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

Good morning, good afternoon, and welcome to Ventura Offshore's Q2 2025 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 on the call are Marcelo Issa, Ventura Offshore CFO; and Olav Hamre, our Financial Adviser, and we will provide you an overview of our performance between April and June of this year, an overview of the market and at the end, open for questions. As in previous calls, you should see on your screen on the upper part, a Q&A icon that you have to use to write your questions, and I'm going to read them out loud at the end of the presentation and answer the questions, okay? So can we move to the next slide, please. Yes. So that's our disclaimer, which you are familiar with. All right. So first off, we were very pleased to announce last quarter the commencement of operations of our managed vessel, the Atlantic Zonda on her 3 firm plus 3 optional years contract with Petrobras, keeping this rig busy until 2028 and potentially 2031. Also happy to see our customer ENI exercising their first option well in Indonesia on the contract with the SSV Victoria, also as already announced last quarter. With this optional well, we estimate the rig to remain operating until end of this year. And if the additional remaining 3 optional wells are exercised as we expect, we expect the Catarina to remain busy until August of 2026. Now moving to the key highlights of this quarter. In Q2, Ventura Offshore has delivered an adjusted EBITDA of $18.2 million and a net income of $24 million. Also, and as you have been hearing in all our previous earnings calls, we have yet again delivered industry-leading cost structure, operating with an average OpEx of $109,000 per day, excluding ancillary services for the Catarina, which are fully reimbursed by the customer with a markup margin. We closed the quarter with a cash position of $46.6 million. In our backlog, as at the 30th of June of 2025, was of $657 million, which includes the first of the optional wells by ENI, which has been exercised, as I mentioned, as well as the Atlantic Zonda management fee. Finally, the company delivered an operational uptime of 90.9% and the financial uptime of 86% for our own rigs, which is below our targeted uptime and which is certainly not representative of our historical performance. These figures were mostly adversely affected by BOP pool on the SSV Catarina compounded by the fact that most of the work done by the same rig, the Catarina in Q2 was remunerated 90% of the day rate as per contract. Since end of June, however, and to date, with the fleet is back and operating at historical levels, with an uptime north of 95%. Before moving on to the next slide, I wanted to provide you with an update on the economic impact of the introduction of the DS Carolina that occurred in Q1 this year. As we have informed before, we continue to be in productive and positive discussions with our customer, Petrobras, but no conclusion was reached so far. We remain confident nonetheless that the economic impact of this introduction should not be material. We expect closure of this discussion sometime in Q4 or early next year. So moving on to the next slide, please. You can see our fleet status report, and that provides with a good picture of our contracting situation for all our owned and managed rigs. The drillship DS Carolina is contracted until -- now with the new contract due at least 2029, with the possibility of extensions up to potentially 2033. The semisubmersible SSV Victoria contracted until August of next year, continuing to operate for Petrobras in Búzios field and looking at the ongoing and future contract opportunities with Petrobras. The SSV Catarina, also a semisubmersible, continues to operate on its well-based contract for ENI in Indonesia and have now one option well exercised by ENI, which takes operations throughout 2025, assuming the additional 3 optional wells are also exercised, which is our expectation, and we remain quite optimistic about this. Catarina operations under this contract will be taken to August of 2026. And similar to the Victoria, we're also actively marketing the Catarina for future opportunities, mostly but not only in Southeast Asia. Finally, and as already mentioned, our managed rig, the Atlantic Zonda, which has successfully started operations for Petrobras under this 3-year contract with 3 additional optional years. So this rig will operate until 2028 with the possibility of going to 2031. So again, our rigs under contract until 2026 and beyond, assuming the optional wells in the Catarina are exercised. With that, I'll hand over to Marcelo Issa, Ventura Offshore CFO, who will cover the financial highlights for our second quarter of 2025. Marcelo?

Thank you, Guilherme, and thanks to everyone for joining Ventura's earnings call. In Q2, Ventura generated a total adjusted revenue of $55.4 million broken down as $53.2 million related to the operating activities of our three owned drilling rigs and $2.2 million in managed fees. The income statement reports $91.5 million in revenues, but it's important to highlight that this includes $22.6 million from the amortization of non-favorable contract liabilities, a noncash item, and $13.5 million as reimbursable expenses. Ventura remains committed to keeping OpEx low. Total OpEx for Q2 was $32.6 million, including the ancillary services provided to ENI. Excluding this service and deferred mobilization costs, the average OpEx amounted to $109,000 per day. The SG&A for the quarter totaled $4.5 million, in line with company expectations. As a result, adjusted EBITDA for the period stands at $18.2 million. The final free cash position in Q2 is $46.6 million. As mentioned during the last earnings call, $16 million from the accounts receivable that should have been paid in Q1 were collected in Q2 and also $9.5 million held as cash collateral for a performance bond were released at the end of June. Regarding the $9.5 million cash collateral, it was replaced by a counter guarantee supported by the revolving credit facility. At the end of Q2, the RCF utilized was $28.3 million. At the beginning of Q3, these proceeds were used to be part of the cash drawn from the RCF Therefore, the cash draw from the RCF was reduced to $9.3 million. The $9.5 million was presented in other current assets before it was released. There is $16.9 million in restricted cash held on behalf of the owners of the managed vessel. The bond loan was amortized by $10 million and the gross interest-bearing debit in Q2 is $173.8 million. Next slide, please. And now looking at the balance sheet. The accounts receivable includes $13.9 million related to ENI contract, $25.8 million to Petrobras and $15.1 million for the managed vessel with Petrobras. CapEx invested in Q2 was $2.2 million, of which $1.4 million related to long lead items for the new long-term contract of Carolina with Petrobras. I will now hand it back to Guilherme for some market highlights. Thank you.

Thanks, Marcelo. I will now quickly cover the market conditions and then focus a bit more in Brazil. As you know, we are seeing delays in FIDs by oil companies for important projects and pushing execution to late 2026 and 2027. In total, 2025 had 47 oil and gas offshore projects scheduled to start, with some originally planned that postponed to a later date. Geopolitical uncertainties and consequent low price of oil aligned with capital discipline from our companies and issues on supply chain have impacted spending growth. However, and as we have been saying in our previous calls, it's our belief that the industry fundamentals remain strong and that we should see an important increase for floater demand over the next 5 years. In Southeast Asia, particularly, demand for floaters is steady, with the potential to increase in the coming years. The recently announced long-term ONGC tender in India, while disappointing to see the requirement for drillships only, will bring an important silver lining that it's a new opportunity, and it will likely take out some competition from that market. Similarly, PTTEP is in the process of selecting a rig from Malaysia and so is ENI, who continues its efforts to develop deepwater blocks in Indonesia, which is their energy hub in Asia. ENI actually has standard for the Geliga field, which is 1 firm plus 1 optional well plus an additional long-term demand for 8 firm wells plus 8 optional wells as rumored by the market. These are also aimed at drillships taking again, competition off the market. That leaves a few opportunities in Asia suitable for the SSV Catarina in 2026, and we are in active discussions with customers about possible future work for the rig. That includes Indonesia itself, India, Malaysia and others, but we are not limiting ourselves to look at Southeast Asia alone. Now focusing on Brazil, this country continues to be the main force and driver for the deepwater market, as it always is. And currently, we have 25% of the worldwide fleet operating in Brazil. I'll talk about the ongoing tenders in a little while, but it's important to highlight some very good and encouraging very recent developments happening here in Brazil that in my view, solidify the future of offshore deep and ultra-deepwater drilling in Brazil. Initially, it is the successful emergency response drill performed by Petrobras in the equatorial margin, which is a requirement by the Brazilian environmental authorities, the IBAMA, prior to considering a drilling license. Just 2 days ago on Wednesday, this exercise was concluded and it involved 1 drillship, which is the [indiscernible], 12 vessels, 3 choppers and over 400 people. All accounts are that it was a big success, successful exercise. And now the ball is in IBAMA, the environmental authority's court, to evaluate the results and as we all hope, issued the drilling license. There is no pretty fine date for that to happen, but expectation is that it could be imminent. And as you know, looking at the Petrobras 5-year plan that we've discussed in previous calls, the one issued last year, November of last year, there is a dedicated $3 billion investment plan for the equatorial margin alone in 15 exploration wells to be drilled. Then linked to this, we have the most recent ANP bidding round, ANP is the oil and gas agency in Brazil, responsible for leasing blocks. So in the most recent bidding round now in June, Petrobras and Exxon together as well as Chevron with the CNPC invested heavily in acquiring blocks in this very same equatorial margin. Remembering that Exxon is the main operator in Guyana, where they have this huge offshore development, which provides some interesting perspective on what they expect to find in this area in Brazil with the same similar geology. So Exxon and Petrobras JV acquired 10 blocks in the equatorial margin, with Petrobras being the operator for 5 and Exxon for the other 5, so very suspicious in my view. And Chevron, which is great to see them investing back in Brazil, acquired 9 blocks in the equatorial margin with CNPC as a partner. And while these blocks on the equatorial margin may have been taken most of the attention by the media in this recent ANP round, the Pelotas basin was also an area of interest with Petrobras acquiring 2 blocks. As you may recall from previous calls and probably heard in other calls, Pelotas basin is -- Petrobras holds lots of hopes for the Pelotas basin due to geological similarities with the media, and they have been -- Petrobras has been very vocal about this. And finally, Karoon and Shell and Equinor to a lesser extent were also very active in acquiring blocks in the Santos Basin. So a very interesting prospect for the Brazilian offshore drilling with a lot of focus back on exploration, which, as I mentioned earlier, solidify the future of offshore deep and ultra-deepwater drilling in Brazil. The third piece of news that is also important to mention, and you probably read about this is BP announcing their discovery in the Bumerangue field. A very, very promising discovery that also adds to this optimistic view that we have for the future of offshore drilling in Brazil. With that, I move to the next slide, where I can spend a minute or 2 looking at the active tendering opportunities in Brazil. Thank you. So basically, there are 5 ongoing opportunities for drilling rigs in Brazil. But not necessarily 5 units because the Petrobras, Búzios opportunity comes from one or more, okay? So starting from the right, we have both Shell and Equinor looking for ultra-deep water units for Gato do Mato and Bacalhau fields, respectively. Karoon is also looking at unit for their Neon and Bauna fields, Neon being the firm commitment, Bauna, as we understand optional. And finally, we have Petrobras. So I'll start off with the Buzios market inquiry, which started early. This is a 4-year contract for one or more rigs, equipped with MPD, which is a new requirement. The previous Buzios standards did not have that requirement. And this is to start between January and February of 2027. Bid was submitted now in July with several participants utilizing for the first time in a long while, the reverse auction process, as you know. This process is proceeding. We are optimistic, very optimistic about our chances, but it's an evolving process that we expect to be finalized in early Q4. So all going well, we expect that by October, this should be finalized, but delays are not unheard of. So it could be that it delays a bit, but current expectation is that we should see the results around October. Next one is Mero. This is also a 4-year contract. And similar to Buzios also with Petrobras having the right to early terminate after 2.5 years, even though I think this is highly unlikely for one rig equipped with MPD to start between January and March of 2027. Bids are due now early October, and the process will also follow the reverse auction method utilized for Buzios. We also expect potentially an additional tendering process for the pool, which is -- which pool is the rigs not assigned to any specific field in Petrobras. So Petrobras can take them pretty much anywhere. We estimate this one to occur as the Mero process is close to finalization, so probably end of the year or most likely early 2026. So a few opportunities happening in Brazil, which on top of the recent developments I alluded to earlier regarding the equatorial margin, the interest in the latest ANP bidding round and the BP recent major find in Bumerangue do help paint a quite positive and optimistic picture for offshore drilling in Brazil, which local players like Ventura Offshore will certainly benefit from. Next slide, please. So that's our last slide that closes our presentation for Q2, 2025. And I couldn't close it without thanking our teams onshore and offshore for all the work they put day in and day out tackling the challenges they come as was the case for Q2 and overcoming them, always keeping safe operations at the top of their agendas, maintaining our industry-leading cost structure and positioning the company very well for the opportunities to recontract our rigs. I also wanted to express my appreciation for our shareholders, partners and customers for their continued trust in Ventura Offshore. And again, thank you all for joining this call and for your interest in Ventura Offshore. With that, I close our presentation, and I will open for questions, remembering that you have an icon on your screen where you can write the questions, and I will read them.

Okay. So just give you a couple of minutes, and I'll start reading the questions. We already have a couple. Okay. So starting a first question that I have here. Can you give some color on when you expect the Buzios and Mero tenders to complete. I think you can say -- I mean, I think I already mentioned this. So Buzios expectation is around October, with a very small chance of being earlier than that, though I wouldn't bet on it and a very small chance of delay. So I think October is your best bet here. For Mero, so bids are due now in early October. And if you look at how long Buzios is taking, you have to add at least a couple of months to that. So then we're talking December, January before a result. But again, the process hasn't even started, okay? But if you look at Buzios as your benchmark for the Mero process, then we should be talking about probably January before it's closed. If you were to get a long-term award with Victoria, you talk of potential balance sheet optimization. Can you elaborate on what an optimal balance sheet looks like?

Well, there is not much that we can say now. What we can say is we are going to have a contract, a 4-year contract that should begin in January. And this contract requires MPD, and we need to invest in the MPD for Victoria. That's what we can say now.

Yes. I think to add to that, Frederick. So we will be looking at the refinancing, right? Once we have a new contract for the Victoria, I think next step will be looking at refinancing, right? We can look at the refinancing via probably upsizing of our RCF and also by bond. And idea is to, of course, cover the CapEx that we'll need because there will be a CapEx investment required for the Victoria's as Marcelo indicated. I don't know if that answered your question. If not, please follow up here on the Q&A session. You mentioned in today's report that you are looking at work for the Catarina outside ENI. Is there any chance you will take the rig to Brazil? Yes. I mean, we're looking at -- I think for us, utilization is the key, right? Catarina in Brazil, of course, we look at this possibility. Her sister vessel, the Victoria is here. We are here. It's our backyard. The challenge is, of course, the CapEx to bring a rig into Brazil, right? It's a barrier -- it's a big barrier -- entry barrier that we have. Of course, the CapEx to bring the Catarina to Brazil would be significantly lower than any other rig because this rig was built with Petrobras specs in mind by the Petrobras specs of 12 years ago. So those facts have evolved. So we would have to spend some money on the rig. But of course, it is a possibility. We don't close the door to bring her back to Brazil. Okay. The next question, do you expect Brazil to become a market which requires MPD for all work given that the 2 recent tenders requesting one? Should the Victoria win the contract with Petrobras, would you purchase or rent an MPD? What would be the cost of either option? So I don't think it's going to be a requirement for every new rig for MPD. It is for Buzios, okay, and for Mero. Mero, the 2 rigs currently operating Mero already have MPD. The Buzios currently operating -- in Buzios, half of them have MPD, half do not. But going forward, it will be a requirement for Buzios, but not necessarily for all rigs in Brazil operating for Petrobras. It really depends on the field that the rigs are going to be drilling. So we have -- if the poll tender, for instance, materializes, which is our expectation, there is a very good chance that there's not going to be a need for MPD, at least maybe what they can do is, as they have done in the past, is they have 2 batches, one require MPD, the other not requiring MPD. I don't think we're at the point that all rigs in Brazil will need MPD. But for Buzios, that's a fact and for Mero as well, okay? You asked about renting or purchasing, we will most likely purchase. We think it makes more sense. And the cost to purchase an MPD, I'll give you a ballpark number. It's about $25 million, I mean, to purchase and install, okay, between you have to put all your piping and then you have to buy the kit and install it. So $25 million is a good ballpark number. Of course, it's going to vary depending on who is your provider of the MPD kit. Next question, do you expect [ SPS ] in Victoria and Catarina wants their current contracts expire? Yes. So the way we operate is we try to make sure that the SPSs are done in between contracts. So you don't have to stop operations while -- in the course of a contract, right? So you don't have some lost time. So in between contracts, that's when we do the SPS, and that will be the plan. Next question, will the Carolina be asked to add an MPD? No. The current contract [indiscernible] and actually going back to the previous question, the Carolina was recently contracted to Sepia, Atapu field, and there was no requirement for MPD. So we have not added an MPD to that rig. And of course, if Petrobras is interested installing an MPD, we can have a commercial discussion with them, but we are under no obligation of installing an MPD and no intent of doing it for the time being. Next question, what level of repricing daily rates do you anticipate for next year? That's a difficult question to answer. If you look at the most recent tenders already awarded or the contracts more recently awarded by Petrobras, and I'm assuming here you're asking -- you're considering Brazil in your question. So the number has varied between 350 and low 400s, depending if the rig is single activity or dual activity. I believe that for the next year, we might see that number reducing a bit, but by not much. That would be my expectation, but it's -- yes, we have to wait and see the results of Buzios and the results of Mero that are going to give us a better indication. Okay. Next question. If the Victoria is awarded under the Búzios standard, what is the contract preparation and MPD CapEx? So the MPD CapEx, I already mentioned. If you're talking about contract preparation, I'm not sure if you're talking about guidance on the CapEx, the whole CapEx. If it is, I think -- I mean, I always -- I think at this moment, I would refer you to what some analysts are estimating because -- I mean, and I already alluded to us considering refinancing of the balance sheet in connection with a new contract if we get that, right? At that moment, we will be providing more detailed guidance on CapEx. So for the time being, if your question relates to CapEx, it is not very clear. I would suggest you refer to the analysts because their numbers seem to be in the ballpark number accurate. Next question is the exact same one. Can you talk about CapEx requirements in 2026? So again, I refer you guys to the analyst numbers. And again, in the hopes that we get a contract for the Victoria, we will go to -- and as we go to refinancing, we will be providing more detailed guidance. Are you already in dialogue with ENI on the remaining options? We are always in dialogue with ENI since we started operating. As I mentioned, I am quite positive about the optional wells being exercised. However, contractually, ENI can exercise those optional wells up to 60 days prior to contract end, okay? So they are under no obligation to exercise them now. They can wait a bit more. But I remain positive that those option wells will be exercised. And yes, we are -- I was actually in Indonesia last week. Actually, I arrived this week in discussions with ENI. So we keep our relationship very close and we keep the dialogue open. And I'm optimistic about those wells being exercised, those optional wells being exercised. What is actually going on at the moment with the Buzios tender? Is the auction still running with price being lowered by participants? Or has that final -- okay, or has that final stage finished and has moved to discussions with Petrobras and the leading parties from the auction? So the tendering is the lowering of prices, if you will, the reverse auction is over. It's in the second phase now. The reverse auction is a 1-day process, actually not even 1 day. It's an hour, a couple of hours process. And after that, you move to the second phase. So it's now in the second phase. Can you potentially bid the Mero tender being active in Buzios? Until you have a contract signed, you can bid whatever you want. And the Petrobras rules are that if you bid a rig in 2 tenders simultaneously, the preference is given to the one you bid earlier, okay? Next question. Is the Buzios auction process transparent or the prices offered by different participants are only visible to the other participants or nothing is transparent even to participants? So the process is transparent. It's not public, okay? That's why it's only limited information I can provide you. But it is transparent in the sense that we participated, right, as you know, and we could see the different prices by the different participants, and we could see as each participant lowered their prices. What we did not know is who was who, okay? So they had bidder number 1, bidder number 2, bidder number 3. But you could follow the process live as bidder number 2 reduced their rate by 2,000 and as bidder number 5 reduced the rate by 50,000. That you could follow during the process, but you do not know who is who. Okay. Next question, Marcelo, I think this one is for you. What was the reason of accounts payable increasing from $15.9 million in March '25 to $40.1 million in June '25 and the reduction in other current liabilities in this last quarter?

Okay. Well, regarding the accounts payable, the increase was caused by the increase of the restricted cash, $8 million and the accounts receivable related to the managed vessel, $15 million. This is the corresponding entry that we made in accounts payable, okay? And regarding the other current liabilities, basically, we have $5.7 million related to deferred mob fee. And $7 million related to the liability of the Catarina property split that we removed from December because of the settlement. I hope this clarifies. If not, please send me any question.

Okay. Next question, regarding the time line of CapEx to be done, specifically the Carolina CapEx, what is the expectation? Any relevant cash needs already in 2025? Or should we expect a higher need only in '26, transition quarter for the Carolina? So there are always some CapEx requirements for the long lead items that we have to incur this year, but the vast majority will occur in '26 as we approach the out-of-service period. Regarding the time, we estimate around 60 days for out of service and contract preparation. So it's SPS plus contract preparation. Next question, can you give some color on any -- on the downtime in Q2 for the owned rigs? Yes, sure. So we had one major event, as you mentioned, which was a BOP pool on the Catarina. We had a malfunction on the upper blind shear ram and as a consequence, we had to pull the BOP to fix it. That was done. The upper blind shear ram was fixed. But then because under this contract, and it is very common, you hop the BOP from well to well, the BOP had been down for a very long time. Every time you pull your BOP, you have in between well BOP maintenance and the scope is longer or shorter depending on how long the BOP had been wet or had been down. So in this case, we had a lot of preventive maintenance that had to occur because we had pulled the BOP. That was a major event. We also had one event on the Victoria where we had to recover the DHA. Yes, these were the 2 main events that justify the lower financial uptime than what we usually present. Also bear in mind, again, that the Catarina, because of the operations, the nature of the operations that we carried out, we were remunerated at 90% for most of the quarter instead of 100%. Next question is what's the average cost of an SPS? I already answered that, referring to some numbers indicated by analysts and saying that we will have more detailed guidance once we start our refinancing. What's the max idle time between contracts that you would consider cold or warm stacking your rigs? In other words, should you not win Buzios or Mero, how should we think about Victoria employment when current -- the current contract expires in June of next year? In case we don't win a contract or the Buzios contract, we have the Mero opportunity and then we have the pool opportunity. To answer your question, it's not about time, but it's about when is the next tender, okay, and how aggressive we would be to avoid keeping the rig warm or cold stacked, okay? I think it's different from companies that have rigs in various parts of the world where there's not a flow of tenders happening like we do in Brazil. So the answer to your question is not about time, but it's about when is the next tender coming, okay? And again, we -- as I mentioned, we remain optimistic that between Buzios, Mero, the pool, we won't have to have a discussion about cold or warm stacking our rigs. Okay. At what cash position level do you feel comfortable operating? What is your target net leverage?

Well, we are comfortable with a liquidity of $15 million. This is a good cash position for us.

So last question, Petrobras is striking a more cautious tone in recent references to CapEx. Do you maintain the view that you see a flattish Petrobras rig counts for next years? Or has the downside risk increased on your view? You're right. Petrobras is indeed more cautious than every time you hear Petrobras CEO speaking, she has changed the tone to a certain extent, and she's saying that she counts on the suppliers to assist Petrobras on that. However, that being said, bear in mind that the economic resilience for Petrobras is pretty impressive, where 98% of Petrobras -- 98% of Petrobras assets, it's economic viable with 45%. So I do not see that necessarily impacting the rig count for Petrobras. The rig count that Petrobras has announced in their previous 5-year plan between 25 to 30, I think there was an execution risk on that. And as we start to see the Buzios tender, Mero, potentially the pool tender, I think the requirement is going to remain at those levels, mostly if the drilling license for the equatorial margin is indeed issued by the environmental authorities. So it is true that Petrobras has taken a more cautious approach. But I'm not -- I do not think this is going to impact very much the rig count that they need to deliver on their program and on their 5-year plan. Okay. So that was the last question. I wanted to thank you all once again for attending our earnings call. If you want any follow-up on these questions, feel free to reach out directly to us, and I'll be happy to answer any follow-up questions. Thank you, and I want to wish you all a good day. See you in 3 months.