Saipem SpA (SPM) Earnings Call Transcript

Good morning. This is the Chorus Call conference operator. Welcome, and thank you for joining the Saipem First Half 2026 Result. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Alessandro Puliti, CEO of Saipem. Please go ahead, sir.

Thank you, and good morning. Thank you for joining the presentation of Saipem First Half 2026 Results. I'm here in Milan today with our CFO, Paolo Calcagnini, and with the other members of the top management team. The agenda for this session is the following. I will start with an overview of the key operational and financial highlights of the quarter. Paolo will then deep dive on the financial performance, and I will conclude the presentation with a few closing remarks. We will then open the floor to your questions. Let me begin with the key highlights of the second quarter. Saipem reported revenue of EUR 3.8 billion in Q2, representing a growth of 8% quarter-on-quarter and 3% year-on-year. Despite the conflict in the Gulf, we made strong progress on all our projects, recording EUR 1.2 billion revenue in the Middle East. Middle East project execution was robust, we suffered extra cost of EUR 70 million because of the conflict. This impacted our profitability, especially in the asset-based services. Adjusted EBITDA in the second quarter stood at EUR 402 million, representing a margin of 10.5%. Without this extra cost, we would have posted the second highest EBITDA since 2022. We are currently discussing with our clients about this extra cost, and we think we will be able to recover a good portion of them. Notwithstanding the disruption brought by the conflict, our cash flow conversion keeps on improving. In the second quarter, we generated EUR 189 million of free cash flow, bringing the overall cash generation in the first half at close to EUR 400 million, representing around 2/3 of our annual guidance. Our commercial activities has recently accelerated, leading to an order intake of EUR 4.1 billion in Q2, corresponding to a book-to-bill of 1.1x. We expect our order intake to accelerate even further in the second half, as already demonstrated by the EUR 2.3 billion of awards already announced in the month of July. Our revenue booking in the second quarter is consistent with the growth profile of the last four years and represents the highest level recorded in Q2 ever. Coming to EBITDA in Q2, we booked EUR 402 million, reflecting the extra cost generated by the conflict. If we exclude these extra costs, our EBITDA would have stood at more than EUR 470 million with a margin in line with the previous quarter. Also, as already mentioned, even considering this extra cost, our operating cash flow remained very robust in Q2 at EUR 449 million, representing the second highest level of quarterly cash flow ever. The strong cash flow generation is a further demonstration of the continuous improvement achieved by Saipem in terms of conversion of EBITDA into cash. Let's now move to the order intake in Q2 and our expectation for the rest of the year. Our commercial activity accelerated in the second quarter, leading to an overall order intake of EUR 5.7 billion for the first half of the year. Considering the EUR 2.3 billion of award already signed in the month of July, we already reached a cumulative order intake of around EUR 8 billion, higher than when we achieved in the first nine months of 2025. We can confidently say that for 2026, we are on track to exceed the order intake achieved in 2025, also in the light of the various commercial discussion we are having with clients. Just to give you a bit more color, commercial discussions are already -- are relatively broad-based and revolve around projects in Latin America, Africa, Middle East and Far East. Let's now look at the recent order intake in the offshore E&C. The most recent award was signed with Eni in the Ivory Coast for the third development phase of Baleine located in water depths up to 1,300 meters. In addition, Azule Energy has awarded us the Greater PAJ development in Angola, which represents one of the most significant ultra-deepwater project in sub-Saharan Africa at a depth up to 2,000 meters. The Baleine and the PAJ projects will keep FDS and Shen Da vessels busy in West Africa for 2027 and 2028 and further densify the planned utilization of our fleet. Despite the ongoing conflict, our clients in the Middle East remain positive and eager to push forward their investment plans as demonstrated by the two CRPOs awarded to us by Aramco, which we already discussed during the Q1 call. Lastly, we continue to build on our relationship and track record with Exxon in Guyana, and we expect that the limited notice to proceed from long tail will turn into a full EPC contract later in the year. Let's now move to the recent awards on in onshore engineering and construction. The order intake of the last four months is fully in line with our new strategy for Energy Carriers, both in terms of project type as well as in terms of derisking. In term -- in terms of project types, biorefinery in Italy remain one of the most important areas in our energy transition portfolio. We are progressively increasing our exposure to FPSO fast track projects with appropriate contracting models and in particular, in Indonesia, where we can rely on our Karimun yard. We have increased our backlog in the operating and maintenance segment through a multiyear extension from a key client. We won a new gas treatment plant project for Aramco under the National EPC Champion Programme in partnership with one of the most important and reliable local construction companies. We have also started the internationalization of our sustainable infrastructure division with the first project in Romania. In terms of derisking, each of those contracts and project is different, but they all share a common approach based on a mix of the following tools: first, early engagement through Pre-FEED and FEED activities; second, hybrid contracts with significant portion based on remeasurable provisional and cost plus fee mechanism. Third, Tier 1 construction and fabrication partners responsible for their own portion. Fourth, maximization of utilization of Saipem yard for fabrication and integration of modules. Fifth, clients supply critical items. All in all, approximately half of the aggregate scope of work of this project is derisked through a mix of contractual scheme and other levers. Let's now look at the disposal of our shallow water drilling business. In late June, we have entered into a binding agreement with ADES for the divestment of Saudi Arabian Saipem Limited, the company which runs our shallow water drilling activities. The associated fleet is made by five units. Three owned jack-ups, the Perro Negro 7, 8 and 10 and two leased jack-ups, the Perro Negro 11 and 13. The transaction value amounts to USD 285 million and completion is expected in the third quarter of 2026. The disposal is part of our strategy to focus on deepwater and harsh environment offshore drilling operation and is also a natural continuation of the path which we started with the sale of the onshore drilling business in 2022. Let me now turn into the recent commercial activity in the deepwater drilling segment. Last week, we have been awarded an important new contract worth $260 million for the Santorini drilling ship, which will be deployed in Ivory Coast for a long-term campaign with Eni. Operation will start between the end of 2026 and the beginning of 2027. The contract includes a firm commitment of approximately 18 months with additional option periods. This award further increases the level of utilization of our deepwater fleet and improve our revenue visibility for 2027, 2028 and possibly beyond. To serve this contract, we are bringing forward the SPS of the drillship to the second half of this year that was originally planned in the first half of 2027. Based on the visibility we have at the moment, we are confident that our deepwater drilling fleet will be fully booked in 2027 and that the year 2027 will be virtually free of SPS maintenance activity for any deepwater vessel drilling. Let me now give you an update on our operation in the Middle East. In the first half of the year, we recorded a good progress on the execution of our project in the region, notwithstanding some disruption in offshore operations. Vessel utilization has been proactively managed to minimize the impact of temporary suspension and late arrival of certain critical delivers to Hormuz. At the beginning of July, we completed three inbound crossing to Hormuz for critical deliveries related to the projects in Qatar. All in all, we managed to book revenue in line of our budget. However, the disruption brought by the conflict generated extra cost of EUR 70 million in the first half of the year. To give you more granularity, these extra costs related to higher rates for barges and tugboats, higher insurance premium, the cost of temporary storage of certain components, the standby cost of certain vessel and project teams as well as the impact of temporary repatriation of expat family members. We expect to recover a portion of this cost subject to the outcome of the commercial discussion ongoing with the clients. For the second half of the year, we forecast a similar situation to the one experienced in the first half with good progress on the delivery of the projects, but with some extra cost of similar magnitude. Let me now give you a brief update on Courseulles. The execution is progressing steadily, and the drilling activity is proceeding at a very good pace. To date, we have successfully drilled 36 sockets and installed 23 monopiles. This means that since our update in late April, we have added 12 new sockets and eight new monopiles. We confirm the completion is expected in Q1 2027. Let me now give you an update on our commercial pipeline. As you can see from the numbers, the opportunities set in front of us remain robust and continues to grow. In terms of mix, we see attractive prospect in offshore engineering and construction, both conventional and SURF. At the same time, in the onshore engineering and construction space, we are seeing opportunities in upstream, LNG, FPSO, fertilizer, biorefineries and sustainable infrastructures. Geographically, our pipeline is concentrated in the Middle East as well as in Africa, while we also see attractive potential growth in Latin America and in the Far East. Let me now hand over to Paolo to cover the financial results in more detail.

Thank you, Sandro. Good morning, everyone. I'll begin with Slide 15, which provides an overview of Saipem main results for the first half of 2026. Revenue grew by 1.9% year-on-year to EUR 7.3 billion, while adjusted EBITDA grew by 9.4% to reach EUR 836 million. The adjusted EBITDA margin continued to improve year-on-year, rising to 11.4% compared to 10.6% in the first half of the last year. As mentioned by Sandro, our performance in the first part of the year was affected by extra cost of EUR 70 million due to the conflict in the Middle East. Without these costs, our adjusted EBITDA margin for the six months would have been equal to 12.3%. Net results stood at EUR 131 million on an adjusted basis, whilst operating cash flow stood at EUR 841 million, in line with last year. The difference between adjusted and reported results reflects a provision booked in Q2 for EUR 35 million in relations to the implementation of an early retirement scheme for Saipem employees in Italy. Approximately 2/3 of such costs are associated to the Energy Carriers division. These costs are expected to continue in the second half of the year for approximately EUR 69 million for a total of EUR 104 million. This initiative will bring substantial savings from 2027, and will help rejuvenating the overall population of Saipem in Italy. Let me now turn to the performance of the three business lines. And I'll start from asset-based services on Page 16. Revenue in the first half of 2026 stood at EUR 4.3 billion, representing a 5.3% increase year-on-year. Such performance was mainly driven by strong progress of our projects in Latin America, the Far East and North Africa, partially offset by the completion of Sakarya 2 in Turkey and Búzios 7 in Brazil. The mix between conventional and the 25% year-on-year with a margin expansion of 2.5 percentage points versus the same period in 2025. The margin expansion was mainly driven by a better project mix and by a higher utilization rate of the construction fleet. The strong results also factor in the disruption brought by the conflict, which has generated extra costs for EUR 70 million for the group, of which 80% associated to the offshore E&C projects in the Middle East. Without these costs, our adjusted EBITDA margin would have been 17%. The growth in adjusted EBITDA more than offset the increase in the lease component of D&A, driving adjusted EBIT margin up by 60 basis points year-on-year from 5.4% to 6%. Excluding the costs associated with the conflict, the EBIT margin would have increased to 7.3%. Anticipating the project execution in the Middle East remains resilient and broadly in line with the first half of the year, we expect revenue in the second half of 2026 to grow in the mid- to high teens compared with the first half with an approximately 100 basis point expansion in both EBITDA and EBIT margins. Let me now move to Drilling Offshore on Page 17. The year-on-year decline in both revenue and EBITDA mainly reflects the reduction in the size of the fleet following the exit of the Pioneer and the Perro Negro 12 jack-ups in the second half of 2025. Second, the lower activity by the Scarabeo 9, the Saipem 10000, the Perro Negro 8 and the Perro Negro 11, with the last three units undergoing ordinary maintenance in the first half of 2026. Marginally lower day rates for the Saipem 10000, the Santorini, the Scarabeo 9 and the Perro Negro 7. Last, the additional costs related to the termination of the operations of the DVD and the related handover of the drillship to the owner. This was partially compensated by the higher day rate of the Scarabeo 8, and the higher utilization of the Ferro Negro 10 and the Saipem 12000. Assuming the completion of the disposal of the shallow water drilling business at the end of September and taking into account the planned maintenance CapEx for the Santorini, which was brought forward from 2027 to 2026, we expect a double-digit decline in revenue in H2 2026, low teens EBITDA margin for the second half of 2026 and a breakeven EBIT for the entire 2026. For 2027, we don't expect any major maintenance activity for our drilling fleet. Let's now conclude the review with Energy Carriers on Page 18. Revenue remained broadly stable year-on-year. This was the result of an increased contribution by projects in Italy and in the Far East, offset by lower contribution of projects in the Middle East and in Africa, the latter despite an increase in the revenue due to the restart of the Mozambique LNG project for Total. Adjusted EBITDA margin rose by 60 basis points year-on-year, mainly because legacy project volumes continue to decrease. As in asset-based services, the Energy Carriers business line absorbed 20% of the EUR 70 million of extra costs related to the conflict in the first half of the year. Assuming no major disruptions in the Middle East, we expect high teens growth in revenue in H2 versus H1 and a broadly stable EBITDA margin. Let's now take a look at the figures below EBITDA, as shown on Page 19. D&A increased by 20% year-on-year. As discussed several times already, this reflects the growth of the fleet on a chartered basis as well as the change in accounting treatment for the DVD vessel. In particular, D&A related to leases increased by 50% year-on-year from around EUR 240 million to around EUR 360 million. The overall level of D&A expected for full year 2026 is confirmed at around EUR 1.1 billion. Financial expenses stood at EUR 66 million in H1, a decline of EUR 28 million year-on-year, reflecting mainly a lower hedging cost on the back of the reduction in the interest rate differential between the euro and the U.S. dollar as well as lower volumes of traded derivatives. And then a decline in the net financing cost ex IFRS 16 as a result of the decline in the gross debt and growth in the cash position would generate a positive yield, partially compensated from the higher interest due to leases and exchange differences. Financial expenses for the full year 2026 are expected to be approximately 15% to 20% lower than in 2025. Income taxes rose year-on-year by 20%, implying an effective tax rate of 47.5% on a reported basis for H1 2026 compared to 34% a year ago. This is mainly due to two factors: a tax settlement in West Africa and the difference profit mix between the various companies of the group. These two effects are expected to impact H2 and as such, the tax rate is expected to remain stable on a reported basis in the second half of 2026 compared to the first half of 2026. Let's now focus on the cash flow and net financial position on Page 20. In H1 2026, considering the EUR 330 million dividend paid in May, the pre-IFRS 16 net cash position improved by EUR 79 million and stood at EUR 1.1 billion at the end of June. This is primarily due to the cash generation totaling EUR 388 million, which was supported by the strong performance of the business as well as a release of cash flow from working capital as some key projects were completed. More broadly, the improved cash conversion we have experienced in the last four years is mainly due to the improved quality of the projects and the related contractual terms as well as the optimization of the working capital management. Lease liabilities declined by EUR 84 million in the first half and are expected to continue to decline in the next two quarters as we release some chartered vessels back to the owners with the expected completion of some specific projects. In fact, we expect lease liabilities to decline to approximately EUR 900 million at the end of 2026. Lease repayments in H1 2026 amounted to EUR 305 million, and we expect lease repayments to be around EUR 650 million to EUR 700 million for the full year 2026. Now to wrap up, let's quickly look at the Saipem debt and liquidity position at the end of June. Our liquidity position is very solid and stands at EUR 3.5 billion. This is made of EUR 1.3 billion of available cash, EUR 1.6 billion of cash in JVs and EUR 600 million related to the undrawn RCF. As anticipated last year, we are looking to reduce gross debt by repaying all maturities that fall in 2026. So far this year, we have, in fact, already repaid using available cash, EUR 30 million related to an SCA facility in April and EUR 241 million worth of EMTN bonds at maturity in mid-July. We also have a clear target to achieve an investment-grade credit rating in the medium term, a target which is well supported by the conversation we are having with the rating agencies. I'll now hand back to Sandro for his closing remarks.

Thank you, Paolo. Let's now go through our updated guidance for 2026. We are now five months into the conflict and acknowledging the situation in Hormuz and it is still unclear, we think it is prudent to update our guidance for 2026, in particular. In terms of revenue, we confirm the guidance issue in February, also considering the resilient project delivery in H1. In terms of EBITDA, we are considering the extra cost booked in H1, our estimate for possible extra cost in H2 as well as the impact of the deconsolidation of the shallow water drilling business. We are, therefore, adjusting our EBITDA guidance from EUR 1.9 billion to EUR 1.75 billion. We confirm our operating cash flow guidance, thanks to the structural improvement in cash flow conversion. Our free cash flow guidance is also unchanged. For the sake of clarity, this number does not include the extraordinary proceeds we expect to receive from the disposal of the shallow water drilling business. Let's now wrap up with some closing remarks before we turn to the Q&A session. In the first half of the year, notwithstanding the Middle East conflict, our project delivery was resilient and our cash flow conversion continued to improve. We have recently seen a meaningful acceleration in the order intake, and we are on track to comfortably exceed 2025 volumes. In front of us, we have a growing and well-diversified commercial pipeline. The disposal of the shallow water drilling business will allow us to fully focus on the deepwater activities. We have achieved the full utilization of the construction fleet for the next two years. The prospect of our industry remains strong and are further reinforced by increased need of energy security and diversification. Thank you for your attention, and we are now happy to take your questions.

[Operator Instructions] First question is from Alessandro Pozzi, Mediobanca.

The first one is on the guidance. I think it's quite reassuring to see that you haven't changed the revenue guidance, meaning that, I guess, the progression of milestone is still as expected. So there's no meaningful change there. But EBITDA is coming down. If I look at the second half, that implies maybe extra cost of EUR 80 million compared to the EUR 70 million in Q2. So I was wondering can you give us a bit more color around what are the assumptions for the new guidance for revenue and especially EBITDA in terms of extra cost? Do you expect the current situation to persist? Or is it based on some sort of normalization in the second half? And with regards to the extra cost, how confident or how much of the extra cost do you think will be reimbursed by the clients given this is not your fault. The second question on the merger with Subsea7. I'm not sure how much you can say, but I was wondering, are you surprised that this is entering Phase 2 now in Europe?

Okay. So in terms of guidance and the cost that we have been -- that possibly we incur in H2, you were mentioning EUR 80 million. If we look at the figures, this is not entirely due to the extra cost -- that we possibly faced in the conflict, but also includes the missing EBITDA coming from the disposal of the shallow water drilling fleet. So the EUR 80 million is the sum of the two. Our assumption is pretty simply a linear that we possibly incur in the same level in H2 of extra cost we incurred in H1. So this is the basis for the, let's say, our updated guidance. Regarding the merger situation in terms of antitrust authorities all around the world is that we have to clear 16 antitrust authorities around the world. We already received positive clearance from eight antitrust authorities. We are entering in Phase 2 in many situation, so not only -- in Europe, but also in Australia as it is well known. And this is perfectly understandable considering the size of the merger and the business. And I would say that this has to be considered normal in these circumstances.

And with regards to the reimbursement of costs that also on the second half, I guess, you have six months of potential disruptions, whereas I think in Q2, probably you have four months. So the EUR 70 million is probably based on four months. So I was wondering in terms of assumptions, do you expect own more inbounds over the next few weeks and months, some sort of maybe normalization in the Gulf?

Okay. So let's come to the first. Possibility of recovering extra cost from the client is clearly present. We are currently discussing with them. Some of them, they clearly -- they already gave us positive indication. But those are variation orders. They require a bit of a lengthy process. So we may expect to factor in 2027 rather than 2026. This is something that we have to acknowledge. Again, on the forecast for the next, let's say, the H2, I consider the same. It's not a matter of being four months or six months. It's a matter of having the let's say -- having to acknowledge that some extra cost will last for a while like the extra premium for the vessel, extra cost for local tugboats or local supporting vessels. So this is, let's say, the bulk of the extra cost we envisage.

Okay. Just a final one. I think in Q2, you had 30% of the revenues coming from the region. I believe is that a good estimate also for maybe 2027?

I'll leave to Paolo on this.

Yes. I mean the number for 2027 is very close to 2026. So the region keeps accounting for a significant portion of our backlog.

Next question is from Mark Wilson, Jefferies.

Obviously, I've got to ask regarding the Middle East more on the cost there. But in particular, Alessandro, could you speak to the transits? You clearly managed to manage some of those transits. You spoke last quarter about between May and July, and you said you've managed to get some. So where do we stand in terms of materially important transits for the rest of the year and how that relates to those costs? Second question for you, Paolo, on working capital. You mentioned you had some projects that had completed and we did see the positive inflow from working capital. So are there any more of those to expect in the second half? And indeed, into '27, I imagine legacy projects might be part of that.

Okay. So in terms of transits, we managed by the beginning of July to have three very important transit. So we have three inbound important deliveries for projects in Qatar that are allowing to make actual progress in those projects specifically in the so-called COMP2 project where we managed to pass with large living quarters that has been set on a jacket that was already in place. So that was very important crossing. We managed also to have an outbound crossing for deliveries from the Middle East to the Far East, other critical. So that was, let's say, a good achievement also recognized by clients. Basically, like many other operator with a good work of readiness, we managed to cross in the window one week where many other operators managed to have their crossing Hormuz prior situation became again, let's say, complicated. For the future in the year, that are planned in the second half 10 inbound -- some of them are again for the COMP2 project in Qatar. So that are the [deck] for the compression for EPC 2 jacket and a jacket for EPC 2 and jacket for EPC 3. So this is why we envisage a situation in the second half that could be similar to the situation of the first half. So with some window in which we can, let's say, cross Hormuz safely and -- but we may be associated with some waiting time to wait the right time to cross. Clearly, any waiting time is also generating extra rental cost for the vessel and then the situation is also very much influencing the insurance premium. So that's the reason why we are seeing a second half possibly similar to the first half. Is this a prudent view? Yes, I believe it is a prudent view. But I believe that owing the circumstances, we must be prudent. Regarding the rest, I leave the floor to Paolo.

On the cash generation and working capital. So Mark, I think that, I mean, there is a trend that we have seen in the -- starting from 2023, which is a higher -- structurally higher cash conversion compared to the past. And the reason being that there is a better mix of contracts and contractual terms. There is also a much more focus on working capital in general. And the efforts are paying off because we gained quite a few percentage points of cash conversion in 2025 already, but then the trend continued in 2026. Now yes, there have been a few projects that contributed to the decrease in the working capital. But more in general, I can share with you a couple of additional insights. The first one is that when you look into the commercial liabilities, so payables to suppliers, they didn't increase in H1 2026. And also the advances from clients decreased. And that gives you an indication of the quality of the -- of their performance and the reason why I called it a structural trend rather than a short-term movement in the working capital. Also because if it's not the liabilities, it should be the current assets contributing to the cash, which is good news because it tells you a lot about the contractual terms of the new contracts. And as the new contracts kick in, you get the benefit when it comes to the overall working capital. And if you look at the wider picture in the last year, so from June 2025, working capital decreased roughly EUR 300 million or EUR 250 million, give or take. And that is mostly because of the trends I just shared. So I think it's a structural thing, and we're enjoying the benefits of the work.

Next question is from Mick Pickup, Barclays.

Two questions, if I may. Firstly, just on the drilling side, it's been a while since we've missed on drilling estimates and it's obviously because of maintenance. Can you just run through what you said about the maintenance on what we're missing in the second half? I know you said 2027 is quite a clear year, but can we just get the back half of '26 sorted out, please?

Okay. So the main event for 2027 is that we went through SPS for Saipem 10000 that will end at the end of July in a few weeks and then beginning of August, the rig will start working back in the Mediterranean. The new event is that since we signed this contract for Ivory Coast for the Santorini, we -- starting from beginning of 2027. And since the client wanted a clean start, we anticipated and so we brought forward SPS that was expected at the beginning of 2027 into 2026. We are now accounting 60 days of SPS end of -- end of in the second half of this year. In 2000 -- during this year, we did also maintenance for Scarabeo 9. So situation is such that next year, we will not have any planned SPS for the drilling fleet in the quarter. That's the situation.

Okay. And then on that redundancy cost that popped up in the quarter, obviously EUR 35 million this quarter. I think you said it's EUR 100 million for the year. Can you just talk about when the cash goes out for that?

I will leave the floor to Paolo.

So the cash would be paid when the colleagues will leave the company. So it's going to be partly in 2026 and then 2027 and onwards. We think that this year it's going to be roughly EUR 30 million, the cash out from the redundancy plan. But I think we should focus on the benefits in the medium term because from 2027 we'll experience significant benefits in terms of labor cost and most importantly, will significantly reduce the average age of the working population in Italy. So there's also -- there's only this accounting treatment because you have to account for all the cost in advance and as always, and then you will see the benefit as the colleagues will leave Saipem end of this year in 2027.

Okay. And what is the rationale for getting rid of your most experienced people?

Well, actually, I mean, it's not that we are [indiscernible] people leaving the company because the way it works is that the colleagues can express their willingness to leave the company and the company can accept or not. So it's a case-by-case -- it's a case-by-case discussion. And the most valuable people, I don't think they are leaving the company because of the early retirement plan. This said, it's in the right if they don't want to work anymore to enjoy their retirement, right? So it's a business -- almost a business as usual kind of decision. The fact is that in Italy, there is a law that allows people to retire as earlier as five years compared to the original retirement age. And some colleagues decide to enjoy their lives [indiscernible]. I wish I was in that age, not yet.

Next question is from Massimo Bonisoli, Equita.

Two questions. One, if you could explain the rationale of recognizing the Middle East related extra cost upfront in Q2 and then in second half rather than waiting for the conclusion of the commercial discussions with the clients on potential recovery or pass-through. I understand it is prudent by doing so how did it work in the past? And the second question, could you share some indication on recent trends in offshore drilling day rates? Are you seeing any signs of improvement? Or should we still expect a more mixed environment in the short term?

Okay. Regarding the first one, and let's say, the decision to consider possibly in second half the same cost we incurred in the first half. The fact that this cost may recover by the client is on the -- it is clearly -- it's a fact. But this process will require a while. Certain client, they gave us already positive, let's say, indication that they are willing to do so. But based on past experience, like if you want to recall the time of the COVID and the extra cost we incurred at that time, there was a compensation, a partial compensation, but it came, let's say, it's a process that may take six months, seven months. So as I said before in the call, most likely, this restoration of this cost will actually occur in 2027 rather than in 2026. So the way it works is that now I have to -- have a way in another make clear that there are this possible extra cost in the second half of the year. So possibility to recover is real, but there will be a mismatch of time compared to our reporting exercise as it happened for the COVID. Regarding the daily rates in drilling, I would say that we are still in a mixed environment. There are signs, good signs, but also some -- it's also true that some clients are postponing right the start-up of their drilling activities. Therefore, it may possible that in 2027, we will see a more clear direction in the daily rates. Today, the environment is pretty steady, I would say.

Next question is from Sebastian Erskine, Rothschild & Co Redburn.

The first one just on the Middle East. I guess beyond the one-off cost, is there a risk that the structurally higher tugboat costs, logistics costs, insurance costs kind of drive structurally lower through-cycle profitability of engineering and construction work in the Gulf? Or is that the wrong way to think about it? I guess the commercial activity is very strong, but I'm just thinking about actually over the medium and long term, what the profitability of that work might look like?

The question is also the question that we are asking ourselves in these days. I would say that as soon as the situation on the Hormuz get clear and we return to the previous, let's say, to the situation that was back in February, there is no reason why the cost should not return at that level. And I would say -- so that's our view. As soon as we are back to normal crossing, for example, insurance premium, they should go back to what they were before the beginning of the conflict, just to give you an example. So I would rather say that this is a localized effect that should come to an end as soon as situation will be similar to the one that was back in February this year. Then there is -- but there is a different -- there is also a different angle that if it is true, like we see that there will be a surge of activity in the region, there could be some inflation of cost, but not because of the water, but because of a surge of activity. But if there is a surge of activity, then the extra cost is compensated within the new contracts. So I would say that all in all, we do not see a deterioration of marginality in the long term in the Middle East.

That's very helpful. And then just a question on Exxon Energy Carriers. See the margin does remain quite weak at sort of 2% EBITDA. Obviously, Mozambique LNG is kind of restarted. But maybe you could give kind of a sense of the timing of the recovery in profitability. I think, Paolo, at some point, you were talking about potentially getting back to sort of mid-single-digit EBITDA margins. What's the potential kind of timing on that recovery in Energy Carriers?

So we do expect clearly 2027 change to be different and to be definitely better. Many of the project that are keeping the marginality of the anchor pretty low and constant are coming to an end during this year. So that's -- so there should be no reason why in 2027, we should not see an improvement on the marginality.