ODFJELL DRILLING LTD (ODL) Q2 2026 Earnings Call Transcript

Good afternoon, everybody, and welcome to the Oddfielder Lane Q2 2026 results presentation webcast. My name is James Crothers, and I'm an Investor Relations Officer at the company. I'm joined today by our Chief Executive Officer, Chetel Yersdal, and our Chief Financial Officer, Oylen Lander. 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 a more comprehensive quarterly report should be read separately. Both that report and today's presentations are available on our website www.oddfielderling.com. Today's call will follow the traditional structure with Chetha taking us through the key highlights before moving on to our operational review. Chetha will then continue with an overview of the market as we see it today before handing over to Ian who will go through our financial review. Chet will then summarize the presentation before we open up our Q&A session for analysts and investors. As always, the Q&A session will be conducted over both telephone lines and the webcast tools. And we will try to get through as many of the questions put to us as possible. However, if we don't get a chance to get through your question, I will endeavor to follow up with you directly after the call. We make an effort to answer all of the questions asked, so we do encourage you to use this feature. With that, I'll pass it over to our CEO, Jette Jørstad.

Thanks, James, and a very good afternoon, everybody. As I was quoted in our report, which was published earlier today, results emphasize the resilience and capability of our organization. Even though we've had one rig of fire from much of the quarter, we still have been able to return solid financial results, they leverage our balance sheets and we are continuing to return cash to our shareholders from revenue of 251 million dollars we have recorded ebta of 162 million dollars and achieved a net profit of 57 million dollars these numbers are positively impacted by the insurance proceeds from the atlantic incidents after write-off of lost equipment and expenses incurred related to the insurance claim, there is a positive EBITDA effect of $32 million. Meanwhile, we have continued to deleverage, reducing our leverage ratio now to one point times net debt to EBITDA and our net debt to $862 million. At the same time, we have announced a dividend for the quarter of $0.25 per share. And while we are still seeking to increase our dividend to a long-term sustainable level we believe that given the incident for this quarter it was prudent to maintain our distribution level at 25 cents per share I will touch more upon this later in the presentation in addition we have also added more backlog resulting in our own fleet now having firm contract backlog of 2.1 billion dollars and of course as many of you know we have successfully brought deep sea atlantic back on hire following the incident of the total of fire of 106 days within the three to four months guidance which we gave during our q1 results presentation and and while the incident was a tough hit i would say that you know the response our organizations our vendors insurers our clients peers and the wider industry has just been exceptional we did this the odd field way and it speaks volumes to all involved that we were able to bring the unit back into operations within 106 days and i would like to sincerely thank everybody who has been involved in making this happen and on that topic as we move on to the operational review we wanted to make sure we provided an update on what's been going on with the deep sea atlantic since the incident the company's been working hard to bring the rig back on higher this started by locating cleaning out and recovering the bop which had been dropped to 1100 meters of water depth. This was not easy but working with various suppliers we were able to recover the BOP by using specialist equipment and by using the deep sea Atlantic itself. Inspections of this drop BOPs suggest that it will be likely repaired and refurbished. Following this the rig sailed to yard for repairs and to install a now upgraded BOP which the company had in stock the rig subsequently returned to site for testing and final acceptance in mid july before going back on rate on august 2nd the company has so far recognized 82 million dollars worth of insurance proceeds related to recovery and repair following the incidents as mentioned the companies had a positive ebitda effect of 32 million dollars in q2 related to the insurance proceeds and has had a positive EBIT effect of four million dollars following an impairment loss of 28 million dollars relating to the damaged equipment as regards regards to cash the estimate the net impact from the incident all effects taken into account is negative approximately 35 million compared to what it would be if we the incident had not happened and i would like to add that over the past couple of months we naturally have had a lot of people asking what the cause of the incident was and while there's still a formal investigation ongoing i think we can with confidence say that the cause of the incident was equipment errors and not operating errors and then moving on to our backlog and general operations performance and despite the incident on the Atlantic, our units performed extremely well during the quarter. Notably, both the DPC Nord Cup and DPC Stavanger averaged the financial utilization of 99% during the period, above our 10-year average of 97%. Meanwhile, we also added another year of backlog to the DPC Nord Cup after AKBP elected to exercise options to extend backlog for the unit for another year ahead of schedule the day race for this contract will be defined by two independent rig brokers before the end of this year and with this extension deep sea nulcoff's firm contract backlog is now secure until at least 2028 and all of our units are now secure until at least late 27 the deep sea atlantic is the first unit with availability however equinor still has priced options for the unit which extends into early 28 our focus over the next couple of months will be on securing more backlog in the market that we will believe will continue you to strengthen going forward and on that point i think we can have a look at the our view on the market starting with the supply side the story really hasn't changed that much the average age of harsh environment units continues to increase while limited new supply is being added or is likely to materialize in the near future new builds remain unlikely and the high spec unit market is increasingly tight and when you look at the availability of tier one rigs in 27 and 28 it is notably low we consider the utilization in our sector to currently be at around 90 percent and if you consider historic trends as utilization goes above 90 percent day rates tend to often follow we believe that this tightening of the supply market is largely due to the strength of the Norwegian market, which we have been vocal about for some time now. Operators continue to reaffirm their strategy of drilling to a rest production decline, and they are looking to secure rig availability into the future. I think this is emphasized by recent contract awards in our sector, such as for the Transocean's CAT-Ds, as well as the DFC. In addition to this, we continue to see good interests from overseas, notably Namibia, Suriname, Canada, and the UK. In addition to exploration work, many of these areas are looking at development opportunities, which could mean further increased utilization of rigs in our sector. and ultimately with these conditions we believe that the market is likely to facilitate more strong race strong day race for future contracts and i think we we do certainly echo comments made by our peers of a strengthening overall drilling market and particularly for the harsh environment sector and with that that concludes my section and i will pass it on to my cfo early on to go through our financial review.

Thank you, Chetil. I'll start with a summary of the income statements. Our operating revenue continues to benefit from higher day rates while it was negatively impacted by the off-fire time on DC Atlantic in Q2. Operating revenue in Q2 2026 was $251 million dollars, compared to 219 million in Q2 2025. Operating revenue from our own fleet was 221 million, while the external fleet generated a revenue of 29 million. The reduction in revenue from the own fleet compared to Q1 is explained mainly by off-fire time related to the incident on Deep Sea Atlantic. Q2 EBITDA for the own fleet segment was $160 million, representing a margin of 72%. The EBITDA and margin has been impacted by recognition of insurance proceeds, write-off of lost equipment and expenses incurred related to the insurance claim, resulting in a positive EBITDA effect of $32 million. Following an impairment loss of $28 million relating to damaged equipment, the EBIT was positively impacted by recognition of an insurance proceeds by $4 million. The EBITDA for the external fleet segment was $5 million, which is a margin of 16%. less corporate overhead and other adjustments the group EBITDA was 162 million and as was stated in the highlight section of our reports excluding insurance proceeds and other accounting impacts related to the insurance claim the EBITDA for the quarter would have been 129 million dollars the company delivered a net profit of 57 million in q2 on to our balance sheet development and status, which remains solid. Our net debt is decreasing. Following the increase in debt level in Q4 2025 related to the acquisition of Deepsea Bergen, we have during the first half of 26 reduced our net debt to $863 million, which corresponds to a leverage ratio of 1.5. The equity ratio is largely flat at 55% out of total assets of approximately $2.6 billion. The available liquidity is $308 million, including undrawn RCF of $248 million. Details of the cash flow for Q2 follows on the next slide. In Q2 2026, we generated $128 million in cash from operations. The impact from insurance proceeds, as discussed in our P&L, is the main explanation of the negative change in working capital of $35 million for the quarter, as insurance proceeds remained fully unpaid to the company per quarter date. The interest paid was $6 million on facilities and leases, while tax paid was also $6 million. Cash flow from investing activities was minus $20 million, whereof $3 million was related to the Deep Sea Atlantic incident and $9 million was related to periodic maintenance. The remaining $8 million was client-specific upgrades that has or will be fully covered by our customers. Net cash flow from financing activities was $44 million, including minor FX adjustments. We paid $14 million in scheduled installments on our bank facilities and leases. In addition, we made net repayments of $30 million on the revolving credit facilities during the quarter, increasing the available amounts under the RCFs to $248 million. Dividends paid in Q2 were $60 million and was related to Q1 results. and then finally despite a strong operational performance from the rest of the fleet we are conscious that off-fire time related deep sea atlantic has impacted our business while we maintain our view that we want to continue to increase our dividend to a point that we believe is sustainable in the long term we believe that it would be financially prudent to maintain our quarterly dividend at 25 cents per share for Q2. Today's dividend translates to a total dividend payment of 60 million for the quarter and corresponds to an annualized yield of 10% based on yesterday's close. The shares will trade X dividends on the 3rd of September and payment will be made on or around the 17th of September, 2026. I'll pass back to you, Kjetil, who will summarize our presentation.

Thank you, Rian. So, in summary, second quarter showed for sure the capability of our organization. I believe that our company had a solid response and recovery from the Deep Sea Atlantic incident, while the rest of the fleet continued to perform very well. Putting this incident behind us, we are very excited about what's ahead of us. We continue to deliver while strengthening our balance sheet with increased liquidity. Our market is strong now and I think it's likely to become even stronger in the months ahead.

And finally, putting the Atlantic incident behind us, we are excited about a strong backlog. and the cash generation that we have ahead of us so thank you very much for listening and james please take over yeah thank you very much as a reminder if you'd like to ask a question you can do so either by the telephone line controls for which our operator sergey is in control of that so sergey if you could open the telephone lines we'd be very thankful sure ladies gentlemen is a reminder to ask a question over the phone please signal by pressing star one on your telephone keypad you may also submit your questions via the webcast again please star one to ask a

question over the phone we'll now take our first question from frederick stene from clarkson's securities please go ahead James hope you are well and congratulations on handling the Atlantic incident after then what I had in my model so I had to revise that that's good but that's not my question I wanted to talk a bit about the market first you're clearly painting a picture here about the stronger harsh environment market going forward and i would also you know argue that one can read in to the new cup extension for example i think the last one before this extension was agreed in november last year and now they're adding that in july even before they know what the rate will be even though that is the same for you it clearly shows to me at least that operators are also willing to contract new capacity further out in time than before. So with that backdrop how should we you know think about potential new contract announcements on the Atlantic and even on the Bergen. They still have one year plus left on their current contracts but if the market is tight and and EMPs want high-spec rigs, can we see contract announcements already this year, you think, or do we have to wait until 2027?

No, I think we can definitely see something happening this year. We do have good dialogues, we do have very exciting conversations and talks. so as you pointed out the Atlantic still has priced options in there which are valid probably see something happening around that and also on the Dipsy Bergen yeah it's a great opportunity the rig is free of options now and we have good interest in that rig and I think the likelihood of us being able to do something around that rig beyond the year of option that Ecuador choose not to exercise. I think that's a fairly good chance Thank you.

Next one, maybe for Örján.

There's a cash impact of $35 million from the incident, and apologies if I didn't catch it, but can you confirm if that includes loss of hire during the downtime or is is that an additional cash impact just for clarity yeah thank you fradik um obviously not surprised by that question um on this webcast but i can confirm that that's also taken into a cut loss of hire that's really the main effect is the loss of hire during the period but in addition to that insurance also covers cost incurred during recovery period and incremental rig and equipment repair costs in addition to lost and damaged equipment. So that's how we calculated the net effect is really to compare what could have been if the incident hadn't happened.

And that leads us to an estimate of 35 million and the distribution then 7 million to Q2 and the remainder in the following quarters. all right now that's that's very helpful um and then just a final one if i may you you kept your dividends uh flat this uh quarter to be prudent about your balance sheet but clearly you have the potential for that to grow further in the future now that the five rigs are on contract again you You know, is it fair to assume that you'll kind of resume the growth pace already from the next quarter? Or should we expect this being steady a bit before you potentially add to the payments?

Well, eventually it's up to the board to decide the level of dividend going forward. But I think, you know, we were vocal about it in both our presentation and the report that we have a long-term vision of continuing to increase dividends to find that right long-term sustainable level. And we certainly see that there's capacity in the company to do that. So, but you won't get any promises from me here or now, Fredrik.

I tried. Thank you all for answering my questions. That is from me.

Thank you, Fredrik, as always.

Thank you. as a reminder to ask a question over the phone please signal by pressing star one i will pause for just a brief moment to allow you to signal it appears there are currently enough of the questions over the phone but this i'd like to hand a call back over to james for any webcast questions over to you james james sure thank you very much uh thank you so much for the questions submitted so far again we'll try to get through as many as the these as we can We may run out of time before we can answer them all, however.

So one question. Can you talk about the dynamics around new builds? Given the global supply and demand situation and the aging global fleet, when does the time come for the industry to make a new build order?

Yeah, oh, that's a very good question. And I think, yeah, I'll try to answer it. But as for now, we just cannot see it happening. There is no contract or market out there that supports a new build close to a billion dollar. or the price of a new build would be so high you would need a long-term contract with day rates way beyond what we're seeing today so so there's just no no basic support for for that happening and even if you sort of come to a point where somebody could find a yard that's willing to to take that on you're looking at totally different payment terms you are looking at at least i would think a four-year lead time so so new builds for us is just totally under the question for for a short to medium term to discuss it so so i think it's much more likely that you will see life enhancement projects around existing fleet before we see any new builds coming in and certainly the way we operate our unit as I say to my organization we need to take good care of them because we've got to have them for a long time and we also do that take that into account in our maintenance philosophy and so on so yeah don't see new builds happening cannot see it happening at all great thank you similarly then I believe this is a following question what about your own fleet couple of them are 15 years old plus so what sort of lifespan do you forecast for your own fleet units well the last rig that we scrapped uh believe it was deep sea burger getting 21 was 37 years it was operating all the way to the end um so i can easily see our rigs at least operating into up to 35 years and i think you know if you dive into so life's extensions program and so on you can probably see it work even longer so we're going to live we're going to drill for many many years with the rigs that we have in our feed today thank you again we've had a few questions on M&A as we always do so I suppose the question is what's our thoughts on M&A are we still considering it or are we too busy with the BOP incident as one person has asked no no no we can handle more than one thing but I think you know we did the Ypsilbergen deal here before Christmas I think that sort of represents a deal that we are interested in looking into should we do something more it needs to be a good quality asset it needs to come with a good contract to a reputable client and uh yeah it needs something to sort of fit the both the fleet structure that we have and the company profile um uh so so we're always keeping it out we have a very good overview what's out there and um um yeah there are rigs in our in our management fleet that we know very well and they are good rigs and uh we continue to to follow their

situation and opportunities out there and i won't rule out anything uh we are definitely open to to expand our own fleet even more given the right circumstances yeah thank you um with net debt continuing to decrease and the balance sheet strengthening how do you currently prioritize capital allocation between higher dividends buybacks and investments in additional rig capacity over the next couple of years do you want to talk yeah see that i think we we already covered a few of the aspects that's in that question as shetel mentioned the level of

dividend is is uh is up to the board uh and and we are uh sort of uh in the capacity development that uh we could still increase to find a sustainable level for our business um but also considering potential m&a opportunities uh i feel that the deep sea bergen acquisition was a good uh good proof of what we can do as our balance sheet is continuing to strengthen through deleveraging we we uh we were able to do that uh acquisition based on our own balance sheets and that could be a potential for the future as well yeah okay thank you very much uh we've got a

follow-on question about the new builds so there are no new builds orders happening in the next two to three years what is your expectation of day rates and how high could they get for the next period well as i said you know we we are around i believe around 90 percent utilization now for uh for uh the rigs in our sector now especially the tier one rigs in our sector and all history shows as market tightens up day rates have a tendency to follow to speculate on a day rate level I won't do that but I think we are confident I think we have an average day rate for our fleet now of around 275, 280 sorry 475, 480 427 and 28 and I think that sort of gives a level that we believe at least that we will stay on for a period and it might be that as market tightens up further that they will continue to increase.

Great. So we've got a question here. Once the DPC Norcat day rates are disclosed, should investors expect earnings per rig from 20 onwards to increase, decrease or remain broadly in line with current levels?

We struggle to give guidance. we don't really give guidance as a standard and maybe we want to talk just generally about how the DC Nord Cap contract is structured such that we have to agree the day rates uh the two independent brokers have to agree day rates yeah so so the two independent brokers they uh they set the rate based on and that this is important it's not only about sort of the the recent day rates and fixtures that's made in the market, but it's also about asset quality and capability of the certain assets. And I think, you know, the Ipsyn World Cup is one of the absolute best ones out there. So they will take all of these measures into account and eventually come up with a day rate. So I think it should indicate when that rate is set, I think it'd be around probably around November it sort of gives an indication of what the markets are now and how we can think about things going forward Great We'll take one more question Which geographies are the tenders coming from for development work and is Oddfield participating in any current development tenders? Again we don't comment specifically on any tenders that we're operating in but maybe you want to give a more general view of how we see where we see opportunities coming from which geographies we're we're looking at absolutely so we do have development work coming up in Canada quite quite substantial actually with various operators there's work in Namibia I think that's very well known that things are progressing down there there's also things happening in the UK believe it a lot so all of those sectors are currently

in the market for development work yeah okay I think we'll given the time we'll close the call there thank you all for joining the conference call our next capital markets event will be on the 3rd of November and we look forward to speaking to you then. Thank you all so much.