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Edited Transcript of AWDR.OL earnings conference call or presentation 14-Aug-19 1:00pm GMT

Q2 2019 Awilco Drilling PLC Earnings Call

London Aug 24, 2019 (Thomson StreetEvents) -- Edited Transcript of Awilco Drilling PLC earnings conference call or presentation Wednesday, August 14, 2019 at 1:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Ian Wilson

Awilco Drilling PLC - CFO

* Jens Berge

Awilco Drilling PLC - CEO

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Presentation

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Operator [1]

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Hello and welcome to the Awilco Drilling PLC's Q2 presentation call. My name is Val, and I will be your coordinator for today's event. (Operator Instructions)

I am now handing you over to your host, Jens Berge, to begin today's conference.

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Jens Berge, Awilco Drilling PLC - CEO [2]

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Hello, everyone, and welcome to Awilco Drilling's Q2 '19 Presentation. My name is Jens Berge. I'm the CEO. And with me, I have Ian Wilson, the CFO.

I would just like to draw your attention to Slide #3, which is our agenda. We will look at some highlights from the quarter before we go through the financial results. We will then give you an operational update, followed by a newbuild update. We will take a brief look at the market outlook before we go to summary and open up for questions at the end.

So if we go to highlights from the quarter, and this is on Slide 5. We opened our first office in Norway in Stavanger on 1st of August, and we have already hired 6 new key employees, of which 3 have already started. We are ramping up our marketing activities to potential clients on the Norwegian Continental Shelfs for the newbuild rigs, and we have good progress in this work with several meetings held and more to come in the near future.

In Q2, we had a total revenue of $10.4 million and an EBITDA of $2.4 million, which led to a net loss of $0.4 million. The Q2 OpEx average for WilPhoenix was approximately $66,000 per day.

And then we get to the financial results on Slide 7. And Ian, would you like to run us through this?

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Ian Wilson, Awilco Drilling PLC - CFO [3]

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Yes. Thanks, Jens.

Yes. The income statement for Q2 2019. Contract revenue of $9.6 million, equivalent to 90.5% revenue efficiency. We did incur some downtime relating to a mechanical issue in BOP, and that resulted in reduced level of revenue efficiency. Jens will touch on this matter a bit more in due course. Partially offset [investment] in terms of other revenue of $800,000, and that included $650,000 in respect of -- to performance bonuses received and respect to outperformed (inaudible) early completion of work in quarter 2.

The rig operating expenses of $6.1 million comprises some ongoing maintenance costs, et cetera, and upkeep costs in the WilHunter and the underlying project costs of OpEx for the WilPhoenix was just over $66,000. Once again, that is below than guidance previously guided $80,000 per day. And for Q3 and Q4, we anticipate that the costs for this 2 quarters within the region of high 70s. We have had some deferral on project costs, which will be performed in Q3 and Q4. But also, currently, we are benefiting from a favorable dollar, the sterling exchange rate, which is certainly better than our initial budget numbers. So that's [amounted to 1 20], so that's reducing our dollar cost in respect it's based on expenditures.

The G&A expense is $1.8 million. Included in that is a credit of $300,000 in respect to the revaluation of the long-term incentive plan provision. And depreciation of $2.7 million are consistent with the prior months, resulting in total costs with (inaudible) of $10.7 million and operating loss of $238,000. And that goes down to total comprehensive loss in the quarter of $393,000, equivalent to $0.01 per share.

On to the balance sheet. Rigs, machinery and equipment is $226.5 million, not too much movement in the quarter, $1.2 million in respect to the project expenditure and $0.5 million in respect to, say, money spent on the WilPhoenix.

The trade and other receivables of $8 million that comprises revenue for the months of April, May and part of June. And since we paid April, May and June -- end of the June after the 60-day credit term arrangement.

Prepayments and accrued revenue. Once again, that's a portion for the month of June, and that had a (inaudible) on the 60-day credit terms.

Cash. Again, the quarter was $42.4 million, and total assets there, $284.4 million. And here, we're not much specifically running off with the balance sheet.

Accruals and provisions there comprises some of the long-term incentive plan provisioning, but nothing is any unusual circumstance in any of these numbers.

So total equity and liabilities, $284.4 million.

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Jens Berge, Awilco Drilling PLC - CEO [4]

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Thank you, Ian.

We will then go to the operational update, and that is on Slide 10. WilPhoenix current program with Shell. Where we are already doing some of the options. With payments have been some uncertainty related to how many of these options we would get and how long it will take us, it now seems very clear that we will end that program in the beginning of November this year.

In Q2, the operational plan was 95.9%. And as Ian mentioned, that was mainly caused by some BOP downtime in excess of 3 days in June. And apart from that, WilPhoenix have performed very well. And Shell seems to be pleased with our performance, which is also reflected in the performance bonuses that we have received.

Our total contract backlog, as of today, is approximately $9 million. And we're actively pursuing new work for WilPhoenix with several leads in the U.K. Some of these are short term, other medium, and yet another category of some long-term opportunities. It's also uncertain how long that break will be between when we end with Shell and when we take up new work in 2020 if -- unless we were to get something in direct continuation. But most likely, there will be a break before we do more work. But that remains to be seen.

And now we go through the newbuild program. If you look at Slide 12, you will see a modeled picture of our new beautiful rig. We're really excited, obviously, about this rigs and the opportunities that we will chase with them. And you will also see on Slide 13 some pictures from Keppel, Nantong in China that shows you some of the progress that's being made in the [semi-submersible section] that is to be shipped to Singapore around new year. These rigs, they have a number of interesting, innovative and also unique features. I won't go through the whole list. There are many technical expressions here. It's based on a CS60 ECO design for Moss, which is the best hull you can have in harsh weather conditions, and we have MH Wirth drilling package and (inaudible) thrusters and DP systems, and we have NOV BOP. But we also have a lot of new features when it comes to digitalization and more environmentally, friendly technology that are largely unique. We are the first rig to have a hybrid solution, energy solution as part of the rig design.

So in practical terms, as I said, the first rig with hybrid energy solution built into the design. We have a unique energy management system with closed-bus technology. There's energy regeneration from moving equipment and also heat regeneration from exhaust gas. We will operate with substantial fuel savings and vast reduction in carbon emissions. We have an optimized layout and a higher degree of automation, ensuring a safer workplace. And we have an open interface network with unique digital infrastructure, enabling the use of any applicable software application used offshore today, and also those application is being developed for the future. They are compatible with our digital platform and will enable us to operate more efficiently with more data points and precision.

We have -- as I mentioned in the highlights, we have just opened our office in Stavanger. We have hired a Vice President of Technical, Vice President of Operations and Vice President of HR and Vice President of HSEQ. The Technical and Operations VP, they have already started, along also with an Offshore Installation Manager, OIM, who also started 1st of August. And we have also hired for the HR and HSEQ and IT Director. They will start by 1st of October, and we have managed to attract a group of really experienced, competent people for the task, and they are really enthusiastic and already hit the ground running.

We have also arranged a number of meetings with potential clients, and there are more in the pipeline in the next weeks and months. So we're ramping up our marketing efforts, and we're already engaged in a number of really interesting discussions with clients.

And we need more people. So our next recruitment steps are already in progress. We'll employ a few more people in the office in Stavanger by end of this year. And then next year, we'll start a big recruitment campaign for offshore personnel for rig #1. And judging from the interest we see, there's a quite heavy interest seen from the offshore workforce in a number of companies, and we are confident that we can pick out in from the top shelf in the industry, which is really encouraging to see.

If we then go through the market outlook on Slide #18. Let's start with the U.K. market with a specific focus on the segment WilPhoenix and WilHunter are in, the second, third generation rigs. We see that for these rigs, there is almost full utilization, but that's also much due to the fact that many rigs on this category are cold stacked and not being actively marketed. The total marketed supply is obviously higher because that also contains other rig types, and we don't have a curve here to show the total contracted number of rigs across all categories, but we'll get back to that on a different slide. The leading-edge rates are fluctuating with (inaudible). The continued seasonal market in the U.K., but we've seen fixtures around 200 for a while now.

In Norway, we see that day rates are increasing. We'll see fixtures on Tier 1 rigs, which is the category that our newbuilds will be in. We've seen fixtures there of above 300, and we believe they will continue to be in the 300 up to 400 area in the near future when the next fixtures are being made.

On the supply side, we see that -- or we should start with, yes, the supply side has increased, but we also see that the contracted has increased. So there are more rigs going on contract, but also more rigs entering the market.

Then if we go to the next slide, on the market outlook, Slide 20. This is an overview of all harsh environment segments divided into Tier 1, Tier 2 and Tier 3 rigs. And here, we see very clearly that the Tier 1 units, they have a high utilization already, well above 90%. That is expected to continue to be a tight market compared to the Tier 2 and Tier 3 rigs, and this is where we come with our newbuilds and would like to offer them for work in competition with the other Tier 1 units. The Tier 2 units are somewhat lower, close to 80%, and then we see the Tier 3 units are about 60% on utilization.

As a summary, Awilco Drilling, we're in good shape. WilPhoenix operations, they are going well, and there's a strong focus on securing new work. The newbuild projects is progressing according to plan and budget. Our Stavanger office, Norwegian office have opened, and further recruitment is ongoing. We have active discussions with several potential clients in Norway, and the market outlook for harsh environment is positive with already high utilization of Tier 1 rigs.

And that concludes our presentation. Thank you.

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Questions and Answers

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Operator [1]

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(Operator Instructions) We currently have no questions coming through the line. (Operator Instructions) And would -- you have a question coming through, and it comes from the line of [Fredric] (inaudible).

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Unidentified Analyst, [2]

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It's [Fredric] from (inaudible). I'm -- now with Shell not going through the remaining options, could you give some more color on what you would think is kind of a probable start-up date for a potential new contract? And are you only looking locally for work? Or do you think that there's any chance of that rig working anywhere else?

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Jens Berge, Awilco Drilling PLC - CEO [3]

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We have an overview of other regions as well, but we are more actively marketing it for U.K. opportunities. It's more likely that a new contract would commence towards the end of Q1 '20 than earlier. I think that's all I can say there.

The break -- we are obviously hoping for as short break as possible before we have more work, but there are short-term work next summer. There are things that will take us from the early spring towards the autumn. And there are also some longer-term opportunities that will take us further and closer to the -- our next SPS in the autumn of 2021. It will be -- it's still early to say, but we are involved in some discussions, and -- but we're not ready to announce yet what we take from those discussions.

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Unidentified Analyst, [4]

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Yes. That's still very helpful. Would you -- just touching upon our opportunities in the U.K. Will you find that kind of some other programs that have been announced earlier, we've kind of heard that some of those are being pushed out, and that's why you kind of see limited seasonal demand. Would that kind of resonate well with what you're experiencing as well that it will be kind of a steadier demand picture from 2021 onwards?

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Jens Berge, Awilco Drilling PLC - CEO [5]

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We can definitely confirm that the market continues to be seasonal, and also that we and others formerly had expected more fixtures than what we have seen. Although, there is a positive trend, we had probably expected a while back that, that trend would be steeper (inaudible) than what it is. (inaudible).

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Operator [6]

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We have no further questions coming through the line. (Operator Instructions) There are no questions coming through the line, so I will turn the call back to your hosts.

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Jens Berge, Awilco Drilling PLC - CEO [7]

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Thank you. Okay. In that case, we're done. Val, back to you.

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Operator [8]

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Thank you for joining today's call. You may now disconnect your handsets. Hosts, please stay on the line.