Archer Limited (ARCH) Earnings Call Transcript

Hello, everyone. Thank you for joining us, and welcome to the Archer Second Quarter 2026 Earnings Release Call. [Operator Instructions] I will now hand the conference over to Dag Skindlo, CEO. Dag, please go ahead.

Thank you, Trevor. Good morning, and thank you for joining Archer's Second Quarter 2026 Results Presentation. I am Dag Skindlo, CEO of Archer, and I am joined today by our CFO, Espen Joranger. We will start with the key highlights from Q2 and the main development since the first quarter then provide an update on backlog, P&A and our growth areas before Espen takes you through the business areas and the overall financials. Let's move to Slide 2. As a reminder, today's discussion includes forward-looking statements and certain non-GAAP and IFRS measurements. These statements involve risks and uncertainties, and actual results may differ materially. Please refer to the presentation and our public disclosures for additional information. Let's move to Slide 3. Before we get into the quarter, just a quick reminder on who we are. Archer is a global energy service company with more than 50 years of operational experience. In 2025, we generated approximately $1.2 billion of revenue and delivered $167 million of EBITDA. Our operations span 4 business areas: Platform Operation, Well Services, Land Drilling and Renewables services, currently employing about 3,500 people across 40 locations. In today's presentation, we will focus on advances in P&A, which is related to services provided by Well Services and Platform Operation. With that brief introduction, let's turn to Slide 6 -- turn to Slide 4 and the key financial highlights for the second quarter. Q2 was a record quarter for Archer in terms of EBITDA and margin. Revenue was $263 million and EBITDA was $44.9 million, corresponding to an EBITDA margin of 17.1%. When adjusting for the divested workover business in Argentina, EBITDA increased by approximately 14% year-on-year. This demonstrates the continued earnings growth and margin expansion across the underlying Archer businesses. We also continue our shareholder return program with a distribution of NOK 0.62 per share or approximately $6.5 million in the quarter. We have also today announced same NOK 0.62 distribution for the third quarter. Finally, our backlog has increased from $3.4 billion at the end of Q1 to $3.9 billion today. This is an important development and provides strong earnings visibility for 2027 and beyond. Let's move to Slide 5. This slide highlights one of Archer's key strengths, the ability to consistently grow EBITDA and expand margin through the cycle. Over the last several years, we have increased EBITDA from $65 million in 2017 to an expected level of around $167 million in 2025, which, at the same time, improving EBITDA margins from 8% to 14%. This positive development has continued into 2026, where we have guided further growth in both EBITDA and margin. What is particularly encouraging is that this development has been driven by increased market share increased exposure to high-margin well intervention and P&A services, disciplined capital allocation and a continued focus on operational execution. The chart on the right illustrates how Archer developed compared to a selected peer group. Adjusted for the divested workover business in Argentina, our EBITDA increased approximately 14% year-on-year in Q2 compared to an average decline of around 8% for peers. The takeaway is that our exposure to production-related services, intervention and P&A activity continues to support resilient earnings, margin expansion and EBITDA growth. Next slide, please. Since Q1, we have increased our backlog by approximately $0.5 billion through a number of important contract awards and extension across our core business areas. The largest addition includes the integrated P&A contract awarded by Apache in the U.K., covering approximately 260 wells, a 3-year extension with Equinor for wireline and intervention services in Norway, a 2-year extension of Equinor's frame agreement for P&A, fishing and downhole services and a drilling contract extension with Pan American Energy in Vaca Muerta. Subsequent to the quarter, we also secured a 5-year contract for one additional super-spec rig with YPF in Vaca Muerta, further strengthening our earnings visibility and positioning in one of the world's most attractive unconventional basins. During the quarter, we also completed the acquisition of Isol8 a disruptive U.K. P&A rigless P&A company. The transaction strengthens the Archer offering and within P&A solutions, but also adding advanced high-integrity alloy barrier technology that will be required to bring down cost of P&A in the future. Overall, these developments have strengthened our backlog to $3.9 billion, increased our long-term earnings visibility and further reinforced Archer's strategic positioning in integrated P&A and Vaca Muerta drilling. Next slide, please. Slide 7 provides more detail on the large integrated P&A contract in the U.K., which we announced at the turn of the quarter. It is a significant award for Archer and an important step in the continued build of our P&A backlog. The project covers late-life production services and P&A of more than 260 wells on the Apache-operated Beryl and Forties field in the U.K. The scope includes 198 platform wells across 7 U.K. platforms and 68 subsea wells. Archer will deliver all platform-based drilling services, including a light P&A unit as well as a range of well services, including conveyance, fishing services, downhole tools and technology. The project is expected to commence during 2026 with full ramp-up from mid-2027. The strategic importance is that this is another integrated P&A contract award where Archer can combine Platform Operations and Well Services into a broader, higher-value scope. Next slide. Slide 8 highlights the strong earnings visibility we now have through our $3.9 billion backlog, including extensions of about $1.7 billion. We estimate that this backlog, including options, represents more than $600 million in future EBITDA. As you can see on the left, the backlog is also well distributed over time. We have approximately $500 million of revenue backlog, for the remainder of 2026, around $900 million for 2027, about $800 million for 2028 and approximately $1.8 billion thereafter, when including options. This provides a unique foundation for our multiyear earning visibility. Looking across the business, Platform Operations represent approximately $1.8 billion of the backlog, Well Services, approximately $1.1 billion and Land Drilling approximately $800 million. Within this, as part of our strategy, P&A continues to become an increasingly important part of the portfolio. We now have around $800 million of integrated P&A backlog across Platform Operation and Well Services. One of the key takeaways from this slide is the visibility we already have into 2027. With expected 2026 revenue of between $1 billion and $1.1 billion. Our current backlog indicates that approximately 80% to 90% of next year's revenue is already contracted. This gives us a high degree of forward visibility across the business. Additionally, we expect further contribution from framework agreements and other short-cycle opportunities that are not part of the current backlog. Let's move to Slide 9. As highlighted on the previous slide, P&A has become an increasingly important part of our backlog. And Slide 9 provides some more detail on how we have built that position. Today, we have approximately $800 million of integrated P&A backlog, including contract extensions and options covering more than 500 wells across several key markets. We believe no other company in the industry have this amount of P&A wells contracted. Importantly, this position has not been built overnight. It has been a result of strategic decisions we made several years ago to position Archer for the growing P&A market and in particular, to build the capability required to deliver P&A on an integrated basis. Over time, we have brought together well engineering, platform drilling, P&A units, conveyance, fishing services and downhole technologies. We have complemented those capabilities with targeted investments in technology and specialist services. This means we can take responsibility for a much broader part of the P&A scope and offer customers an integrated delivery model rather than providing individual services in insulation. We believe that the combination is what establishes Archer as a leading integrated P&A provider. We have the breadth of in-house capabilities, the technology, the execution experience and, importantly, long-standing relationships with a strong track record with major operators. The contract shows here demonstrate that position. They span Equinor on the Norwegian continental shelf and in the Gulf of America as well as Neo Next+ and Apache in the U.K. and cover both platform and subsea wells. $800 million of backlog is not only important for the earnings visibility, it provides. It also demonstrates the strategic position we have built in a market that we expect to represent an increasingly important opportunity for Archer over the coming years. Next slide, please. The market opportunity in P&A remains significant. Platform P&A is already a large market today, and Archer has a strong position through our North Sea Platform Operation, modular P&A units and integrated projects. At the same time, subsea P&A is expected to become a large growth opportunity. The market is starting to develop and mature and Archer is building a track record and have contracts in hand to build a more mature subsea business. The key point is that we are positioned in both markets. In Platform P&A, we already have scale and strong market position. In subsea P&A, we are building a platform through contracts, technology and execution track record. Let's move to Slide 11. Slide 11 shows how we are building a strong and growing track record in subsea intervention and P&A. Archer has executed intervention and P&A work on more than 300 subsea wells globally. And our current P&A backlog includes more than 100 subsea wells. We have significant subsea P&A contracts with Equinor and Apache in the North Sea. And we performed a substantial number of annual subsea well interventions and slot recoveries in Norway. Furthermore, we have important deepwater subsea P&A contracts in Brazil with Petrobras, Equinor and Shell. With Petrobras, we have developed and qualified a unique solutions to abandon many of their subsea wells. We are commercializing this solution as we speak and hope to report on successes later in the year. This matters because subsea P&A is a technology demanding market where track record, technology and execution capability are important differentiators. We believe Archer is increasingly well positioned as this market develops. Next slide, please. Building on our integrated P&A position, a key part of our strategy is technology and specifically developing downhole solutions that can change how subsea P&A is executed. Subsea P&A has traditionally required drilling rigs, large vessel and significant topside equipment, making these operations complex and expensive. Our ambition is to move more of that work towards rig execution and smaller vessels. We are developing a portfolio of technologies to enable this, including steam perf cementing developed in Petrobras, steal removing on wireline and alternative permanent barrier solutions. Dsolve is an important part of the steel removal solution while acquisition of Isol8 has strengthened our portfolio of high integrity alloy barrier technologies. The common theme is that these technologies can allow more of the well abandonment scope, which we performed through tubing and on coil and wireline, reducing the dependency on expensive drilling rigs and larger vessels for P&A work. For our customers, that has the potential to deliver substantial cost savings while maintaining the integrity required for permanent development. For Archer, these technologies are strategic enablers. They complement the integrated execution capability we discussed on the previous slide and strengthen our ability to capture a larger share of the subsea P&A value chain. We expect several of these technologies to move towards commercialization during '26 and '27. Supporting our ambition to further grow our position in subsea and regulated P&A. Next slide, please. Turning to Land Drilling in Argentina, which remains a strong growth platform for Archer. The Vaca Muerta Basin continues to see increased development activity supported by growing production, expanding infrastructure capacity and strong drilling demand from operators. To support this growth, we have expanded our fleet through additional 3 super-spec drilling rigs. This has strengthened our market position at a time when the availability of modern drilling rig remains limited in the region. As shown on the right-hand side of the slide, we now have approximately $800 million of contracted revenue, extending through 2030. This backlog is supported by long-standing relationships with leading operators primarily YPF and Pan American Energy and provides excellent visibility into the future activity levels. Operationally, the business continued to perform very well. higher activity levels, strong utilization and efficient drilling operations are contributing to improved EBITDA generation and cash flow. Following the divestment of the Southern Argentinian workover business earlier this year, we have also continued to monetize noncore assets. Since then, we have entered into agreements to sell retained drilling and workover equipment for approximately $10 million of gross proceeds. With payments agreed to be received from 2026 through 2028. Overall, land drilling has become a more focused, high-margin business with strong earning visibility, attractive growth prospects and a solid platform for continued expansion in the Vaca market. With that, Espen will take over and walk through the business areas in more detail.

Thank you, Dag. Starting with Well Services. This was a strong and seasonally favorable quarter. Revenue was $88.9 million, up 25% compared to Q2 last year. EBITDA was $19.9 million, up 16% year-on-year with an EBITDA margin of 22.4%. The quarter benefited from strong activity in intervention and P&A services. Operationally, we secured important contract extensions with Equinor in Norway, both for wireline and intervention services and for P&A solutions and downhole services. Norway operations were temporarily impacted by labor dispute, which ended on July 14, resulting in a loss of approximately $1 million of EBITDA in June. We also completed the acquisition of Isol8, which strengthened our advanced P&A capabilities and our plug portfolio. Overall, Well Services continue to deliver strong margins and improved visibility, supported by high activity in intervention and P&A. Next slide, please. Moving to Platform Operations. Revenue was $96.2 million, down 20% compared to Q2 last year mainly reflecting the loss of the Brazil operations and no modular rig activity. EBITDA was $12 million, which is $2.1 million below the previous quarter and the EBITDA margin was 12.5%. Operationally, activity was reduced by 1 drilling rig during the quarter as Trident stopped drilling activity in Brazil. At the same time, the U.K. P&A award with [ Svelte ] and Apache is strategically important and supports future activity growth. It also includes scope for 1 new compact workover of unit. We will see increased activity in 2027 and platform operations remains a core contributor to Archer earnings supported by long-term contracts and with increasing relevance as a platform for integrated P&A projects. Next slide, please. Turning to Land Drilling in Argentina. Revenue was $52.1 million, up 8% from previous quarter this is the first full quarter without revenue from the divested South workover business, and the increase reflects higher drilling activity in Vaca Muerta. EBITDA was $13 million, up 225% from the last -- same quarter, last year, and the EBITDA margin was strong at 25%. The margin benefited from several one-off effects but also reflects improved utilization and more focused business mix. Operationally, drilling activity increased by 1 rig in Vaca Muerta, and we successfully started up the first super spec rig at the end of June. Following the sale of the workover business, we have also sold remaining idle workover and pooling units with gross proceeds of approximately $10 million. Next slide, please. Moving to Renewables. Revenue was $25.3 million in the quarter, down significantly as the offshore floating wind project is approaching completion. EBITDA remained muted as 2 rigs for Iceland drilling were in transit, partly offset by higher activity within Vertikal Services. Operationally, the Culzean floating wind pilot project progressed during the quarter with fabrication of the floating substructure and integration of the wind turbine close to completion by end of July. The project has experienced challenges, delays and additional costs. We are currently in negotiations with the client regarding settlement of several large change orders and we're also in a dispute with a major subcontractor related to defects in delivery. Next slide, please. Slide 18 shows Culzean Floating Wind project. This is the floating offshore wind project for Neo Next+ with Archer wind responsible for integrating engineering, fabrication and final assembly. Load out and tower lift have been completed, final assembly is in progress and tow-out to the field is expected towards the end of August. As mentioned, the project has had challenges and additional costs, but the operational focus remains on safe and efficient completion and delivery to the client. Next slide, please. Let me take you through the condensed profit and loss for the quarter. Revenue in Q2 was $262.6 million with $541.1 million year-to-date. While reported revenue is lower than the comparable period last year. This is largely explained by the divestment of the Argentine South workover of the business. Excluding the divested operations, underlying activity across the group remained strong. EBITDA before exceptional items was $47.7 million corresponding to a margin of 18.2% compared to $45.4 million and 15.3% in Q2 last year. This reflects the continued shift towards higher-margin activities, particularly within Well Services, Land Drilling and the integrated P&A projects. Reported EBITDA was $44.9 million, representing a record quarterly EBITDA for Archer and a margin of 17.1% compared with $41.7 million and 14.1% in the same quarter last year. Operating profit increased to $23.7 million compared to $15.3 million in Q2 2025, demonstrating continued earnings growth and margin expansion across the business. Profit before tax was $7.3 million, while reported net profit was $0.2 million for the quarter. Adjusted net profit, which excludes exceptional and other nonrecurring items, was $8.2 million, bringing adjusted net profit year-to-date to $14.5 million. Overall, the P&L reflects another quarter of strong operational execution, record EBITDA, improving profitability and continued margin expansion. Next slide, please. Let me move to the balance sheet. Total assets increased to approximately $1.1 billion, up around $34 million from the end of first quarter. Cash and cash equivalents increased to $35 million compared to $30 million at the end of Q1. At the same time, net interest-bearing debt increased to approximately $489 million. The increase is mainly explained by a temporary buildup of working capital as activity levels increased during the quarter continued investment in growth CapEx and technology development and working capital tied up in the Archer wind project, where we continued discussions with the client regarding approval and settlement of variation orders. Trade receivables increased in line with higher activity, while trade payables increased by approximately $21 million. Total equity ended at $193 million, including approximately $20 million of noncontrolling interest. The reduction compared to previous quarter primarily reflects the quarterly shareholder distribution and normal movements during the period. Overall, we continue to maintain a solid balance sheet while investing in organic growth, technology development and execution of recently awarded contracts. Next slide, please. Turning to shareholder distributions. The Board has approved a cash distribution of NOK 0.62 per share, corresponding to approximately $6.5 million to be paid during the third quarter. This marks the sixth consecutive quarterly distribution under Archer's shareholder return program. Over the last 12 months, Archer has distributed NOK 2.5 per share, which at the current share price represents a direct yield of approximately 10%. As the chart on the right illustrates Archer continues to offer one of the highest direct shareholder yields in our peer group. Overall, we believe the combination of a strong earnings outlook, a backlog of $3.9 billion and an attractive shareholder distribution program provides compelling value for shareholders. Next slide. Thank you for joining us for today's call.

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Open the line for questions.