Shelf Drilling ((NO:SHLF)) has held its Q4 earnings call. Read on for the main highlights of the call.
The recent earnings call for Shelf Drilling painted a picture of both optimism and caution. The company showcased a strong operational performance, securing new contracts and forming strategic alliances, all while improving financial metrics and achieving significant safety milestones. However, the call also highlighted challenges such as increased incident rates, rig suspensions in Saudi Arabia, and a decrease in cash reserves, which tempered the overall positive sentiment.
Strong Operational Performance
Shelf Drilling reported an impressive fleet-wide uptime of 99.3%, with standout performances in the Saudi division, where High Island V and High Island IX experienced zero downtime. This high level of operational efficiency underscores the company’s commitment to maximizing productivity and reliability across its fleet.
New Contracts and Strategic Alliances
The company secured $900 million in new contract awards for 2024, with an average day rate of $129,000. A notable highlight was the strategic alliance with Arabian Drilling Company, aimed at deploying premium rigs, which positions Shelf Drilling to capitalize on strong regional demand.
Improved Financial Metrics
Shelf Drilling’s financial health showed marked improvement, with Q4 2024 adjusted EBITDA reaching $85 million, a 23% increase over the previous quarter. This growth was driven by improved revenue streams in Nigeria and Norway, reflecting the company’s effective financial strategies.
Safety and Incident-Free Operations
Safety remained a priority, with 28 rigs operating without a recordable incident in 2024. This includes the entire Saudi and India divisions, highlighting the company’s progress toward achieving incident-free operations and enhancing its safety culture.
Contract Backlog
The year-end contract backlog stood at $2.1 billion across 31 rigs, indicating a robust pipeline of future revenue. This backlog provides a solid foundation for the company’s financial stability and growth prospects.
Insurance Claim Recovery
Shelf Drilling successfully collected $48 million from a $50 million insurance claim for Trident VIII, with the remaining amount expected in the first half of 2025. This recovery contributes positively to the company’s financial position.
Increased Incident Rate
Despite safety achievements, the total recordable incident rate increased slightly to 0.18, with 10 recordable incidents across the fleet. This uptick in incidents presents a challenge that the company aims to address moving forward.
Challenges in Saudi Arabia
The suspension of 34 rigs in Saudi Arabia affected global jackup market utilization, creating short-term uncertainty. This situation poses a challenge to the company’s operations and market positioning in the region.
Cash Decrease
Shelf Drilling’s consolidated cash balance decreased from $220 million to $152 million by the end of 2024. This decline was primarily due to interest and amortization payments, as well as a payment for SDNS shares, highlighting the need for careful cash management.
Potential Additional Rig Suspensions
Rumors of further rig suspensions in Saudi Arabia contribute to market uncertainty, posing potential risks to the company’s operational stability and financial performance in the near term.
Forward-Looking Guidance
Looking ahead, Shelf Drilling provided guidance for 2025, projecting an adjusted EBITDA range of $330 million to $380 million. The SDNS segment is expected to contribute significantly, with improved revenue and utilization anticipated in the latter half of the year. The company plans capital expenditures between $110 million and $140 million, including strategic investments in SDNS. Additionally, Shelf Drilling aims to leverage its alliance with Arabian Drilling Company to meet regional demand and plans to sell two to three rigs for non-drilling purposes, enhancing cash flow and cost savings.
In conclusion, Shelf Drilling’s earnings call reflected a balanced view of optimism and caution. While the company demonstrated strong operational performance and financial improvements, challenges such as increased incident rates and rig suspensions in Saudi Arabia present hurdles. The forward-looking guidance suggests a strategic focus on growth and efficiency, positioning Shelf Drilling for continued success in 2025.