3, Ventura Offshore has delivered a strong operational result with no recordable incidents remembering that safety is our #1 core value and a technical uptime of 97% and a financial uptime of 93.6% for the 3 units in operation, Carolina, Victoria and the Catarina. We delivered an adjusted EBITDA of $21.4 million and a net income of $26.3 million. We received approximately $5 million of reimbursement from Petrobras for the costs incurred to clean the Carolina and the Victoria halls from the [ Coral Sal. ] That's a barnacle that we clean, [indiscernible] $8 million and a backlog of $401 million which includes the expected on the management fee. And also, as we formed -- already formed our subsequent events in our latest earnings call, we can now inform that we have successfully completed the acquisition of the semi Catarina. We have concluded a raising of $105 million to finance the acquisition of the Catarina through a tap issue of the bond loan for $55 million and $50 million in gross proceeds through a private placement of common shares. And the Catarina commenced this 12-based contract with ENI Indonesia. Again, it's 4 wells firm and 4 optional wells. So a very solid result for the company. We're very happy with the results for this quarter. And I'll now hand over to Marcelo Issa, Ventura Offshore's CFO, who will cover the financial highlights for the third quarter of 2024. Marcelo? Now next slide, please. Marcelo, we can't hear you. Sorry, a small technical issue here. So Marcelo is going to be joining us momentarily.

Hello, can you hear me. Okay. Sorry, guys, I have some Internet problems. Thank you, Guilherme, and thanks to everyone for joining Ventura earnings call. In Q3, Ventura generated the total adjusted revenue of $51.2 million, broken down as $48 million related to the operating activities of our 3 owned drilling rigs, $1.4 million of recognized mobilization fee for Catarina under ENI contract and $1.8 million in managed fees for Zonda and Catarina. The income statement shows $85.6 million in revenues, but it's worth highlighting that this includes $20.9 million from the amortization of nonfavorable contracts, liabilities that is a noncash item and $13.3 million as a reimbursement of expenses for the management vessels. Ventura remains committed to keeping OpEx low. The total OpEx for third Q was $24.9 million, averaging $109,000 per day, including in this number ancillary services provided to ENI in Indonesia. The SG&A for the quarter totaled $4.9 million. Consequently, the adjusted EBITDA for the period stands at $21.4 million, as mentioned by Guilherme in this presentation. The final cash position in Q3 is $39.8 million. The gross interest-bearing debit in Q3 is $195 million, which includes $185 million under the existing bond loan. The increase is due to a $55 million bond tap to finance the acquisition of SSV Catarina and $9.9 million drawn under the RCF to cover the cash collateral for the performance bond under the ENI contract. Can we go to the other slide, please? Okay. So as mentioned, the liquidity for the quarter stands at $39.8 million and restricted cash amounting $11.8 million. The accounts receivable includes $22.4 million related to ENI contract to be received in Q4. The prepaid expenses of $20 million includes $9.5 million in cash collateral for the performance bond tied to the ENI contract. The intangible assets related to the customer relationships for third parties owned vessels saw an amortization of $1.8 million driven by Catarina acquisition. SSV Catarina was added to the vessels and equipment at a value of $124 million, comprising in $107 million for payment in cash and company shares, including rig transportation and $17.3 million in the earn-out mechanism. As mentioned earlier, the unfavorable contract liability was amortized by $22.9 million, leaving a remaining balance of $141 million. As mentioned, the total debt increased due to 55 bond tap to finance the acquisition of Catarina and $9.9 million was drawn from the RCF to cover the cash collateral for the performance bond under the ENI contract. The increase in equity reflects the shares offer in July and $5 million issued as part of the payment for Catarina. I will now hand it back to Guilherme for some market highlights. Thank you.

Thanks, Marcelo. And sorry, guys, for a small technical glitch here, but resolved now. Okay. So I'm just going to quickly cover the general market conditions and then focus a bit more on Brazil. And I guess the first comment and you probably agree, oil and gas remain essential in the foreseeable future. We're seeing some headwinds for offshore drillers worldwide, but at the same time, we feel the fundamentals haven't changed. There is a strong market for offshore drilling industry. And I guess the upstream expenditures and global floater demand forecasted here in this graph that you see confirm that. Ultimately, regardless of temporary air gaps, bottom line is that without new investments in E&P, the global oil supply will drop significantly, while the demand remains strong. So again, fundamentals haven't changed, but it is a fact that we're seeing some headwinds and you're probably hearing that from our competitors, mostly the international drillers. But if I move to the next slide, I can talk a little bit about the Brazil and the situation in Brazil is slightly different from what we're seeing abroad. Petrobras remains with a very strong demand for rigs. Until very recently, they were in the market for up to 10 rigs. And you see them on the left side. 2 for the Roncador field, which have already been awarded and contracts signed. 3 for Sepia, Atapu, which are in the final stages of internal approvals and having contracts awarded, 1 jackup that is ongoing, tenders due now mid-December on the 13 and up to 4 rigs for what is called the rig pool tender. On this rig pool tender, just as recent as this Monday, 3 days ago, Petrobras released the final ranking with 3 rigs selected for the next phase of the tendering process. So it continues pretty strong demand in 9 rigs despite this recent reduction in 1 rig selected in this rig pool tender. I think, and probably I'm pretty sure there will be some questions about this, but just -- I mean it's not the first time that Petrobras goes to the market with uptune and they select 1 rig less and they reserve the right to ask for the additional rig, okay? Just in 2022 that happened. For those of you following the market, you might remember that 8 Rig Tender that Petrobras had 2022 up to 8 rigs, they selected 7. And 2 months later, they selected -- they invited the eighth rig to participate and awarded them a contract for the Valaris rig. Coincidentally, it was also Valaris rig. I'm not saying this is going to happen this time. We do not know. All I'm saying is that this is not uncommon. Okay. And I mean -- and I'm saying that the strong -- the demand will continue to be strong and why do we believe that? I think the main reason is in the figure right in the middle there when you compare the rig -- the Brazil rig demand, which are the green bars and the number of contracted rigs by year. And this is the -- it used to be the yellow line, now it is the dark green line because we've updated it to reflect the Roncador contracts, okay? What's not reflected here, Sepia and the Rig Tender pole because those contracts have not been awarded yet. But I guess the important thing is you see the gap, right? The gap between the green bar and the dark green line. And the gap is widening in '26 and even more so in '27. And it has to be closed if Petrobras intends to keep key fields such as Buzios being served by drilling rigs. I think Buzios is actually a very good example of this because you guys know, Buzios is the most prolific field in Petrobras this year, they've completed the first billion barrels of production since first oil just 6 years ago and they expect to have 1.5 billion barrels -- 1.5 million barrels per day on this field by 2027, right? So it's a huge field. And today, there are 6 rigs dedicated to Buzios. And by '26, all of those 6 rigs will have run out of contract. Okay. And that's exactly, by the way, when the contracts for our own Carolina and Victoria will run out, both are in Buzios, okay? So Petrobras will need to keep going to the market to reduce that gap and favoring therefore, the recontracting of rigs in Brazil. That's why we remain so optimistic about the recontracting. Next slide, please. And I think this optimism is underscored by this very recent 5-year plan announced by Petrobras just last week. The conference call was on Friday. An overall 8% increase in total expenditures and 5% in the exploration and production expenditures compared to the previous 5-year plan. $77 billion dedicated to E&P. But to be honest, more importantly than that is the fact that this is distributed evenly between '25 and '29. So it's showing the steadiness of Petrobras plants, and it does give you the advantage of the medium long-term visibility of their needs. We're not seeing peaks and valleys. We're seeing a steady growth strategy by Petrobras. Part of their presentation shows the importance of replenishing or replacing their reserves. So Petrobras has a lot of wells to drill. That's kind of the -- ultimately, that's what it is. They have over 100 expected development wells to be drilled by the end of 2026. And between '24, we're already at the end of '24, but between this year and '28, Petrobras plans to drill 335 development wells and performed workovers in 238 wells. [ PMA ] is also huge. They account for more than 500 wells across various water depths, requiring different types of rigs. I mean I've just mentioned to you, they have the standard for a jackup. It's going to be the second jackup. They've already contracted the jackup from Borr that at this will operate. So there is -- this is also confirmed that there is -- there remains a strong demand for rigs in country in the foreseeable future. Next slide, please. And I think that leads the Petrobras exploratory program, which for me is the biggest swing factor in all of the offshore rig demand in Brazil. Petrobras has allocated -- will allocate $7.1 billion to drill 51 wells between now and 2029. But quite frankly, more important than the number of wells or even the amount that's going to be dedicated to this is the potential of the basins where these wells will be drilled. And I'm going to kind of focus on the 2 extremes of the figure you see there up in the north. That's what we call the equatorial margin. The neighboring countries there are French Guiana, Suriname and Guyana. And the belief is the geology is the same. So the 11 billion barrels of reserves that you see in Vienna, the chance of them replicating in our part of the frontier are very high. And by the way, geographically speaking, you can see 3 Guianas there. Not saying it's 33 billion. What I'm saying is that it's a lot of places to drill. So out of this big area in the northern part of Brazil, Petrobras was able only to drill 2 exploratory wells in the southern part of it in the Potiguar Basin with 2 significant discoveries, Pitu Oeste, Anhangá wells. And the expectation is that the -- actually, the big lorry price is further north in the Amapá area, which is the kind of the dot further up on the figure. Now Petrobras is still encountering some challenges to get environmental licenses, but it's not over. Recently, the Ibama asked for additional information and Petrobras is working on that. So to be honest, for me, it's not a question of if the license will be granted, it's more of a question of when. And when they do, and confirming big discoveries, which we do not know for a fact, but there is highest expectations of that, then I think that's going to impact tremendously the need for rigs in the future. And the second one that I'd like to call your attention to is the one on the very bottom part of the figure, Pelotas basin, that's the southern part of Brazil. And here, the attractivity is the belief that this is the geological mirror of Namibia. Namibia, as you know, is the hottest sport for offshore drilling in West Africa. And there is a belief, again, that you have the same geology. So the close to 11 billion barrels of reserves that are being announced in Namibia, you can see some of that also in the southern part of Brazil. Now Petrobras in their expected number of rigs, they do factor in the 51 exploratory wells. What they do not factor in is development wells in case they are successful. And that could have a tremendous impact in the rig demand in Brazil for the future. Next slide, please. Okay. So just a quick word on the Southeast Asia market, where the Catarina is operating right now. And we're seeing quite a few opportunities already out or to be announced. I mean if you look at Indonesia particularly, ENI has announced the approval of their POD, their plan of development for several key offshore areas in Indonesia, reforcing its commitment to develop this country as a major energy hub for them in Asia. And so besides our current campaign, ENI has also long-term deepwater projects, and you see them on the screen. Now we're seeing opportunities in Timor-Leste, Malaysia and ONGC is expected to come with a possible 3 rig demand in the future. So we continue to follow up this market very closely. We have our 4 firm wells with ENI that should take us to mid '25. The 4 auction wells have not yet been exercised. I know there has been some discussion about 2 having been exercised. They have not yet been exercised. ENI has until 60 days prior to the end of the contract to exercise the wells. But based on what we're hearing and seeing and talking to them, informally, again, nothing official, we are very optimistic that we should keep this rig operating for ENI in Indonesia until '26. Next one, please. Okay. So basically, in summary, we like to see ourselves as a very well-positioned local player in the most active market in the ultra deepwater in the world, and still having an important footprint with international presence in Southeast Asia. We have a very long-standing and strong relationship with Petrobras, the main oil company or the main client, if you will, if you're in deepwater drilling. And this relationship and reputation built over 27 years that we've been working in Brazil. We have workhorse rigs fit for the Brazilian demand and becoming available as the contracted rig supplied will start reducing Brazil. And also, we have a scalable platform to take on growth opportunities, as you've just seen with the Catarina and industry-leading cost structure. Again, you've heard it from Marcelo, you've seen in our numbers. So Ventura continues to be very well positioned to secure additional backlog for our units, offering attractive recontracting economics. With that, I close our presentation, and we will open for questions.

[Operator Instructions] So we have one question so far. I'll read it out. You write in the report that the Sepia and Atapu tender is in the final approval phase internally within Petrobras. Are you able to give some color on when you think the results will be announced? And do you think you are well positioned for a contract. Another question exactly about that. So yes. So basically, we expect that now in December, first half of December, it could lead to the second half, but I think we're optimistic that the first half of December, Petrobras will be able to announce the results. We are participating out of those 9 rig opportunities I mentioned earlier. They were all aimed at rigs commencing the contract between '25, first half of -- second half of '25 and first quarter of '26. So outside the commencement period for our own rigs, except for one slot in the Sepia, Atapu and we are participating. We're optimistic. But of course, there are other competitors also looking for that same spot. But hopefully, within the next couple of weeks, 3 weeks, we should be able to announce or Petrobras will be able to announce the results. And if we win, we should be able to announce a new contract, but that really is going to depend on the results. When do you expect the next tender from Petrobras? Well, I think early next year. That would be our expectation that if you talk to some people, they are some more optimistic that would say late this year. But I think with the jackup tender, there's just a lot happening. I don't see Petrobras had enough arms to get to the next tender this year. But I think we can be fairly comfortable that by Q1 next year, we'll see a next tender coming up. Again, I mentioned about the gap between the contracted rigs and the rig needs from Petrobras. So the next tender should be out soon. They've already filled the gap for rigs running out of contract up until Q1. Now they're going to be looking at filling the gap from Q2 '26 onwards. Next question, what do you think drives your much lower daily OpEx versus other floater operators. What do you think this cost level will evolve? How do you think this cost level will evolve going forward? So there are a few components here, and I've mentioned this before and what drives our much lower OpEx. One is we're highly nationalized and I'll give you the Zonda as an example. We just crewed up this rig, rig arrived in Brazil yesterday, and we're looking at a 100% Brazilian crew for a seven-generation dual-activity rig just crewed up, right? And that makes a big difference. A second difference, and I'm sure you hear this from everybody, but I mean, I've been in other places. And I can tell you here, it is a fact is the cost control culture in this company is part of the DNA of Ventura Offshore. You never take your first quote as your last one. There's always room to negotiate to try to find alternatives and everybody here takes this extremely, extremely seriously and that makes more of a difference than you can imagine at the end of the day. So -- and this is something that I take no credit for. This is something that was built by the founders of the company, and it's something that we like and we do not change. And also, we also have a very strong engineering department. So very, very strong despite us being a small company, the level of competency and excellence in our engineering department is second to none and they're able to do a lot of things internally that others probably are forced to outsource. So I think these will be 3 main aspects I would mention. Could you explain how the sixth-generation rig market is different in Brazil compared to worldwide seeing a preference for 7Gs? Yes, we were seeing that bifurcation quite clearly outside of Brazil, that is happening. In Brazil, that is not the case directly, okay? And I'll explain that. So I talked about the Buzios field being the most prolific and one of the most challenging fields in Brazil, right? And this is where Petrobras decided to place both our sixth-generation rigs, both the Carolina and the Victoria. Those rigs are contracted in the pool process, so they could have been taken anywhere in the different blocks that Petrobras has and they opted to put those rigs in Buzios because they are capable of drilling there. And they are, by the way, very well as it seems from our financial results. So first is for the Brazilian conditions, those rigs, they can face any operational challenges that the Brazilian environment offers. That's number one. And the second thing is Petrobras is a very smart way of leveling the playing field. When they go out to the market, what they do is they ask you to tell if your rig is a single activity rig off-line activity rig or a full-blown dual activity rig and they add a discount factor, okay? So that kind of varies. But generally speaking, it's a 0.9 if your offline activity and 0.85 if you're single activity. And then what they do is they just apply that factor, and they look at the best economic offer, right? So it might be the seven-generation rig full dual activity will be the lowest bidder even if they offer a highest rate than my rig, which is a single activity rig. And that happens why because they apply this discount factor. So it's a very smart way of leveling the playing field. They put in the efficiencies embedded as part of this discount factor. And by this, we all compete in the same ground, okay? So again, we do not see that bifurcation as we are seeing abroad in Brazil because you do not need that and Petrobras, they are able to factor in the additional efficiency factors on the day rate. Do you receive any performance-based bonuses that you record in revenue? No, our contracts have no performance-based bonuses. Except for -- I'm sorry, the diesel, okay? There is a possibility of earning some bonuses if you use less diesel than what's in the contract. And the Carolina, she does achieve that, okay? We have not yet received because it's on an annual basis, okay? So you're going to see that for Q4. What do you think of the Petrobras expectation of the rig demand between 25 to 30? Yes, it's written 20, but between 25 to 30 rigs given that there are 33 rigs in Brazil. I mean a couple of comments here. First is we see 25 as a very challenging for Petrobras to be able to cope with their whole program. I think their number is probably more towards the 30 than the 25. And you're right, there are 33 rigs in Brazil. But out of the 33, bear in mind, one is a jackup. And a couple of those, they are more rigs. I'm not sure with Petrobras is considering the shallow water rigs here. But at the end of the day when you look at the market historically, every time there has been a reduction in operations in Brazil and the reduction in the number of rigs, the Brazilian drilling contractors remain with all the rigs operating and the international written contractors were the ones who suffered the blow. I'm not sure there will be a blow here. I'm actually confident that we are in a good balance of number of rigs -- in number of rigs in country and the number of Petrobras needs. But if there is a factor that somebody might -- one or two rigs might be out of contract. I mean, I just look at it we see historically, right? If you go back to 2021, Transocean had 2 rigs. Now they have 6. Valaris had no rigs. Now they have 4. Seadrill had 3 rigs, now they have 6. Novo had no rigs, now they have 1, actually 2 with the diamond rig as well. And Ventura was full utilization, foresee full utilization, constellation to utilization. So if that happens, I'm not very concerned that this is going to impact us as Ventura Offshore, okay? So I hope that answers your questions. That was -- yes, no, that is -- that was the last question. So maybe I'll give you another minute if there are any further questions or follow-up from some of the answers given. Yes. No. So that was the last question. So with that, we close our earnings call. I'd like to yet again thank you for your attendance and your interest in Ventura Offshore. We talk again in 3 months' time. Thank you. Have a good day.