Earnings call transcript: Odfjell Drilling Q4 2024 sees record revenue, dividend boost

Odfjell Drilling, with a market capitalization of $1.35 billion, reported a strong financial performance for Q4 2024, with operating revenue reaching $204 million and a net profit of $15 million. The company also announced a significant increase in its quarterly dividend from $0.06 to $0.125 per share, resulting in an attractive 4.04% dividend yield. The company’s financial utilization stood at an impressive 96%, reflecting efficient operations. The stock has demonstrated remarkable momentum, posting a 55.78% return over the past year and a 24.17% gain year-to-date.

InvestingPro analysis reveals several positive indicators for Odfjell Drilling, with 7 key ProTips available to subscribers, highlighting the company’s strong financial position and shareholder-friendly policies.

Key Takeaways

• Record Q4 2024 revenue and EBITDA, marking a successful year.
• Dividend per share more than doubled, reflecting strong financial health.
• Continued innovation with carbon storage projects and BOP upgrades.
• Strong contract backlog and price to option suggest robust future prospects.

Company Performance

Odfjell Drilling delivered a robust performance in Q4 2024, achieving record operating revenue of $204 million and a net profit of $15 million. The full-year revenue for 2024 amounted to $775 million, with EBITDA reaching $345 million. This performance underscores the company’s effective operational strategy and strong market positioning, particularly in the Norwegian and Namibian markets.

Financial Highlights

• Q4 2024 Operating Revenue: $204 million
• Full Year 2024 Revenue: $775 million
• Full Year 2024 EBITDA: $345 million
• Q4 2024 EBITDA: $92 million
• Net Profit Q4 2024: $15 million
• Dividend increased from $0.06 to $0.125 per share

Outlook & Guidance

Odfjell Drilling is optimistic about its future, with strong interest in securing Tier 1 assets for 2027 and beyond. The company anticipates potential day rate increases in 2026 and plans to maintain its focus on long-term client relationships. The firm contract backlog of $1.9 billion and recent contract extensions highlight the company’s solid market position.

Executive Commentary

CEO Chet Hairstal stated, "We have achieved a record EBITDA and revenue since we did the spin-off," highlighting the company’s operational success. He also emphasized the company’s commitment to shareholder value, saying, "We have more than doubled our dividend and are very well placed to further increase shareholder distributions."

Risks and Challenges

• Potential limited international market opportunities in 2025.
• Estimated CapEx of $50 million for upcoming Special Periodic Surveys, impacting cash flow.
• Dependence on the Norwegian market, which is balanced but could face shifts in supply-demand dynamics.

Odfjell Drilling’s strong financial performance and strategic initiatives position it well for future growth, despite potential challenges in the international market and upcoming capital expenditures. The company’s focus on innovation and maintaining robust client relationships will be crucial as it navigates the evolving energy landscape.

Full transcript - Odlewnie Polskie SA (WA:ODL) Q4 2024:

James Crullers, Investor Relations Officer, Odfjell Drilling: Good afternoon everybody and welcome to the Odfjell Drilling Q4 twenty twenty four and preliminary full year twenty twenty four results presentation. My name is James Crullers and I’m the Investor Relations Officer at the company and I’m joined today by our Chief Executive Officer, Chet Hairstal and our Chief Financial Officer, Brode Cislak. Before we begin, your intention is brought to the important information slide of our presentation, which would encourage participants to read in full. Note that this presentation is only a summary of the quarter and the quarterly report should be read separately, both that report and today’s presentation are available on our website, www.otthealdrilling.com. Our call today will begin with a brief summary of the quarter with Jeff taking us through some of the key highlights.

We’ll then move on to discussing our operations during Q4 and move on to our financial review with Frode. We’ll then summarize the presentation and close the call. Following the presentation, we’ll open a Q and A session and invite all participants to submit a question either by the telephone line or electronically by the webcast tools which are available. We’ll endeavor to get through as many questions as we can as that part of the process, but if there isn’t any other unanswered questions, we will fully try and get in touch with you afterwards as well. We have a lot to talk about today, so I won’t delay anymore and I’ll hand over to Chetul who will take us through the key highlights.

Chet Hairstal, Chief Executive Officer, Odfjell Drilling: Thank you, James, and very good afternoon to everybody. We are delighted to present our Q4 results, which indicates the direction our EBITDA is heading. Operationally, our fleet performed well. Despite what was a challenging and stormy winter season, we achieved a financial utilization of 96%. When combined with our managed fleet, delivered EBITA of $92,000,000 from a revenue of $2.00 $4,000,000 Our revenue and EBITDA generation reflect new records for the business since we did the spin off from Odroid Technologies in 2022.

In addition, we have more than doubled our quarterly dividend for the quarter, increasing from $0.06 per share to $0.125 per share, resulting in a total dividend in Q4 of $30,000,000 Later on, Frode will discuss our dividend in a bit more details in this section. But what I would say at this point is that we remain very well positioned to further increase shareholder distributions in the quarters to come. Post period, we also secured more backlog for AFFREIT, resulting in firm contract backlog at $1,900,000,000 with $100,000,000 of price to option in addition. This is a result of the extension of the existing contract we had with Equinor for the use of Deepsea Atlantic. And this contract extension was secured at a very healthy day rate of around $500,000 per day, which I think is a great data point for our sector these days.

During the period, we also worked with our lenders to secure an agreement, which results in a reduction in quarter installments on the Deepsea Newcap term loan facility, resulting in deferment of $34,000,000 to Q1 twenty twenty nine. And finally, our balance sheet and liquidity remain strong with the company now having a leverage ratio of 1.6 and an equity ratio of 63%. Moving on to our operation. As per previous quarters, the Deepsea Aberdeen, Deepsea Atlantic and Deepsea Stavanger were all working with Equinor. The Deepsea Atlantic was working on various exploration projects, while the Deep Sea Aberdeen remained on Braudoblic Field.

The Stavanger, in addition to working on exploration campaigns for Equinor, also commenced a carbon storage well towards the end of the period, reflecting the first time Woodford Drilling has worked on such a well. Carbon storage wells are drilled in a similar manner to commercial wells, and we see signs that there could be an incremental demand coming from carbon storage campaigns for our rigs in the future. In addition to the work done by Stavanger, the Deepsene Werkhof also has a carbon storage well scheduled for Q1. Returning to operations, the Diepcewo Cup remained working with Aker BP (NYSE:BP) on various exploration projects and the Diepcewo Antai was also in Norway working with the Ollien Group. The Dipsi Mira and the Dipsi Bosta were both operating offshore Namibia for Total (EPA:TTEF) and Chevron (NYSE:CVX) respectively.

And the Dipsi Bosta has since completed its work for Chevron and will begin mobilizations to Norway shortly. And finally, the HOKES was in the yard in Norway from mid November last year. Looking ahead, our fleet remains well secured for the next two years with all units set to transition onto higher day rates in the first half of twenty twenty five. As you can see from the chart, you can see several day rate milestones happening soon and already the Dipsa Badin, for instance, will be moving from 345,000 per day to around $447,000 and the North Cup will also be moving up from 343,000 to 416,000. Later in the year, we also see significant day rate increases on the Deepsea Atlantic and the Stavanger.

And as a reminder, rates shown on this slide reflect clean day rates and do not include any bonuses, pure incentives or any add on sales, which in the past are adding, I would say, meaningful to these rates. Next (LON:NXT) slide. This chart shows what our backlog looks like in terms of yearly revenue while also showing average secured day rate per rig and an indicative OpEx cost per rig. As you can see on the OpEx line, this is largely flat with cost increases covered through our contracts. As is demonstrated, you can see a significantly increasing margin with increasing yearly revenue and a well controlled OpEx.

Our CapEx expectations aren’t changed from prior quarters. We have two SPSs still ahead of us with Deepsea Stavanger and Deepsea Berlin anticipated to begin their SPS programs in Q2 ’twenty five with a CapEx cost of approximately $50,000,000 each and two to four weeks of downtime. Detailed planning for the yard stays is ongoing, with the majority of the SPS scope being completed while in operation. We feel we are ready and well prepared with both programs progressing as planned. Following the completion of these SPS programs, however, we do not have any material CapEx cost ahead of us until late twenty twenty eight.

And then we turn to the market. I would say that our market view remains largely unchanged from prior quarters. Demand from Norway remains well balanced between supply and demand with tenders currently outstanding for future work. As many of you will be aware, we are seeing a clear trend from our clients that they are renewing their focus on oil and gas and presenting an interest in maintaining and also increasing their current production. And needless to say, this will require a lot of drilling in the years to come.

We expect this trend to continue and result in increasing work for our sector. Incremental demand we expect to come from new developers who are also seeking to grow in the basin, while demand from carbon storage, as mentioned, is unknown at this point but could create some further demand. Internationally, we do not see a stronger market as Norway, with a few shorter term contracts potentially available in 2025. We expect longer term contracts to increase as new exploration projects mature into development in the coming years. On the other side of the market, we now expect supply likely to reduce with some retirement of vessels in our sector expected and no newbuilds likely to happen.

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 future. Ultimately, with our own fleet largely coming off contract in 2027, we see good interest from clients to secure Tier one assets in this period. And with that, I will now pass on to Frode to go through our financial review.

Frode Cislak, Chief Financial Officer, Odfjell Drilling: Thank you, Chiatel. As always, I will begin with a summary of the income statement. Operating revenue in Q4 twenty twenty four was SEK $2.00 4,000,000 compared to SEK 192,000,000 in Q4 twenty twenty three. Operating revenue from the owned fleet was SEK 158,000,000 while the external fleet was $45,000,000 For the year, the revenue was $775,000,000 and the EBITDA $345,000,000 We are starting to see the effects of higher day rates in Q4 with an EBITDA for the owned fleet of SEK 87,000,000, a margin of 55%. The EBITDA for the external fleet was $9,000,000 with a margin of 20%.

Less corporate overhead and other adjustments, the group EBITDA was NOK 93,000,000. In other words, a strong quarter despite that we saw a slight cost increase in Q4 related to some downtime and minor repairs on Diepze Noorkeout as is also reflected in the lower financial utilization of that rig. These are one off effects. The company delivered a net profit of $15,000,000 in Q4. As you can see, this is somewhat lower than the $24,000,000 in net profit in Q4 ’twenty three.

And there are two main reasons behind this. Number one, there was a positive tax impact from our relocation of the rig ownership to Malta in Q4 ’twenty three. And secondly, in Q4 ’twenty four, we have a one off effect with a write down of the value of the small BoP that we took off Deepsea Atlantic in relation to the BOP upgrade. For the full year, the net profit was $65,000,000 Moving to Page 12 on the balance sheet. Net debt is reduced further this quarter by CHF 28,000,000 to CHF $5.00 4,000,000.

The leverage ratio is at a very comfortable level of CHF 1.6. Equity ratio is 63% based on total assets of around 2,200,000,000 The available liquidity is $217,000,000 including undrawn RCF of $99,000,000 We’ll take a closer look at the cash flow for Q4 as we now move to the next slide.

Chet Hairstal, Chief Executive Officer, Odfjell Drilling: Q4

Frode Cislak, Chief Financial Officer, Odfjell Drilling: saw $108,000,000 of cash generated from operations. Net interest paid was $22,000,000 including semiannual interest payment on the bond. CapEx for the quarter was $43,000,000 Net cash flow from financing activities and minor FX adjustments was minus $28,000,000 Of this, the net drawing on the RCF was 5,000,000 for the period. Dividends paid in Q4 were $14,000,000 related to Q3 results. And as said, we ended the quarter with a total available liquidity of $217,000,000 Moving then to Page 14 for a quick look at our debt.

As you can see, we have no final maturities until 2028. Also worth noting here is that annual repayments are reduced significantly in the years to come when compared to 2024, particularly so for 2025 and 2026, following the agreement we did in Q4 to defer installments totaling $34,000,000 until first quarter of twenty twenty nine. Together with increasing day rates and reduced CapEx commitments, this agreement further adds to the strong distribution capacity of the company. Our balance sheet is robust with a very comfortable debt level today, which will continue to decrease going forward. With our first call date on our bond being in November 2025, we, of course, will evaluate what is the best timing to extend debt maturities, lower interest costs and flatten the repayment profile more and with that to further increase the free cash available to equity holders.

That said, it’s important to bear in mind that our distribution capacity increases significantly also without any near or medium term adjustments to the debt profile. Moving then to the dividend section. As we promised, we have increased our dividend compared to previous levels and are happy to announce a cash dividend of $30,000,000 or $0.125 per share, being the first step in increasing our dividend. This substantial increase highlights our strong financial performance and visibility of future cash flow. With the SPS program nearing completion and our rigs continuing going on to higher contracted day rates, we’re in a strong financial position to return more capital to our shareholders going forward.

We’re being asked today whether further dividend increases will depend on completion of the SPSs on Dipsis Davanger and Dipsi Abadene, which are currently scheduled for April and May. To answer that question, I can confirm that there is both capacity and ambition to declare a further dividend increase when we announce our Q1 results in May. And with that, I’ll pass the word back to Kjetil to sum up the presentation.

Chet Hairstal, Chief Executive Officer, Odfjell Drilling: Thank you, Frode. And yes, to summarize, I think these are rock solid set of results for our company. We have achieved a record EBITDA and revenue since we did the spin off with OTL, driven primarily by higher day rates and good operational performance despite the challenging weather conditions that we have had here in Norway in the last couple of months. We have more than doubled our dividend and are very well placed to further increase shareholder distributions going forward. We have a well secured backlog at increasing day rates with our most recent picture in the $500,000 s.

And finally, our balance sheet remains very strong. And we really feel that our forward outlook is quite exceptional with increasing cash generation, deleveraging and shareholder return well secured. As I said, this is a rock solid set of results, but it’s really just a start for us and we are very excited about what we have ahead of us.

Frederic Steny, Analyst, Clarksons Securities: Great.

James Crullers, Investor Relations Officer, Odfjell Drilling: Thank you, Cetal and Pura. As a reminder, if you’d like to ask a question, you can do so either via the telephone line controls or via the webcast tools. Our operator, Sergei, can you please open the Q and A session whenever you’re ready? Certainly.

Operator: Ladies and gentlemen, if you wish to ask a question over the phone, please signal by pressing

Frederic Steny, Analyst, Clarksons Securities: And we will now take

Operator: our first question from Frederic Steny from Clarksons Securities. Please go ahead.

Frederic Steny, Analyst, Clarksons Securities: Thank you, Tim. Positive surprise, I think, on the dividend side today. So congratulations to all shareholders, I guess. But with that out of the way, I would like to touch a bit more on the market. I think the commentary that you gave you have been around the outlooks, particularly on the Norwegian in the Norwegian sector was promising.

It seems like there’s been somewhat an attitude change maybe towards further exploration and making sure that NCS has a long life ahead. With that as a backdrop, you have already contracted full on fleet for the next two years. How do you think it’s possible that we can get meaningful contract announcements for work in 2027 and beyond already this year. I guess the impression that there could be a quite meaningful discussions ongoing already. So any thinking, commentary around that would be helpful.

And also if you have any thinking about day rate development beyond what you have already fixed for 2025 and 2026.

Chet Hairstal, Chief Executive Officer, Odfjell Drilling: Yes. Now what I can say, Frederic, is I sort of agree on your sort of summary for sort of the focus that we experienced from our key clients. They are very clear on their ambitions to at least uphold or increase production going forward. And we know with a production decline set to happen if we don’t do anything, I think it kind of supports that story. I’m not going to promise any contract extensions from 2027 and onwards this year.

But what I can say is that we have meaningful interest from clients looking to secure Tier one assets from 2027 and further on. And although those are early talks that we see that as supported to our story. And we think with pressure now on internationally on 2025, we are very happy and glad that we have the backlog that we have taking us through 2526%. And we think that we need to have capacity available in 27% is a good place to be actually. On the day rates, I think we’re not to expect any further day rates increase in 2025.

I think that’s sort of a takeaway from the whole market. But I think once we enter ’26 and we start to see interest picking up and more tenders coming, I won’t rule out that we can start to roll upwards again.

Frederic Steny, Analyst, Clarksons Securities: Okay. That’s very helpful. And finally, just on the contracting side before I leave you to the next one. When you’re exploring new opportunities, obviously, the Stavanger, you contracted for five years, so it was a very long contract. How do you think about contract lengths and staggering the roll offs of your different rigs as you’re looking into those twenty twenty seven plus opportunities.

Any preferred contract lengths? Or would you chase rates instead? Or be kind of happy with a longer contract at the rate that’s fair for longer term work?

Chet Hairstal, Chief Executive Officer, Odfjell Drilling: We would love a very long contract with a very high day rate. But I think we have some key clients that we are working with, but we also see interest from other potential clients. We like long term relationships. I have to admit, and with that because we see historically that if we do a good job, they will return for more. We I think we will keep an open mind on that one and just follow closely what’s out there.

But I mean to jump around from sort of two wells to one well to three wells is not the preferred manner for us. We like to have, I would say, sort of a minimum length of at least a year at a time. Preferably be longer if the day rates is okay as well.

Frederic Steny, Analyst, Clarksons Securities: Super. Thank you very much. That’s it from me. Have a good day.

Chet Hairstal, Chief Executive Officer, Odfjell Drilling: Have a good day, Frederic. Thank you.

Operator: Thank you. It appears there are currently no further questions over the phone. So over to you, James, for any webcast questions.

James Crullers, Investor Relations Officer, Odfjell Drilling: Yes. Thank you very much, Sergei. So we have a few questions coming in. Really appreciate that. Thank you very much for your interest.

So first question comes in, what is your thoughts around timing of further dividend hikes? Do you expect to stay here in 2025 or increase further when cash flow increases after the SPSs are finished in Q2? I think we answered that, but Frodo maybe you would want to reiterate that question.

Frode Cislak, Chief Financial Officer, Odfjell Drilling: Yes, you’re right. I think we talked about on the dividend slide. There is ample room to increase and the ambition to increase again when we report our Q1 results

Frederic Steny, Analyst, Clarksons Securities: in May.

James Crullers, Investor Relations Officer, Odfjell Drilling: Great. Thank you very much. I suppose in a similar event, what’s the capital allocation priorities of the company? The investor here suggests, I assume dividend is the main priority, but is there any appetite for increased owned or external fleet?

Chet Hairstal, Chief Executive Officer, Odfjell Drilling: Yes, I can answer that. I think we’ve been pretty steady in our comps there earlier, and we will stick to that message. We need something that supports our story. What I can say, we won’t do anything to speculate on any deal that sort of might create the revenue or something. It will have to be something that’s supportive to our dividend story.

We are following the opportunities that are out there. And if sort of ticks the right boxes, that being price of asset, contract length, day rate and so on, we are absolutely into looking for that. But we will stay disciplined. It’s hard to it’s not easy to find those opportunities, but it’s not impossible either. So we are constantly looking at that.

And if it’s the right deal to make, we’ll definitely follow-up on that.

James Crullers, Investor Relations Officer, Odfjell Drilling: Thank you very much. We have another question in here saying, what does the impairment in Q4 amount to? Frode, maybe you want to take that question?

Frode Cislak, Chief Financial Officer, Odfjell Drilling: Yes. That question relates to the one off write down we did in Q4. That’s related to the small BOP that we took off Deepsea Atlantic as part of the BOP upgrade. We did an evaluation in Q4 of the secondhand value of that small BOP and did a write down of approximately $10,000,000 And the book value of that small BOP is now around $5,000,000

James Crullers, Investor Relations Officer, Odfjell Drilling: Great, thank you. We’ve had a few questions in regards to the difference from the Board’s perspective between dividends and share buybacks. Is there anything that perhaps we might want to sort of add to that?

Chet Hairstal, Chief Executive Officer, Odfjell Drilling: Yes. We do discuss that with the board and it’s not like this that we firmly rule out buybacks or but for now, we have agreed that cash dividend is the preferred way at this time, but we are constantly evaluating that. And it might be that at some stage, we will introduce buybacks as well or probably a combination with buybacks and cash dividends. But we, for now, are concentrating on cash dividends.

James Crullers, Investor Relations Officer, Odfjell Drilling: Great. Thank you very much. Thank you. We’ve had a few questions I suppose more generally about how we see the Norwegian market. We spoke a bit about that already, Gentle, but again perhaps you might want to sort of give another sort of high level view as to how you see Norwegian sort of market conversion.

Chet Hairstal, Chief Executive Officer, Odfjell Drilling: No. I can just deteriorate what I said that we see a client portfolio who is very ambitious on the targets both on their production targets and the upholding current production and also increasing it. And this to do that, they’re going to be in need of our services and our peer services. So that’s the main reason that we are quite optimistic. I don’t think you will see like a boom coming out of this that you sort of need will increase the rig fleet with five plus rigs or something like that.

But I think it supports a very solid balanced market with a good balance between supply and demand going forward. So we are, yeah, that’s the reason that we stay quite optimistic about the Norwegian sector.

James Crullers, Investor Relations Officer, Odfjell Drilling: Great. Thank you very much. I’m very conscious of time, so I’ve got a few more questions that have come through but perhaps I’ll take them offline and answer them directly and I think we’ll probably just leave the Q and A session for there just because we are running Elizabeth’s longer than normal. So I’ll wrap up the call now. Thank you all for joining and for your interest in the company.

Our next conference call and results will be in the May 14. And as always though, if you would like to speak about anything, to add a bit more color on today’s results or if you have any further questions, please do just get in touch with me directly. My contact details are on the website and the back of the presentation. Thank you very much operators, you can now close the call.

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