Odfjell Drilling Ltd
OSE:ODL
Odfjell Drilling Ltd
Odfjell Drilling Ltd., founded in Norway in 1973, has carved a prominent niche in the global oilfield services sector. Originating as a regional drilling operator, the company has evolved into an international player, servicing the offshore oil and gas industry with a focus on harsh environment markets. Central to its operations is a fleet of state-of-the-art, semi-submersible drilling rigs and drillships, engineered to withstand the world's most challenging environments. Each rig is a profitable asset, enabling the company to secure long-term contracts with major oil companies, providing stability and predictability in cash flows. By deploying advanced technology and maintaining stringent safety standards, Odfjell Drilling ensures efficient and reliable exploration and production, which forms the backbone of its revenue generation.
To augment its core drilling operations, Odfjell Drilling has diversified its offerings to include well services and engineering capabilities. This diversification allows the company to extend its expertise beyond drilling, offering comprehensive solutions that cover well completion, intervention, and project management. The well services division, utilizing cutting-edge technologies, supports oil and gas companies in optimizing their hydrocarbon extraction, thus enhancing reservoir performance and extending the life of oilfields. Simultaneously, their engineering division provides strategic consultancy and tailored project solutions, leveraging decades of industry knowledge to drive efficiency and innovation. Through these integrated services, Odfjell Drilling not only fortifies its market position but ensures a steady stream of income, resilient to the cyclical nature of the oil and gas industry.
Earnings Calls
Odfjell Drilling kicked off 2025 with robust financial results, reporting $204 million in revenue, an increase from $194 million in Q1 2024. The company achieved an EBITDA of $100 million, supported by higher day rates and strong operational performance. Notably, it raised its dividend to $0.16 per share, reflecting its solid financial position and future cash flow potential. The contract backlog grew to $1.8 billion, boosted by a new contract for the Deepsea Atlantic. With just one SPS project remaining, the company anticipates continued increases in shareholder distributions as capital expenditures decrease.
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Good afternoon, everybody, and welcome to the Odfjell Drilling Q1 2025 Results Presentation. My name is James Crothers, and I'm the Investor Relations Officer at the company. As ever, I'm joined today by our Chief Executive Officer, Kjetil Gjersdal; and our Chief Financial Officer, Frode Syslak.
Before we begin, your attention is brought to the important information slide of our presentation, which we would encourage participants to read in full. Note that this presentation is only a summary of the quarter and the more comprehensive quarterly report should be read separately, both that report and today's presentation are available on our website, www.odfjelldrilling.com.
Our call today will begin with a brief summary of the quarter with Kjetil taking us through some of the key highlights. We'll then move on to discussing our operations during Q1 and then move on to our financial review with Frode. We'll then summarize the presentation and close the call.
Following the presentation, we will open the Q&A session and we'll invite all participants to submit a question either via the telephone line or electronically via the webcast tools which are available.
Today's results are another great quarter for our business. So I will not delay any more, and I'll hand over to our CEO, Kjetil, who will take us through some of the key highlights.
Thank you, James, and a very good afternoon to everybody. And as the title says, this has been a very good start to the year, another record achieved for our company for the first time since the spin-off of Odfjell Technology. We achieved an EBITDA of $100 million from revenue of $204 million.
We are constantly breaking financial records at the moment. And as our fleet moves over to even higher day rates, I think we will continue to do that. And as we continue to break records, we have once again increased our dividend this time to $0.16 per share, up from 12.5% per share last quarter.
Looking ahead, we are confident that we remain well placed to continue to increase shareholder distributions, particularly as our SPS cycle is about to complete. And on our SPS, as some of you may have noticed from our social media channels, we now have 3 SPSs down and just 1 more to go. Post period, we completed the Deepsea Stavanger SPS on budget and ahead of schedule, with only a net off hire time of just 9 days. More on that and the Deepsea Nordkapp maintenance later in the presentation.
And during the period, we also agreed a new contract for the Deepsea Atlantic, which added nearly 12 months of firm backlog at what we would say are definitely leading edge day rates. This has contributed to our forward backlog now sitting at $1.8 billion, for our 4 owned units. And finally, our balance sheet and liquidity remains strong with further deleveraging happening during the quarter, taking us to a leverage ratio of 1.4 and an equity ratio of 64%.
Then we're going to move on to our operations. And as per previous quarters, the Deepsea Aberdeen, the Deepsea Atlantic and the Stavanger were all working with Equinor. The Atlantic was working on various exploration projects while the Aberdeen remained on the Breidablikk field. The Stavanger in addition to conventional activities, completed 2 carbon storage wells for the Smeaheia project offshore of Norway.
And finally, for our own fleet, the Deepsea Nordkapp was working with Aker BP during the quarter in Norway. In our external fleet, the Deepsea Yantai was also in Norway, working with ConocoPhilips, while the Deepsea Mira was operating offshore Namibia for TotalEnergies. The Deepsea Bollsta was mobilizing for much of the period and post period. That rig has now received its AOC approval for operations in Norway and it is now in transit to the field for -- to start its contract with OMV.
And finally, the Hercules was in yard in Norway for the entire quarter. Then we're going to look at another update on our SPS and maintenance progress. And as many of you have been aware, we now have 3 SPSs down and just 1 to go. This follows the completion of the Stavanger 15-year SPS and upgrade project, which we completed in early Q2 of this year. This was completed on time and actually ahead of schedule, resulting in just 9 days of net off hire time.
I think it's fair to say that this is quite an exceptional result. Completing the project in such a short time is really valuable to us and ahead of our expectations, actually, particularly given the complexity of the SPS, which included dry-docking and significant upgrades. And needless to say, I'm super proud of the teams that were involved in this.
Following the SPS, Deepsea Stavanger has now commenced its 5-year contract with Aker BP. With the Stavanger SPS now complete, we just have the Deepsea Aberdeen SPS left. We are well prepared for this project and looking forward to complete this one to the same standard as our previous projects. Once Aberdeen is done, there won't be any new SPS projects until December 2028.
In addition to our SPS programs, we also were able to complete planned maintenance on the Deepsea Nordkapp during Q1, which resulted in 6 days of off hire time. This maintenance included upgrades across the vessel as well as replacement of 2 of its trusters. In addition to this, we have also successfully completed the AOC of Bollsta, partly while it was in transit between Namibia and Norway. And I would like to comment that the entire AOC was done in a very timely manner. And what we like is to think in line with Odfjell Drilling standards. So overall, an extremely busy period operationally for our team, not just drilling, but also delivering on our SPS projects.
Let me move to the contract backlog and to what is ahead of us. Our contract backlog now currently sits at $1.8 billion following the award of the 12-month contract on the Atlantic, which, as I commented earlier, secured at leading edge day rates.
This is a fantastic data point for our sector, and I think it emphasizes the interest in securing Odfjell Drilling units. The day rates secured on Atlantic continue the trend of our rates climbing every quarter between now and the beginning of '27, which is emphasized particularly on the next slide, which we can move on to now.
And this slide, we displayed the yearly distribution of backlog as well as quarterly average day rates for our own fleet on the yellow line. And you can see -- really see the continued growth we have secured. Year-on-year revenues declined, while our average OpEx per rig is anticipated to only marginally increase. I think it's also worth reminding stakeholders that on top of these day rates comes to a historic average of at least $30,000 per day per rig in bonuses and add-on sales. And of course, at the same time, we will not have the CapEx that we have experienced in '24 and '25 associated with the SPS projects. So our near-term growth is very well secured. And as you can see, Q1 represents only the start of increasing day rates ahead of us. All right.
Moving on to the market and how our look is at the market outlook. And I think while the macroeconomic landscape has been, I guess, you can say kind of changeable since our Q4 call, our outlook remains positive, particularly in Norway, where lower oil price breakevens have maintained good demand for work in '27.
Specifically in Norway, we see ambitious client base who are looking to address their production declines. And if our clients are to reach their goals in the coming years, this is going to require a lot of drilling. Outcome of this is that we experienced specific and direct interest in securing our units. In addition, there are tenders outstanding in the market, and we maintain our view that the demand is expected to increase in the coming years, particularly from '26 and onwards.
As we previously communicated, internationally, we don't see a strong market as we do in Norway. There are a few shorter-term contracts potentially available in '25, but we also expect longer-term contracts to increase as new projects mature into development in the coming years. On the supply side, we still expect supply to likely to reduce with some retirement of vessels in a sector and still we don't see newbuilds happening at all.
There are a few stranded or incomplete vessels in our sector also, which we do not believe is likely to create any meaningful competition in the near to medium term. Ultimately, with the first availability in our own fleet in '27, we see very good interest from clients seeking to secure Tier 1 assets in this period. And with that, I will now pass on to Frode to go through our financial review.
Thank you so much, Kjetil. As always, I will begin with a quick summary of the income statement. Operating revenue in Q1 '25 was $204 million compared to $194 million in Q1 '24. Operating revenue from the Own Fleet was $163 million, while the External Fleet was $40 million. We are continuing to see the effects of higher day rates in Q1 with an EBITDA for our Own Fleet of $95 million with a margin of 58%, while the EBITDA for the External Fleet was $7 million with a margin of 18%. Less corporate overhead and other adjustments, the group EBITDA was $100 million. The company delivered a net profit of $31 million in Q1.
Next up is the balance sheet on Page 14. Net debt is reduced by $29 million to $475 million during the quarter with a leverage ratio of 1.4. Equity ratio is 64% based on total assets of approximately $2.2 billion. The available liquidity is $241 million per end March, including undrawn RCF of $139 million. Details of the cash flow for Q1 follows on the next slide.
In Q1, we generated $104 million in cash from operations. Net interest paid was $6 million and tax $4 million. CapEx for the quarter was $27 million. Net cash flow from financing activities was minus $53 million, where of $8 million in scheduled amortization and the main part being net repayment of $45 million on the RCF during the period. Dividends paid in Q1 were $30 million related to Q4 results.
As indicated last quarter, we are continuing our upward dividend trajectory with dividend for Q1 declared at $0.16 per share, totaling $38.4 million for the quarter. This corresponds to an annualized yield of 11% based on yesterday's close. The shares will trade ex dividends from 3rd of June and payment will be made around 12th of June.
We see a strong potential for continued increase in quarterly shareholder distributions going forward, given our solid financial position and our increasing free cash flow generation stemming from higher locked-in day rates, reduced CapEx payments and reduced debt repayments.
Before I hand back to Kjetil for the summary, I want to share with everyone that this will be my final earnings call as CFO. As earlier announced, after more than 3 years, I'm stepping down to a more specialized role, leaving the CFO reins to Orjan Lunde with a change formally taking place on 1st of June. I will remain with the company in a key financial leadership position and will work closely with Orjan going forward and I'm confident the transition will be seamless.
The company is in an excellent position with strong fundamentals and a very positive outlook. It's been a pleasure serving as CFO, and I'm proud of what we have delivered together as a team. Stepping into a role with somewhat reduced responsibility is a welcomed change for me just now, and it's a completely undramatic one.
Thank you to our investors, analysts and everyone else on the call. I look forward to continuing to engage with you all in my new role and appreciate your continued support for the company.
With that, I'll pass back to Kjetil, who will summarize the quarter.
Okay. So before I start my summary, I also want to take the opportunity to thank Frode for the excellent job he has done as our CFO. I'm also very pleased that Frode will continue with our company in a key role and help to grow the company even further. So an absolute super guy, and thank you, Frode, for the job that you've done.
So then Q1 summary, Q1 has been another rock solid quarter for Odfjell Drilling delivered by the strong operational performance of the Odfjell Drilling team. We have achieved a record EBITDA. We have increased our dividend once again and have both the capacity and the ambition to further increase as we move on.
Our SPS projects have gone extremely well with just 1 more left to do. Our CapEx programs are set to end in Q2, resulting in more flexibility for the shareholder distributions. And as ever, our balance sheet continues to strengthen. And to summarize, Q1 was an excellent quarter for our business, both operationally and financially, yet we are confident that we can do even better. And as a final comment, tomorrow is May 17, which is Norway's Constitution Day. And I hope you all have a fantastic celebration those of you in Norway that are here. Thank you all for listening in to this call. And then I hand over to James.
Thank you, Kjetil. [Operator Instructions] We will try and get through as many of the questions as we can. If we don't have time to get through them, I'll try and follow up with people asking the questions directly. So I guess at that point, we can open the Q&A session.
Our operator, Sergey, could you open the telephone line?
[Operator Instructions] It appears there are currently no questions over the phone. So James, over to you for any webcast questions.
That's great. Thank you very much. So I think we can maybe start with the question up at the top here. Is the Stavanger SPS a good proxy for the Aberdeen SPS?
Yes. I think what was special about the Stavanger SPS was that included a lot of client upgrades, which was sort of also compensated with day rate during that period. So -- but I think sort of if you look at the estimated time, I think we've said 2 to 4 weeks off hire for Aberdeen, and that is something that we're going to stick with for now.
Great. Okay. Thank you. As the financial situations improve for the company, would the company consider warm stacked rigs without contracted M&A opportunities? We have a few questions, I suppose, on M&A opportunities. I guess we could sort of talk more generally about how we see that and what we're looking for in terms of M&A.
Yes, sure. And I'm going to be constantly boring in my answers here. e are definitely looking at potential candidates for that. However, it's all about asset quality, it's about asset price and it's about contract backlog. And it needs to fit our profile, and we're not going to do anything to ruin the dividend story going forward. So that is the challenge that we are facing. It's not easy, but as I said before, it's not impossible either. So we continue to evaluate that continuously.
Great. Okay. Again, we have a few questions, I suppose, on the status of Hercules and Mira. Currently, there are contracts. Could you update on the prospects for the Hercules and Mira? Could we see those returns -- I mean, Hercules obviously in Norway, but it's not to contract in Norway. Do you think you could see Hercules and Mira working in Norway? Or where do you sort of see them find work?
Well, we are a bit cautious. Those are not our rigs. So I would say for specific sort of request of those rigs, I suggest those questions to the owners. But I would say that there are opportunities for both rigs, both in Norway and internationally, and they are continue to be marketed. And I think there are opportunities for both those rigs going forward.
Great. Okay. Again, maybe a bit of a follow-up on M&A and maybe it's a quick answer, but does the management consider rig age when it's considering M&A opportunities? Is that something that's factors into our considerations?
Yes. I think our profile is to operate modern sixth-generation Tier 1 high-capacity rigs. And that is something that we will continue to support that profile. We're looking for candidates that sort of fits that. There can be somewhat deviations, but specifically on age, I think if you're looking at that category, there are factors of age there and -- but we consider all of that factors. Yes.
Great. Yes, could you please elaborate how unpriced options work? Is this to be considered as highly probable backlog, but on market price at that time? How do those work and how do we see them, I suppose?
Yes. So unpriced options, we have that for some of our rigs. And that works the way that both parties shall sit down 15 months ahead of -- at the latest 15 months ahead of estimated contract end to agree on -- hopefully agree on a day rate. This needs to be a mutually agreed into those discussions. You will -- both parties will take with the view on the market, latest data point, but also asset quality and performance of the assets and to agree on -- hopefully agree on a day rate.
If the parties, for some reason, do not agree, then we can agree to split up, and we are free to market the rig elsewhere.
Great. Okay. Could you elaborate a bit on customer discussions? They're maintaining budgets also commenting on capital flexibility. Do you think that our customers are expecting supply chain deflation when oil prices are lower? Or how do we sort of see that?
Well, I think Norway sort of stands out a bit from what we see internationally where there is, of course, giving available supply towards the demand that the sectors see. There's been a pressure internationally on day rates. In Norway, we have a more balanced situation where the market is pretty much in balance. And also, we have, I would say, a fairly high activity level going forward with clients also having ambitious plans.
We experienced high demand for our units from several clients. And I think that sort of strengthens our view that we will sort of maintain a fairly high rate level going forward. Although I would say we're probably not looking at any increase in day rates at the moment, but more of a flattening out situation compared to earlier.
Great. On financing, is there a level of leverage management would consider too low? And with the company -- where the company will basically stop net deleveraging?
I think we have communicated in the past that we are -- we want to see a leverage ratio below 2. Likely in the longer term, we would like to stay above 1. But it's all -- as I've said before, it's all a function of how the market looks, how strong the contract backlog is, et cetera. And the better the contract backlog and the better the outlook, the higher leverage we are willing to take on. So it's all a function of that. So it's a bit difficult to guide specifically on.
Okay. Thank you, everyone, so much for your questions. We'll try and get through a few more before we have to sort of close the call. When do you expect to win the next contract or how far in advance are contracts typically won?
There's no straight answer to that, but I think we are typically looking at, at least a year, maybe 1.5 years in advance. On specifically how close are we, we are in specific discussions. I think it could happen -- it would definitely happen during '25 and it could even be sooner rather than later. That's as specific as I'm going be. But definitely in '25, I think we will have something. So yes.
Great. Okay. So let's -- I think we will just take one more question given the time of day. At the Q3 call, there were comments made about Falkland Islands contracts. And could we put some color on that marketing opportunity? And what type of rig would be considered -- would be required in conditions in the Falkland Islands?
Yes. The project is -- we're still very much alive. The operator there is continuing to mature in that project and to get, I would say, all the pieces in place to move forward. They're not there yet. That project will, for sure, require a harsh environment rig, semi rig. Hence, that's where our interest in the project is. So yes, very much still alive, but no final decision has been taken yet. And I don't have a clear time line either as this is sort of out of our hands and fully up to the clients.
Great Well, I think we're slightly running out of time. There's a few more questions, which have come through, and I really appreciate them. I'll start to e-mail you all my responses to those very quickly after this call. But for now, I think we'll close the call.
Again, thank you all for joining and for your interest in the company. Our next conference call will be in August for our Q2 results. As ever, if you need any more color, please just e-mail me or get in touch. I think at that point, Sergey and the operator of the call, you can close the call. Thank you very much.
Thank you. This concludes today's conference call. Thank you for your participation. You may now disconnect.