Awilco Drilling PLC (OTCPK:AWLCF) Q1 2019 Results Earnings Conference Call May 15, 2019 8:30 AM ET
Jens Berge - CEO
Ian Wilson - CFO
Hello, and welcome to the Awilco Drilling PLC's First Quarter Presentation. My name is Rona, and I will be your coordinator for today's event. For the duration of the call you will be on listen-only. However, you will have the opportunity to ask questions at the end of the conference. [Operator Instructions]
I am now handing you over to your host, Mr. Jens Berge to begin today's conference. Thank you.
Thank you. So my name is Jens Berge, I'm the CEO of Awilco Drilling PLC. With me, I have Ian Wilson, CFO. So we will go through the same presentation material that we used in the Q1 presentation this morning, and you can follow the slides from there.
The agenda we will go through today is having a brief look at highlights. We will go through the Q1 financial results, whereafter, we will do an operational update, a newbuild update, the market outlook and then we'll go to a quick summary before we open up for Q&A.
On the highlights from Q1 and some more recent ones, we have announced the option for the second newbuild, which was exercised on 8th of March. We also had an equity issue of $20 million. [Audio Gap] started in the organization on 1st of May. We also had an extension from Shell on WilPhoenix for another 5, number of 5 wells, which is taking us to at least the end of 2019. And the total Q1 revenue was at $9.1 million. And then we had an EBITDA loss of $0.3 million and a net loss of $2.4 million. I will come back to those numbers.
So Ian, would you like to go through the financials.
Yes. It's Ian. So first quarter 2019 income statement, contract revenue of $9 million, and that represents a contract -- sorry, revenue efficiency of 85.8%, with the global experience in previous quarters driven primarily by a large amount of weakening weather time during the quarter. So operational uptime result was 100%, but the weakening weather reduced the revenue efficiency going to the 85.8%.
Our rig operating expenses $6.3 million and that represents 68,000 per day in respect with WilPhoenix. Our guidance started as being 80,000, but those have some major expense projects in Q1 that will be pre-stacking to subsequent quarters, but still very healthy per day with OpEx. And for the cold stack WilHunter, we are operating at just short in $100s per day, so slightly below guidance.
G&A expense of $3.1 million that includes the few nonrecurrent items. $400,000 in respect to the adjustment to the Alpha provision and then there had been a change of the CEO. So some leading expenses and staffing expenses, so that's $400,000 and then $150,000 in respect of bonus provision for 2018. So total expenses there of just over $12 million resulting in an operating loss in the quarter of $3 million. Interest income on the surplus cash balance of $500,000 resulting in the loss before tax is 2.3 -- sorry, tax provision adjustment and net loss for the period of $2.35 million or equivalent of $0.05 loss per share.
Onto the balance sheet. Rig, machinery and equipment changes in the quarter, these are driven by the deposits on rig 2 of $42.2 million and ongoing project unit costs of $800,000. Trade and other receivables of $6.3 million. That's largely the January and February revenue that's being built in respect to the Shell contract and the prepayments and accrued revenue. Accrued revenue there and March revenue, but historically Shell has been very good, so clearance and compliant with the contract requirements.
Cash and cash equivalents $42.9 million. Total assets of $58.5 million, current assets that is -- and total overall assets of $286.3 million. Below the line there, paid in capital $218.9 million and that includes $20 million with respect to the private placement done at June quarter. And there will be a further $3 million in respect to the payoff issue that will be coming through quarter 2. Accruals and provisions [indiscernible] time below $5.7 million. It's various accruals and provisions, but mostly [indiscernible] being the Alpha provision and payment taxes for employee and employer portions. So total equity and liabilities $286.3 million.
Thank you, Ian. We'll then go to item 3 on the agenda, which is the operational update. And Ian already touched upon some of these aspects in the financial overview. But we've had WilPhoenix contract for Shell in the U.K. And as Ian stated, the operational uptime was 100% over the quarter, but we obviously took a hit then due to the waiting on weather where we have some closures that -- in the contract, which was on the lower rates. So that's where -- how our revenue efficiency was impacted.
We then had 2 options exercised by Shell for a total of 5 P&A wells also in the U.K., taking the firm part of the contract till end of 2019. And then we also have contract backlog as of today, which is approximately $26 million. And now both of the duration as well as on the -- on monetary backlog, we are being slightly conservative by saying till end of 2019, it could also go into 2020. That depends on the wells durations and some other factors. So little bit conservative, both on duration and backlog.
The next item is the newbuild update, which we are very excited about. And as many of you will know, we have a newbuild program ahead of us with 2 confirmed rigs and another 2 options.
And then we -- I can actually mention the 2 rigs according to the slides, we are also mentioning the rigs in U.K. We have WilPhoenix I already touched upon, and then we also have WilHunter in the U.K., that's back then. And as we have announced previously, we see that stacking cost of short of $1 million annually as a good investment into opportunities that might arise in an improving market. So we're still in the same position with regard to WilHunter.
But the newbuilds, we have number 1, which -- the construction has already commenced and we expect delivery in March 2021. And we also have the sleeping beauty clause with an option to delay delivery with 12 months should we wish to do that. It's good to have that flexibility, but we will definitely be ready also for opportunities that arise once the rig is ready for delivery.
And then we have number 2, which is scheduled for delivery in 2022, March. And we also have the same option there to delay it with 12 months.
In March, next year, March 2020, we need to make a decision on the rig number 3, the first of the second option, so to say. And we do actually have some flexibility on that call as well as you can see from the slides. So we're using March 2020, but we have some more time actually to make that call should we wish to do that. And then the fourth or the third option and rig number 4 of the newbuilds, it needs to be closed in March 2021.
Looking at where the market and where the industry is heading and, in particular, I would say in Norway, we see very increased focus on environments, digitalization and drilling efficiency. And we are very pleased that, that's where the market is heading because those 3 factors were also our main focuses when we expect these rigs. So we are confident that -- well, we are already having some discussions with clients, but we're also confident that we will advance into more and very constructive discussions with the clients in Norway in particular.
And then look at what common focuses we share because we are confident that we can add value in these markets. A few details on the newbuilds. We say that they are green by the sign. We also observe, obviously, in the market that there are other players who take a lot of -- make a lot of green initiatives and retrofit various equipment to meet new environmental requirements and expectations. And we are very pleased to see this. We all have responsibility for the environment and it's good that industry is heading in that direction.
We believe that the opportunity, we have been given here to invest into that type of equipment from the very beginning, will give an extra advantage to us. And we can mention some items such as the hybrid technology; optimized power systems; we have an energy-efficient drilling system; we have waste heat recovery; and we have energy storage and also regeneration. And this is all built into the design. It's all part of one comprehensive system and design, which we believe is a very good match with what the market is looking for when we have these rigs ready.
We also made some estimates on how much savings that reduced fuel consumption as well as the CO2 taxes we'll have for the clients. And we estimate that we will see -- we will be able to deliver savings of $10,000 to $40,000 per day compared to peers due to these technological advantages with a strong environmental focus.
I will also have Tier 3 engines and NOx scrubbers and NOx emissions are reduced by 95%. So a very environmentally friendly design from an environmental -- from a impact point of view from the very beginning.
On the same lines, looking at the drilling packets and the equipment. We've also made sure that we have built the latest and greatest of technology into our drilling systems. And we have an automated drilling control. And we've seen examples from Equinor where they quote us the reduction in well duration from the ADC, the automated drilling control, is 10%.
We also have faster riser running and recovery speeds with our QTR riser or Click-Riser. We see increased weather uptime by maximizing the useable length of the telescopic joint. We have highly automated and efficient offline capabilities and a high degree of digitalization. So just like for the environmental side, we also see that on the drilling equipment side, on drilling efficiency and digitalization that we had managed to get over this technology built into the -- to the design.
We've also looked at well duration compared to what we believe we will gain advantages on -- from a well-duration point of view, using a 90-day well in the Barents Sea as an example. And we -- our estimates show that we will be 12% ahead of fifth-generation units in this market and 40% reduced compared to the fourth-generation units. And then there are obviously other sixth-generation units as well and newer units in the system that performed very well. And where the margins are smaller between us and them. But again, we believe that the spec that we have built this rig for with everything built in, it's going to -- at the extra [indiscernible] on it so that we can perform very well compared to peers.
Another aspect of the newbuild update is the Norwegian organization. We are definitely targeting these newbuilds for the Norwegian markets. And as part of that, we also need to a set up Norwegian team. Norwegian organization established a good footprint in Norway, and we're about to hire people to start building that team. And they will -- we have a lot of applications, a lot of positive interests, lots of confident people who would like to join us. And we are now in the selection process and about to extend offers in not too long to the first team of arrivals. And we expect to set up an office in -- most likely in Stavanger. And get a [indiscernible] with the new Awilco Drilling [indiscernible] on the [indiscernible]. And from there, we will build up and establish what we believe is required in order to manage an operation in Norway and meeting our customers' demands.
On the newbuilds themselves, number 1, as I said, the construction process is scheduled and on budget. And the steel cut for rig number 2 scheduled for Q4 this year. We are already in dialogue with some of the customers. And we're also working on marketing packets that we will use for some more advanced discussions throughout late summer and autumn. We would like to be able to display not only from PowerPoints and nice pictures of the rigs that the -- that we -- what we add to the market, but we would also like to display what benefits and actual value it brings to the customers, not only brag about our equipment, but also visualize very graphically how our equipment will and operating concept will meet their requirements.
Next item on the agenda is the market outlook. And there are obviously many guestimates on the oil price. Our opinion is that the oil price will remain at current levels. However, with continued volatility, we believe that the range that it will move within will be above the limit of, which -- whether oil companies will invest. So we believe that willingness to invest into both exploration and development with the oil price that we are seeing in the foreseeable future.
Looking at Norwegian semi-sub markets on the next slide, so Slide 20, we see that there are a number of rigs contracted and then there are additional rigs waiting for contract only being marketed. And it's quite clear that the ones that aren't contracted are the newer more advanced units, while that's -- the somewhat older units struggle to -- still struggle to get work and the gaps there, the delta between the contracts that end additional supplies mainly consist of rigs of a lower spec and higher edge.
The rates have fluctuated a lot over the last year. Thus -- but more recently, we see that the rates are moving up above $300. And we are hopeful that's when we take delivery of our rigs that it will also have tightened even further and allowing us to get some good contracts.
Next slide, Slide 21. Looking at rig utilization, quite clear picture. We see that the market declined, as we all know, back in '14, '15, '16. And when there was some degree of recovery in the market, it was the newer rigs that got contracts and vintage rigs that did not -- they continued the decline. Looking at the day rates, we also see that for vintage units, they are obviously lower than further newer generation units, and we see some recent strictures that are, as I mentioned earlier, on around and even above the $300.
Then over to the rig comparison of modern versus vintage rigs. And we believe that modern semis even at considerably higher day rates than vintage semis, they can be justified through both uptime efficiency, well durations, based on contracts in drilling and spread costs, and in our case, obviously, also the -- especially the fuel and CO2 tax cost. And why do the E&P companies prefer a modern unit is because they have better logistics on deck and a significant efficiency gain. They are less dependent on supply vessels and that's also reducing the supply cost.
From a motion point of view, they are -- they have better motion characteristics and ability to operate in all locations. On the winterization, by the things, new vessels and our rigs will be capable of working in the Barents Sea. And not on 4 rigs can do that even in the wider modern supply base.
Back on digitalization and integration, infrastructure software and sensors are allowing service companies and sort of the greater team onboard drilling rig to work more efficiently together with more precise data and easier access to everything you need in order to have correct and efficient decision-making.
And then auto drill capabilities are allowing real-time downhole information to get to the users faster and more precise, enabling the team to perform well together.
On the contract status and expected demand on the floating drilling units in the NCS on Slide 23, we see an improved market into 2020 and towards 2021, when we are about to take delivery of our first movement. It consists of some options, some from more or less drill requirements and some possible projects where rigs will be required. And the supply, obviously, remains high, but again, we believe that newer rigs with more environmental focus and better technology will obviously be the first ones to be chosen.
In the U.K. markets, there's a lot of movement, it's very seasonal. And we see that for second- and third-generation rigs, they are more or less utilized, although not continuously. It's seasonal, as I said. And then we see an increase in supply of newer rigs, which are the ones we need to compete with for jobs coming up in the U.K. that has a requirement for the kind of spec that we can offer.
Rates in the U.K. are also fluctuating, but there's no reason to believe that in improving markets, they will also come up.
Then to Slide 6 -- or sixth number, not Slide 6, but number 6 on the agenda, summary. We have all the flexibility we need is the headline and that's very much true. We have secured some really good rigs, good equipment in a good time. And we are -- we have a contract with the shipbuilder, the rig builder, which ensures us flexibility with both the sleeping beauty clauses and also some flexibility on calling the next option.
We will prove ourselves as a harsh environment mid-water game-changer. The new rig is on schedule and budget. We have a lot of optionality and flexibility in both rig financing and contract timing. We are establishing a Norwegian organization and engaging with NCS customers. WilPhoenix was contracted to Shell for 24 firm wells plus 5 optional wells in 2020. And we see that the market is improving, and we are looking very much forward to bring forward our rigs to the customer base here in Norway to discuss their needs and also to tell more about the technology we have that we believe is very much in line with the trends we see in the markets.
And that concludes our presentation, and I believe we are open for questions.
Okay. So there were no questions. Then we would like to thank you all for participating. And we wish you a nice day. Thank you. Bye-bye.
Thank you for joining today's call. You may now disconnect.