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

Good morning, good afternoon, and welcome to Ventura Offshore's Q4 2024 Earnings Call. My name is Guilherme Coelho. I'm the CEO of Ventura Offshore, and I'd like to thank you all for joining us today. Joining me are Marcelo Issa, our CFO; Gunnar Eliassen, our Chairperson; and Olav Hamre, our Financial Adviser. And we will provide you an overview of our performance between October and December of last year, an overview of the market. And at the end, we're going to open for questions. Next one, please. Thank you. Yes. You've seen our disclaimer there. So first off, we were very pleased to announce in Q4 of last year the new contract with Petrobras for the drillship Carolina. It is for the Sepia Atapu fields with a firm duration of 910 days with a Petrobras unilateral extension option for additional 305 days and a further 1,215 days possible extension by mutual agreement. This contract added a healthy $363 million in firm backlog, which could go up to $476 million if Petrobras exercises their unilateral option. And this number could go even further up if both parties agrees down the line on a further extension. So theoretically, I mean, this contract will take us to 2029, but could potentially take us all the way to 2033 if all options are exercised, including the mutually agreed ones. Until commencement of this new contract, though, the Carolina and the Victoria continue to operate for Petrobras on the Buzios field until Q2 of 2026. The semisubmersible Catarina is on its 4 firm plus 4 optional well-based contract for ENI in Indonesia. It also has one additional optional well not yet exercised in Vietnam. The current operational developments enhance the visibility of the duration of this contract, and we now see the rig operating throughout 2025, just to complete the 4 firm wells and well into mid-'26, assuming the option wells are exercised, which is our expectation. And by the way, this expectation is now partially confirmed with the receipt just this morning of a communication from ENI advising their intent to exercise the option for the first optional well. The Atlantic Zonda has been successfully mobilized to Brazil and is now in final stages of acceptance with Petrobras to start its 3-year contract with 3 additional optional years if mutually agreed. So this rig will operate until early 2028 with the possibility of going to 2031, if so agreed by both parties. So we have all rigs on contract until 2026 and beyond, well beyond when you look at the Zonda and the Carolina. And this is assuming the option wells on the Catarina exercise, which is our expectation. Okay. Now I'll dive into the key highlights of this quarter. In Q4, Ventura has delivered an adjusted EBITDA of $17.4 million and net income of $23.5 million. Despite some operational challenges that impacted our costs, we maintained our industry-leading cost structure, operating with an average OpEx of $108,000 per day, excluding the ancillary services for Catarina. Those are fully reimbursed by the customer with a markup margin. We closed the quarter with a strong cash position of $46.5 million, and our backlog increased to $708 million with the new contract for the Carolina with Petrobras that I've just mentioned. And also as informed as a subsequent event in our latest earnings call, we have now successfully entered into an agreement with the previous owners of the Catarina to acquire the 17.5% earn-out agreement with them and settle all amounts outstanding for $8 million. This is very accretive for us and just to do a simple math. So basically, Q4, our EBITDA was around $12 million. If you multiply that by 4 quarters in the year, you have $48 million in EBITDA, 17.5% of that is $8 million. Our agreement was for 5 years of earn-out payment. And I think it's fair to say that roughly with 1 year of utilization, this is all paid out and everything on top of that is accretive for us. So very pleased with that transaction. We did have some challenges, however, during Q4 with operations, particularly on the semisubmersible Victoria. We had 2 very relevant downtime events, one related to water ingress in the insert chamber of our KBOS, which required pulling the BOP and the failure of [ pedes ] during the load testing of one of our life boats, which damaged the said lifeboat. So both events, along with other minor occurrences caused a total of 18 days of hire for the Victoria in Q4. The BOP pool and lifeboat events corresponding to about 80% of that. So that did impact our results. And so despite the Carolina and the Catarina operating at around 95% or more in Q4, these events on the Victoria led to an aggregate technical uptime of 90% and financial uptime of 88%, which clearly is not representative of our historical performance. Another relevant subject worth mentioning, which was also a subsequent event that occurred now in 2025 was the order of interdiction issued by the Brazilian oil and gas regulatory agency, ANP, now in January affecting the Carolina. We expect to have this interdiction lifted soon, and we do not expect a major financial impact on the suspension or the financial impact not to be material as we're in ongoing discussions with our customers about this subject. As a final topic before I hand over to Marcelo Issa, I wanted to briefly mention the subject of the notices some of our competitors in Brazil have received on Petrobras claiming penalties in connection with the [ CEI ] rigs drilling contracts. I wanted to clarify that we have not received any notice and we shouldn't because the company from the then Petroserv Group who entered into contracts with Petrobras and [ SEI ] back in 2013 is not part of the current Ventura Offshore Group of companies, okay? So we have not been notified and we should not be for this matter. With that, I'll hand over to Marcelo Issa, who will cover the financial highlights of our fourth quarter of 2024. Marcelo?

Thank you, Guilherme, and thanks to everyone for joining Ventura's earnings call. In Q4, Ventura generated a total adjusted revenue of $60.1 million, broken down as $59.2 million related to the operating activities of our 3 owning drilling rigs and $800,000 in management fees. The income statement reports $96 million in revenues, but it's important to highlight that this includes $22.9 million from the amortization of non-favorable contracts, liabilities and a noncash item and $30 million as reimbursement of expenses for the management vessels. Ventura remains committed to keeping OpEx low. Total OpEx for Q4 was $35 million, including the ancillary services provided to ENI. But excluding these services, the average OpEx amounted to $180,000 per day, as mentioned by Guilherme. The SG&A for the quarter totaled $7.2 million, but the expected recurring G&A per quarter in 2025 is around $5 million. As a result, adjusted EBITDA for the period stands at $17.4 million. The final free cash position in Q4 is $46.5 million, which represents an increase of $6 million compared to the last quarter. There is $12.1 million in restricted cash that includes $10.8 million in cash held on behalf of the owners of the management vessels and $1.3 million as cash collateral for a bond related to the operation in Indonesia. There is also $9.5 million in a time deposit for a performance bond, which is classified under other current assets rather than cash and cash equivalents. The gross interest-bearing debit in Q4 is $185.8 million, including $175 million under the existing bond loan, $10 million was amortized in Q4 and $10.8 million in revolving credit facility. Additionally, as you may aware, another $8 million from the RCF were utilized for the acquisition of the 17.5% of Catarina's profit split in Q1 2025. Next slide, please. Thank you. Well, now looking at the balance sheet. The accounts receivable includes $19.5 million related to ENI contract and $18.6 million to Petrobras. The prepaid expenses of $20 million includes $9.5 million in cash collateral for the performance bond tied to ENI contract. The intangible assets related to customer relationships amount to $12.4 million with the amortization starting in Q1 2025. In Q4, the CapEx was $2.6 million. And the unfavorable contract liability was amortized by $23 million, and the remaining balance is $118 million. I will now hand it back to Guilherme for some marketing highlights. Thank you.

Thanks, Marcelo. Yes. Thank you. I'll now quickly cover the market conditions to focus then in a bit more detail in Brazil. As we all know, there has been a slowdown in demand for offshore services in general as oil companies are balancing expenditures with shareholder returns, capital discipline and supply chain restrictions. This is not news, and you've been hearing this from analysts and certainly from some of our competitors. So a certain flattening of the offshore spending in the short term is expected, but we do see a healthy 4% expected annual growth rate as we look beyond the immediate future. So we remain confident about the global floater demand increasing in the mid- to long term, and the market fundamentals for that are still very present. But if we turn our eyes back to this flattening of expenditures in 2025 and we zoom in, in the numbers, look them up in a bit more detail, you see that it is Petrobras leading the way in the expenditures. If you look at the graph on the right, you see an expected 2.7% increase in offshore spending in 2025. And well, Petrobras is pretty much responsible for that, which gives us offshore drilling companies focused primarily in Brazil, some good comfort even in the current slowdown scenario. And maybe if we now focus a bit more in Brazil, we can explain why this is happening. So next slide, please. Petrobras, they have a business plan. They have their 5-year business plan. We've discussed this in the previous earnings call, and you've seen that in Petrobras presentations. And Petrobras has not deviated from it despite the market conditions. They are executing on this business plan. So their 5-year business plan presented late last year is $77 billion in E&P with about 1,100 wells to be drilled between now and 2029. That's an overall 8% increase in total expenditures and 5% in the exploration production compared to the previous 5-year plan. $77 billion dedicated to E&P, but I guess what I wanted to draw your attention is that these expenditures are distributed evenly between '25 and '29. So for us, as suppliers of Petrobras, we get the advantage of the mid- to long-term visibility on Petrobras needs, right? And you see the well distribution, for instance, by types of drilling, completion, well test, et cetera. If you could move to the next slide, please. So looking at that plan and now focusing on offshore drilling contracts, I think it's fair to say that Petrobras is executing on this business plan. If you just look at the right-hand side -- right-hand side, I'm sorry, of the slide, you see that 8 floaters were awarded contracts just in the second half of last year, 2 for Roncador field, 3 for Sepia Atapu, among which are our own Carolina and 3 for the rig pool. There was also 1 jack-up. These are just floaters on the slide, but there was also one jack-up contract awarded to Tesco, who's operating a bore rig. So this is delivering on the plan. Last quarter, we talked about those 9 rigs. Just the Roncador rigs had been awarded back then and now all of the contracts are signed and awarded. So Petrobras has been very clear about their need of between '25 and '30 rig years. And here, I want to stress the words rig years and not rigs because that's an important distinction, okay? Two rigs, and I'll give an example, 2 rigs starting their contract midyear, for instance, count as just 1 rig year as 6 months for each rig. And bear in mind that in between contracts, there's always some contract preparation time acceptance, and they do not count on your rig year concept. Anyway, Petrobras needs between '25 and '30 rig years per year between now and 2030. And we currently have 30 rigs operating for Petrobras in Brazil. So there is today a very good balance between supply and demand. And even though they are not exact same concepts, as I've just described, what we've done on the graph on your left-hand side is we overlay the number of rigs with contract expiring in the next year over the expected Petrobras rig years. And I feel this gives a pretty decent idea of the number of tenders we should expect for commencement mostly for end of '26 and end of '27, right? So the dark green is the number of rigs with contract expiring on that specific year. And if this overlaying of Petrobras needs versus contracts expiring and the resulting demand gap, it does not give you sufficient comfort about the upcoming Petrobras tenders. I always like to use the Buzios as a good illustration of Petrobras needs. So as you know, Buzios is the most important, most prolific field for Petrobras. They currently have 6 rigs dedicated to this field, our own Victoria and Carolina, the [ Tacatsugu, from Metesco ] and 3 Seadrill rigs. All of those rigs, all of them, actually 5 out of those 6 rigs will have their contract running out in 2026. And 4 of those rigs are already recontracted to different fields, 1 to Roncador, 2 to Sepia Atapu and 1 to the pool. So in other words, by 2026, Buzios field will be left with no dedicated rigs. Of course, in extreme situation, Petrobras could always deploy a couple of rigs from the pool, but that will impact their other developments. So hence, the need for recontracting. Petrobras will need to keep going to the market favoring therefore, in our view, the recontracting of rigs in Brazil. The entry ticket to Brazil, bringing a rig to Brazil is very expensive. So the rigs in Brazil, they do have a significant advantage. So in a nutshell, and based on Petrobras current plans, we do not necessarily see a growing market. Petrobras has indicated that 30 -- between '25 and '30 rig years or 30 rigs is the number that they expect to see going forward. The number of rigs will remain stable, but we do see a lot of contracting activity. And I want to actually reward that from contracting or recontracting activity. Hence, why we're very optimistic about recontracting of the Victoria. With about 11 rigs running out of contract, and I'm just looking at '26, we see sufficient opportunities for the Victoria to get a new contract just like the Carolina did. All that said, one last word about this expected demand of rigs by Petrobras, this famous 25 to 30 rig years. These numbers reflect Petrobras' current needs. And those needs, if they were to change, would be just upwards. And I explain why. I always mentioned Petrobras exploratory program, which remains a big swing factor in this equation here. $7.9 billion to drill 51 wells between now and '29. And now with the very relevant discussions on the political, economic and even social arenas about the need to have the environmental license issued on the Equatorial margin, we expect to see some activity happening up there in Brazil and a successful outcome would mean more rigs will be needed. The other aspect in the number of rigs needed is the number of P&A wells that Petrobras needs to drill, not drill, but to enter. There is an ongoing discussion between ANP and Petrobras about the number of wells that need to be abandoned, and there is a gap between ANP and Petrobras expectations. The rig demand -- in the rig demand graph, Petrobras is reflecting what they believe to be the number of wells they need abandonment. But should ANP get their way, there will be more P&A work and hence, a greater need for rigs. Can we move to the next slide, please? Thank you. So just a quick word on the Southeast Asian market where the Catarina is operating right now. Initially, I wanted to reiterate that we are very happy with the partnership with ENI and the further visibility into the duration of the current contract. The firm wells have our rigs -- our rig likely operating for the remainder of 2025 and the optional wells put us into 2026, Q2 -- around Q2 2026, as already mentioned. And just this morning, we received this communication from ENI advising their intention to exercise the first of the optional wells. And yet again, we are very confident that the other 3 wells will be exercised as well by ENI. They have until 6 months prior to the end of the contract to exercise those wells. So it's not yet time, but they have already exercised one. So we expect to see more of that coming as well. Back to the market, there are quite a few opportunities out or to be announced, but we're seeing quite a few postponements in a few of those opportunities and PTTEP and ONGC are good examples of that. Good news that ENI remains very committed to their plan of development for several key offshore areas in Indonesia as their energy hub in Asia. And we are seeing also a few opportunities in India, such as [ Cairn ] and ONGC that we've been -- I mean, there's -- we've been talking about ONGC for a long time. The market has been talking about ONGC for a long time, but we expect to be out soon. Of course, we remain actively engaged with prospective clients and looking at those opportunities very actively to showcase the Catarina capabilities. Next slide, please. Okay. So in summary, we like to see ourselves as a very well-positioned local player in the most active ultra-deepwater market in the world. I mentioned we're not seeing the Brazilian market necessarily growing, but we're going to see a lot of contracting or recontracting activity. The long-standing and strong relationship with Petrobras is something that we count as an asset for us and our reputation built over the last 27 years. We have workhorse rigs that comply with the Petrobras needs. They work in the most demand field. They are sixth-generation rigs, the Carolina and the Victoria, and they work in the most demanding field for Petrobras Buzios, showing that the bifurcation that we might be seeing some in other parts of the world between 6 and 7 generation rigs is not necessarily a fact in Brazil. Before closing our presentation, I wanted to take a minute to express my gratitude to our teams offshore and onshore for their dedication, hard work and safe operations. It has been a challenging quarter on our operational results, which again, are not representative of our historic performance. But despite that, our teams maintained their focus on safe operations. We delivered 2024 results, safety results better -- significantly better than our 2023 results. And they maintain also the cost discipline, both of which are part of the DNA of this company that make us yet again the company with the best cost structure in the industry. Also wanted to express my appreciation to our shareholders, partners and customers for their continued trust in Ventura Offshore. With that, I close our presentation, and I will open for questions.

Okay. So I have a question. Did you say that the Vietnam option will not be used? No, no. What I said is that we still have that option. Our contract still carries that one option well, and we have not heard from ENI if they will exercise this option. At this stage, we don't think it is likely, but we have not received anything from -- any indication from ENI about exercising this option. There is a question. I think it's -- do you have any access to any new rigs? I think the question is not complete. So whoever wrote this, do you have any -- if you could further explain here? Thank you. Can you offer some more details about why you received the suspension and what makes you confident the impact will be limited? Sure. So the suspension related to an H2S event that occurs -- I mean, occurs on operations. It's something that's not normal. It is something that happens. That's why we have emergency plans. And ANP, they suggested changes to our emergency plan, which are in line with the industry, and they ask for additional requirements that were not required then such as gas dispersion studies. So it's something that we are working on. And that actually explains why we remain confident that the impact is going to be limited because the requirements that we are working or we have worked on, they are new requirements in a sense. So it's not something that we should have had and we didn't comply with, right? And that's our understanding, and this is the base of our discussion with our customer. Okay. Next question. To what extent will the recent operational challenges impact the tender process for the Victoria? They will not. The 2 events we had, they were already resolved. And Victoria continues to operate well. We did have those challenges, but the rig has been operating for Petrobras for -- since 2012, and it continues to operate well. Those do not impact at all our ability to offer and to get a new contract with Petrobras. How long do you expect ANP will take to review your amendments and lift the suspension? That is difficult to answer because it's not in our hands. We have already submitted the documentation, and it's now being reviewed by ANP. So it could be very soon. It could take a couple of days more. It really depends on how long ANP is going to take to review. And they might come back and ask for some clarifications. So it's hard to say, it's not in our hands at the moment. Yesterday, Seadrill mentioned that Petrobras was filing a claim related to Brazil against them and also the Brazilian companies. anything related to reaching Ventura? Yes, as I mentioned, not -- no. The answer is no. Then Petroserv Group was part of this [ SECI ] rigs drilling contracts or this big agreement with [ SECI ] and Petrobras. But since the company has been reorganized and the company that signed those agreements is not part of the Ventura Offshore Group. So we do not expect this to reach us. We haven't received, by the way, any claims as others have, and Seadrill mentioned this yesterday. Could you say something about possibilities for consolidation in Brazil? I mean we are a big fan and proponent of consolidation. We think this is very helpful for the market. In the past, when those -- when the Brazilian drilling contractors belong to families, this was not something that was possible because of the family aspect. But now that all companies have reorganized, they have refinanced. I think this is something that could happen. I think it's positive to the market, and we want to be an active player in this if and when that happens. You mentioned the extra pack was related to ancillary services, which are reimbursed, but can't see that in the revenue. How does that work? So basically -- and Marcelo, I'm going to ask for your help here, but basically, ancillary services are extra services beyond your regular operating services, and those are reimbursed by the customer with a markup, okay? So we received, say, you charge an ROV, okay? I don't have the numbers on the top of my head, but say you charge 50 -- you pay [ 50 ] to the ROV supply, receive 50 plus a markup of 3% or 5% depending on the amount. I don't know if that answers your question. If not, please let me know here in the questions and answers, okay, and I'll give you more details. Cost levels continue to be very impressive. Thank you. With more rigs entering into Brazil lately, could you share your perspective on inflation for operating cost ahead? Yes, inflation is going to play -- it is playing, right, a part here. We have personnel inflation. And we also have inflation for our suppliers. On the personnel inflation, we have experienced that. We will experience some of that, but my expectation is that now with the stabilization of the market in Brazil with no more rigs, we do not see many more rigs coming to Brazil. We have the title action arriving. We have -- but they are already in process of truing up the rig. We have this new jack-up that Constellation will operate for ADAS, and we have the [ Coso ] rig, right? After that, I do not necessarily see many more rigs coming to Brazil. So I think that will somehow impact a bit the inflation on the personnel costs, which is a good 30% to 40% of your OpEx. But yes, it is a challenge and the cost from our contractors also is going up. How long will the contract preparation for the Carolina prior to the new contract? So this is work in progress. We have a project team working on this and putting together the plan. We would expect around 60 to 70 days of out of service and then you have the acceptance time with Petrobras. That's what you usually see for a contract preparation and that's what we would expect to see here as well. How much do you expect to be paid by Petrobras during the ANP suspension period? Well, this is -- I'd rather not give more detail on that because we are in ongoing discussions with Petrobras. What I can say is that we remain very confident that we should not see a very material impact in our expected revenues for the period that Carolina is suspended for the reasons I explained during the call. Can you give a bit more color on the reason for the higher cost this quarter? Yes, absolutely, it was the Victoria. Since we had those 2 events, both with the KBOS and with the Lifeboat that required the acquisition of parts immediately that required the flowing of technicians from Houston. So we did have costs to address the 2 events. So the Victoria actually had a cost, which was about $10,000 higher than that. And that's what made the overall number of $108,000. Without Victoria, the numbers were lower than that. Can you please talk about the day rate pricing potential on any new Petrobras tenders? So while I'm confident that we're going to see some -- I mean, the recontracting -- a lot of contracting or recontracting activity, it could be that the rates that we've seen now in '24 are not going to be maintained, right? We've seen rates between high 300s and low 400s. However, given that Brazil is where most of the activity is happening, that might be a more fierce competition. So there is a chance, I believe, that the rates are going to come in somehow lower. It's hard to guess exactly because we haven't seen any tendering activity for this year. But I think it's fair to assume that they might not be exactly the same as we've seen in 2024. And actually, that's one of the theories why Petrobras did not get the fourth rig on the rig pool tender because they were expecting lower day rates in the next round. If adding additional service and G&A, the $108,000 OpEx will jump to what number? Marcelo, if you could check on that. I don't have that from the top of my head, if you could check on that and answer.

Yes, sure. Well, considering the numbers presented in Q4, this is a daily cost of $155,000 per day.

Yes, for the Catarina.

No, no, for the whole company.

Okay. Okay. Do you have access to new rigs to provide to Petrobras? All current rigs are under contract, expand fleet. Okay. That's the question from above. I mean this is something that we have done successfully with Catarina when it did not belong to us operating for their owner in Indonesia, and we did successfully or are doing successfully with the Zonda for the Eldorado folks. We like this model. We can make money out of it. It's accretive to the company. So this is something that we are interested. We think there is a possibility of doing it. Of course, Brazil being our main focus, but not only Brazil. That being said, I do not necessarily see a Petrobras fleet expanding. But of course, we'll look at opportunities. We certainly do not close the door to that, actually to the contrary. Do you expect to receive full day rate during the ANP suspension? No, no, absolutely not. You cannot receive full day rate. I mean the most you can get is 90%, which is the weighting on client per contract, okay? You only receive full day rate when you are operating, okay? Marcelo, next one is for you about the SG&A expenditure in Q4 and why it was $2 million higher? And why it's going to go back to $5.5 million going forward?

Yes, sure. There was some nonrecurring costs still related to the listing process that we have in this quarter. And this cost is around $1.5 million, and we are not going to have this. So in the next quarter, the G&A is expected around $5 million. That's the reason.

Thank you. We understand Seadrill faced similar issues with ANP and aren't being paid for the off-hire time. Do you expect to be paid some -- yes. So that's correct. The reason why the Seadrill rig was suspended is different from ours, okay? Ours was related to this -- what we're calling this gas expression study, which was a new requirement. Seadrill was slightly different related to thickness of the lines. So I mean, I do not know where Seadrill is in their discussions with Petrobras. So I really cannot comment on that. What I can comment is that we do expect to -- for the suspension not to have a significant impact in our expected revenues. What's your best guess for when Petrobras will come to the market this year for the rigs they will require in 2026? Guess is the key word here. We had a meeting with Petrobras or Petrobras had a meeting with all their key suppliers about 2 weeks ago, where they talked about their contracting plans. And unfortunately, they did not address that specific question that lots of us had. That being said, I think my best guess, which is -- that's all it is a guess, it would be by midyear. I think they should not wait much longer than Q2 -- end of Q2. But you never know, but we have rigs running out of contract in '26. We have 3 running out in '25, but we have quite a few running out in '26, right? And the process is a lengthy process, 4 to 6 months between start and end. So my guess is that they will have to come to the market by summer European time. So winter our time midyear. Okay. Last question. Could you talk about possibilities to increase managed rig fleet? I already talked about this. This is something that we like. We like this business model. It proved to be successful and accretive to us, both for the Carolina and it is proving and will prove for the Zonda as well. So we are certainly open to more opportunities to manage other rigs, if that makes sense, of course, financially speaking. I think that was the last question. If there's any follow-up, I mean, you guys can please reach out on our PR. You have my e-mail address. You can reach out and send follow-on questions. And I want to yet again thank you all for participating and for your questions and for your interest in Ventura Offshore. We talk again in 3 months' time for our Q1 results. Thank you. Have a good day.