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

Good morning, good and, afternoon welcome to Ventura Offshore's Q1 2025 Earnings Call. My name is Guilherme Coelho. I'm the CEO of Ventura Offshore, and I'd like to thank you all for dialing in. Joining me today are Marcelo Issa, our CFO; and Olav Hamre, our Financial Adviser. And we will provide you an overview of our performance between January and March of this year, a quick overview of the market and at the end, open for questions. As you may be familiar with our calls, there is a Q&A icon on your screen and you can post your questions there and they will be answered at the end of the session. Okay. So if we could move on to our next slide. That's our disclaimer. You guys are already familiar with. So okay. So starting first off, I would like to thank the Ventura employees for their hard work and dedication. Their unwavering commitment to excellence and safe operations allowed us to navigate through a challenging period in Q1, where we had the interdiction, 61 days interdiction of the Drillship, the Carolina, which is obviously a big distraction not only for the crews on that rig, but for the company as a whole. But the whole -- the teams managed to operate without having any lost time incident throughout the quarter. So focus on safety remain and better despite all. So very, very proud of our teams. Moving on now to our Q1 results. And as already announced in our last call and a subsequent event to Q4 of last year, we are very happy to have entered into what we believe to have been a very favorable agreement with the previous owners of the SSV Catarina under which we acquired 17.5% earn-out mechanism and settled amount outstanding working capital in connection with the acquisition of the rig in July of last year. Also during last quarter, and as we have announced via press release, and I already alluded to, the DS Carolina suffered an order of interdiction issued by the Brazilian oil and gas regulatory agency, ANP, that lasted 61 days in total. The interdiction itself was -- sorry, 58 days, 59 days and 2 days just to get back to operations. As a reminder, ANP was of the view that certain procedures used by the industry as a whole, so not something specific to the Carolina or to Ventura Offshore should be improved. The Carolina has since complied with this new requirement and resume operations on March 3. We have since engaged in very constructive and positive dialogue with Petrobras regarding compensation for this period. Discussions are still ongoing, and our position remains that the financial impact of this interdiction should not be material. For purposes of Q1, we have included a conservative expectation of revenue related to that period. Of course, this may deviate from final outcome once settlement is reached. Outside of this event, which obviously impacted the overall performance of the fleet for the quarter, happy to mention that the Carolina delivered a 99.9% uptime for the 29 days she operated in Q1. Now diving into the key highlights of this quarter. In Q1, Ventura Offshore has firstly yet again delivered very strong safety results with no lost time incidents on the fleet. With the strong safety results, we have also delivered an adjusted EBITDA of $16.7 million and a net income of $22.5 million. Also proud to say that we have yet again delivered the industry-leading cost structure, operating with an average OpEx of $106,000 per day. This is excluding ancillary service for the Catarina because these are fully reimbursed by the customer with a markup margin. And we also closed the quarter with a cash position of $27.6 million. Our backlog as at 31st of March of '25 was $679 million, which does not include any of the option wells by ENI. On that, and as we have informed previously, ENI has exercised the first option well, but the corresponding amendment is still in final stages of execution, Hence, we opted not to include in the calculation of our backlog. Finally, the company delivered a financial uptime of 90.7%, which was adversely affected mostly by the fact that almost 80% of the operational time of the SSV Catarina in Q1 was devoted to completion work, which is remunerated at 90% of the day rate as per contract. Also, as a relevant subsequent event to Q1, the Atlantic Zone has commenced operations with Petrobras in April 2025 under its 3-year contract with 3 additional optional years. We're very pleased with Petrobras get back on the first weeks of operation. We just had, this week, our quality meeting, which is one of the various performance-related meetings Petrobras holds with its drilling contractors, and we're very glad to hear their feedback on the quality, experience and responsiveness of the crews on board which, by the way, is 100% Brazilian, I must add, which helps our superior cost structure and also on the rig. So very -- off to a very auspicious start. Move to the next slide, please. Okay. So our fleet status report provides you with a good picture of our contracting situation for all our owned rigs and our managed rig. The Drillship, the DS Carolina, with the new contract announced in Q4, is contracted now until at least 2029, with the possibility of extensions that could take her all the way up to 2033. The Semisubmersible SSV Victoria is contracted until mid next year. She continues to operate for Petrobras in the Búzios field, and we're looking at ongoing and future contract opportunities with Petrobras. The Semisubmersible SSV Catarina continues to operate under its '12-based contract for ENI in Indonesia. As indicated in our previous calls, and I just mentioned this, the current operational development have enhanced the visibility of the duration of this contract, and we see the rig operating throughout 2025 to complete the 4 firm wells and 1 option well, which ENI has communicated their intention to exercise. So you have heard this previously about their communication to exercise this 1 option well, but we have not seen a PR yet, again, just because the amendment to reflect the exercise of this option well has been -- has not been papered up yet. It's imminent, though. And assuming the additional 3 option wells are also exercised, which is our expectation, this should take the Catarina well into mid-2026. And similar to the Victoria, we're actively marketing the rig for future opportunities, mostly but not only in Southeast Asia. Finally, as already mentioned, our managed rig Atlantic Zonda has successfully started operations for Petrobras under its 3-year contract with 3 additional optional years. So this rig will operate until 2028 with the possibility of going to 2031. So again, all rigs under contract until 2026 and beyond, assuming the option wells in the Catarina are exercised. With that, I'll hand over to Marcelo Issa, Ventura Offshore's CFO, who will cover the financial highlights of our first quarter of 2025. Marcelo?

Thank you, Guilherme, and thanks to everyone for joining Ventura's earnings call. This quarter, Ventura generated a total adjusted revenue of $54.1 million, composed of $53 million from the operating activities of our 3 owned drilling rigs and $1.1 million in management fees. In the income statement, you will see that there is a report of $75.4 million in drilling services, but it's important to highlight that this includes $22.4 million from the amortization of nonfavorable contracts, liabilities that is a noncash item. Ventura remains committed to keeping OpEx low. Total OpEx for Q1 was $32.4 million, including the ancillary services in Indonesia. And excluding these services, the average OpEx amounted to $106,000 per day. The SG&A for the quarter is $5.1 million, in line of the expectation. As a result, the adjusted EBITDA for the period stands at $16.7 million. Next slide, please. And now looking at the balance sheet. There was an increase in account receivables of $16 million. This amount will be collected in Q2. Part of this is already collected in April and May. And this affected the final free cash position in Q1, which went from $46 million to $27 million. This accounts receivable includes $33.8 million related to ENI contract and $19.6 million related to Petrobras. Regarding the restricted cash amount, $9.7 million in total, including $8.4 million cash held on behalf of the owner of the managed vessel and $1.3 million as cash collateral for the bond related to the operation in Indonesia. There is also $9.5 million in a time deposit for a performance bond in Indonesia, which is classified under other current assets rather than cash and cash equivalents. The CapEx in Q1 was $2.5 million and $1.9 million is related to the long lead items for the new long-term contract of Carolina with Petrobras. The gross interest-bearing debt in Q1 is $183.8 million, including $165 million under the existing bond loan that we amortized $10 million in Q1 and $18.8 million in the RCF. In the quarter, $8 million was drawn from the RCF to fund the acquisition of the agreement and settle other outstanding amounts with UMAS AS that is the former owner of SSV Catarina. I will now hand it back to Guilherme for some market highlights. Thank you.

Thanks, Marcelo. So I will now quickly cover the market conditions and then focus a bit more in Brazil. So as we all know, there has currently 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 and all that in a scenario of geopolitical uncertainty and volatility in the price of oil. So this is not news, and you've been hearing this from -- I mean, on the news from analysts and some of our competitors, which is causing some of the white space, which is the buzzword that is hitting some of our competitors as well. However, it is our belief that this is reflected in this floater demand analysis by Rystad that the industry fundamentals remain strong and that we should see an important increase for floater demand over the next 5 years. And if we turn to the graph on the right, and again, there's nothing new here, but I think it's always helpful to highlight and remind everyone, Brazil is and will remain the main driver of this demand. But before we dig a bit deeper into Brazil, probably worth a couple of words on the Catarina and the Southeast Asia market. As indicated, the further visibility, our operations with ENI are giving us, provide the comfort that we should have -- we should be operating throughout end of 2025 and well into mid-2026, if the additional 3 wells are exercised. This gives us more time or adequate time to identify other opportunities for the rig, particularly in the region we already are in active discussions with a few customers about possible future work for the rig. That includes Indonesia itself, India, Malaysia and other places like West Africa. So now let's move back to Brazil, and I ask please that we move to the next slide. Thank you. So you have seen some of these graphs before in previous presentations from Ventura Offshore and certainly in the Petrobras' 5-year plan. There's nothing really new here other than despite the turmoil in the market or the volatility of price of oil, as I've just alluded to, Petrobras continues to execute on its strategic business plan, which depicts an evenly distributed expenditures between now and 2029. Between now and 2029, Petrobras is going to be spending an average of 15.5 -- between $15.1 billion and $15.7 billion per year, and they have been delivering on that despite the turmoil and the volatility on the price of oil. A couple of reasons for that. The main reason, quite frankly, is because Petrobras has an average breakeven of $28 per barrel on their portfolio. And 65% of their CapEx is economically viable with a barrel of $35 and 98% with a barrel of $45. So Petrobras portfolio is very resilient to this volatility on the price of oil. Besides, Petrobras and Petrobras CEO, Magda Chambriard, has been very, very vocal about the need to explore and the need to replenish reserves. And that, in our business, offshore drilling, represents the need of between 25 to 30 rig years for the foreseeable future as indicated by Petrobras in presentations. Now the interesting thing is if you look at the number of wells Petrobras has to drill, over 1,100 wells between now and 2029, I would say we should be looking at the upper end of this range. And even so, there is an execution risk in just this number of rigs. The amount of work in Brazil is enormous and 30 rigs seems a bit shy for the number of work that they need. So this leads to a relative balance between demand and supply of rigs in the country. It could be that we may see a couple of rigs, maybe too many. But that's when news like the DS-15 moving to Africa and other potential prospects such as Gato do Mato with Shell coming into play and potentially help keep an approximate balance between supply and demand in Brazil. So basically, looking at the rig scenario in Brazil right now, we see 11 rigs, and I'm referring to the graph on the middle there, we see 11 rigs that will run out of contract between now and the end of 2026. Now does that mean we'll see tenders for 11 new contracts? Maybe not, but we shouldn't be that far off. And the new tendering wave, if you will, has already started with the ongoing market inquiry from Petrobras for Búzios. This is for a [ 44-year ] contract for one or more rigs equipped with NPD, which is a new requirement and to start between October of '26 and February of '27. On this tender, Petrobras decided to innovate and utilize the reverse auction concept, which I particularly think to be not ideal. It's probably not the most appropriate method when you're looking at contracting very complex service such as those provided by an ultra-deepwater offshore drilling rig. But the fact is there have been quite a few attempts by some companies to revert back to dual submission method. Some questions and requests were submitted to Petrobras via the process, but they're all answered negatively by Petrobras. So it seems the process will proceed as planned with the reverse auction. Now a question that many of you will have is how many rigs Petrobras could hire in this process. It's one or more. So Petrobras keeps it open-ended. And to be honest, I think it's anyone's guess how many there will be. But if you look at Búzios right now, again, this is specific for Búzios, right? Búzios currently has 6 rigs really there; 3 Seadrill rigs; 2 of our rigs and 1 [indiscernible] rig, actually 7 because the Atlantic Zonda is in Búzios at the moment, though it shouldn't be stationed there for very long. I think it's going to be drilling a couple of wells and then it should move back to Atapu. But -- so let's consider 6 rigs. All of those 6 rigs are going to be gone by 2026. So you can take on pick on how many rigs will be higher, and I do believe it's going to really be dependent on the prices Petrobras get on this market inquiry. And then on top of that, there is the market expecting a tender for Mero, again, for one or more rigs probably. So we, at Ventura Offshore, we're obviously looking into this Búzios opportunity as securing additional backlog is a key target for us. But we are mindful that other opportunities will come, I just mentioned Mero and there are others in the pipeline. I guess a final word before I close on the market, you've probably heard about the progress on the licensing process for the Equatorial margin here in Brazil. So the environmental authority, IBAMA, allowed for the next step in the process of licensing to take place, which is the emergency response drill to occur. Petrobras is already mobilizing all the equipment, supply vessels and drilling rig, up to the north of Brazil to perform this emergency response drill. And this being successful, I believe the expectation is for the final license to be issued and that drilling up in that basin to commence sometime in 2026, which is very good news. Again, licensing hasn't been issued, but a very important step towards that happy end has took place. So we spoke in the past that the successful campaign in the Equatorial margin and follow-on development will generate a very significant demand for rigs, which are not accounted for in the Petrobras current demand expectations. So fingers crossed that not only the license is issued, but also that the campaign is successful as everybody's expectation given the success in the bordering countries. Next slide, please. Thank you. So that basically close our presentation for Q1 2025, but I couldn't finalize it without, again, thanking our teams onshore and offshore for delivering efficient and safe operations to our customers, maintaining our industry-leading cost structure and positioning the company very well for the opportunities to come for recontracting our rigs. I 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 first question here, actually 2 questions. First question, how do you view the market dynamic between the local and international rig owners? If Petrobras gradually reduces its rig demand as shown on Slide 8, do you think more international rigs will leave the country? So it really depends on the appetite of the international drilling contractors. I think a very important factor is your cost structure, right? The higher your cost structure, the less flexibility you have in negotiating the day rate. So that doesn't really help. And if you look back in history and you see that in the downturn, the rigs that kept on operating were the rigs from the Brazilian drilling contractors. Now is that a guarantee that's going to -- that history is going to repeat itself? It's not a guarantee, but I think it's a strong indication. A second question. Can you give some more color on the cost for preparing the Carolina for its new contract? So as you've heard from Marcelo, we're already incurring some costs for the long lead items. Some items, I mean, you have to order them 1 year in advance, which is what we have. We have another year of operations ahead of us. Now that being said, the project team, which is already in place is working on the figures. We still do not have a guidance to provide, but some of the guidance that you have read in the market by analysts are not necessarily incorrect, okay? The other comment that probably is worth mentioning is that this rig is -- the Carolina is turning 15 years. So something that we are also looking to is capital spares, and we want to add some capital spares to the rig because of the age, okay. So this is also something that we that we are considering for that. Okay. The other question, does the Victoria have an NPD? And if not, how much would it cost to install one? So it does not. The Victoria -- the only rig that we operate that have NPD is the Atlantic Zonda. The Victoria does not have an NPD. It currently operate in Búzios without an NPD, without any major problems, but this new tender does require one. The cost to install one is in the range of $25 million. And that is, I mean, all in, okay, all the piping and then the kit itself. It's around that. It's not exactly $25 million, but it does give you a good ballpark number of the cost. And then, of course, you have to add some OpEx associated with operating with an NPD and that should be in the ballpark of $11,000 to $12,000 per day because you have to have individuals, you have equipment, you have consumables for the NPD. Okay. I only got the 3 questions. Maybe let's give it -- okay, I think something else coming up. Can you confirm how much of the increase in receivables was for the 61 days off-line time and how much when you expect to recover from Petrobras? So as I mentioned, we used the conservative approach. We booked about half of the revenues of this period for Q1. Now how much and when, it really depends. It usually takes time, those discussions, they are not immediate. So it's really hard to give you an estimation of time. What I can say is that the discussions are progressing well. And yes, it's -- I mean, I don't want to give you a date because it's not really 100% in our hands. And sometimes it takes a long time. But I can tell you that it was about half of the revenue that was booked for this quarter. Okay. Next question. Can you describe in more detail how the reverse auction process is meant to work? Does that mean a series of rounds where bids keep getting dropped until Petrobras accepts them or you just place a single bid? So Petrobras is still providing clarification. There was only one time back in 2019 where Petrobras used this method, okay? So there are lots of questions by everybody, including ourselves. But basically, the idea is that the system is going to be open for some time, okay? And then you place -- I mean, you submit your bid and then you're allowed to go and lower your bid. You have access to everybody else's bid, but you don't know who bid what. What you know is that proponent A bid 100, proponent B bid 95, proponent C bid 85, and you bid 150. And then you have an opportunity to go and lower your bid. You don't have to bid lower than the lowest bidder. Again, Petrobras is looking for one or more rigs, but you can lower your bid, okay? Now if it's in -- if it has to be -- if the rules say that you cannot reduce by $1, it has to be at least $10,000. This is not yet defined by Petrobras, okay? So basically, you submit your first bid and then you have the opportunity to lower it and you have access to everybody else's bid, but you don't know who bid what, okay? All you know is that different proponents bid different numbers. And so there is a period of that, and the system will determine -- when Petrobras says, okay, the system will close. The system will automatically close within x amount of time that nobody knows. So you still have a chance to submit an additional bid. So basically, that's how the process will work. And then what Petrobras will do is they will call in for Phase 2, which is the negotiation like it always happens. The number of rigs they select to contract, plus 1. So if Petrobras decides, okay, I'm going to hire 3 rigs, they're going to call the 4 lowest bidders for the next round of negotiation. What is the situation for rehiring the Catarina? So as I've mentioned, we are in active discussions. There -- we're seeing opportunities for the rig in India, Malaysia, Indonesia itself and other countries in Southeast Asia as well in West Africa. So at this moment, we are in active discussions. We don't have any LOA signed or nothing of the sort. But again, we're already engaging with customers assuming the rig becoming available; scenario 1, early 2026; scenario 2, second half of 2026. Is bringing the Catarina back to Brazil an option? It always is an option. Of course, we always look into that. We've mentioned in previous calls and you've heard this before, bringing a rig into Brazil is very expensive. So ideally, we want to keep it in Southeast Asia, and there are opportunities for that. But of course, we look into bringing it into Brazil if the economics make sense. Would the SSV Victoria be eligible to participate in the ongoing Búzios' tender? Yes, yes. We would have to install an NPD. And of course, there are some additional contractual requirements that Petrobras usually require, but nothing out of the ordinary. But the rig would be eligible to participate, yes, and we are looking into that. So what gives you confidence that ENI will exercise the 3 options? Are they all exploration wells or some are development? So some are development wells. There is one exploratory well, if I'm not mistaken, but most are development wells. And the confidence we get is based on what we hear from ENI, presentations from ENI to the authorities in Indonesia. So yes, I mean, there's nothing -- again, there is nothing formal. But of course, we've been operating with ENI for over a year now, and it's not our first contract with ENI. So we do have a relationship with them. And based on what we've been hearing, we are confident. But again, there's nothing in writing confirming that those wells will be exercised. As per contract, they have 60 days prior to the end of the contract exercise. So they still have time to exercise those. Okay. Given the size of the fleet, will you prioritize utilization and contract the Victoria discount to what has been achieved for the Carolina for Búzios' tender? Or do you think conditions allow driller to defend pricing? I think as I mentioned, right, utilization for us is extremely important, for us at Ventura. Discount is not an absolute term, right? You have to look at discount compared to your cost. And I think the fact that we have really an industry-leading cost structure gives us a whole lot more flexibility and discount might not be a discount. It just might be a lower day rate, but with providing better returns than a higher day rate for somebody with a higher cost. But back to your question, utilization for us is key. In the reverse auction process, do you see what Party A bidding 300, for example, -- is a 6G or a 7G? No. No. Petrobras will just say Party A, Party B. So we would have to assume, and that's a very good point because, as you know, Petrobras, they use a factor to differentiate dual activity to off-line activity to single activity, right? So we will not see that, unless Petrobras changed the rules, the way the rules are set today. And again, we still have a month ahead of us. Today, we do not have that visibility. When do you expect the Búzios tender results to be announced? So this is not a public tender, right? It's a market inquiry. And after the bid submission or this bid reverse auction process, which currently is scheduled for mid-June, there will be the Phase 2, which is the negotiation. And that could take a while. So let's say, July, August and then the -- I mean, the announcement itself, I think, is only when you sign the contract, and that could take a while, right? You recall that we announced the Carolina contract in Q4. But basically, we were -- I mean, we had closed our negotiations a few months earlier. So it could take a little while, and it could be that we don't see something announced prior to year-end or around Q4, unless the process moves faster than usual, which is also a possibility. How do you see the possibility of M&A in the current market given depressed prices? Could it be an opportunity to generate synergies and bring scale? I think M&A is always on the table. I don't think the current market helps to be quite frank. But it does give an opportunity for synergies and bring scale, and that's very important. I think M&A is on the cards for -- I want to say everybody. I cannot speak on behalf of our competitors, but I'm positive everybody is looking into it. We want to be part of it, but only if it makes sense, we don't have to. I think that's the beauty of the Ventura story. Our whole story was revolved around recontracting. We already delivered 50% of that on the Carolina, or 1/3 of that, actually, I mean, 50% at the time we just owned the 2 rigs in Brazil. Now we bought the Catarina back. So we already delivered 1/3 of that, and we're hoping to have some further good news. So it's not something that we need, but it's something that I think would be beneficial, and we want to be part of it, if it makes sense, obviously. There is a clarification question. I meant do you see whether Party A is a 6G or 7G. So this is a question asked before if when you see Party A and Party B submitting a bid, if we see if they are submitting for a 6G or 7G.

Currently, the rules do not allow you to see that, okay? That's the answer to your question. It could be that Petrobras changes. Again, they are providing clarifications on the process because there are lots of questions amongst the drilling contractors on the process. So it could be that, that changes. But currently, you do not see if Party A submitting a 300,000 or 500,000 day rate is for a 6G or a 7G rig. You do not see that. And again, just remind that 6G or 7G doesn't make a difference, what makes a difference if it has dual activity, off-line activity or single activity, okay?

Okay. Let's give it another couple of minutes to see if there's any final questions. Okay. So I believe these were the questions. Last question was answered. So I wanted to, once again, thank you all for your interest for dialing in, for your questions, and I look forward to speaking with you again for our Q2 results. Have a good day.