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Edited Transcript of AWDR.OL earnings conference call or presentation 12-Nov-19 2:00pm GMT

Q3 2019 Awilco Drilling PLC Earnings Call

London Dec 5, 2019 (Thomson StreetEvents) -- Edited Transcript of Awilco Drilling PLC earnings conference call or presentation Tuesday, November 12, 2019 at 2:00:00pm 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 Q3 Conference Call. My name is Monique, and I'll be your coordinator for today's event. Please note this conference is being recorded.(Operator Instructions)

I will now hand your call over to your host, Jens Berge, to begin today's conference. Thank you.

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Jens Berge, Awilco Drilling PLC - CEO [2]

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Thank you. So my name is Jens Berge. I'm the CEO in Awilco Drilling PLC. And with me, I have Ian Wilson, CFO, and we will take you through the Q3 presentation.

If we go to Slide #3, the Q3 highlights. First of all, our marketing activities in Norway are progressing very well. We've been around to meet a lot of Norwegian customers and talking about our new rigs and our new operating concepts and everything we're planning to implement on our new builds. We've also seen a rather massive response to the announcement of our most recent vacancies in Norway. We're still in a quite careful ramp-up situation, but we've had some interesting vacancies out, and we see a lot of interest on them.

Our Q3 revenue was at $10.3 million, our EBITDA was at $2.4 million and our net loss in the quarter was $0.9 million. Our OpEx average for WilPhoenix in the quarter was $67,000 per day.

And then we will go through some more in-depth financial numbers. Ian, will you take us through them?

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Ian Wilson, Awilco Drilling PLC - CFO [3]

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Yes. Thank you. So looking at the Q3 income statement, contract revenue for the quarter was $10.3 million, which represents a revenue efficiency of 96.2% and 100% operational uptime and operational efficiency. So a very good quarter performance-wise.

The rig operating expenses were $6.3 million as [opposed] for the OpEx per day on the WilPhoenix at $67,000 a day was just [shy away] from 2,000 a day for the cold stacking costs on the WilHunter.

The G&A expense was $1.4 million. That is after an asset adjustment and revaluation of the provision during the quarter due to movements in the share price, and that was $0.9 million. So the underlying G&A expense for the quarter is $2.3 million, and that includes not only the average share-based costs but also the commencement of a manning of the field office in Stavanger.

And depreciation for the quarter, $2.9 million, very much consistent with the previous quarter's.

So that results in operating loss per quarter of [just short of] $200,000 with net financial items of $300,000 and loss before tax of $700,000. And after tax adjustment there, a net loss for the quarter of $900,000 equivalent to $0.02 per share.

On the balance sheet, little movements in rigs, machinery and equipment. The tax -- I mean, depreciation charge for the quarter was $2.9 million, and we had capitalized project costs, project unit costs principally of $1.4 million.

Trade and other receivables, that represents the July and August billings to Shell, and all of that have since been received since the quarter-end, and the prepayments and accrued revenue that is the September revenue that's being billed and constitute of payments in early December.

We had a cash balance of $41.3 million. Total assets were $283.2 million.

Below the line, paid-in capital of $218.9 million and retained earnings. And lastly, $1 million in trade and other creditors and accruals. So we had total equity and liabilities of $283.2 million.

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Jens Berge, Awilco Drilling PLC - CEO [4]

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Thank you, Ian. Then we will go to Slide #6. And Q3, we daresay that, that was an outstanding quarter from an operational point of view in WilPhoenix. We had an uptime of 100% in the quarter. The feedback we get from our customer, Shell, has been very good. Now that contract is expected to end at the end of this month, beginning of next month because there is no more work left for Shell to use us for.

There are quite a few interesting opportunities in the pipeline for next year in U.K. and also elsewhere. But we have seen some slowness in that pipeline with regard to awards. So we are waiting for quite a few contracts to be awarded in the near future, and we're optimistic for WilPhoenix's future next year.

If we go to Slide 7. That's just to show you all some pictures from the other operational sites, which is in Asia, in China and -- in China at the moment and then later on in Singapore. On the left side, you will see 4 pictures from our no-hull sections being built for #1 in China. And on the right side, you see the ceremony related to steel-cutting on rig #2. And it's very good for and pleasing for us to see that what has previously been on the drawing board is now materializing into some major steel sections and that it's starting to look like a rig.

If we go to Slide #8. There might be some aspects here which you have heard about before, but there are also some that you would not have heard about before. And on the left side of the slide, there are a few matters that we wish to highlight when it comes to the technology on both these rigs.

So first of all, it is the very first rig in history where the hybrid energy solution built into the core of the design. This is not a retrofit to an existing rig or anything like that. It is the first rig where the hybrid solution has been in the core of the design and the rig has been built around it rather than the opposite way around.

We also have a unique energy management system with closed-bus technology, which enables us to balance the energy consumed with the energy produced in a very elegant manner. It's a sophisticated system that allows us to operate in an efficient manner without wasting any energy.

We also have the ability with our equipment to regenerate energy, and I can mention a few features. One of them is the drilling package in itself where the quality as well as the movement from motions, weak motions, will generate pressure that we can load up in nitrogen accumulator banks that we can use then to lift the drilling package up again. We have cranes which are recharging the batteries when they lower our loads down. We are absorbing heat from the exhaust chests that we can then use to regenerate and heat up water on both for utilities and also for our winterization package should we go to winterized areas. So this is all working in a very sophisticated, closed-loop system where we can set a new energy efficiency standard in the industry.

That also leads to substantial fuel savings and vast reductions in carbon emissions. We are yet to conclude on the net figures there in expected fuel and CO2 -- fuel consumption and CO2 emissions, but we're -- but we will set a new standard compared to like-for-like operations with semi-submersibles in anchor mode and on DP assets.

We also have an optimized layout on the rig with a higher degree of automation, ensuring a safer workplace. Very few blind zones, blind spots around the rig. Manual material handling. The layout is designed to ensure a safe handling of equipment. And we also have a lot of storage capacity onboard, enabling us to reduce the number of crane lifts and boat handlings.

Last but not least, we have a digital infrastructure that enables us to run all available software applications without any obstacles. And that is also something that is rather unique because we are now building a rig that will be -- come out with a technology in -- around 2021 when the rig is being delivered. And rigs that have been built in the last generation, i.e. rigs that were new 5, 6 years ago, they were built before this technology was available. Hence, we've had the opportunity to build a platform that can handle all the software in the most effective manner. Those -- these are things you might have heard about before.

But since we manned up the team in Norway and started speeding up our marketing activities, we've also worked a lot to define our operating concepts. And 2 very, very key areas of this is the total life cycle management concept and our integrated services concept. The top one, total life cycle management, is more related to the rig and how we maintain the rig and the equipment. And the bottom one, integrated services, is more in the service delivery that we provide to our customers.

We would like to be responsible in how we maintain the integrity of our assets, but we also realize that there are stakeholders, external stakeholders, equipment vendors who are even better at this equipment than we are. So although we keep responsibility of the maintenance and integrity of the rig, we also want to partner up with some of our key vendors to assist us in maintaining the rigs. That gives them an extra revenue stream. It gives us a professional partner, and it allows us to focus more on what we are really out there to do, which is to provide wealth for our customers at the lowest total well cost. And then it's something we've spent a lot of time on lately looking into and making an assessment of which services we are willing to take up. And we are ready to do any of the integrated services that a customer might request. We're ready to go all the way, and we know that we have an ADC package, a digital package that enables us to run all the systems on one platform. And then we need the competence in how to do it, and we are proceeding very well on that account. And we also need a commercial model to support taking up integrated services. And this is something that we believe very strongly in. We have presented it with -- to some customers, and we received very good feedback. So we are definitely on the right path here, if we judge from the feedback we're receiving from the customers. Giving some of the maintenance workflow to other companies and allowing them to be more efficient than we can be with our own people, focusing more on automation and digital operations, being smarter in what we do. We also believe that we can do something with the head count that we see offshore. We don't have any legacy to fight. We are building an organization, a system to match with 2021 needs, 2021 standards. And we have the luxury of being able to build up an organization and a model that is up to date without having any internal resistance or other resistance for that matter.

Hence, if we look at how many people it takes today to run a drilling operation on this kind of rig or the last-generation rig and what we believe we can do it with, we basically -- if you go from slides 9 to 10, we believe that we can perform the same operations more effectively, more efficient with less fuel consumption and emissions. And we believe we can do that even if we reduce the total headcount offshore by 1/3 on the day-to-day operation. And that's quite ambitious, but we can do this.

Now if we go to Slide #11, market outlook, and then on to 12. We see that the demand for harsh environment rigs is expected to increase. Even more interesting is it for us to look at the curve that you would see on Slide 13, which is divided into tier levels. So you would see that within the harsh environment sector, the utilization on Tier 1 rigs, i.e. the more advanced rigs, is already very high, close to full year of utilization, if not already good. And then we see that it's somewhat lower on Tier 2 and even lower on Tier 3. This addresses both angles of our business, where one is our third-gen rigs in the U.K., and we know that there is a demand for those rigs in U.K. and elsewhere, which is quite positive. And then we see that on the Tier 1 rigs, where our new builds will fit in, it's also on a very high utilization in Norway. So we see a good market for our third-gen rigs in U.K., and we see very good markets for our new builds coming into primarily Norway.

So if we go to Slide #14, our summary. You will also note in the top-right corner our slogan: higher efficiency, lower carbon. That's what we are building with the new builds. And we believe we are a unique growth opportunity in that we have the greenest rigs ever built and they meet the increased focus on lower emissions. We've set a new standard. Our new technology improves safety and reduces total well costs. We're building the best team to operate the new rigs, and we see a massive applicant interest. We have active discussions with several potential clients in Norway and also elsewhere for that matter. And especially in Norway, some very good discussions. And we believe that the market outlook for harsh environment is positive with already high, almost full, utilization of the Tier 1 rigs.

And that concludes our presentation, so we can open up for any questions.

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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.(Operator Instructions)

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Jens Berge, Awilco Drilling PLC - CEO [2]

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In that case, we -- I think we can just call it a day and thank everyone for the attention.

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Operator [3]

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Very well. Thank you for joining today's call. You may now disconnect. Hosts, please stay on the line and await for further instruction.