Q2: Supply chain woes and inflationary pressures slash profitability

The Dutch oil services company posted top-line revenues perfectly in line with the consensus but the adjusted EBITDA was a miss by 13%, fuelling concerns about costs and profitability. The net profit was 60% below the street’s estimates. The management cited inflationary pressures, supply chain issues and the persistent effects of Covid-19 as the main drivers for the lower-than-expected margins. The high level of debt, which increased by 11% compared to Q1, raised concerns over shareholder retur

FY22: Revenue visibility, dividends attractive

SBM Offshore posted FY22 results in line with guidance in a challenging year. On the back of a strong backlog and revenue visibility, the regular dividend was lifted by 10% to $1.1/sh, a yield of 7% – a rarity in the EU OFS sector. FY22 saw diversification attempts for financing coming to fruition, supporting the company’s target of increasing cash flow from equity financing. A buyback program however was not forthcoming with the focus on the growing investment requirements.

Good results and upward guidance revision despite bottlenecks

Despite the perpetual Covid-19 impacts due to continued restrictions in China and global logistic issues emanating from the war in Ukraine, SBM offshore recorded a strong revenue increase of 46% in 9M FY22 compared to the same period last year. Whereas the company revised up the adjusted EBITDA guidance for FY22, the repair costs from an FPSO in Brazil will impact the annual margins.

Q1 : So far so good

A very brief trading update (as usual) which shows no material change to the FY21 results. Despite lockdowns in Shanghai, the FPSOs Almirante Tamandaré and Alexandre de Gusmão see no delay vs the FY21 update (first oil targeted for H2-24 and 2025 respectively).

Q4: conservative guidance but cash generation remains

The adjusted EBITDA was in line with guidance at $931m and the dividend increased by 13% to $1.00 per share. Guidance is for a flat EBITDA yoy at around $900m, which is below our estimates, and, in our view, explains the disappointment today. All in all, we believe the dividend hike is the positive news, sending a signal of confidence in the backlog delivery.

Modec’s troubles remind of the risky spot for contractors

Hard to read-cross to SBM Offshore, apart from confirming the large operational risks when dealing with the construction and operation of FPSOs, with or without a pandemic. So far, SBM has handled operations rather well, with a fleet uptime of 98.6% and says that project deliveries are not at risk (although it mentioned operational challenges).

Q3: project execution challenged

So far, the company has handled the pandemic very well, as proven by the steady uptime in the fleet (99.2%). Still, worries are resurfacing on the project side, as SBM implements a mitigation plan on the FPSO Sepetiba, with its construction impacted by challenges at the yard and supply-chain bottlenecks. During the call, management reassured on the project and its subsequent profitability, saying that no impairment has been made. First oil continues to be targeted in 2023.

Q1: guidance confirmed

Results are in line with expectations and the company maintains its guidance as, despite the pandemic in Brazil, the fleet maintains an uptime of 98.6%. The Lease & Operate is down on the decommissioning of the Deep Panuke platform last year, while the Turnkey division is down as SBM delivered the Johan Cartsberg turret in Q1 20. Net debt is up by $200m to $4.3bn as the company progresses with its projects, with four FPSOs under construction.

Q4: sixth hull ordered

The results are in line with consensus and the dividend increased by 10%, a rare occurrence in the sector. The company remains optimistic about the FPSO market and has ordered a sixth hull, leaving the company with three unassigned ones. This might be risky, but the company can count on good visibility in its lease & operate backlog.

Q3: on track

Positive update from the company, which increases its EBITDA slightly as the operational performance remains healthy. 9m revenue is up 23% yoy at $1.8bn, with the addition of the FPSO Liza Destiny and a minority partner ownership (in five FPSOs) to the Lease & Operate portfolio. Net debt increased by $100m qoq to $4bn as SBM progresses with the construction of three projects.

At least one order in 2020?

The company has announced it is in negotiations with Petrobras for a FPSO. Considering the environment, this a positive surprise, as we expected 2020 to be a wasted year, with awards resuming in 2021. If SBM scores a deal with Petrobras, the company would only have one unassigned hull left.

Q2: FPSOs continue to perform strongly

The company’s fleet uptime remained elevated at 99.5% and the adjusted EBITDA margin of the Lease and Operate portfolio is steady at 65%, with additional safety measures partially recharged to clients. As SBM did not encounter as many operational issues as expected in Q1, it reported solid results and, logically, increased its EBITDA guidance (from “around $900m” to “above $900m”).

Q1: fleet utilisation remains strong

Despite having some COVID-19 infections on many FPSOs and the Singapore yards closed, the small adjustment in guidance shows the limited impact of the virus thus far. Yet, it seems that management is not entirely confident on the latter, as it also stated during the conference call that the COVID-19 “could have a material impact” on the business. One of the two unallocated hulls is not yet in construction and the project milestones could be delayed, depending on the FPSO market.

Q4: lease & operate portfolio funds the dividend

It has been a good year for the group, with a successful return in Brazil and a new award in Guyana, increasing the backlog by $5.9bn. This good visibility (mainly on the lease & operate portfolio) allows for a dividend increase. While acknowledging that oil staying below $60/bbl in 2020 would slowdown the project activity, management kept a positive outlook, pointing at the sub $50/bbl breakeven prices in deepwater.

Q3: Turnkey keeps growing

Good trading update with revenues slightly above consensus and an increase in guidance. Operationally, all projects are progressing according to clients’ schedules. Net debt is up to $3.1bn vs $3bn in H1, with the three FPSOs under construction. Now that all hulls are allocated, SBM is considering the purchase of further hulls.

Jubilee Metals - Operational Update Q3 FY2024

Jubilee today reports its Q3 and third quarter operational results from its expanding operations in Zambia (copper) and South Africa (chrome and PGM). South Africa is on a growth trajectory with record chrome production of 409kt in the quarter (Q2 FY2024 381kt) and a monthly record in March of 145kt and production YTD of 1.13Mt (0.94Mt). Jubilee is well underway to its annual target capacity of 2,1Mt/yr especially with the new 300kt/yr chrome plant at Thutse expected to be operational in August

Trinity Exploration and Production - Reserves Reduction but Solid Core Business

Trinity has announced a c28% reduction to its 2P reserves following a YE23 review. Despite the decrease in the Company’s 2P reserves, Trinity’s core business remains robust, with a reserves/production ratio of >12.5 years at YE23. Whilst there is significant potential for growth within the current portfolio, this will be difficult to unlock from the current balance sheet and we believe further financing will be required. We update our target price to 76p (from 202p), a c85% premium to the curren

I3 Energy (I3E LN) - Canada royalty assets sale

I3 has announced the sale of the majority of its royalty interests in Canada, for US$24.8m cash. This allows the company to fully repay amounts drawn on its debt facility and create a working capital surplus, giving I3 significant additional funding flexibility going forward

Morning Note – 16 April 2024

Valeura Energy (TSX: VLE): Three exploration wells deliver three discoveries

• The Nong Yao-13 exploration well in the new Nong Yao D area that was targeting multiple zones has encountered >30 feet of new oil play across several new shallow intervals which have not been produced elsewhere on the concession. These reservoirs are believed to be recurring across the Nong Yao D area. • The drilling result confirms that oil has successfully migrated into this area of the block (a factor that was seen to be a risk in the Nong Yao D area) and open the opportunity for further a

NextSource Materials - Initiation

NextSource is uniquely positioned to build a leading vertically integrated position, ex China, in the supply of Lithium-ion battery anode material which is essential for the Energy Transition. The company is commissioning phase 1 of its world-class Molo graphite mine in Madagascar and is in the final permitting process for its first Battery Anode Facility (BAF) to be located in Mauritius. The company is backed by Vision Blue, established by Sir Mick Davis, former CEO of Xstrata. On our calculat

DEC FY23 Results Update

DEC reported FY23 results which were in line with expectations and announced the acquisition of joint venture assets from Oaktree along with an updated capital allocation framework.

Morning Note – 15 April 2024

Oil & Gas - Cavendish sector note

Chariot, Energean, Touchstone Exploration, Longboat Energy, Hartshead Resources, BP, Helix Exploration, PetroTal, Pantheon Resources, Caspian Sunrise, Petrofac, DNO ASA, Valeura Energy, Aker BP, Var Energi Source: FactSet, weekly change 08/04/24-12/04/24 Oil rose as Israel braced for a possible attack from Iran, a development that would threaten major disruptions in a region that accounts for a third of the world’s crude output. An assault is expected to come as soon as the next 48 hours, which

Clean Power Hydrogen - New customers and licensees circling…

CPH2 has released FY23 results with the company completing the period with a slightly lower cash outflow from operations and a higher cash balance than forecast. Looking ahead, with a new and improved technical and engineering team, the company has committed to completing Factory Acceptance Testing of its first MW scale electrolyser, the 0.5MW MFE110, within the next three months. In our view, this will be a major milestone for the company which will demonstrate that its unique technology can be

SP Angel . Morning View . Copper prices hold higher as China processing fees fall below $0/t amid low feedstock availability

Union Jack Oil (UJO LN) - Wressle update

Union Jack has released an update on its Wressle asset, reporting maturing production from Wressle-1, alongside progress for significant further development activities on the field going forward.

PROGRESSIVE: Pharos Energy: Delivering on operations and balance sheet

Pharos Energy reported FY23 results on 27 March. Group net production of 6,508 boepd (FY22: 7,166 boepd) was in line with guidance, assisted by successful development drilling in Vietnam and exploration successes in Egypt. Pharos’s strong cash generation resulted in a stronger balance sheet, with net debt reduced to US$6.6m (from US$28.9m at the end of 2022) and cash balances totalling US$32.6m. This left the group free to return more cash to shareholders, including a 10% increase in dividends,

Union Jack Oil+ (UJO, House Stock at 23p) - Wressle update

Hunting (HTG LN) - Q1 2024 trading update

Hunting has released its Q1 trading statement, reporting a strong period for OCTG and Subsea, steady growth in Advanced Manufacturing, and a softening in Perforating Systems.