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Edited Transcript of SBMO.AS earnings conference call or presentation 6-Aug-20 8:00am GMT

Half Year 2020 SBM Offshore NV Earnings Call

Schiedam Aug 25, 2020 (Thomson StreetEvents) -- Edited Transcript of SBM Offshore NV earnings conference call or presentation Thursday, August 6, 2020 at 8:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Bruno Y. R. Chabas

SBM Offshore N.V. - Chairman of Management Board & CEO

* Douglas H. M. Wood

SBM Offshore N.V. - CFO & Member of Management Board

* Philippe C. Barril

SBM Offshore N.V. - COO & Member of Management Board

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Conference Call Participants

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* Andre F. M. Mulder

Kepler Cheuvreux, Research Division - Analyst

* Henk Veerman

Kempen & Co. N.V., Research Division - Research Analyst

* Luuk Van Beek

Banque Degroof Petercam S.A., Research Division - Analyst

* Michael Brennan Pickup

Barclays Bank PLC, Research Division - MD & Senior European Oilfield Services Analyst

* Quirijn Mulder

ING Groep N.V., Research Division - Research Analyst

* Thijs Berkelder

ABN AMRO Bank N.V., Research Division - Equity Research Analyst

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Presentation

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Operator [1]

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Good morning, ladies and gentlemen. Thank you for holding, and welcome to SBM Offshore Half Year 2020 Earnings Update Call. (Operator Instructions)

I would like to hand over the conference to Mr. Bruno Chabas, CEO of SBM Offshore. Please go ahead, sir.

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Bruno Y. R. Chabas, SBM Offshore N.V. - Chairman of Management Board & CEO [2]

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Thank you, operator, and thank you for all to join this conference call. We're going to be discussing about the first half of 2020 for SBM Offshore. And I'm Bruno Chabas, CEO of SBM Offshore. I'm joined today with my colleagues of the management board, Philippe Barril; Erik Lagendijk; and the one and only Douglas Wood. I will present the general strategic update of the company, after which Douglas will talk to you through the financials. We will welcome questions after the prepared section of this call. Please note the usual disclaimer.

So if we look at the highlights for the company. The double black swan events caused a global crisis with low oil prices and the COVID-19 pandemic. All of this represents a catalyst to the changing energy industry. Our clients, business and execution model is being challenged. At the same time, to date, our business model is proving to be resilient in the quite exceptional circumstances. All of this is supported by a lot of hard work by our teams in the Lease and Operate activity and in the Turnkey business. This crisis will have short term but also lasting impact in our industry.

In response and anticipation, SBM Offshore will adapt itself in order to deliver better, faster and cheaper solutions, products or services. Our strategy remains firmly in place with Fast4Ward, sustainability and digitalization being the key transformation program, all of this while investing in system products or services for the energy of tomorrow.

So zooming on the effective response to the current crisis. As always, our priority is safeguarding the health and safety of our people worldwide. SBM Offshore applies corporate value of care by reaching out to local communities, wherever we operate throughout the world, supporting them when possible and by leveraging our network infrastructure and knowledge.

Looking at business continuity in the particular case of the COVID-19 pandemic and its effect. A huge amount of effort has gone to reacting, planning and anticipating to maintain business continuity. Our teams are doing a great job here.

A few examples. In our Lease and Operate division, the mitigation measure, which we presented earlier, continue to be effective. And we have now created a COVID-free environment offshore to date for the -- for more than 2 months. We operate with high degree of reliability also through this environment.

In Turnkey, project teams continue to focus on managing yard and supply chain. Yard in China reopened during the first quarter. Most recently, the Singapore yards reopened.

Schedule impacts our assets on a regular basis and mitigation measure to protect our delivery schedule are being implemented. Some delays from the pandemic are expected.

In the offices, usual protocols are in place and staff mostly work from home.

Looking at mitigating the impact. The crisis introduced uncertainty with respect to the FPSO market outlook. Clients have announced several investment delays and some prospects have been canceled. To address this uncertainty and to adjust to the lower activities foreseen in FPSO market, the company took and is taking several measures while accelerating programs to improve our competitiveness and flexibility. We have announced a reorganization which addresses the current fundamental issues in order to compete successfully, sustainability and to keep us relevant in the long run. More on this later.

So let me first turn to the HSSE and ESG activity or performance. On safety performance, we're pleased to report that despite a challenging environment, we managed to continue to perform well, in line with our strong historical safety track record. Our total recordable injury frequency rate was 0.12 for the first half of the year compared to our target for the full year at 0.20. Of course, we avoid complacency and continue to generate safety awareness and training in order to maintain the positive trend. No harm to people, no defects and no leaks are the ultimate end goal for the company.

Turning to ESG. SBM Offshore remains committed to sustainability. We focus on results while explaining, monitoring and reporting on progress in a transparent manner. We have a long track record of reporting on metrics related to sustainability. So the principle that we are measuring our performance was not something new when we introduced the use of the UN SDG's framework back in 2019. The SDG framework has helped us to communicate on our priority metrics.

We report performance compared to our target on an annual basis. The reduction of greenhouse gas emission is SBM top priority. Significant progress has been made over the past years across the fleet on this topic. The launch of our eMission Zero program is a crucial element supporting our goal to reduce our footprint to near 0 emissions on future FPSOs.

SBM Offshore strives to be an industry leader on many fronts. As such, we're pleased to report that this is reflected in independent report rating. Of course, we will continue to focus on further improvement and report on progress.

Let's turn on the market. Over to the market outlook. So as said, the double black swan event introduced uncertainty in the market for FPSO. We are currently facing an unconventional cycle, how to project the way forward. Clients are talking about postponing project and some project will be canceled. At the same time, we continue to believe that there are many opportunities ahead, especially with respect to worldwide class reservoir with low breakeven points and low-carbon intensity. Those will require large-sized complex FPSO, off the one that SBM Offshore is providing.

The main question is when will this opportunity comes to market. But for (inaudible), we expect the cycle to be shorter and more volatile. Contractor with flexible structure will benefit from this. This is where our reorganization comes in.

Overall, SBM Offshore will remain disciplined and selective with respect to future opportunities. And this is with the aim to create value to all stakeholders and, in particular, our clients.

So let's go to our strategy. Our strategy remains consistent. It continued to form the basis on how we are strengthening SBM Offshore positioning for the short, medium and long-term future.

Under optimize, we're seeking to mitigate COVID crisis by looking at our people, clients and contractor staff. Business continuity is prioritized. Cash flow is protected by our programs to keep our fleet running with a high degree of reliability.

Under transform, SBM continues to bring down breakeven prices for our clients' offshore development through Fast4Ward, lower our carbon intensity and aiming at eliminating environmental impacts through our eMission program. Through these, we continue to change the landscape of the industry and ensure that the company is able to tap its target market niche, which we believe we’ll be the first one to attract investment, delivering value to all stakeholders and foremost to our clients.

Under innovate, SBM Offshore will continue to invest in obtaining foothold and product acceptance in the gas and renewable markets. We continue to develop our technology in line with an ongoing market development, aiming at bringing systems, products and services into the gas and renewable market.

So all of this means we ought to adapt our business model to the 2 main trends which are impacting our industry, namely, shorter cycle with a lower for longer oil prices, and all of this, while lowering the environmental impact and speeding up energy transition. So as such, we're adapting the organization.

The main objective of this organization adaptation is to increase our competitiveness and flexibility. Activity will be centralized, leveraging SBM experience and technical know-how. Combined with standardization, this will improve product development and client focus. The company is increasing its flexibility to be able to scale the organization with market demand while increasing the capacity of our center in India.

Building on Fast4Ward and the Zero -- eMission Zero programs, our carbon intensity will decrease and cost efficiency will increase. As such, SBM Offshore strengthened its competitiveness, answering to client needs.

Compared to year-end 2019, SBMO Offshore's reorganization will eliminate on a gross basis around 600 position and around $100 million per annum run rate cost saving associated with this decrease. Completion is expected to be around year-end 2020. Our capacity will remain 2 to 3 FPSO order wins per year. But the organization will be more efficient and make use of its enhanced scalability.

SBM Offshore will continue to adapt while the energy market transform. We're committed to delivering solution to clients in order to make the energy transition a reality and to reduce the carbon intensity of our business.

Going to optimize. As stated, on the first half of the year, we operated with a high degree of reliability. In this challenging period, our staff has performed very well in keeping the fleet running. In Guyana, Liza Destiny reached first oil in December 2019. After a successful startup, the unit started to experience some challenges with the gas handling system during the final commissioning phase. With our clients and suppliers, we’re working hard to solve those issue and to have the unit producing at capacity.

On the execution side, FPSO Sepetiba is under construction in China, where yards reopened at the end of the first quarter.

Liza Unity is under construction in Singapore. The yards in Singapore reopened recently and are ramping up capacity again. Both projects are still targeting to reach first oil in 2022.

Under transformation, we're looking at continuous improvement. As stated earlier, our clients want lower carbon intensity and cost efficiency to produce the future oilfield. Back in 2014, SBM Offshore launched its Fast4Ward program, accelerating time to market, enabling clients to lower their carbon intensity and breakeven prices. Important element from the program is the learning assay. We are only at the beginning of the journey. It allows us to continue improve, which brings further reliability, schedule and cost advantages.

We're developing our eMission Zero program to address the challenge of our industry, and our key priority is emission reduction. This program consists of more than 20 individual project, which collectively develop -- are aiming at developing an FPSO which can operate with a 0 net carbon footprint. The program takes -- is aiming at reducing the emission from the 2 main source of emission of an FPSO, in particular, power generation and flaring.

So innovate. And here again, we reiterate our ambition to have a 25% of revenue from gas and renewables by 2030. And this will be obtained through technology and product development in both the gas and the renewable market. Our concepts are progressing well and are promising. But we recognize that markets for this technology are still relatively immature and developing.

Within the floating gas market, we consider our LNG2WIRE and recently developed tower loading units as the most likely contributor to the short and medium term objective. The same applies to our floating offshore wind technology, which is part of our renewable product offering. Engagement with potential clients have also increased during this period and we also have signed another pre-FEED agreement in 2020.

Although FLNG technology is ready for the market, opportunity are expected to come only in the longer term. While wave energy converter is a promising technology, it's still at an early stage. The next milestone will be launch of a pilot program and test Offshore Monaco in 2022.

I'm now going to hand over to Douglas to explain to you financial and our guidance for the year. Douglas?

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Douglas H. M. Wood, SBM Offshore N.V. - CFO & Member of Management Board [3]

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Thank you, Bruno, and good morning, everybody. So before we get into the financial results, as Bruno highlighted at the beginning of the presentation, the strength and resilience of our business and cash flow model has supported the company in effectively addressing the challenges of the pandemic.

Looking forward, the model will support us to continue to deliver our strategy and enable us to adapt to the future. And during the first half, our model also allowed us to maintain payment of our increased dividend of $150 million and to complete EUR 150 million share buyback at an average share price of EUR 12.43. And then at the same time, we've been able to maintain the requisite liquidity for growth.

Turning to the overview now of the key metrics for the first half. Driven by Lease and Operate, revenue increased by over 20% compared with the same period last year. That's up by $250 million to around $1.18 billion. The main drivers of this increase were Liza Destiny, which started operation in Guyana at the end of last year, plus the impact of the acquisition of the minority share in 5 Brazilian FPSOs just before year-end.

EBITDA was $523 million. That's around a 30% increase versus the same period last year. And again, that's driven by the same factors, as in revenue, from Lease and Operate.

And then to mention, in relation to the P&L, that in light of the deterioration in outlook of offshore support vessel market, we've taken the decision to fully impair the diving support and construction vessel, SBM Installer. That results in a $57 million charge to the P&L. That's obviously below EBITDA. The backlog stood at $19.7 billion at the end of the first half, a decrease of $1 billion since the end of last year. And this is a function of the revenue generated from the backlog during the period with some offsets from variation orders and small awards.

Finally, on this page, net debt increased by $419 million driven by investment in the major projects currently underway.

Now if we look at in a bit more detail at the segments. The Lease and Operates, as I just mentioned, the main factors to the increase in revenue and EBITDA, up just under 30% in both cases, were Liza Destiny joining the fleet and the acquisition of the Brazilian FPSO minority share. And regarding incremental costs in the fleet associated with COVID-19, those that are not reimbursable by clients were largely offset by improved operational performance.

Moving to Turnkey. Revenues increased by 10% to around $350 million. Revenue related to the 35% partner share in the Sepetiba project was the main driver relative to the comparative period. Then on EBITDA, Turnkey increased by $20 million to $25 million versus the first half of last year, with contributions from the Castberg and Liuhua turret projects being key drivers of this. As important to note that the construction activities on FPSO did not significantly contribute to EBITDA in the first half of 2020.

Under Directional, Sepetiba has not yet reached the requisite percentage of completion gate. Then the Liza Unity project and the current limited scope for the Prosperity project are activities conducted on 100% basis. And as such, under Directional, these projects do not contribute to the company's net results before first oil.

As we usually do, just to give you an indication, that the underlying performance in Turnkey based on Turnkey EBITDA including the eliminated internal margin, this would have taken EBITDA to around $100 million for the first half.

Lastly, the other segment, that was a charge of $40 million, an increase of $10 million compared with the same period last year and this is mainly the result of a number of one-off tax and legal expenses in the first half and spend on digital initiatives.

Now if we move on to cash flow on a Directional basis. Underlying cash from operations generated from the first 6 months of 2020 was basically sufficient to cover debt repayment tax and the full year 2019 dividend. Drawdowns from the Liza Destiny and Unity debt facilities covered expenditures on these 2 projects, plus freed up corporate cash previously invested in them. This, combined with a small draw on the RCF was more than sufficient to cover remaining growth spend on Sepetiba, plus some additional working capital. And this increase in working capital mainly related to timing of receipts in Lease and Operate. And the remainder, combined with the draw from cash, was used to finance the share buyback, leaving a cash balance of just over $300 million at the end of half.

Now to look at where we stand on the balance sheet and liquidity, we're starting with a summarized Directional balance sheet and focusing on the most material part of this, which is Lease and Operate. Liza Destiny drives the increase in nonrecourse project debt. The corporate guarantee is now being released. However, this was recently in July, so it's included in this category on a pro forma basis as at the end of June, and the asset’s now in PP&E.

The total debt stood at $4 billion at the end of the first half, with all this debt directly linked to investments in Lease and Operate, with more than 80% in the operating phase on a nonrecourse basis, including Destiny.

Then on liquidity, looking at the pie chart, as of the 30th of June, we had $2.1 billion of liquidity. During the period, a $600 million bridge loan facility was secured by the special purpose company owning FPSO Sepetiba. Repayment is expected to take place upon closure and the first drawdown of the main project loan for which negotiations continue to progress as planned. The approximately $400 million SBM share of the bridge facility is included here as part of undrawn facility. And during July, the bridge loan was fully drawn and the RCF repaid.

Now to focus on the net cash flow we generated from the backlog of lease and operate and BOT projects. And here, we presented the annual net cash generation of the operating phase of projects in the backlog, including from the sale of the 2 BOT projects. This is the financial foundation of the company secured by projects with very low operating breakeven, on average around $7 a barrel, which uniquely positions the company in navigating the current challenges and in providing a platform for the future.

To provide a view on this key component of the overall company value, we have discounted the blue Lease and Operate net cash, which is $240 million on average for the next 25 years plus the net cash from the sale of the BOT projects in orange at a range of discount rates we observed being used by the financial community.

We stated all the assumptions on the slide, but a key to note that this only includes the in-hand project in the backlog. So it does not include Prosperity, which is still subject to FID nor does it include any value of the lease extension options. And also to highlight just for the avoidance of doubt, it does not include any future growth.

For a range of discount rates from 8% to 6%, you can see here that this gives a range of approximately EUR 16 to EUR 18 per share, which compares to yesterday's closing price of EUR 13.94.

And lastly, to look at the outlook for the full year. Underpinned by in-hand activities from the backlog that we just discussed and benefiting from good performance on closeout of projects and other commercial items, 2020 Directional EBITDA guidance is increased from around $900 million to above $900 million. 2020 Directional revenue guidance is maintained at around $2.3 billion of revenue with around $1.6 billion coming from Lease and Operate and around $0.7 billion from the Turnkey segment.

And this guidance excludes the exceptional impacts on revenue and EBITDA, resulting from the redelivery of the Deep Panuke platform as described in the press release. But just here to give you some further details of this, while the contractually agreed amount and timing of the financial considerations to be received remain in line with the original charter contract for Deep Panuke, from an accounting perspective, all remaining financial impacts are required to be booked immediately as a consequence of the redelivery. And this is going to result in an anticipated additional revenue and EBITDA recognition of $79 million in the second half 2020. However, after depreciation, there'll be a negligible impact on net income, and there will be no cash flow impact in 2020 from this contract reclassification.

For the avoidance of doubt, the estimated $50 million to $60 million cost associated with the restructuring described earlier are included in the guidance. Finally, as we've been highlighting throughout the course of the pandemic, the EBITDA and revenue guidance considers the currently foreseen COVID-19 impact on project and fleet operations. We should highlight that the direct and indirect impact of the crisis could have a material impact on the company's business and results. Obviously we’ll continue to provide further information on the status of the outlook and guidance on the usual quarterly basis.

That's it from me. Now back to Bruno to open the Q&A.

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Bruno Y. R. Chabas, SBM Offshore N.V. - Chairman of Management Board & CEO [4]

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Thank you, Douglas. So this concludes the prepared portion of the conference call. And now the floor is yours for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question is coming from Mick Pickup from Barclays.

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Michael Brennan Pickup, Barclays Bank PLC, Research Division - MD & Senior European Oilfield Services Analyst [2]

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Nice results. A couple of questions, if I may. First, can I just take you back to that DCF you've given. Thank you for doing that. Can you just tell me, is that just the cash flows from those units? You haven't taken any accounts of corporate costs or tax on that number? So is that just the contracted cash flows coming in?

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Bruno Y. R. Chabas, SBM Offshore N.V. - Chairman of Management Board & CEO [3]

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Douglas?

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Douglas H. M. Wood, SBM Offshore N.V. - CFO & Member of Management Board [4]

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So yes, Mick. Indeed, that is the case. It's just the contracted cash flows.

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Michael Brennan Pickup, Barclays Bank PLC, Research Division - MD & Senior European Oilfield Services Analyst [5]

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Right, okay. And then second question, just looking at your lease fleet revenues. Obviously, in the first half, you've seen a big step-up as new units have come in. Were there any impacts of the unit not operating fully to specifications in the first half? I'm just wondering how we see a progression from here because clearly, we've gone from a run rate of about $660 million to $670 million a half in lease rate up to $830 million. It's quite a big step-up at this half. I'm just wondering if that's a run rate now? Or are there any one-offs when it's first started?

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Douglas H. M. Wood, SBM Offshore N.V. - CFO & Member of Management Board [6]

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No. No one-offs. And in terms of the guidance for the year, we incorporated the -- in our thinking the fact that this asset was in startup phase.

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Operator [7]

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(Operator Instructions) And the next question is coming from Luuk Van Beek, Degroof Petercam.

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Luuk Van Beek, Banque Degroof Petercam S.A., Research Division - Analyst [8]

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A couple of questions. First of all, the project sanction for Prosperity is still a bit uncertain. Do you consider that to be a risk for your capacity utilization in 2021?

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Bruno Y. R. Chabas, SBM Offshore N.V. - Chairman of Management Board & CEO [9]

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So as we mentioned during the prepared portion of the call, and the project is not FID. This is within the end of the clients and the local government. As such, we're looking and we're preparing for the different scenarios, but the impact would be on next year. So we have not provided any guidance on the subject.

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Luuk Van Beek, Banque Degroof Petercam S.A., Research Division - Analyst [10]

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Okay. And then on your office in India, can you give an indication how big it is currently? And also, the 600 people headcount reduction, is it a net number? Or will it partly be offset by an increase in India?

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Bruno Y. R. Chabas, SBM Offshore N.V. - Chairman of Management Board & CEO [11]

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I believe the best way to answer this question is really to provide you more flavor about the way we're organizing, the way we're adapting the structure of the company and the execution model. So I propose that Philippe takes you through those different points.

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Philippe C. Barril, SBM Offshore N.V. - COO & Member of Management Board [12]

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Luuk, again, coming back to the investment in India, it's fair to say that it comes up with a number of investment we've been maintaining, starting with on the hull program, hull #4 and 5, which is beyond the one that are already committed.

Following that, there is investment on Fast4Ward execution, including standardization of topside module, and we carry on the effort in digitalization for better performing assets. I don't want to miss -- and Bruno mentioned that all the [reporting gas in hull] are renewable.

We are, coming back to your question, not replacing positions. We are adapting to the market and to the execution model, further specializing the centers. So now sadly, we had to consider to let go a number of people, staff and contractor, primarily in Europe and in U.S.

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Bruno Y. R. Chabas, SBM Offshore N.V. - Chairman of Management Board & CEO [13]

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And the number that we mentioned -- thank you Philippe, the mentioned -- number that we mentioned of 600 is gross. You realize that when you bring new unit into production or new unit into construction, you need to add people who are going to be working on yards or in construction, but they are usually contractors.

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Luuk Van Beek, Banque Degroof Petercam S.A., Research Division - Analyst [14]

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Okay. And then final question for now. On the renewables, several oil companies have announced an increased focused on renewable energy. Do you see an increased demand from these types of customers? And also, is it easier to sell these types of products to them instead of to type of customers with which you had no relationship so far?

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Bruno Y. R. Chabas, SBM Offshore N.V. - Chairman of Management Board & CEO [15]

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So a few comments on that. What we have seen during the period or since the beginning of the COVID crisis, if anything, we have seen an increase in the number of inquiry from the renewable activity. Now our focus on the renewable activity is really on the floating system, which are projects usually are going to be developed in earnest in 5 years -- 5 to 10 years. So we’re at a phase where we're developing technology in order to validate that those project could be economical and could be reliable.

I mentioned during the introduction, and we mentioned in the press release that we have signed another pre-FEED with another client on this, and we're progressing on the pre-FEED contract that we have announced previously on the project called Provence Grand Large. So we're seeing a momentum in this industry.

At this stage, I would say that the oil company, which are making more play into the renewable business, are mainly -- when they are offshore, they're mainly on the fixed offshore systems, which is not a market segment that we're addressing at this stage. But we can see that they are getting interested in getting in deeper water. And then there is -- probably we're going to see more engagement with them in the future.

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Operator [16]

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And the next question is coming from Thijs Berkelder, ABN AMRO.

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Thijs Berkelder, ABN AMRO Bank N.V., Research Division - Equity Research Analyst [17]

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Congratulations, great results. First question related to COVID-related costs. Can you maybe indicate what the gross additional costs were and which part was not reimbursed?

Second question on renewables and gas, your slide shows that you expect already contribution from LNG2WIRE and from a tower loading unit in 2021. Does it mean that you will probably sign contracts for both of these? Or you expect to sign these contracts in the second half of this year?

And maybe third question on guidance, 2x first half is $950 million EBITDA, excluding restructuring costs is $1 billion EBITDA. Yes, how should we reach the cautious guidance of above $900 million?

And maybe a bit more specific guidance on corporate costs, I presume that the legal and tax costs will not come back in the second half, the corporate costs probably lower.

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Bruno Y. R. Chabas, SBM Offshore N.V. - Chairman of Management Board & CEO [18]

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Okay. So thank you for your comments and your question. Douglas will take the 2 question related to the guidance and the cost and the other financial question.

If we look at the innovate slide, which is the Slide 15 on our pack, what we're showing there is the maturity of the different product that we have. And if we look at LNG2WIRE, the tower loading units and the floating offshore wind, all the technology is at the same level and basically ready for market. Now we're also seeing opportunities for those 3 products, and we believe those fleet products are going to be first to market. The slide doesn't say if we're going to sign contract by the end of this year or beginning of next. But we're monitoring the market evolution. We engage with clients, and we're hopeful that we're going to see some evolution in the near future on those.

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Douglas H. M. Wood, SBM Offshore N.V. - CFO & Member of Management Board [19]

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Okay. So on the COVID costs, yes, I mean, indeed -- I mean, thanks to the great efforts of the team in operations, we've been able to introduce a number of protocols and ways of working, which as Bruno mentioned, have resulted in the fleet being COVID-free for the past 2 months.

This does entail additional spend. But as you know, we have various types of contracts in our operations, reimbursable ones. So therefore, the client picks up those costs and then basically the ones in Brazil, it's an all in. So costs come to us and our partners. So our partners bear some of the overall cost there. And then as I mentioned, due to kind of overall performance, we -- and other measures, we've been able to offset the net impact to SDM.

If we then turn to your question on the guidance, yes, I think what I'd say there is we're halfway through what's been a challenging year that's turned out very differently to how we all imagined it with a lot of uncertainty including going forward. I think you can have different phasing between halves, as you know. I think what I'd say is we'll see how things progress over the next quarters. And as usual, we'll keep you posted.

Then specifically, you had a question on the corporate costs, yes, there was an impact in half-on-half from one-offs and those aren’t going to come back in the next half.

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Operator [20]

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And the next question is coming from Q. Mulder, ING.

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Quirijn Mulder, ING Groep N.V., Research Division - Research Analyst [21]

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As you know that at the beginning of, let me say, at the COVID crisis, there was a discussion about discounts to rates. And you said, yes, we are helping the clients. Is the story in the press release about Capixaba such an example of what's happening there with the extra maintenance and, let me say, a delay of payments into, let me say, with an extra 4 months? Is that in line with what you have indicated in May with regard with the first quarter number?

Then on Deep Panuke, maybe you can give an idea about the change of the payment -- upfront payments by the client?

And then on India, what sort of investments we should think about the extra wage cost or the increase in CapEx in that area?

And my final question is about Destiny. Any news from Exxon with regard to taking out the Destiny after 2 years? Or is it still a 10-year contract? Those were my questions.

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Bruno Y. R. Chabas, SBM Offshore N.V. - Chairman of Management Board & CEO [22]

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Okay. So thank you for those. I will take the Capixaba and the Destiny question and Douglas is going to focus on what is not floating, so namely Deep Panuke.

So let's look at Capixaba. Capixaba -- and before I go into Capixaba, let me discuss about our business model. Our business model is basically the ability to develop products and services for our clients, to do it with an upfront investment for them, then after, to be paid back over a period of time.

When we engage with the client, first of all, we make sure of the solidity of the client, the long-term focus that they have, but also the economics of the field under which we're working. Douglas mentioned in his presentation that on average, the assets that we're having in the field where we're working have a breakeven price of $7 or lower. So we ensure that there is a long-term viability on the project that we're working on.

Now when we look at our fleet, there are some regular maintenance to be done. And obviously, when you see a crisis like the COVID crisis, you can engage with the clients, and you can see how you can accelerate some of those maintenance, and you could see how you adjust your maintenance planning.

And Capixaba is a good example. We were supposed to do maintenance next year. In consultation with the clients, we worked in accelerating the maintenance in this year. This created basically an opportunity for both parties. And as such, we can see the impact in the extension of the lease.

With regard to the Destiny project, the Destiny project, as you mentioned correctly, is a lease and operate contract for 10 years. However, the indication that we have had from our clients is that they will take over this unit after 2 years. That's still the indication that we have. We obviously are engaged with them to see if there is any evolution. But so far, we don't have anything to add to that.

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Douglas H. M. Wood, SBM Offshore N.V. - CFO & Member of Management Board [23]

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Okay. And then on Deep Panuke. So yes, I mean, despite quite some challenges from COVID-19, our team was able to safely complete the deinstallation of the vessel. This is quite some achievement in the circumstances.

Now normally on the installation, a termination fee would be due from the client, but we've agreed that we'll keep the same payment profile as we had in the original charter contract. That's through to pretty much the end of next year and with the financing associated, will stay in place. So cash flows remain in line with the original contract flowing through to the end of November.

However, as I mentioned, accounting-wise, we need to assume the redelivery has occurred. So we have to book all the remaining revenue through to the end of next year. And as we've disclosed in the press release and I mentioned, that's $79 million revenue EBITDA but offset by pretty much the same number in depreciation. But the -- so the -- just to be clear, so the client continues to pay in line with the original contract, noting that they do have an ability at a point in time to pay a termination fee before the end of next year. We still have that option.

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Bruno Y. R. Chabas, SBM Offshore N.V. - Chairman of Management Board & CEO [24]

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Okay. I believe you also had a question with regard to the impact of India. So the information we provided was associated to the overall reduction in gross cost in the range of $100 million on the 12-year running basis. We didn't provide any additional information on that.

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Operator [25]

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And there is a follow-up question from Thijs Berkelder, ABN AMRO.

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Thijs Berkelder, ABN AMRO Bank N.V., Research Division - Equity Research Analyst [26]

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Looking at the 2 projects in the construction, Liza Unity and the Sepetiba, they both are planned for delivery in 2022 but the percentage of progress is quite different. To me it looks as if the Liza Unity is months ahead of schedule and the Sepetiba months behind schedule. Can you maybe clarify that in one way or another?

Then looking at the Sepetiba, Petrobras itself already reports 40% completion for the whole project. So question on the Sepetiba, when can we expect it to pass the 25% hurdle and maybe when to expect it passing the 50% hurdle in SBM Offshore accounting?

Then another follow-up question. Can you maybe repeat, looking at your still very strong balance sheet, what the prospects are for dividend, share buybacks, let's say, announcements end of year? Can you give any -- maybe give any guidance or clarity there?

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Bruno Y. R. Chabas, SBM Offshore N.V. - Chairman of Management Board & CEO [27]

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Okay. So I would give a quick introduction on those 2 points, and Philippe will expand more on the project side.

A quick reminder about our dividend policy, which is to be stable and growing over time. When we paid the dividend at the end of last quarter, in fact, we announced that we had a full review about maintaining the level of dividend, that based on the cash flow that we have in hand, we could maintain the policy that we have. And that's basically where we stand today. There is no reason to change our policies or to provide any additional information.

Share buyback is something that we're looking on a case-by-case basis, depending on the cash inflow of the company and the position. So today, again, it's not something that we're looking at or we have any additional information to provide on the subject.

The next point with regard to progress on projects, and in particular, the 25% threshold. We as always or since I've been the head of SBM Offshore, we always have mentioned that we're looking at progress on projects on a conservative basis. And the 25% basis is really only a threshold that we use in order to start recognizing margin if we feel comfortable about the forecast and the situation.

So today, the COVID-19 crisis is really creating a lot of uncertainty in terms of fabrication, the associated cost, how we deal with this. And based on this, we're adjusting our view on projects and how we account for that. But more specifically on the -- on those 2 projects’ progress -- and by the way, this conservatism might have an impact on what we're showing in terms of the progress and which might be different progress than the ones shown by other parties. So I wouldn't read anything between the progress that we're showing and the difference in progress from clients or someone else.

But Philippe, do you want to expand a bit further on the subject?

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Philippe C. Barril, SBM Offshore N.V. - COO & Member of Management Board [28]

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Yes, a bit more granularity about terms of 2 projects. So Sepetiba is primarily in the engineering and procurement phases. As you all remember, we have as well hull in fabrication in China. We have started in the last quarter of the fabrication of the topside. It's fair to say that due to lockdown of the engineering office and as well some lockdowns at supplier, there have been an impact. And this impact is under discussion with Petrobras.

As far as Unity is concerned, the engineering and procurement, most of it is delivered. The hull has been fabricated and was out at the back end of last year and is now in dry dock somewhere in Singapore. The modules fabrication have progressed. But as mentioned by Bruno, the yards in Singapore have just reopened. And so we will require meaningful efforts, not to say a recovery in the second half of the year, to be able to maintain our target, which is a delivery in 2022.

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Thijs Berkelder, ABN AMRO Bank N.V., Research Division - Equity Research Analyst [29]

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Clear. Can you maybe further give an update on the planning for the hulls #4 and #5? I read in news reports that hull #5 would not be made in China? Is that correct?

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Bruno Y. R. Chabas, SBM Offshore N.V. - Chairman of Management Board & CEO [30]

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I don't know which report you're reading to, but that's -- I would be curious to see the source of those, but Philippe can give you some idea about hull #4 and 5.

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Philippe C. Barril, SBM Offshore N.V. - COO & Member of Management Board [31]

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All right. So we previously clarified somewhat: hull #1, which is delivered in Singapore, hull #2 progressing. Hull #3 is getting closer to the trial. For hull #4 and 5, what I can confirm is we maintain the commitment and we see a market for them.

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Bruno Y. R. Chabas, SBM Offshore N.V. - Chairman of Management Board & CEO [32]

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So it's progressing according to the plan that we have set some time ago. We’re just meeting.

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Operator [33]

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(Operator Instructions) And the next question is coming from Andre Mulder, Kepler Cheuvreux.

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Andre F. M. Mulder, Kepler Cheuvreux, Research Division - Analyst [34]

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Still a couple of questions left. Firstly, on the SBM Installer, you said the market has changed, but I'm already seeing some experts who are saying that there will be a recovery, especially in '22 to '24, we're reaching same levels in 2017. If the contract is ending only at the end of '26, why depreciate all of the book value? I would expect that, let’s say, (inaudible) that some of that book value will be left there. What was the reason for that?

Secondly, on Capixaba, I think this is the second refurbishment. Are there any signals that the client will extend the contract in relation to this refurbishment? Or are you going for new opportunities there? And question on adapting the organization. You mentioned India and the 600 job losses. What other steps are you taking to adapt the organization there?

And question on renewables…

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Bruno Y. R. Chabas, SBM Offshore N.V. - Chairman of Management Board & CEO [35]

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Sorry, what are the steps that we have?

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Andre F. M. Mulder, Kepler Cheuvreux, Research Division - Analyst [36]

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On the adapting the organization, so you make some steps in India and then cut loss, cut jobs in other parts. Are there any other steps you are taking to adapt the organization there?

And question on renewables. We now see the emergence of the offshore wind to hydrogen floater. Is that one of the things you are looking at?

On the Sepetiba, any progress on the financing of the refinancing of that unit?

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Bruno Y. R. Chabas, SBM Offshore N.V. - Chairman of Management Board & CEO [37]

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You have plenty of question today, huh? Okay, let me take some of them.

So if we look at the SBM Installer, the -- if you look at the strategy of SBM Offshore, we have made it clear for years of where -- how we want to be positioned, what we want to do and how we want to act in the market. As such, we want to keep capacity to install floating structure and -- big floating structure and in particular, FPSOs, and we want to have this capacity to do so. The market, which is more the market of the light intervention or small SURF, it's not a market that we're targeting. And basically, the SBM Installer is much more vessel suitable for this market rather than anything else.

So today, we're looking at our portfolio of activity. We said in order to restructure the company to become much more efficient to provide better value to our clients, we're better off to increase our investment into what matters for the future of the company rather than trying to diversify into things which really add some value, there is a market for that, but really is not the core of SBM Offshore.

So the decision has been made to look at divestment of the SBM Installer. We have activity on this vessel for the coming year basically. And so we're going to take time to see what are the market opportunities. And from there, we're going to see what it is. But we look at all of this and decided to depreciate the value of this asset.

Then you asked a question on Capixaba. So on Capixaba, is there some discussion ongoing with the clients with regard to extensions? We mentioned a 4-month extension based on this based on the change in the sequence of the maintenance. That's all we can say at this stage, and that's where we are.

On adapting the organization. So there's a few points. And Philippe already expanded on that. But the key points of what we're doing there in adapting the organization for the future is really to centralize the experience of SBM into a number of centers and to specialize much more the centers to as critical mass of people in order to be able to go up and down with the reality of the market.

India is a center that we have started to develop a few years ago where we believe that we have a good added value by working with India and as part of this overall strategy, it's a center that we're going to increase in size. But overall, what it means, it means that we’re lowering the breakeven point of the company by being able to deliver what I believe is going to be better set product by being able to increase our productivity and by being able to leverage on standardization.

And in reality, a continuation of the strategy that we have put in place since 2014, which is being crystallized to some effects through the catalyst of the COVID-19, but it's really a continuation of the strategy that we have put in place for some time.

Then you spoke about wind, hydrogen, ammonia and the rest of it. So obviously, we're looking at the trend that there is in the market. We're looking at opportunities that there is. We have some internal review on the subject, but we're not mature enough in order to come to the market to say what we're doing on that. We’re first of all making an assessment on the market. We're making an assessment of the technology we could bring to those markets. We're looking at the opportunity which exists. But as always, it’s part of the mission that we have as a company to go the -- to develop energy from the ocean. And if hydrogen is a good way to -- if one of the vectors to participate on this, we are going to participate on this.

And last but not least, question for Douglas, I believe.

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Douglas H. M. Wood, SBM Offshore N.V. - CFO & Member of Management Board [38]

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Yes, on the financing of Sepetiba.

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Bruno Y. R. Chabas, SBM Offshore N.V. - Chairman of Management Board & CEO [39]

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For the financing of Sepetiba.

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Douglas H. M. Wood, SBM Offshore N.V. - CFO & Member of Management Board [40]

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So yes, the financing is progressing as per plan. As you know, it's a very large financing. So there are a lot of institutions involved. There’s export credit agencies, banks. These things typically take some time to get in place as we've seen in the past. And in the meantime, actually, as you see, what we've been able to do is accelerate leverage into the project at project level through the bridge loan, which helps us to optimize the funding and the economics of the project.

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Andre F. M. Mulder, Kepler Cheuvreux, Research Division - Analyst [41]

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Do you see any changes in the market, for example, in terms of interest, people shying away from fossil fuel or any changes in the rates that you have anticipated?

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Douglas H. M. Wood, SBM Offshore N.V. - CFO & Member of Management Board [42]

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So I think we've maintained a high level engagement -- of engagement with our lenders well before the project and as we've started the construction through the COVID crisis. I think we -- as I mentioned, the discussions are underway, the negotiations are underway. So the appetite for the project is there. And then we'll be in the process of finalizing the pricing towards the end of the year.

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Andre F. M. Mulder, Kepler Cheuvreux, Research Division - Analyst [43]

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Last question then on the Sepetiba. So you’re now still under 25%. Would you anticipate that it will be reaching that threshold in the second half, i.e., you will be recording a profit on level?

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Bruno Y. R. Chabas, SBM Offshore N.V. - Chairman of Management Board & CEO [44]

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Again, as I mentioned, the 25% is one of the thresholds that we're applying, but we're also applying the certainty that we have in the forecast. And given what's happening with the COVID prices, we need to assess on a per man basis, the planning, the cuts and so on. So time will tell, and we're going to decide what to do by year-end.

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Operator [45]

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And the next question is coming from Henk Veerman.

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Henk Veerman, Kempen & Co. N.V., Research Division - Research Analyst [46]

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Some technical difficulties, so my apologies if the topics have already been discussed. But a couple of remaining questions. So firstly, now that clients have seen your deal on the Capixaba FPSO where you suspend 4 months of lease payments, do you expect to pull forward maintenance on other vessels and maybe in combination with suspension of -- temporary suspension of lease payments on similar vessels, especially if the oil price stays where it is and environment is quite weak for longer periods of time?

And my second question would be on the Liza Destiny, where you're still not ramped up to full capacity. Does this have any financial consequences at all for you? And does this have an impact on the potential transfer date of the vessel?

And then my last question would be on the full year CapEx. Do you expect a similar number for the second half of the year or acceleration?

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Bruno Y. R. Chabas, SBM Offshore N.V. - Chairman of Management Board & CEO [47]

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The full year what?

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Douglas H. M. Wood, SBM Offshore N.V. - CFO & Member of Management Board [48]

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CapEx.

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Bruno Y. R. Chabas, SBM Offshore N.V. - Chairman of Management Board & CEO [49]

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Oh, CapEx, sorry. Okay. So first question with regard to Capixaba and the model. What we're doing, at the end of the day, is creating value to all stakeholder, including our clients. In the specific case of Capixaba, there was an opportunity because the maintenance was planned, and there was an opportunity to accelerate this and to schedule and to make some evolution.

So obviously, we're engaging with clients on a regular basis on opportunities to optimize their production, to see how we can generate more values. And on a case-by-case basis, we can look at it. Today, I don't foresee any cases like this because I don't see any major maintenance coming up, but there might be some other cases there.

Your second question with regard to the financial impact on Liza Destiny. Here again, when we deliver a project, a project is not delivered until there is a final acceptance. So our ways of looking at the margin on the project is really to make sure that we have enough contingency or enough forecast into our project in order to cater for unknown and the unknown and known what we're saying.

In fact, a good example of what is this is often you see on our results, toward the end of the project, once a project is delivered, a release of contingency, which is basically taking into consideration the unknown and known which have not materialized. In the case of Destiny, we obviously had a number of unknown and known which did happen, but from a financial standpoint, we are still within the project responsibility. And the third point was...

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Douglas H. M. Wood, SBM Offshore N.V. - CFO & Member of Management Board [50]

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On the CapEx?

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Bruno Y. R. Chabas, SBM Offshore N.V. - Chairman of Management Board & CEO [51]

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On the CapEx.

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Douglas H. M. Wood, SBM Offshore N.V. - CFO & Member of Management Board [52]

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Yes. So yes, I'm not going to give precise guidance. I think we say where we are on projects, the [SGAS], but maybe try to be a little bit more helpful. If you think about the CapEx this year. So Destiny was completed. We have Unity, Sepetiba just ramping up. So I think you can expect a bit more for the second half.

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Operator [53]

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And the last question is coming from Q. Mulder, ING.

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Quirijn Mulder, ING Groep N.V., Research Division - Research Analyst [54]

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Yes, Quirijn Mulder. And if you speak about the breakeven level, $7 per barrel, and you're looking for standardization Fast4Ward, let me say, lower wage cost, let me say, outsourcing to India, et cetera, what sort of levels of breakeven levels can we think of if you're aiming to lower that? And is -- let me say, is that something which will happen over the whole fleet in the coming years given the possibilities you have there?

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Bruno Y. R. Chabas, SBM Offshore N.V. - Chairman of Management Board & CEO [55]

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Okay. So you know...

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Quirijn Mulder, ING Groep N.V., Research Division - Research Analyst [56]

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Or do we get more for the same price? That's also possible, given the complexity of FPSOs today.

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Bruno Y. R. Chabas, SBM Offshore N.V. - Chairman of Management Board & CEO [57]

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So maybe the best way to answer that is when we look at the market, our belief is really only that the large field are going to be developed, and for the large field to be economical, you need to have large units, and those units needs to be cost-efficient and the cost per barrel needs to be good.

The way to do that is basically by developing the unit quickly between the time of oil discovery to first oil. And Destiny is a good example. Destiny, the time -- the discovery of the field was in May 2015, first oil December 2020. While on average in the industry, it would have taken 6 more years to do the development.

So time to market is important. You can only achieve time to market if you can standardize, and that's what we're doing through Fast4Ward, through our ways of engaging with the clients. And through standardization, obviously, you increase the reliability.

Again, I remind you that more than 70%, so 7 out of 10 projects being delivered on the SBM Offshore market are on average 12 months late. So doing what we're doing, basically, we’re increasing the reliability to our clients. We’re accelerating first oil, and we're reducing the cost of those development. So that's what we're aiming at doing. And the first oil, on the first oil on Destiny is obviously December 2019 not 2020. I’m ahead -- late. That's 2020 if we had been in line with the industry trend. That's what I meant. Okay? So I hope you answer the question.

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Quirijn Mulder, ING Groep N.V., Research Division - Research Analyst [58]

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Yes.

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Operator [59]

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There are no further questions. Please continue.

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Bruno Y. R. Chabas, SBM Offshore N.V. - Chairman of Management Board & CEO [60]

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Okay. So thank you very much for your attendance and your question for your call. Thank you for joining us. Stay safe, and you can now resume normal activity.

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Operator [61]

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Ladies and gentlemen, this concludes this SBM event call. You may now disconnect your line. Thank you very much.