Release Date: August 15, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Prosafe SE (FRA:1Q6, Financial) reported no Lost Time Injuries (LTIs) for the last 12 months, indicating strong safety performance.
- The company secured letters of intent for the Boreas and Caledonia vessels, with expectations to finalize contracts soon.
- EBITDA for Q2 2024 was $6.6 million, consistent with Q1 and significantly improved from the previous year.
- Cash reserves increased to $66 million from $63 million in the previous quarter.
- The company has good visibility for 2025 and 2026, with high expectations for contract extensions and new opportunities.
Negative Points
- Fleet utilization was only 56%, indicating underutilization of available resources.
- Significant CapEx of $80 million is anticipated for vessel maintenance and reactivation, which could strain financial resources.
- Loans maturing in 2025 require refinancing, adding financial uncertainty.
- The unfavorable tax regime in the UK could impact future operations and profitability in that region.
- The Concordia vessel faces potential layup unless a significant upfront payment contract is secured, reflecting challenges in maintaining older assets.
Q & A Highlights
Q: On Caledonia, after the current contract, can you update us on the outlook there?
A: Caledonia is very suitable for the UK market. Going into 2026, that's a natural home for her. She is a moored unit, so she will need to be moored, and the UK market is where she can work. We have a dialogue with clients for 2026, and she is starting to work for Ithaca on June 1st. There is potential for work before that as well.
Q: Following up on Concordia in the Gulf, upcoming SPS. It's quite expensive. What's your latest thinking there?
A: Concordia is due for SPS in March, and there is significant CapEx needed for both SPS and life extension. Unless we can secure a contract that justifies that CapEx, she will go into layup. We are not going to spend that cash without visibility on earnings and cash flow.
Q: From the outlook for Concordia, you mentioned clients need to pay upfront to keep vessels. What's the dialogue there?
A: Concordia is more suitable for the US Gulf and West Africa markets. She is not as sophisticated as Boreas or Zephyrus. We need a significant upfront payment to make sense of the financials. We have dialogues with different clients, but the base case is that she will go into layup.
Q: Continuing on Zephyrus in Brazil, is it right to assume that for Petrobras to give an extension outside of their ordinary tendering, there needs to be no change in the scope of the contract and the day rate would have to be flattish?
A: Flattish is probably accurate, but it is part of ongoing discussions. We have ambitions, and the question is whether those ambitions will be met.
Q: Can you provide more details on the financial outlook and liquidity situation?
A: We have liquidity and headroom to the covenant into Q2, Q3 next year. Our focus is on improving the liquidity picture, driven largely by reactivations and securing LOIs. We need to manage the $80 million CapEx reactivation spend for 2025, which is a large number but driven by positive market developments.
Q: What is the outlook for the Safe Boreas and Safe Caledonia contracts?
A: Safe Boreas will go into a 15-month firm contract with a 6-month option in Western Australia, with a contract value between $75 million and $100 million. Safe Caledonia has an LOI with Ithaca Energy in the UK for the Captain field, with a contract value between $23 million and $37 million. Both contracts are expected to be executed within August.
Q: How do you see the market demand and supply dynamics evolving?
A: The market looks favorable, especially in Brazil, which is the most important market. Brazil plans to increase production from 3 million barrels to 5-6 million barrels by 2030, driving demand for accommodation vessels. The North Sea market is stable, with potential for increased demand in 2026. The rest of the world shows steady demand, with varying rates depending on the region.
Q: Can you elaborate on the financial performance and cash flow situation?
A: Revenue and EBITDA have been steady, with high uptime and controlled costs. The interest level has stabilized. The positive cash flow in the quarter was driven by prepayment received for Safe Boreas. Our focus is on managing liquidity and improving the cash flow picture, especially with the upcoming CapEx reactivation spend.
Q: What are the key drivers for future growth and utilization?
A: The Brazilian market is the main driver, with increasing demand for accommodation vessels due to production goals and FPSO orders. The North Sea market is stable, with potential for growth in 2026. The rest of the world shows steady demand, with varying rates. We are well-positioned to capture this demand and improve utilization.
Q: What is the company's strategy for managing debt and financing?
A: Loans mature in 2025, and we will start refinancing in good time before maturity, leveraging the increased backlog. We are focused on managing liquidity and improving the financial picture, with a runway into Q2, Q3 next year.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
