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Edited Transcript of SBX.OL earnings conference call or presentation 7-Nov-19 7:00am GMT

Q3 2019 SeaBird Exploration PLC Earnings Call

Oslo Nov 17, 2019 (Thomson StreetEvents) -- Edited Transcript of SeaBird Exploration PLC earnings conference call or presentation Thursday, November 7, 2019 at 7:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Gunnar C. Jansen

SeaBird Exploration Plc - Interim CEO, Chief Commercial Officer & Chief Legal Officer

* Per Nils Christian Haugestad

SeaBird Exploration Plc - CFO

* Ståle Rodahl

SeaBird Exploration Plc - Chairman of the Board

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Presentation

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Ståle Rodahl, SeaBird Exploration Plc - Chairman of the Board [1]

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Right. Welcome, everyone, to SeaBird Exploration's third quarter conference call. My name is Ståle Rodahl. I'm the Chairman of the Board, and I joined the company a couple of months ago.

There are 2 observations that can be made when it comes to SeaBird that are strikingly obvious. One is that the company is very [steel] or should we say vessel heavy. The other one is that there are 3 bulkheads dividing the operations of the company. These bulkheads go along the following 3 lines. One is geographic, in the main that is between Oslo and Bergen; the other one is between source and streamer seismic; and the third one is between operations and sales.

And the Board has outlined a new strategy to deal with these issues. And we expect there to be a -- we expect to see an effect on the company's -- some of the company's key performance metrics as these changes are taking place over the next few months.

We're pleased to announce that Gunnar Jansen who take up the role as interim CEO a couple of weeks ago. And also with us today, of course, we have Nils Haugestad, our CFO.

So with that, I hand it over to Gunnar. Please.

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Gunnar C. Jansen, SeaBird Exploration Plc - Interim CEO, Chief Commercial Officer & Chief Legal Officer [2]

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Thank you, Ståle. So welcome, everyone and everyone who's listening too. I think it's -- just start with the presentation. Quickly on the agenda. We will just go through the highlights of the quarter, and then I'll spend some time on the strategic update that has been promised and some of the market and operational review before Nils takes over on the financial review.

Just -- so -- you'll have to help me out, Nils, if I'm stumbling a little bit here. But the key financial and operational figures. We had revenues in the third quarter of $16 million compared to $5.4 million last year in the same quarter and a clean EBITDA of $2 million, which was also an improvement from last year.

The fleet utilization was good at 68%. That includes all of the vessels. And we had a CapEx of $12.7 million. The revenues. Increased revenues represented almost 200% increase compared to year-on-year. We see that the pricing in the market in all the segments are continuing to improve and to strengthen. What's also very important is that streamer demand is increasing, and we see more streamer -- not just tenders for stream of work but actually streamer work materializing, which is good and also in [our] segments. We will get back to that.

We had some technical issues on 2 service, unfortunately, at the same time. This cost about $3.7 million related to shakedown basically of equipment that hadn't been used for a while and also with -- that has been out of production also for some time, so spares have been difficult to get hold of. We'll get back to that as well.

And finally, we also completed the acquisition of the BOA transaction in last quarter. We're taking delivery of the Thalassa and -- to be renamed Fulmar Explorer.

Yes. So on strategy, just on the first bullet points. What I want to emphasize here, so I want to mention that there's been some discussions both internally and maybe also externally about what kind of company is SeaBird going to be going forward. Is it going to be -- go beyond source focused and doing less streamer-related -- streamer work. So this is just to emphasize that we will have a strong focus both on providing high-quality 2D and niche 3D seismic acquisition services, both for oil companies and the multiclient companies, and also to do source services primarily for the OBN contractors.

We envisage that going forward the right fleet size for SeaBird will be to operate about 5 to 7 vessels in these segments. And that means basically 2D vessels and source vessels and that the vessel should be flexible in order to be able to move between the segments. We're also going to maintain the capacity and the capability to do niche 3D surveys, which can be very -- financially very attractive.

And then we're talking about -- typically about shallow water and the smaller 3D surveys that are maybe not that attractive to the bigger players. And by maintaining capability, that means we'll have the equipment and the competence available in-house to do this.

Next bullet point is asset-light with flexible fleet, meaning that we will own some vessels, but we do not need to own all the vessels that we operate. We will maintain the core owned fleet, but further flexibility -- further capacity will be added on more flexible terms by chartering in vessels from other -- or from tonnage providers. We're already doing that today with the Voyager Explorer, which is a flexible sort of pay-as-you-earn terms. And we have a similar arrangement with -- for a time charter vessel, the Nordic Explorer. So we're looking for -- further capacity will be added similarly.

Flexible also means that the vessels need to have capacities or equipment to enable them to move quickly between the different segments that we are operating in, so they should be able to do source and 2D. Some should ideally -- ideally, they should all be -- also able to do 3D, shallow water 3D, but that may not be like all of the vessels will be able to do that.

The last point in the strategy update is the organization. We want to move towards having a lean, more project-based, project-focused organization. We are moving the main office to Bergen. That means that -- today, we have an office in Bergen with sales and the technical departments. The operations, agency [queue] and finance are today based in Oslo. But we are locating these functions together in order to have more synergies, both direct economic synergies but also on the operational level. I think that's going to be very important to overcome some of the challenges that we have seen in the past year.

As part of this, we're also aiming to reduce the SG&A and to have a more -- maybe have more -- again, doing a more project-based organization, having more flexible cost base that will reflect activity level at the time. And then it's also going to be very important for us to have a hands-on management at all levels and to maintain very short reporting and decision lines in order to have efficiency and a good operation, really with a focus on providing the best possible service that we can to our customers. Because at the end of the day, that's how we're also going to be creating results for the shareholders and the company.

So a little bit about the fleet. What it sort of -- partly what it looks like and what it may look like. This illustrates there are potentially 8 vessels here, but that includes flexible capacity. And we also envisage that we may, as we stated in the report today, we may consider to decommission the older vessels as we add more modern capacity, both bringing the Fulmar and potentially Petrel online but also by this potential for the flexible [term] charter capacity.

You've seen all that already today most of the fleet is able to work in all segments. And that's something that, as I said, we will have a strong focus on to market the vessels actively, both in the source and in the niche 2D and 3D streamer markets.

I think, Nils, if you start with this one, and I can come back on the market side.

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Per Nils Christian Haugestad, SeaBird Exploration Plc - CFO [3]

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Sure. So on the segment side here. I guess on the -- one of the first observations as we now kind of move into Q3, as Gunnar mentioned, is we're seeing a lot more streamer activity, which has been a new trend. We talked about this in the past. But if you go back and look Q2 2018 [in a whole], very heavily leaning on the source market, which still continues to be one of the core drivers in the underlying market. But I think what is new now is we're seeing a number of the contracts that we've been talking about in the past starting to come to fruition, and there are more contracts in discussion. So that's a new and interesting trend in the overall market.

And when we look at the geography, as we see this moves around quite a lot, but we'll come back a little bit to where we see the main tenders. But in this quarter, we were heavily EAME focused, and that's not so unexpected that we see a lot of activity in the Africa region and since we had also a 3D program in Africa and a 2D survey in Africa. And the North and South America region is also one that we're seeing a lot of activity. What we haven't seen a lot of, so far, has been Asia Pacific. But there -- there's also a number of discussions going on, and it's interesting development potentially in that area. We see probably more activity coming as we move forward.

Do you want to touch on -- so I think that's the primary highlights on that.

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Gunnar C. Jansen, SeaBird Exploration Plc - Interim CEO, Chief Commercial Officer & Chief Legal Officer [4]

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Yes. So quickly, on the operational update. In the third quarter, the Harrier continued the 2D project for ExxonMobil in Suriname. That was completed in late October, so very recently. The Eagle Explorer was working first on a source -- as a source vessel for CGG. That was as an extension to a contract we did with CGG in Mexico earlier in the year and then started and has since also completed a 2D project for Wintershall in the Norwegian Sea.

The Osprey Explorer we mobilized in late July for an OBN source contract with Axxis in the North Sea. That was also operationally -- we consider that was a very good job. Axxis was very happy, I think. Petrel Explorer is still working on a time charter with EMGS. So for us, that is a pure maritime service we are providing. Voyager Explorer has been idle in Asia Pacific for quite a while but is now mobilizing for an OBN source job in Malaysia about to start in first half of November. And we also see more additional work coming up for that vessel in the region.

And finally, the Nordic Explorer, which is a flexible time charter vessel, the 3D project in West Africa was finished. We have announced a survey for the vessel in Australia, and we were able to secure some fill-in 2D work in Southern West Africa in between. That was also completed as planned after the quarter ended.

Market trends. Source vessel demand still driven mainly by ocean bottom seismic, which, again, is the underlying driver is the oil companies focused on increased oil recovery and their field exploration. But we also see a tendency for increased multiclient activity in the OBN market, as [accepted] by the Axxis' survey in the North Sea and the TGS surveys in the Gulf of Mexico.

We also -- just recently, I came back from 2 trips, one to China and one to Houston. And basically, the main takeaway from discussing with the clients is that they see increased OBN activity in 2020 and several larger tenders coming out, hopefully, in the fourth quarter for potential starts in the second and third quarter of next year.

What's also very positive is that we see an increasing or a good demand for proprietary 2D and niche surveys. These are mainly linked to license obligations that the oil companies have. Most of these tenders do convert into actual contracts. But the surveys are still relatively small, but they are out there. And in particular, we see that demand for 2D and the niche 3D surveys are coming out of regions like the Far East and Africa with a focus on -- particularly in the Far East with focus on energy security or independence.

Finally, we also see that we're beginning to see that the conversion rate ratio for 2D multiclient surveys are beginning to improve. That's based on both on action confirmed and surveys that we are -- been awarded and that we see in the market but also based on discussions with the multiclient customers or our -- the multiclient companies becoming increasingly more specific in terms of the size, the volume, timing and the positive feedback from the -- from the multiclient companies on their prefunding status.

So tender activity. We still see, as I mentioned, a healthy OBN-related tendering activity. It's -- and I think it's important to also to keep in mind what I said that we do expect several tenders to come out now in Q4. What this graph doesn't necessarily or doesn't reflect very well is that several tenders that were issued previously and that sort of have -- sometimes they tend to die a little bit. They have been resurrected. So that's not reflected on the graph, but we're also working more specifically on tenders that we received maybe 1 year ago, 1.5 years ago.

The 2D tendering continues at a moderate pace. But as I mentioned, we do expect more surveys to realize or coming out of the tendering activity than what has been the case in the past. One important thing to stress is that we still experience that the lead time from contract award to start up is still very short and especially maybe we see this in the OBN and in the multiclient segments.

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Per Nils Christian Haugestad, SeaBird Exploration Plc - CFO [5]

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Okay. So heading over to the financial update. So first on the revenue side. As we pointed out, $16 million of revenue for the quarter. But I think what we're starting to see is as we diversify a bit the revenue source, we'll start to get 2D and 3D jobs into this as well. The increase in revenues is pretty meaningful. So this is probably the first quarter now in a long time when we started to see the kind of revenue numbers that we should be and, hopefully, beyond that, of course, as a number of these projects come at their own time. It doesn't mean that we're continuously at $16 million, but I think it shows what happens to the revenue side when you start getting some diversification in the type of contracts we have. We also have a small multiclient sale in there of $750,000. That takes us then to $16 million in total.

If you look at the EBITDA side, and we can talk more specifically about that. As Gunnar mentioned, we had some special items in operations in Q2 and Q3. And so what we've tried to do is to just give an order of magnitude what this would look like if you adjust it for those. And of course, that's not a perfect math, but we can talk a bit more specifically about how we get there. But that would take us to a $2 million positive Q3 2019 EBITDA if we adjust for these items in the quarter. It would also adjust the Q2 numbers, as you'll see, up to about $0.6 million.

On the capital expenditure side, we're showing $12.7 million in the quarter here, and just watch how that this doesn't compare to the cash flow statement. And the reason for that is the share component of the vessel transaction, which is $3.2 million. So if you take $3.2 million out of the $12.7 million, you get to $9.5 million, and that's what will show up in the cash flow statement.

Vessel utilization, 68%, but it also shows that we have, of course, more capacity in terms of what we can do and what potentially can be done on the top line side as well. On the utilization side, the 68%, but also we did not have any yard stays in the period. No activity on that front and no multiclient activity. And this, as we've said before, something we will do very selectively. Anyhow, it's not something that we're actively targeting.

On the income statement. We've tried here to highlight the changes first on these adjustments, and there are 2 primary areas. First, if we were to adjust for the days and activities involved in these technical items, we would have a slightly higher revenue number. So the $16 million number would go to $16.2 million. And on the cost side, the $16 million in cost will go down by approximately $3.4 million to $12.6 million, and that will give you the adjusted $2 million in EBITDA.

Depreciation of $2.5 million, and that's in line with what we would expect going forward in rough numbers as well. And amortization, $0.7 million. And in that number, there is a meaningful part that's related to the multiclient sale of about $500,000. This is to an EBIT of a clean or adjusted of negative $1.2 million versus reported of negative $4.8 million.

Look at the balance sheet. Just a few highlights there. Firstly, we've talked a bit about what happens to PP&E kind of as we move along in the vessels and so on. So now we have the vessels all in there, and we have PP&E at $57.5 million. The multiclient investment, you now see them coming down to a relatively small book value number. It doesn't mean we don't think there are values in some of the assets, it just means we have amortized them down, so there's very little left on their books. And in terms of cash, $5.4 million, and $0.2 million in restricted cash.

On the equity side, that $58.8 million. And the other observation is on the borrowing side we have the $5 million outstanding that we've discussed before, and we'll look to address. We have discussions about how best to do that, but that's something we will deal with sooner rather than later. On the equity ratio side, that 73%, and we still had a net interest-bearing debt, $0.4 million, so net cash.

Cash flow side. Cash from operations, negative $4.5 million. On the investing activities, negative $9 million, and that's $9.5 million on the CapEx side that we talked about. Out of the $9.5 million, $7.6 million is the cash consideration for the vessel. That gives you $1.9 million of CapEx, primarily equipment related on the rest of the fleet.

And then we had an inflow of $0.5 million on the long-term investment side. So I guess there's a net negative $9 million. And you'll see on the bottom then cash flow to $5.4 million, and that's available cash. Restricted cash is $0.2 million on top of that.

Multiclient side. So we have the sales at $750,000. And then taking the multiclient library down to $0.5 million, as you see, and we're not doing anything additionally there.

I'll turn it back to Gunnar.

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Gunnar C. Jansen, SeaBird Exploration Plc - Interim CEO, Chief Commercial Officer & Chief Legal Officer [6]

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So to summarize. The Q3 EBITDA was hampered, marked by the one-off technical issues that we had with the DigiSTREAMER on the 2 surveys in Africa and South America. We continue to see structural growth in OBN and the early recovery of our 2D and 3D niche segments. Day rates are increasing. They have increased 30% year-on-year. And we are streamlining operations into more project-focused organization. And we will be implementing, as we said, a more asset-light but also flexible business model, flexible in terms of fleet composition and capacity.

So if there are any questions? Yes.

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Questions and Answers

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Unidentified Analyst, [1]

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Yes. Just a question on strategy. It's almost unclear to me what's the change in the strategy. Of course, you're saying you're going to have 5 to 7 vessels in the niche streamer and source segment. As exactly as what you used was -- this is exactly what you did before recently.

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Gunnar C. Jansen, SeaBird Exploration Plc - Interim CEO, Chief Commercial Officer & Chief Legal Officer [2]

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It's -- there may not be necessarily something that is marked new to that. But I think what's important is that both to the -- our customers and to the market in general or the organization, it's important to stress that this is what we will be focusing on. And this is how we will -- this is what the company shall look like and how it will operate. I think there's been a deficit on maybe on clarity, maybe not to you as -- or investors maybe but in the markets and to the organization that has been...

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Ståle Rodahl, SeaBird Exploration Plc - Chairman of the Board [3]

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Can I just add that the change is that when it comes to the number of vessels, as you're seeing now, there is actually more vessels than what the company has been operating previously. We have [8 there]. So when it comes to vessel set-up, we have a number of owned vessels today. We don't think we need as many owned vessels. So this change in strategy when it comes to the way we handle the vessels is about how much steel we own on our own balance sheet versus how much we charter in.

We think -- I mean, every market presents its own opportunities. And the market that we have today presents an opportunity to charter in at low cost and flexible charters, charter in the capacity that we want. We don't need to have it on the balance sheet. And also, if you look at the balance sheet, you will see that SeaBird today is actually providing financing to other seismic companies by having vessels on our balance sheet.

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Unidentified Analyst, [4]

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So you're going to sell some of the(inaudible). You only have 5 vessels, own 5 vessels. Are you going to sell some of those?

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Ståle Rodahl, SeaBird Exploration Plc - Chairman of the Board [5]

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We will be looking to decommission all those vessels. This is pending contract status and pending special service. So this will be done -- we will optimize the decommissioning of those vessels, pending those ratios. But then you will see those come down, the seismic equipment there that we will be utilizing on other vessels. The way we take in that older vessel capacity will be different than what we've seen in the past. That is the main element of the asset side of the strategy.

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Unidentified Analyst, [6]

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Okay. And the old vessel that might be decommissioned, which one (inaudible)?

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Gunnar C. Jansen, SeaBird Exploration Plc - Interim CEO, Chief Commercial Officer & Chief Legal Officer [7]

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The -- well, Aquila has been -- the decision to decommission has been made. So the vessels, the older vessels we are talking about potentially decommissioning here is -- or it's the Osprey Explorer and Harrier Explorer.

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Unidentified Analyst, [8]

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All 3 (inaudible)?

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Gunnar C. Jansen, SeaBird Exploration Plc - Interim CEO, Chief Commercial Officer & Chief Legal Officer [9]

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Maybe considered too, depending, as Ståle said, on what is the contract situation and how near or close are we to the special survey in cycles because making that kind of investment in an owned vessel then that should require a good -- very good market opportunities for those vessels. And we do see that sometimes age it may be an issue of how flexible they are between the segments. It's a bigger issue in the OBN than in the streamer segments. And we think that if we can replace that capacity with more modern tonnage on flexible terms, that we don't have a 365-day commitment to pay for and to maintain.

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Unidentified Analyst, [10]

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Could that be meaning you're charging vessels that are locked in your fleet today?

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Gunnar C. Jansen, SeaBird Exploration Plc - Interim CEO, Chief Commercial Officer & Chief Legal Officer [11]

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Potentially, yes.

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Unidentified Analyst, [12]

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More vessels?

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Ståle Rodahl, SeaBird Exploration Plc - Chairman of the Board [13]

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So there will be -- yes. So what you will see is -- we also written this is the report. What you will see is a high grading of the fleet. So when you think about the vessel capacity that we have, think about the oldest vessels as naturally been -- I mean, we have vessels from '70s, beginning '80s. Think about the oldest vessels as the first ones that will be decommissioned, and they will be replaced with more modern tonnage but on the more flexible -- that will give us a more flexible cost base.

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Unidentified Analyst, [14]

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Are there [low risers] around that you can charter in?

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Gunnar C. Jansen, SeaBird Exploration Plc - Interim CEO, Chief Commercial Officer & Chief Legal Officer [15]

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We have identified -- well, there are several vessels that could be candidates for those kinds of charter arrangements. And we are in discussion with some vessel owners.

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Unidentified Analyst, [16]

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If you're going to decommission Harrier and Osprey, will you get an expanded value rather than if we just -- will you get anything from it, from the decommissioning instead? Or will it be...

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Ståle Rodahl, SeaBird Exploration Plc - Chairman of the Board [17]

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You can think about this as scrapping value. I mean this depends on the market. Of course, we're not going to send vessels out to the market that we think we're going to need competing for contracts. So if we think about in terms of scrapping, there's a few hundred thousand dollars. It's not big enough, few hundred thousand dollars. But there is equipment there that has value, and the equipment we will take with us also on the vessel.

And just again in terms of the vessel capacity, we want to stress the flexible part of it. And the current market, as Gunnar said, allows for 5 to 7 vessels. If there is an improvement in the market, this strategy and the number of vessels that we're seeing around will allow us to grow the fleet, we think, without actually acquiring the vessels. So the current market is 5 to 7.

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Unidentified Analyst, [18]

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(inaudible) because part of the story was like a year ago was that the market is going to improve, and now you're saying the market has improved and day rates up 30%. And then I thought there was value even in this old boat. Is it difficult to get jobs for these boats?

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Gunnar C. Jansen, SeaBird Exploration Plc - Interim CEO, Chief Commercial Officer & Chief Legal Officer [19]

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To put it like this, it's -- I think that there are -- potentially there can be vessels out there that are more flexible in terms of capacity. These boats -- I mean these boats have been working quite a bit in the last year, right? So it's -- so definitely, there is a place for them in the market, but they are getting older. There are vessels that potentially can be secured that would have better capacities to do -- to be more flexible between the segments. And the combination then of potentially the age, the special services coming off with the corresponding investment if we want to keep operating the vessels makes it -- and the 365-day commitment to maintain and operate, that also has a cost...

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Ståle Rodahl, SeaBird Exploration Plc - Chairman of the Board [20]

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That is the key point. I'd just like to -- if I can just stress that point. The capacity that we have in terms of those older vessels is expensive capacity. So when you think about SeaBird, think about it more as a market position where we offer the type of vessels that we think are the best ones to offer. Don't think about it as a per vessel, if you take out 2 vessels reduce the earnings power with 2 [segments]. It's on -- it doesn't work like that. We have a market position, and we will take the most optimal vessels in to that market that we can see, and we think we can do it cheaper from an...

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Unidentified Analyst, [21]

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I thought the story was -- as I had understood it, it was that your cost was flexible on these vessels. So when you did not use them, you didn't pay the...

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Gunnar C. Jansen, SeaBird Exploration Plc - Interim CEO, Chief Commercial Officer & Chief Legal Officer [22]

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Not our own. But no, that's on the tonnage that we will charter in. That would be...

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Ståle Rodahl, SeaBird Exploration Plc - Chairman of the Board [23]

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Voyager and Nordic is like that.

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Gunnar C. Jansen, SeaBird Exploration Plc - Interim CEO, Chief Commercial Officer & Chief Legal Officer [24]

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The vessels that we own are something -- of course, we have to pay the maintenance cost, running daily, running cost through, insurance, I mean -- yes, so there's a running cost element there every day for these older vessels.

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Unidentified Analyst, [25]

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When is the special service coming out for Harrier and Osprey?

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Gunnar C. Jansen, SeaBird Exploration Plc - Interim CEO, Chief Commercial Officer & Chief Legal Officer [26]

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It's in June -- I believe Osprey is June '21 and Harrier December '21.

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Unidentified Analyst, [27]

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So is it -- it's 2 years?

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Gunnar C. Jansen, SeaBird Exploration Plc - Interim CEO, Chief Commercial Officer & Chief Legal Officer [28]

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It's -- well, 2, yes -- 2 -- 24 months.

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Unidentified Analyst, [29]

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[Classic]?

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Gunnar C. Jansen, SeaBird Exploration Plc - Interim CEO, Chief Commercial Officer & Chief Legal Officer [30]

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[Classic], yes. I wouldn't necessarily -- or I wouldn't be that categoric. I think that if the right opportunities present themselves to reallocate the capacity both in terms of operating capacity, equivalent capacity, to tonnage that could be more flexible chartered in, more -- higher capacity, higher-specification tonnage, and we have the right contract opportunities for those vessels, that is a decision that could come sooner.

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Unidentified Analyst, [31]

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And may I ask on the CapEx side? You mentioned $7.6 million in cash -- CapEx for a vessel. Was that the...

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Per Nils Christian Haugestad, SeaBird Exploration Plc - CFO [32]

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That was the last one. Remember, we did 2. So the last one -- so one came into Q2 and one is into Q3.

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Unidentified Analyst, [33]

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Right. And going forward now, how much will CapEx be more on a running basis or quarter-to-quarter basis?

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Per Nils Christian Haugestad, SeaBird Exploration Plc - CFO [34]

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Well, I think we need to evaluate a little bit when it comes to what it looks like for next year. One look in terms of the vessels that we're going to have on -- in the fleet. And also remember, we spent a fair amount on new equipment and so on now. So I think it's a little premature to kind of go in with some specific estimate. I think we need a little bit of time to just analyze that question a bit. But if you look at -- if you take it this way though, just to take a high level, what we've said in the past is if you look at a vessel over time [through recycles], so depending on which you have and if it's a known vessel and so on, you have all responsibilities with it. We've said that normally through the cycle on average about $1 million to $1.5 million a year is kind of what they run. But of course, the classing part is a big part of that. So if you don't have any classings in the year, that will change that number a meaningful amount.

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Unidentified Analyst, [35]

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Per vessel?

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Per Nils Christian Haugestad, SeaBird Exploration Plc - CFO [36]

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Per vessel, right.

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Unidentified Analyst, [37]

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The free cash flow in the quarter was, of course, very negative. A big part was due to the launch of the 2 new vessels. There also an operating cash flow has a huge negative number. And now your gross cash position is only USD 5 million. Is that worrying? Or should we be worried about?

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Per Nils Christian Haugestad, SeaBird Exploration Plc - CFO [38]

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Oh, I think...

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Unidentified Analyst, [39]

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It doesn't worry...

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Per Nils Christian Haugestad, SeaBird Exploration Plc - CFO [40]

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Look, I mean, I think we've been through some of these cycles before a little bit, and there are plans in place on how we intend to handle it. And of course, we have the refinancing aspects so forth that we need to do at the same time. So it's not like we're not aware of how we're going to manage kind of through this. And I think we see on the contract side too that we expect the new contract kind of set of releases coming into this equation as well. So there are plans in place as for how to deal with this, and the level of negative cash flow in the quarter was, of course, substantially related to these issues that Gunnar was mentioning.

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Gunnar C. Jansen, SeaBird Exploration Plc - Interim CEO, Chief Commercial Officer & Chief Legal Officer [41]

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I think it's important to -- I was going to say that or remind everyone that we -- I mean, the lead time from contract award to start-up is short, so the backlog situation may change quickly.

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Unidentified Analyst, [42]

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These shakedown costs, are those in addition to the costs related to the projects that you took a write -- you activated in 2Q?

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Ståle Rodahl, SeaBird Exploration Plc - Chairman of the Board [43]

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No, this is part of the same thing. This is all related to the same thing.

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Unidentified Analyst, [44]

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It's related to the same thing?

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Ståle Rodahl, SeaBird Exploration Plc - Chairman of the Board [45]

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Yes.

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Unidentified Analyst, [46]

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But I thought that you took -- took the costs in Q2 so that you should have 0 on the projects in Q3 and Q4.

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Ståle Rodahl, SeaBird Exploration Plc - Chairman of the Board [47]

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Yes, so -- but that was...

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Unidentified Analyst, [48]

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But now it's suddenly additional costs in that 3Q.

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Per Nils Christian Haugestad, SeaBird Exploration Plc - CFO [49]

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Now there's a little bit of difference here. The charge that was taken in Q2 was related to one of the projects. That was really an IFRS issue of it being a contract we needed to take a provision against. In addition to that, we said that there were charges that made the Southern project in South America because of the same issues a -- kind of a 0 contributor in that zone. And so all this is trying to do, it's not trying to do the accounting difference; it's just saying that if we were to reverse the costs related to those items, what would the effect be. It's like...

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Unidentified Analyst, [50]

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And I understand that, but I'm a little bit surprised that you are running negative on EBITDA. I honestly thought that you have taken a charge in 2Q. And all suddenly, there is a new charge. So there is something at least in the communication that went wrong. This -- so for sure, at least in my perception, it seems like we have the same perception. And due to the situation in our company, it's not really -- it's not helping.

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Per Nils Christian Haugestad, SeaBird Exploration Plc - CFO [51]

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Yes. I appreciate it. I appreciate that, of course. There isn't anything we would have reported different. Maybe in that case a communication issue maybe about what the deltas are in the quarter. Reporting wise, it wouldn't be reported differently in Q2 nor in Q3. But potentially understanding the implications, maybe we better communicate it better.

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Unidentified Analyst, [52]

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I'm going to ask you about Petrel to -- which is to expect the charter to the West Coast is -- Fulmar. Sorry. Fulmar. And if you remember correctly, the estimates was having cost USD 9 million or USD 10 million to bring it to the market as a (inaudible).

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Per Nils Christian Haugestad, SeaBird Exploration Plc - CFO [53]

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They communicated as was it with $11 million, of which $3 million is equipment that we have. So the estimate I was communicating was a net $8 million.

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Unidentified Analyst, [54]

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Okay. Yes. And has any of those $8 million been taken as of now?

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Per Nils Christian Haugestad, SeaBird Exploration Plc - CFO [55]

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There have been parts of those $8 million that's been taken.

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Unidentified Analyst, [56]

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How much is remaining?

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Per Nils Christian Haugestad, SeaBird Exploration Plc - CFO [57]

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I think that's -- I'm not close -- I could give you the exact number on that.

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Unidentified Analyst, [58]

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Well, [the sector through the summer], the story was that you're now fully financed to bring [Harrier] in as well? As you have all operations for that fully financed to be full operations with Harrier sometime in early 2020. Is that still the case...

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Per Nils Christian Haugestad, SeaBird Exploration Plc - CFO [59]

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I think the answer is we've done some. I think there's some we can do. I think we need to get some of the other backlog in the books before you do all of this. It's a short answer. So some of it has been done. There's ongoing work on the vessel as well. But would you go and do the full conversion right now? I think the answer is you have to take it one step at a time.

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Unidentified Analyst, [60]

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With $5 million in cash, $8 million in...

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Per Nils Christian Haugestad, SeaBird Exploration Plc - CFO [61]

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Right. So it's kind of obvious.

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Unidentified Analyst, [62]

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It's kind of obvious, but the situation can change next year, but you have to wait. That's basically it?

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Per Nils Christian Haugestad, SeaBird Exploration Plc - CFO [63]

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I think that's right, yes. I think it has to be done moderately, and we have to get the backlog in and build the cash flow coming.

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Ståle Rodahl, SeaBird Exploration Plc - Chairman of the Board [64]

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Can I just add one more thing. The company has above 70% equity ratio and is in net cash position. So to the extent -- and when the fully equipped full market is an issue that is being rationed up against contract opportunities, against cash utilization of the whole fleet, and I guess, what we want to do on the financing. But I just want to remind you that we have more than 70% equity and a net cash position on the balance sheet.

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Unidentified Analyst, [65]

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[What's the answer for lead time utilization in Q4, for instance?

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Gunnar C. Jansen, SeaBird Exploration Plc - Interim CEO, Chief Commercial Officer & Chief Legal Officer [66]

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As I said, we are in -- lead times are short, and we are in discussions that could end up in materializing in 2 contracts. We'd start them in -- both in late Q4 and early in Q1. So there are some promising strong leads.

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Unidentified Analyst, [67]

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Are you optimistic about for a top line in Q4 and Q1, similar to what you had in Q3?

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Gunnar C. Jansen, SeaBird Exploration Plc - Interim CEO, Chief Commercial Officer & Chief Legal Officer [68]

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On the top of my head, I think that would be -- the Q3 top line was relatively good. And I think the segments that we are looking at wouldn't necessarily generate -- sorry, wouldn't generate that kind of top line growth.

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Unidentified Analyst, [69]

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That's for Q4. But what about Q1?

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Gunnar C. Jansen, SeaBird Exploration Plc - Interim CEO, Chief Commercial Officer & Chief Legal Officer [70]

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Q1 then it's more promising, and I think that I don't want to make a promise that we're going to achieve that level. But I think it's -- the prospects are looking better in Q1. I mean we already have 1 announced 2D survey that was commenced in, well, late in Q4. Most of the income will come in Q1, and we also see some potential also very good leads in the niche 3D shallow water small 3D and 2D segments with potential starts in Q1 as well.

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Unidentified Analyst, [71]

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So do you mind to just go through the contracts you have for Q4?

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Gunnar C. Jansen, SeaBird Exploration Plc - Interim CEO, Chief Commercial Officer & Chief Legal Officer [72]

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Contracts we have for Q4?

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Unidentified Analyst, [73]

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Yes. Yes. If you take out -- if we use the slide -- the exhibit with this [provisional] performance. Most likely in Q3 so...

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Gunnar C. Jansen, SeaBird Exploration Plc - Interim CEO, Chief Commercial Officer & Chief Legal Officer [74]

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Vessels in Q3...

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Unidentified Analyst, [75]

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Yes. Could you just talk through each vessel...

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Gunnar C. Jansen, SeaBird Exploration Plc - Interim CEO, Chief Commercial Officer & Chief Legal Officer [76]

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Yes. So specifically what we have that is starting now in Q4. Petrel Explorer obviously is on time charter to EMGS. Period is until March 2020. They have further options to extend.

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Unidentified Analyst, [77]

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Which you believe they will or...

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Gunnar C. Jansen, SeaBird Exploration Plc - Interim CEO, Chief Commercial Officer & Chief Legal Officer [78]

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Which we think there's -- we are keeping a close dialogue with them. And yes, we want to work with them to keep the vessel working. So yes, I think there's a good chance of that. The Voyager Explorer is -- has mobilized or is ready now to start a survey in Malaysia that has an expected duration of, I would -- I said 1 to 2 months. I'd say -- I think if we say 45 days, that's a fair estimate. It could be longer.

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Unidentified Analyst, [79]

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And when does it start?

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Gunnar C. Jansen, SeaBird Exploration Plc - Interim CEO, Chief Commercial Officer & Chief Legal Officer [80]

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It starts around -- we expect to -- roughly sometime next week. The customer just starts to deploy the nodes. So that's sort of a good indication of when we will start working.

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Unidentified Analyst, [81]

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So around the 15th.

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Gunnar C. Jansen, SeaBird Exploration Plc - Interim CEO, Chief Commercial Officer & Chief Legal Officer [82]

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Around 15th, I think, can be -- we can say. And then the Nordic Explorer is mobilizing. We're getting ready for the announced 2D survey in what we said is Australasia, which is a difficult way of saying Australia. And that's scheduled to start in -- later in November, although it could go into December. But -- and that's about a 100-day -- 90- to 100-day production contract. Yes, and that's really -- that's what we see what we have today, right? That's on -- that's sort of on the table or...

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Unidentified Company Representative, [83]

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(inaudible) times we'll get to it.

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Unidentified Analyst, [84]

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And the Harrier?

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Gunnar C. Jansen, SeaBird Exploration Plc - Interim CEO, Chief Commercial Officer & Chief Legal Officer [85]

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The Harrier is currently idled in South America or the Caribbean. She just finished, right, the ExxonMobil survey. The Eagle is idle in Norway after just having finished a 2D survey here, and the Osprey is also idle in Norway after finishing the source job for Axxis on the -- you see our [multiclients]. Now for these 3 vessels, we are in specific discussions with 2 different clients for work that may start in Q4 or early in Q1.

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Unidentified Analyst, [86]

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You're talking December or January?

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Gunnar C. Jansen, SeaBird Exploration Plc - Interim CEO, Chief Commercial Officer & Chief Legal Officer [87]

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We're talking December to late January. One is a potential December start. The other is more likely a late January start.

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Unidentified Analyst, [88]

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And this is obviously not enough for $15 million for -- as a revenue in Q4?

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Gunnar C. Jansen, SeaBird Exploration Plc - Interim CEO, Chief Commercial Officer & Chief Legal Officer [89]

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No, and that's what I said, right? We are not going to be able to achieve that level of revenues in Q4.

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Ståle Rodahl, SeaBird Exploration Plc - Chairman of the Board [90]

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Can I just also point that -- I understand there's a lot of focus on the backlog, and there should be. As you all know, but I'd like to repeat it anyway, is that we have very short lead times in our segments of the industry. You can't compare it to the, call it, the higher-end segments of the seismic market or the other oilfield business that you're seeing. So to judge our, call it, Q1 activity by what you're seeing now is not plausible actually because of the short lead time. Still, the tendering activity gives you a glass or kind of a view on what has been impacting the third quarter and also the fourth quarter. And as you can see, the third quarter tender activity was quite low compared to the previous quarters. There's simply been a slump, and I don't think it's only our segment. We see the same in other segments in oil services. We've seen somewhat of an ordering slump in Q2 and Q3.

What Gunnar was pointing to now is that we are now halfway already into Q4. And what Gunnar is pointing to now is that this has changed in Q4. We are seeing a higher level. So if we have actual numbers on this one, and Q4 was ready, it would be different from what we're seeing now. So I think that's worthwhile pointing out with the focus on the backlog. There is a reason that we don't report the backlog. The short lead times basically means it doesn't give any sense.

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Unidentified Analyst, [91]

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Is it the areas of 30% in all the segments, both source vessel and 2D and lower in 3D, 30%? Because it looks 30% in the [open markets] as well?

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Gunnar C. Jansen, SeaBird Exploration Plc - Interim CEO, Chief Commercial Officer & Chief Legal Officer [92]

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It's -- compared to last year, yes, we've seen rates that's been up significantly. And of course, it's a market that's impacted by vessel availability and demand. But in general, that's the trend, yes.

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Unidentified Analyst, [93]

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Okay. It was -- the last 2 quarters, including this, hasn't been the performance that we would like to see. I think I could speak for more people when I say that the trust in the company to deliver according to what we should expect is not quite high. I discussed this with [Unis] that I think you need to take some actions to rebuild the trust that you will actually be delivering on the promises you make. And I suggested to you, Nils, that you should start to guide and show that you can actually deliver on the guidance. I also think that the management and -- should buy shares if you really believe in this. But the point is not that you should do exactly what I say. The point is that you need to rebuild trust in a way that 6 months from now has been successful.

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Ståle Rodahl, SeaBird Exploration Plc - Chairman of the Board [94]

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Right. I think -- I agree with you. It's easy to simplify sort of your views. And I think that if you look at what we are presenting today not only the numbers but also the change in strategy, which is real, and it's very real for the organization here. As you will see, we are cutting SG&A by 40%, and that is a major task to do. We are also moving operations to one location to Bergen. And what this will mean is that -- and we are reorganizing into a project-based organization rather than as it has been today. So what this means is that we think that the consequence of the measures taken, which are large measures, we think that the consequence of that will be better performance for the company. We have some key performance metrics that we think will start to move in the right direction following this.

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Unidentified Analyst, [95]

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But I think, Ståle, the proof is in the pudding. What we really can say is income -- is revenue. It's a fact that the utilization in Q4 will be low or too low to satisfy your investors. And as -- in a way, you need to show by doing that you are actually able to achieve the contracts. I'm very happy with the cost, but the cost is not going to give me any return. It's the top line that will give me a return. I also think that the strategy is -- I will just build on what John said. I believe that it's not really adding very new that I -- the only thing I get out of it is that I heard before that you had said that you will continue to acquire boats. What I hear now is that you will rather sell them and lease them back, which I think is -- it could be sound, but it's not like dramatic. The thing we need is that you put your head on the line and tell us that you will do this and this. That will give -- that's consequence and deliver.

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Gunnar C. Jansen, SeaBird Exploration Plc - Interim CEO, Chief Commercial Officer & Chief Legal Officer [96]

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And I think that from my perspective, the best way of beginning to do that is to ensure that, as you said, we win contracts, we increase secure fleet optimization and that we have a good performance on those contracts both because we need that to -- that's the only -- the best and the only way to secure future contracts, again, what is said to customers because it is small. There are not that many customers in this market. So operational quality and reputation is one of our main assets. And then it may sound -- I think the financial results should follow from that. But it is going to -- I think it is going to take more than just the fourth quarter to reach the high levels of revenue that you are expecting, over 5%.

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Unidentified Analyst, [97]

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Do you (inaudible) to your discussion, what's your view on this? Do you agree to what I said? Or do you have a different perspective?

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Unidentified Company Representative, [98]

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No, pretty much I agree. Just look at the share price there (inaudible).

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Unidentified Analyst, [99]

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Just to ask about the contracts. If -- how -- what's your perception of how the technical issues of the past influence your ability to win new contracts? Because I just think that as a customer I would be a little bit concerned to take you on when I know that there has been some issues.

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Gunnar C. Jansen, SeaBird Exploration Plc - Interim CEO, Chief Commercial Officer & Chief Legal Officer [100]

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Sure. No, I see that. And I have, of course, thought about or reflected over the same question. I think that we -- well, first of all, I think it's important to keep in mind that we now have a much better understanding of the technical issues or the condition of some of this equipment. We have been able to rectify it to repair streamers, to get the spares that we need. The better understanding of the -- especially this is related to the equipment on the Nordic and the Harrier, correct? I think we have a better understanding of the inherent or potential risks of having older equipment so that we can mitigate that risk when we -- how we plan to do -- or what jobs and how we plan to do them with that equipment. And from the discussions that we are having with our customers present and potential in all of the segments, I think that they also understand the challenges of taking older equipment that has been -- or equipment that has been out of operation for quite some time back into operation, and they appreciate those challenges. The actual operation -- or the quality in the operation once the technical issues have been overcome has been good. The customers also recognize that.

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Unidentified Analyst, [101]

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Any new prospective customers?

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Gunnar C. Jansen, SeaBird Exploration Plc - Interim CEO, Chief Commercial Officer & Chief Legal Officer [102]

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New prospective customers. But of course, it's -- I want to be honest that it is something that, of course, we will have to answer and explain from time to time until we have rebuilt a good operational track record also in the streamer.

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Ståle Rodahl, SeaBird Exploration Plc - Chairman of the Board [103]

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Okay. We're on the conference call. We've been doing this for an hour. Of course, we need to wrap it up. One final question. If anyone was -- so those who are in the room, I'm sure we're going to continue readdressing this discussion going through today. Anyway, I'd just like to wrap it up here and thank everybody for listening, and we will be back in a quarter with our fourth quarter conference call. And I'm sure more discussions about around our performance and our strategy and (inaudible). Thank you.