DOF-comeback og nye overskridelser for Vår og Equinor

Good morning, everyone, and welcome to Børs morgen here at Finansavisen. My name is Marius Lorentzen. The stock club has replaced the top boss at TGS and PGS, money happened after the marriage plans became known yesterday. Mergers and the DOF Group report new contracts. DNO has found oil, and not least, offshore. DOF is arranging its first capital markets day.

The main index was down yesterday, so we didn't get a new all-time high, but we still ended above 1300 points. It might look a bit brighter today. The weather reports from DNB and Nordnet point to a slight increase of 0.1% from the start. We have seen Asian stock exchanges tick down today. The Nikkei is open again after being closed yesterday, down 0.9%. Hang Seng is an exception and is barely positive on the WS. Yesterday was quite quiet, we can say, before the interest rate storm on Wednesday when the US central bank is expected – at least most expect – to take a small rate cut. The three major indices ended marginally positive. We also note that Tesla, which ended down 3.3%, along with Ford, GM, and Stellantis, were all in the red yesterday. The three major US automakers are dealing with the strike in the US auto industry. Stocks worth watching today: We'll start with DNO, which has made a discovery of gas and condensate on the Norma prospect in the North Sea. It's between 25 and 130 million barrels of oil equivalent in the license, which they own together with Aker BP, Vår Energi, Equinor, and Source Energy. The discovery is in the neighborhood of the Balder and Alvheim fields, so there are many connection possibilities. DNO itself writes that with this, they open a new play in the North Sea after having been part of many discoveries together with, among others, Equinor in the Troll and Jøa area. The rig Deepsea Aberdeen has drilled the discovery and will now move on to Ofelia to drill an appraisal well. It's a happy day in Kristiansund today, we can say. Aker Solutions is filling its order book with between half a billion and one and a half billion through Shell extending the maintenance contract at Nyhavna. Aker Solutions has been operating as a maintenance contractor since 2007, and now they get four new years until 2028. And then the DOF Group has more work on removal, as they have been hired by Hema, which works for Equinor, to remove the Heimdal field eventually and the large platform there. The value of the work is not quantified. Siis enters a strategic partnership with Aker BP. We have talked about this company that delivers video conferencing rooms and collaboration solutions; now they are moving into Aker BP's new office building in Stavanger.

And then it's Salaries that has its capital markets day. They say they see organic growth of over 10% annually towards 2026. The company also believes they are on track to reach a target of 10% operating margin and now set a new target between 12 and 15% towards 2026. Even though the oil price has crept up to $95 per barrel, Equinor and Vår Energi have given their shareholders a cold shower this morning. Both the Johan Castberg field, which is already over budget and several years delayed up in the Barents Sea, and the Balder project for Vår Energi are behind schedule and much more expensive than planned. We also note that Vår Energi is delaying and postponing the restart of Balder X even more. It has become very costly. And what they are saying here is 3.6 billion before tax in increased costs for Balder X and 4 billion before tax for Vår Energi's share of Johan Castberg. It's clear that now one is glad for high taxes because there is a lot to deduct. We can deduct 78% on this. The market value is 83 billion for Vår Energi, the share price is 33, so the stock will probably get a bit of pressure from this, greater than the economic loss because cost overruns tend to follow. They got a new CEO just under a month ago when Torgrim Rød was reassigned to become operations director, and Nick Walker, former head of Lundin, is the new CEO of Vår Energi. They clearly couldn't... It's always someone to blame for something, but it's clear that FPSOs are notorious for cost overruns, it's very complex. Just look back at the first Balder X, and it's not easy. There are incredibly many parts, huge facilities like a football field with 4 meters high with pipes, half of them 150 meters long, and lots of pipes. And then Jotun FPSO is at Rosenberg in Stavanger as part of the Balder X project. It's an existing hull that is going into the FPSO, while Johan Castberg is brand new. But we'll take it. They are still on track for third quarter 2024 for Vår Energi's startup of Balder, which has been a huge project for the company and very important symbolically. It has become almost double as expensive as originally planned. The Neptune acquisition is also to be consolidated in the first quarter of 2024. There are 13 buy recommendations, two hold recommendations, and the price target is 37, while the share price is 33, so I think the stock will be a bit heavy. Then the new CEO will come in and try to get a better grip on this. But there is no reason to buy that stock today. Do you think that's why Torgrim Rød was replaced, because they saw the price increase? They are making some minor adjustments to their production guidance now, but it's not just a tightening of the band they had given earlier. It still lies at 210-220,000 barrels, taking down 10,000 on the top. They have probably agreed that this is the best. It's complicated, and they have agreed to change the CEO. Before we jump into the equity issue in Seadrill, on Johan Castberg now up to 80 billion. Those who remember back to 2016, when Eldar Sætre, then Equinor's CEO, came back with a slimmed-down Johan Castberg, it was supposed to cost between 45 and 50 billion and be in operation in 2022. Now they are talking about still 2024, fourth quarter 2024 as the startup, so it's two years delayed. And they say 13 billion more expensive, 13 billion kroner. They are not going to produce more than 45,000 barrels a day, while I remember when Even came over 100,000 barrels a day and much cheaper. So it's been a cost explosion. It's easier to sit in Italy or Singapore and be the supplier and make money on the bottom line after 78% tax. That creates some strange incentives.

A couple of interesting things I wanted to mention: Geir Tungesvik, executive vice president at Equinor, says that the breakeven price is still under $35 per barrel for Johan Castberg, so Equinor is keen on saying this is still very profitable. But those who are invested in Aker Solutions, one thing is the extensions at Nyhavna, but they have also gotten a lot to do on the large scale at Vår Energi's old KF facility down there, because the Johan Castberg FPSO came from Singapore and, as Nick Walker in Vår Energi pointed out in the stock exchange announcement this morning, there was much more work that needed to be done than expected in that phase on the quay. So that's what has dragged it out, because it came from Singapore not in the condition they thought the FPSO and hull would come to Norway. But is there a lot of invoices from Aker to Equinor and Vår? Has there ever been an FPSO conversion that has gone on time and on budget? Has it ever happened? No. We'll see. Shall we jump over to the equity issue for the comrades TGS and PGS? I just wanted to mention that it happened just 8 and a half hours after the first announcement about the marriage yesterday morning, then the announcement came at 4:30 PM when the stock exchange closed, that TGS and PGS would raise money, around one and a half billion. DNB is out downgrading the recommendation on TGS today from buy to hold, cutting the price target from 170 to 155. They write that the deal looks industrially sensible as there should be several operational and financial synergies to be realized. The risk picture for TGS remains somewhat higher, and we downgrade the recommendation accordingly. But are we a bit cheated? We had Kristian Johansen from PGS here yesterday. He was asked about the debt for PGS, whether this would be heavy to bear. Yes, they thought we would handle it. And then this announcement comes when the stock exchange closes. But this is that both companies have agreed to raise 5% equity for both at a 5% discount. They raise money so that they maintain the distribution between them. In the new company, it will be two-thirds in favor of TGS, but PGS is priced at a 4% discount to the exchange ratio. There must be some discount for this deal to close, so it's not unnatural. So some discount. The most important thing here is that TGS gets something to do now. They get liquidity to do all the measures they need to do, extraordinary things, so they don't have to go to the bank to get liquidity to carry out the restructuring. It's big moves. So you have cash to do that instead of going to the bank and asking. So this is totally fine, but it's clear that TGS is now becoming a normal seismic company. It has been extraordinarily profitable, but when you start buying boats, and if you look at the period 2012 to 2014, TGS's net profit was twice as high as it is now. So even if TGS manages to double the result, there is no reason to think you can do that with much more capital. So the return for TGS will start to resemble a normal seismic company. But it's a unique industry that you have many ships that are taken out of operation and taken off stream. The question is how much better the market will be before these ships start coming back into the market. Scarcity is the key. They have active ships and ships in lay-up. PGS almost controls all the seismic vessels in the world. So the test of the market is to see what happens. They want to go public. They have active ships, ships in lay-up, and need to get some financing in place first, it seems. But if this market is going to be as hot as many think, the market has become 70% smaller, so you have to follow what the share waters do. I thought it was interesting that Serum San... 152.5 million raised by TGS, almost a billion, and PGS raised 960 million. Yes, it's a bit under, but I noticed that PGS writes that they will increase liquidity and, quote, protect the company against market cyclicality, through the implementation of the merger, and ensure balance with TGS. It came out yesterday that the entire bond of $450 million that was raised in March from PGS, creditors can demand redemption because the entire company structure is changing in March. Is that what they are nervous about, that a lot will come? It's always good to have some liquidity. Otherwise, you would have to go to the bank. It's much easier to do things this way. We'll follow up. I just wanted to mention that PGS and TGS are still top of the most traded list on Oslo Børs. PGS is down 3.3%, TGS a bit more, down nearly 4%. Then we have these companies: Equinor is hovering around just barely positive, or they have been a bit down, now hovering around zero. Vår Energi is punished a bit more for the news of cost overruns on the shelf, down 2.2%. DNO is up 2.2% with its oil discovery. Aker Solutions is just barely positive, up 0.1%. And then we have Salaries and DOF, which are out with a capital markets day today. DOF is up 0.4%, Salaries down 1.6%, with the main index down 0.1% before we go to commercial and take the day's... I just wanted to mention that Oslo Børs has imposed a fine of 300,000 on SoftX for not disclosing inside information that they should have. The exchange points to what happened in February this year when SoftX finally announced that they had liquidity problems. The exchange believes they should have disclosed that information a few days earlier. Tie Andri is also out with an update. They expect organic growth of around 4% this year, down from the previous guidance of 5-7%. Furthermore, the company expects adjusted EBITDA of around 13.3% this year, compared to the previous estimate of 13.5%. SR Petrolo is also out with updated numbers. More about that on FA1. And we will have DOF Group back right after this. And now it's like electric cars, you kind of get your gas station at home. You notice it's becoming sustainable, sustainable, sustainable. The fact that people drive around cars worth 1 million was reserved for very few before, and now everyone drives around in a car worth nearly a million, as I said. I have the dream we never had a G63 on that...

The last price? You gave that price, but what is the last price? The last price? Yes, you know, first price, medium price, not interesting. Last price is what we want to know. To understand good wine, you have to drink a lot of bad wine. It's so damn good, and then when you wash the glasses and you constantly use the same water temperature, and I can barely see him from where I sit. Large bottles store better than small bottles. Wrong? Yes, I hear that, that's why we become better. Perfection is actually something that is impossible.

Yes, you know, first price, medium price, not interesting. Last price.

Then we welcome today's guest, who we can say has had the responsibility, or taken the responsibility, for a proper prelude to the Pareto conference this week. Down at the broker's offices today, you will be holding a capital markets day. CEO Mons Aase of DOF Group, welcome to us. Good morning. Good morning, and thank you for having us. There is a lot happening. You are back on the stock exchange, have restructured a lot, capital markets day today, there are mergers and equity issues in seismic, and there is pressure in the whole energy sector. Do you experience that?

You have a broad fleet of PSVs, AHTS, and subsea vessels. How consolidated do you experience your industry now? We saw Tidewater come in and buy all the PSVs from Solstad. Many shipping companies have disappeared or merged during these years with the oil brake and pandemic. Is there much more to go on?

I looked a bit at the history. The order book in the fourth quarter before the pandemic, you were at 18 billion. Now you report that you are up to over 25, having received just over 4 billion in new orders this quarter. These cost overruns on the shelf, does it trickle down to you, or is it just these oil service companies like Aker Solutions and Subsea 7 that get to enjoy sending more invoices for more work?

Let's take it. I have at least noted three big things that are important for you now: Brazil, Guyana, and also the push into offshore wind eventually. What kind of company is DOF now after the restructuring you have been through? It's not debt-free yet, but it's a company that, as you said, is oil service and floating wind, and 80% of our turnover comes from projects where we deliver an integrated service and not just a vessel. So we have used small acquisitions since 2005 to build up. We saw that our customers, the large parts of the subsea fleet worked for Fugro and Subsea 7, and we found out we wanted that piece ourselves. We saw they had 25-30% margin on top, and we wanted to try to gradually get that. So we have been building since 2015, and now we have over 2000 employees working on that side, engineers, project managers, etc., and we see that we are succeeding. What we are hunting for are projects that sell the vessel but with integrated services, like the contract in Brazil, for example. And then floating wind is a long way off. The first large project offshore there, whether it is in 2026, 2027, or 2028, I won't answer, but the reason we are chasing it is that our fleet competence and track record – it's the same operation whether you moor a floating turbine or a floating FPSO. We did 10 marine operations on the Haewene Brim and such, so you see that it's something we can do. We have calculated on the Troll field, where Equinor was out with an RFI, and we calculated the number of vessels you would need if you could get the assignment. We delivered one, and we are talking about 12, 13, 14, 1500 vessel days on a project with about 50 vessels. So if you get a couple of such projects a year, it becomes an interesting market. This is global: Korea, Australia, USA, UK, Norway, etc. So we believe in the long term that we can build something that is relatively large within that segment.

But have you had to revise when you think it will happen, given the problems we see at Ørsted and not least the turbine suppliers, and Equinor's input on Troll Wind? We have never thought it would happen before 2027-2028. Whether it gets delayed or not, I can't comment. But there is lead time on these things. First there is the feed, then they have to build, so you have to win a contract maybe three years before you actually go offshore. So that's what we are doing now, positioning ourselves. How do we set up in South Korea, who should we partner with, etc.

I wanted to ask you: you have a net debt of around 15.5 billion, or at least per second quarter, earnings are starting to become quite nice again. But is that a debt level you want to stay at, or do you want to go further down? The next year or two for DOF is about reducing debt. Everything we generate in EBITDA minus interest and maintenance capex will go to reducing debt. We show on the capital markets day slides that it goes down quickly. The key ratios we hope will come down sharply, and they are already on their way down. So then there are probably no dividends to expect until you have come down. We have a restructuring agreement, and the company must be refinanced before we can talk about dividends. How early we do that, whether it's at the final deadline in 2026, or if we do it in 2025, we definitely won't do it in 1825, but when we do it, it's a trade-off between how much freedom of action we have now and the cost. Right now we have a financing arrangement with low margin, significantly below market.

North of Brazil and south of Venezuela lies a country called Guyana. You have a contract with Exxon there. Can you tell us a bit about that?

Are the numbers that one can read that Exxon had a profit of $6 billion from Guyana last year correct? You don't have to ask me about that, you have to ask them. But what is correct is that there is a new FPSO every year, and they are mostly on time and on budget. It's strange when they decide to base themselves in Texas, but...

Is there any new tonnage coming into any of the segments you operate in?

Yes, yes. But what about these contracts you refer to in your material as the old legacy from the oil brake, where there were a number of contracts with quite low margins that were phased in as times got worse. Now they are being phased out over time. You say they last until 2025, but how large a part of your business today is these old pandemic and oil brake contracts?

Can you say something about the financing, like the average interest rate and how it is composed of bank loans and market loans at market rates?

Yes, and you had to, as I said, you were at 15.5 billion in net debt. Where do you want to go? Under 10? Yes, we have a slide that shows that if you say midpoint of guidance, you have 4.65 billion EBITDA this year, then let's say a bit in capex and a bit of tax, so we show that we will go down sharply. I hope we will go under 10 within the next three years.

Now we will follow Mons Aase, CEO of DOF Group. Thank you for coming to us, and good luck on the podium at Pareto. Get the mood up before everyone goes up to Holmenkollen tomorrow. We'll be back with more Børs morgen right after this.

Back on the home stretch, I just wanted to mention some analyst updates that have come in since last. NB Markets initiates coverage on Bonheur with a buy recommendation and a price target of 305. The stock was last traded at 232. And then Nordic Semiconductor came with a profit warning yesterday. The stock was down double digits, ending down 9.95%, just a hair under 10%. Sparbank, let's say Petter Kongsli, Sparbank Markets, was among the few analysts with a sell recommendation yesterday. He upgraded to Hold. Deutsche Bank cut from 150 to 115 kroner. And then SCB downgrades DNB from buy to hold, adjusting the price target on the Norwegian bank from 221 to 224. Otherwise, on Oslo Børs now, Nordic Semi is down one percent as the market digests the news from yesterday. DNO is up almost 3% on the news of an oil discovery in the North Sea near the Balder and Alvheim fields. Equinor and Vår Energi are out with new cost overruns on the Johan Castberg and Balder X projects. Equinor is barely up 0.1%, Vår Energi has recovered some of the loss but is still down half a percent. Siis, the HR company that has its capital markets day today, is down 1.8%. DOF Group, which also has a capital markets day and we just spoke to, is up 0.6%. The main index is now down 0.1% and is below 1300 again, at 1294.93. The North Sea oil is now up half a percent in the spot market. That was Børs morgen for Tuesday, September 19. Don't miss the economy news at 14:30. Then we will have the CEO of Salaries, Hans Petter Mellerud. And then the Børsmorgen energy conference at Holmenkollen Park Hotel here in Oslo. In the meantime, you get the latest news on FA.no throughout the day. Have a great stock exchange day, everyone. See you.