Prosafe SE

OSE:PRS

Earnings Call Transcript

[Terje Askvig, executive]

Welcome to this second quarter 2025 result for Prosafe. As usual, we'll do it, if anyone online have questions, please just send into Reese, and we'll read them out here and try to answer as best we can at the end.

So I would say that the quarter and first half of this year up to date has been a very active year for the company. Of course, one of the major work streams has been the refinancing that we concluded at 21st of July. Very happy with that and great support from both our lenders and our shareholders in coming to a fully consensual deal with all parties. Otherwise, also in the operation, we have been quite active.

We managed to secure a 4-year extension on the Safe Notos, and we also sort of worked on reactivating the Safe Caledonia and Safe Boreas in the first half. So that's sort of ongoing work on Boreas, and we also sold the Safe Scandinavia in the second quarter. So all in all, a very active quarter. And I think the strategy, building backlog and refinancing, that has been done, and we're looking forward. Numbers wise, Reese will come back to that. But basically, I think more or less in line with our expectation where we came in on EBITDA and cash flow. We'll come back to that a bit later.

Looking forward on the market, in general, I would say that Brazil is still sort of the market that is driving this -- our segment, while there is a little bit less visibility in the U.K. and the North Sea in general. On the refinancing, as I said, we concluded that on the 21st of July. So that's now all done. We converted $193 million of debt into equity for 90% of the company. So the existing shareholders are then getting 5% in addition to a penny warrants. And that we are in the process of that. The penny warrants have -- the warrants have been issued, and just remind everybody that you have to declare those by close of business on Monday if you haven't done so. That's probably a good idea to do it if you have subscribed for it.

So that means that after this, we'll have approximately 353 million shares outstanding, of course, a significant sort of increase in the number of shares. So we also had sort of the part of this deal is that we guided $75 million in new cash. So that means that we have a fully funded business plan going forward, including sort of the SPSs that are coming up. So we -- our debt stack, as you can see here, our gross debt is $306 million, and our net debt post this restructuring is $220 million. And the debt is for all carrying an interest of 11% while sort of the senior -- not the super senior but the senior secured has a PIK element of 9% that we are utilizing.

Moving on to the fleet. Safe Zephyrus has been renewed. That was last year. So the season now running to end of '27 at $115,000 per day. Safe Eurus is continuing on our current, I would call it, legacy contract at $86,000. And Safe Notos, as I said earlier, has been extended for 4 years, so that rate actually goes from $75,000 to approximately $140,000. And that is a major uplift. So I would say that the EBITDA for that vessel goes from $5 million, $6 million to the mid-20s, probably a little bit more. So that's a significant uplift in the rates. We -- she is due for SPS to this year, beginning of next year, and we are actually in discussion with Petrobras right to optimize that rather than postponing that and rather than having 2 off-hire periods to have one off-hire periods between the contracts. That's a work in progress. And I would say that's more optimization of the operation.

And also, just to make that clear on Safe Zephyrus. She's also due for an SPS towards the end of this year. Safe Boreas, she is in Singapore. She took her on a heavy lift from Norway to Singapore. She arrived in the middle of July, and she's now working on putting the thrusters back on and getting ready for contracts. We were notified by Shell recently that sort of the start of window is between 16th of November and 16th of December. So the earlier part of the window that we sort of talked about earlier. And so she will then go on a standby rate in the beginning of first half of September before she moves down to Australia. Safe Caledonia went on contract, on 2nd of June according to schedule. And she has a 6-month contract. Of course, there are optionality there, and they have 3 1-month options. They are declarable sort of 45 days before the option starts.

On Nova and Vega, there is nothing really new. I think our -- we have a good discussion with COSCO, but there is more or less the same situation there. When it comes to the market, this is the world according to Prosafe when it comes to supply. So in total, there are 31 vessels in this market, the way we cut it. That includes cylindrical units, monohulls, compacts and jackups. So everything that we see that we compete on a day-to-day basis. So -- and that's all -- this also includes laid up vessels, not laid up, not delivered the Nova and the Vega. So in total, this is sort of the market the way we see it.

And then when it comes to Asia, just to dwell on that, you see that there are 8 vessels there. That, of course, includes the Nova, Vega. It includes the Boreas that is Singapore, and it includes the 3 Chinese vessels that have sort of been added to the supply here. So otherwise, looking to South America of these vessels, 12 are currently in Brazil. And of those 12, 9 are on to Petrobras. And what we see now is sort of increment -- what they have contracted to date, I'll come back to that a little bit later. But what they have contracted to date, is an addition -- they have contracted in the first round, they have contracted 2. The second round, they contracted one, that is the renewal of the Notos and they are also sort of contracted at a separate tender. So the incremental demand from Petrobras has gone from 9 to 12 vessels. And that's also the incremental demand in Brazil.

I'll come back a little bit to do this later when it comes to what's happening in Brazil. This is the current market. I will say that the last done in the North Sea is probably $170,000, $190,000 per day. We see that there is some requirements going forward. So we think that the market in Norway and the North Sea in general, is probably going to pick up from these levels. And in Brazil, the Safe Notos, of course, was done at $140,000 a day, and that's more or less the same as the Chinese also contracted. They might have got a slightly higher rate, but in the same sort of vicinity as a Safe Notos. And of course, as you can see here, the nature of the market is very different in terms of the term.

I mean an average in the North Sea is 6 months, an average in Brazil is 26 months, well, Petrobras is typically contracting for 4 years. So this earlier this year, Petrobras came out with a tender. It was a Lot 1 and Lot 2. In Lot 1, they have contracted 2 vessels, Hai Shi 3 and the Hai Shi 5. And that concludes that lot. They said that they would do up to 5 vessels. In the second lot, with a slightly later startup date, they have contracted Safe Notos. That's the 4-year extension.

Then we have reasons to believe that they might contract one additional vessel. So time will tell which vessel that is -- so that's sort of a further incremental demand than what I alluded to earlier. So that means that sort of the Petrobras will go then from 12 to 13 vessels, significant uplift in number of vessels that will be then deployed to Petrobras. And we think that it could be that Petrobras is coming out with a tender later in the year or even next year.

So we will see, but this is a fluid situation. They also contracted a compact semisubmersible for a shorter and more low spec work earlier in the year. When it comes to the market, I will say that we see good activity, both in West Africa and Guyana. And the North Sea is -- we have less visibility. There was one contract awarded for '26. That was a low spec unit with a pretty low POB. So that was done by jackup. So the POB, the requirement was less than 100 people. So Maersk Jackup took that job. Otherwise, we see for '27, there is some more work in the U.K. And further out in '29 and even further out, we also see some requirements in Norway. But otherwise, this used to be sort of very much the backbone of our market. Now that's definitely moved to Brazil.

When it comes to operation, I will say that, in general, very happy with operation in the quarter and also the first half. No LTI safety -- well, we had one LTI actually, but safety-wise in general, I think we are operating well, and we have high utilization that we typically have. So the Safe Caledonia was on contract from Ithaca on the Captain field from the 2nd of June. And since then, she had been 100% uptime. And also sort of explained the Safe Boreas earlier. So currently, then we have 5 units in our fleet, the 4 modern units and Safe Caledonia.

Backlog, if you look at this, we have focused a lot on the backlog and reactivating the vessels. So compared to the second quarter last year, our backlog has increased with 60% and of course, at a much higher rate. So I think that is something that we are sort of happy with. And that's for obvious reasons, we're going to continue to focus on that going forward. And then sort of the Safe Caledonia, we see there that there is limited visibility in North Sea for '26, there is more visibility in '27, but there are some opportunity in West Africa that we are looking at for Caledonia.

And then next in line is the Eurus in Brazil, the renewal there and also sort of the Zephyrus coming after. And you typically -- so these contracts are sort of renewed a year ahead of expiry. It varies. But of course, there is a continuous dialogue with our clients.

Financial. Reese, do you want to take us through this?

[Reese McNeel, executive]

Thank you, Terje. Yes, touching briefly on the results for the quarter and the first half, slightly lower EBITDA this quarter than the last -- the previous quarters. I think that's driven mainly by timing. We had Concordia on hire -- last year at Concordia on hire until end of early March. And we have now Caledonia starting up a little bit later. So I think the phasing there impacted slightly, as Terje mentioned, very much in line with our expectation.

Looking a little bit ahead, we do see Boreas starting up a little bit earlier than we thought. So we will see an improvement of the EBITDA going forward. We have gone out and said we expect EBITDA in the $35 million to $40 million range for the full year, and that is driven largely by Boreas coming on to contract in the second half.

Not a lot of news on the income statement. I think it's good to point out, I think, so the other financial items, obviously, we've been through a lengthy refinancing process with a debt for equity and did incur some significant adviser fees. It was fully consensual so that obviously helped. But I do think we're seeing the back end of those fees now that we finally got the deal done in June. So I think we will also see a significant improvement in the net loss position also going forward.

Balance sheet. Again, post the restructuring, we will see an improvement, obviously, in the equity with the conversion of the $193 million of debt. I think the main thing that we're focusing on very clearly when it comes to the balance sheet is working capital which has an impact on our cash situation. This was the picture in Q1. I think we saw quite a bit of working capital movement. The one thing that's important to kind of point out is that we have received a significant portion of mobilization fees in relation to the Safe Boreas and the Safe Caledonia contracts. So that obviously been a very positive working capital movement which is offsetting, to a large extent, our CapEx. And that was the intention of those contracts that, by and large, they are being funded by the clients.

Obviously, what we will see for those who are a bit interested in the accounting, we will see that go the other way when we start to recognize revenue and EBITDA. So we'll have positive revenue and EBITDA and more negative working capital movement as we need to recognize the EBITDA over the contract period. So -- but decent cash flow in the quarter. And I think, as Terje mentioned, we're sitting on -- sitting today at around about $90 million of liquidity, which gives us sustainable liquidity position.

Looking ahead, we do have the remaining SPS projects to complete. We got the SPS on Notos, we got SPS on Zephyrus. Those are coming up now between Q3 and Q1 next year. And we also have the Boreas, which I think a good portion of the Boreas cost is behind us, but we still need to get her on contract here towards the back half of the year.

So with that, I will hand it back to Terje to wrap things up.

[Terje Askvig, executive]

So outlook. So again, we have -- we are sort of in an improving market. And we see it. Of course, for Prosafe there is a lagging element due to legacy contracts. But based on sort of the current rates, I'll come back to illustrate that a little bit. But we are sort of -- both sort of the supply/demand here, but also then just the fact that the legacy contracts are coming towards an end, is it going to be uplift in our earnings going forward. We are, as we said, are sort of guidance. This is the first time we have been guiding for a long time, but that's between $35 million and $40 million for the year.

So this is sort of giving an illustration, what we think the earnings potential is in process based on the current markets. So if all the contracts were set at the current market, so for illustration part looking ahead then to '28 and assume everything is reset, that's the first year that the legacy contracts are reset in full. If they are reset at the current market, i.e., $140,000 per day, the same as Notos, we will have an EBITDA in the vicinity of $100 million, $90 million to $100 million. That's the earnings potential.

But of course, if the market goes up, there is more potential. If the market goes down, there is less. But this is sort of a state of the union as of today. And when it comes to the debt-carrying capacity, of course, based on the current guiding for '25, the net debt-to-EBITDA is quite high. But looking forward, we are sort of -- if this is sort of the case in '28 with these assumptions, we'll have a net debt to EBITDA of around 2.5%, which, of course, is very different than what we had sort of in the past. So we think that there is significant earnings potential and value creation potential in Prosafe.

And this is looking at, again, the steel value here, enterprise value. Our current net debt is $220 million. Current market cap is about $140 million. That means that the enterprise value today is around $360 million and comparing that both sort of the broker values and newbuilding replacement cost. I mean I would say that to build one of our rigs today, one of our vessels, cost at least between $300 million and $350 million.

That means that the newbuilding parity today is above $1.2 billion, then we don't sort of put any value on the Safe Caledonia, this on the 4 modern units. So it's sort of based on newbuilding parity. Of course, there is significant upside as well. But the question is whether there will be built more accommodation vessel, time will tell.

So this is sums it up. We are the mark here, and we have capacity going forward when the contract is coming up for renewal. I think after this, we have a sustainable capital structure and we have a fully funded business plan. So Brazil is very much the focus, and it's going to -- it is and it's going to be -- continue to be for Prosafe and also for our market and we are focusing and to continue to build the backlog. And I think on that note, I think that, of course, advantage by operating in Brazil compared to the North Sea is a long contract. That's one of the main reasons why we like Brazil so much. There, you get 4-year contracts, while in the North Sea, it's much more staggered and you need to take a lot more risk on options and you need to take a lot more risk on filling the void spaces.

While the visibility we have in Brazil is something that we like a lot and that we are going to continue. I mean, Brazil is a difficult market to operate. But when you are there, as I tell my colleagues when I complain sometimes, that's our competitive advantage. I mean that's really where we are strong and where we want to continue to be strong.

So with that, I think I will end the presentation as such, and Reese, do you have -- are there any questions from the audience? Maybe you can talk into the mic, that's over there.

[Unknown Analyst]

How do you see the demand outlook in Australia? Do you think the Boreas could stay there post the upcoming contract? Or do you think you'll have to move it to Brazil or West Africa?

[Terje Askvig, executive]

I mean I think that's clearly our -- the pure sort of math on that, that's clearly our priority to stay in Australia. So next year, there will be 2 vessels operating in Australia, whether there -- but we see that there is demand from Australia. The visibility is not great. But that's clearly one of the -- for obvious reasons, one of the focus areas that we'll see if we can find new work for Boreas in Australia.

[Reese McNeel, executive]

Maybe we can add also that we mitigated somewhat the risk. We've mitigated some of the risk in the sense that the current contract covers returning the vessel back to this side of the world. So we have mitigated somewhat that as well. But clearly, to stay in Australia would be advantageous.

[Terje Askvig, executive]

Okay. Nothing to you, Reese?

[Reese McNeel, executive]

No, nothing.

[Terje Askvig, executive]

Okay. Then thank you very much. We'll end the presentation here. So thank you for attending.