SAPMY - Saipem SpA (SAPMF) Q2 2023 Earnings Call Transcript
2023-07-29 21:17:05 ET
Saipem SpA (SAPMF)
Q2 2023 Earnings Conference Call
July 27, 2023, 04:30 AM ET
Company Participants
Alessandro Puliti - CEO and General Manager
Paolo Calcagnini - CFO
Conference Call Participants
Guillaume Delaby - Societe Generale
Alessandro Pozzi - Mediobanca
Massimo Bonisoli - Equita
Richard Dawson - Berenberg
Peter Testa - One Investments
Kevin Roger - Kepler Cheuvreux
Daniel Thomson - BNP Paribas Exane
Presentation
Operator
Good morning. This is the conference operator. Welcome, and thank you for joining the Saipem First Half 2023 Results Presentation. [Operator Instructions]
At this time, I would like to turn the conference over to Mr. Alessandro Puliti, CEO and General Manager. Please go ahead, sir.
Alessandro Puliti
Thank you, and good morning, and welcome to Saipem first half 2023 results presentation. I'm here with our CFO, Paolo Calcagnini, and with the rest of Saipem's top management team. I'm also pleased to have here in the room, Alberto Goretti, who recently joined us as Head of Investor Relations.
Let's start with the financials. Q2 was another quarter of strong delivery, driven mainly by our offshore business. In the second quarter, we delivered a robust revenue growth of 70% year-on-year and 7% quarter-on-quarter. EBITDA growth was even stronger than revenues, at 48% year-on-year and 15% quarter-on-quarter.
In the second quarter, we achieved an improved EBITDA margin of 7.9%, reflecting better profitability of some of our business lines as well as a better mix of activities. At the end of June, we had a net cash position of €34 million. And the net debt position post lease liabilities of €288 million. Order intake in the second quarter was also robust at €4 billion, a strong increase compared to the €2.7 billion in the first quarter and implying a book-to-bill of 1.4x.
In summary, the second quarter of 2023 was another quarter of progress and financial growth continuing in delivering our strategic plan.
And now let's expand a bit more on the main achievement in the first six months of 2023. The financial results are robust, both revenues and EBITDA level and continue to improve year-on-year and quarter-on-quarter, in line with the 2023 guidance. Operating cash flow was positive, both in the first and the second quarter, contributing in maintaining a stable net debt despite the cash outflow related to the backlog review.
In addition, we have further strengthened our balance sheet structure with two new facilities that entered into effect in June for a total of €860 million. The €390 million of SACE facilities was disbursed, while the €470 million revolving credit facility is undrawn. Our €500 million bond maturing in September will be repaid using our available cash, which will lead to a further improvement in the average debt tenor.
From a commercial standpoint, we keep winning orders with the right mix. The majority of the total order intake in the quarter is in offshore, the segment that historically have recorded the highest margins. Out of the total €6.7 billion award in the first half, around 10% is in low or zero carbon activities in line with our commitment to the energy transition. We continue to receive quality orders from clients with whom we have long-lasting relationship, both national and international oil companies in our core geographic areas and countries.
As far as operation are concerned, we are progressing well on wind offshore project execution, further reducing the risk of some of the critical projects that were part of our backlog review. In particular, after completing the Seagreen project in Scotland, we significantly accelerated on the NNG project during the second quarter, reaching an overall progress of 94%.
And now, I will hand over to Paolo for a review of the financial results.
Paolo Calcagnini
Thank you, Sandro. Thanks, everyone, for joining the call today. So first, it's worth noting that we had no special items in the first half of this year. And while in the first half of 2022, we had €20 million of nonrecurring costs.
Second, we reported a net result of €40 million, almost entirely achieved in the second quarter. This is the first positive quarter at net income level since late 2019 and the best quarter at the net income level since 2017. So revenues were up 38% year-on-year to €5.3 billion, and margins have grown 56% to €410 million.
Now before diving into the business line results, I would also like to share two or three pieces of information in relation to these numbers. First is that the revenue growth has been consistent across all key geographies, sub-Saharan Africa, Middle East and Americas, witnessing an healthy market demand has smoothed group-wide operations and the ability to ensure an effective supply chain.
Second, if we compare the 2022 and 2023 numbers, in a like-for-like basis, I mean, net of the adjustments made in 2022, the EBITDA growth would have been 68% versus the 56%, you see in the chart.
Now moving to the reporting segments, and let's start with the Asset Base -- Asset-Based Services, which aggregates the offshore engineering and construction and the offshore wind activities. This is a business line that has contributed the most to the increase in the group results, both in terms of revenues and margins. Revenues are up 30% year-on-year to €2.6 billion and margins increased by €96 million or 59% year-on-year and 24% over Q1, reaching €260 million.
A few additional comments on the asset based performance. Performance improvements have been robust and balanced across geographies, projects and key clients. And we see it as a strong signal of an high-quality growth of the business line. Margins were close to the 10% threshold in the six months, although already above 10% in Q2, and this is notwithstanding the significant progress that Alessandro mentioned, may be in zero margin wind projects.
Those effect is still dilutive on overall margins of the business line. For the full year 2023, we expect EBITDA margin to improve even further as we progress with the execution of further acquisitions made mostly during the market downturn, and the start of the works on acquisitions that have been made recently with higher margins than during the past.
Moving to the Offshore Drilling at Page 9 of the presentation; revenues increased by 24% year-on-year. And the margins increased 64% from €86 million last year to €141 million this year, with an EBITDA margin, which is just below 40%.
So the performance improvement came mainly from two factors: the increasing market daily rates, which has been consistent both in deepwater semi-sub and shallow water fleet. And second, the higher contribution in 2023 of the new drillship Santorini that was acquired, if you remember, December last year. And the Perro Negro 8 that wasn't working in the first half 2022, while it's worked fully in the first half of this year.
For 2023 and the remaining six months, we expect a substantial improvement in both revenues and EBITDA margins versus 2022. Thanks to the strong market conditions and supporting daily rates, higher utilization of the fleet with a lower impact of -- from cyclical maintenance on some of our vessels. And the increase in the fleet size, thanks to the recent DBD and jack-up additions that will enter into operations later this year.
Moving to Energy Carriers. This is a business line that deserves a few comments. If you look at the numbers, while revenues grew by 26% year-on-year, and this is a signal of an important increase in the pace at which projects are being executed and therefore, a signal of healthy operations across our portfolio. Margins struggled to show a similar performance.
Now these numbers do not come as a surprise for at least three reasons. The weight of zero margin projects coming from the backlog-review is still material on overall revenues, and this obviously is putting pressure on margins.
Margins recovery takes more time in onshore as project duration is longer than in offshore business. So it takes more time to see the benefits of the new cycle. And third, there are some key projects that either remain on hold this year or in other cases, projects that positively contributed to the first half of 2022 has been terminated, and the main example is the Russian projects.
Now on the other hand, we see the glass are full or three quarters full as we are making a substantial progress on backlog-review projects, and this is a precondition to return to healthy margins on the business line. So for the full year 2023, we foresee a growth of revenues with a positive EBITDA margin, although in the low single-digit area.
Now, I'm moving to the P&L numbers. As already mentioned, we didn't have any special items in the first six months compared to roughly €20 million of special items in 2022 -- sorry, 2023 versus 2022. We are very pleased to report a positive net result of €40 million generated in Q2. As I said, it's the first positive quarter on net income level since late 2019 and the best quarter net income level since late 2017.
We already went through the EBITDA numbers. So I will spend a few words on what happened below the EBITDA. Net financial expenses were €87 million. This is higher than the first half of 2022, also decreasing from Q1 to Q2. We had €52 million of financial expenses in Q1 and down to €35 million in Q2.
We had a decrease in interest and fees because of the higher costs in 2022 related to the financing package and the capital increase, which have been more than offset, however, by the higher expenses on FX hedging. The positive results -- the equity investments gave a positive result this year compared to a negative result 12 months back. And this is consistent with the general trend of recovering margins on our portfolio.
Now moving to the net debt evolution. This is a chart with a lot of numbers. I think that all these numbers tell two stories. The first one is that net debt remained unchanged in the first six months of this year and the same happened comparing Q1 to Q2; more important than the overall evolution is that we had a positive net cash flow from operations. You see it in the first three blocks of the chart, by €142 million, driven by strong operational results and the reduction in the working capital.
Now in the chart for the benefit of clarity, we split the three components of the operating cash flow. The first one, you see it in is the first green block in the chart is the net result that was positive for €258 million. Then you have a positive contribution of €107 million, which is a reduction in working capital from ordinary projects, with ordinary projects I referred to the non-backlog review portfolio.
And the cash outflow of the backlog-review project that was €223 million in the first six months and this is the progress is reflecting the process that we're making in the execution of the legacy projects. So overall, the operating cash flow, excluding the backlog-review was €365 million in the first half, which, in our view, is a very encouraging result. In any case, even including the backlog-review effects, the operating cash flow was more than sufficient to sustain the CapEx made in the first half of this year.
So the last slide before I hand over to Sandro, and I'm referring to Page 13. This is the debt structure of the Group. Since the last results presentation in April, we had some positive news. This is two new facilities that we signed in February and entered into effect in June for a total of €860 million. That brought the total liquidity at the end of June to €3.4 billion. The two credit facilities were in €390 million term loan and €470 million revolving credit facility, which is currently undrawn.
If we give a look at the chart on the left side, the available cash grew from €1.45 billion at the end of March to €1.8 billion end of June, while the cash in joint ventures were substantially stable at €1.12 billion from €1.16 billion in March.
On the right side, you see the debt maturities. I guess the key message here is that our liquidity position is healthy and more than adequate to cover the debt maturities for at least the next two years and that the €500 million bond maturing in September will be repaid using the available cash, which will lead to a further improvement in the average debt tenure of the -- of our capital structure.
I will now hand over to Sandro for a few comments on the commercial and operational performance.
Alessandro Puliti
Thank you, Paolo. So now moving on the operational update. The order intake of 2023 year-to-date reached €7 billion, the bulk of which has been generated by the offshore market. In Asset-Based Services, we received quality new orders from national and international oil companies across all our core geographic area and business segments.
In drilling, we have recently acquired a 10-year contract extension for the jack-up Perro Negro 7 in Middle East, confirming the strong and long-term demand in this area. We have almost acquired 6-month contracts plus options for Scarabeo 9 in the Mediterranean and a two-year contract for the seven generation Drillship Santorini.
On energy carriers, which includes sustainable infrastructure, we have recently been awarded two additional railway project in Italy. Consistently with the strategic plan, the low zero carbon project intake stood at 10% of the total of the first half of the year, and it has increased further, considering the above-mentioned railway projects in Italy.
Regarding the prospect of the low-carbon business, let me also flag out the letter of intent we received for a large CO2 carbon capture plant to be installed and in existing bio-cogeneration facilities near Stockholm. The plant will be able to capture a 800,000 tons of carbon dioxide every year, and will be one of Europe's first large-scale facilities characterized by negative emissions. The letter allow us to proceed with the early engagement in engineering-related activities while the finalizing of the main terms of the EPC contract, we expect to be reached in Q3 2023.
Looking at the backlog, as you can see from Slide 16, we reached a record level of €25 billion, a 10% growth year-on-year. The increase is further confirmation of Saipem competitiveness as well as of the positive market cycle.
It is very clear our shift over the last 12 months towards the high-margin offshore segments fully in line with our strategy and ensuring the full utilization of our fleet of construction and drilling vessels. Our backlog is well diversified across geographies and covers a substantial share of the revenues we expect for 2024 and 2025.
And now let me give you an update on the offshore wind projects currently under execution. The majority of our offshore wind project has now been completed, namely, Saint-Brieuc, Fecamp, Formosa 2 and Seagreen.
At this stage, three projects remains to be completed. Dogger Bank in the U.K. is almost finished. Only one top side remains to be installed during the campaign planned for the spring 2024. In Scotland, the work on the foundation for the NNG project is progressing well with a strong acceleration in the second quarter. We will provide an in-depth view of the project progress in the next slide.
Lastly, the manufacturing of monopiles, Courseulles-sur-Mer in Normandy is at good stage in the view of the installation campaign, which is expected to start in late 2023.
Let's have now a closer look to the progress we made on NNG project. We had a significant acceleration of the execution, particularly in the second quarter. We have now done 52 out of 56 foundations for the jackets, drilling foundation and completing them with relative pile casing, almost finishing the riskiest part of our scope of work.
In addition, 37 jackets out of 56 have been installed, and the activity for the remaining 19 is progressing well. We have achieved a 94% overall progress, and our scope of the project is expected to be completed in December this year. Lastly, our client has recently started the installation of the wind turbine generators on the tripod foundation jackets that we delivered, as you can see from the pie chart in the slide.
And let's now have a look on what we see in terms of commercial pipeline for the next few quarters. The volume for near-term opportunity is now worth €53 billion, representing an 83% growth versus one year ago. This confirms that the market remains very strong and active with many opportunities to be addressed. Within this pool of opportunities around 60% -- 67% is offshore, currently with our commercial refocus towards the higher profitability segment. We are quite confident around the robustness of the government market up-cycle.
And in this regard, I would like to draw your attention to the long-term charter contract we have recently signed for a latest generation deepwater, heavy-lift and pipelay vessel that is named JDS 6000. The contract has a five-year duration plus two auction or one year each, and the vessel is scheduled for delivery in the second quarter of 2024. This is an important addition to our fleet of higher technology vessels and fully in line with our strategic plan, and it can be used to execute projects already acquired as well as an enabler for future opportunities.
And let's now turn to the final slide of the presentation. This slide concludes our presentation and summarize the main messages I would like to leave with you. Order intake and financial performance continue to be positive and well in line with the strategic plan targets backed by the restarting of an important investment cycle by our customers.
New awards are improving backlog portfolio quality, in line with the plan. In E&C Offshore, this is already visible in the financials as the average duration of the offshore contract is relatively short whilst the positive financial impact is yet to materialize on the onshore business as these projects have a much longer lead times.
Backlog-review projects are progressing according to plan and gradually exiting from our portfolio. Our volume of activity is growing, but we are maintaining a strict working capital discipline. Finally, all of the above leads us to confirm the guidance we gave in February, both in terms of 2023 financials as well as our longer-term business plan targets.
This concludes our presentation, and I will now turn to the operator to open the Q&A session.
Question-and-Answer Session
Operator
[Operator Instructions] The first question is from Guillaume Delaby with Societe Generale. Please go ahead.
Guillaume Delaby
Yes. I'm going to be a little bit greedy this morning for quick questions with quick answers. First, two for Paolo. Regarding Energy Carriers, you mentioned that Energy Carriers could be -- should show some positive EBITDA in the coming quarters of 2023. First, did I understand correctly? So this is my first question.
Paolo Calcagnini
I said that we expect a positive EBITDA for the full year and increased revenues year-on-year. Yes.
Guillaume Delaby
Okay. Second point, still for you, Paolo, please. You made €15 million on the investment. I guess this should not be replicable in the coming quarters. What is the outlook for investment revenues in the coming quarters? Because €15 million was a big number.
Paolo Calcagnini
Well, when we see investment is mostly joint ventures. So it's projects that we do with other partners, where we are not consolidating the numbers from an accounting perspective. So it's -- they have reported as results from equity investments. But in fact, it's projects where, for example, we have minority stakes.
So for the remaining of the year, we expect a positive result. And even though you're going to expect a huge number, it's going to be still positive, but -- you cannot expect to multiply that number by year, I don't know, 3, 4, it's going to be positive, higher than first half. But not a huge increase in the second half compared to the first one.
Guillaume Delaby
Thank you, Paolo. And two quick questions, maybe not as quick for Alessandro regarding your Sweden BECCS contract. Tell me, if I'm wrong or right, I think it's going to be the largest unit in the world, correct me? And second point, I would like to know what is the main competitor for BECCS carbon capture.
So I have in line, SLB, Microsoft, Chevron, maybe if you can give me one or two other names. And my last question very quickly. I just would like to know the JDS 6000 vessel, who are you chartering it from? And was it the old Petrofac...
Alessandro Puliti
Okay. So I will give you some color on this activity we just acquired in Sweden. So this is a bio-cogeneration project. And why because it is full with biofuels, and this is why it is bio. And this is the reason why capturing CO2 leads to negative emission. In terms of size of the plant, it is one of the most sizable plant in the world. It is not the biggest in the world in terms of capture -- carbon capture. But certainly, it is one of the highest capacity that will be installed in terms of carbon capture.
Competitors, there are -- our usual competitors, sometimes we compete directly with the provider of the technology. Sometimes, we do apply our own technology that we are -- that we can offer on the market. So I will say that our -- in this case, the competitors are the ones that we use to compete in our onshore activities.
So the last question is regarding the new lifting and installation vessel, JDS 6000. This is leased by ZPMC. And in this vehicle, yes, it's true that Petrofac has a minority stake in the vehicle that will leave this from -- to ourselves.
Guillaume Delaby
Okay. Thank you very much. I turn it over. Very useful.
Operator
The next question is from Alessandro Pozzi with Mediobanca. Please go ahead.
Alessandro Pozzi
I have a few questions. The first one on the offshore, let's say, offshore operations in terms of EBITDA, you will have more offshore drilling, more vessels in the second half compared to the first half. And also probably utilization rates as well in the offshore E&C. So I was wondering how we should think about the second half for the offshore activities compared to the first half?
And whether -- especially in offshore drilling, we will see higher average day rate on the back of new contracts that you have announced. Also remaining in the offshore drilling, I was wondering if there is any update on the -- any potential strategic partnership in offshore drilling, especially for the jack-ups there? And finally, the usual question on Mozambique, please, whether there is any update on the project?
Alessandro Puliti
Okay. So the first question, Paolo will answer, and then I will answer on the other question.
Paolo Calcagnini
So in the way -- Sandro, if you think about the offshore operations is -- a performance going forward closer to the second Q rather than the first Q, second Q has been already better in terms of revenues and margins. And this applies both to drilling and E&C Offshore. And yes, there is some increased capacity, especially in offshore that will positively contribute to the overall numbers for drilling.
Those vessels will enter into the fleet later this year. So you cannot expect a big contribution for 2023, but it's going to affect the 2024 for sure. In the E&C Offshore, we are working with the fleet at record level. Idleness is very -- remains very low. So the second quarter is a good proxy at least of -- in terms of level of activity of the pace at which we can deliver on Offshore E&C.
In relation to the margins, as I said before, the more new contracts enter into the execution phase, the more the margins will increase since the old projects will leave the portfolio and we'll replace by new ones that are typically higher margin than before.
And then just an additional information on the drilling fleet. We will have the Scarabeo now growing the five-year recertification in the second half. And this is just to give you the full picture of the vessels that are working versus not. Thank you. On Mozambique, I will leave the CEO to comment.
Alessandro Pozzi
Underlying all conference call is right after yours…
Alessandro Puliti
Excuse me? No, we didn't catch you...
Alessandro Pozzi
Yes. All Energy's conference call is right after yours...
Alessandro Puliti
Okay. So the -- regarding Mozambique, what I can tell you is that I personally visited the site last week. I was and I spent a day in Afungi, directly in the site. And what I couldn't see and record with on my eyes is that the relocation activity is almost completed and all the social sustainability activity that the Mozambique LNG joint venture is doing is really impressive.
The second point is that we are working with Mozambique LNG JV for coming to the right price for the restarts. This means that we have already had a very intensive round of renegotiation with our sub-contractors. And there is some tendering activities, again, with sub-contractors that is going on, and we expect to have results by the end of the summer of this new tendering activity. So, all in all, what we can say, we can say that it is work in progress in Mozambique and progressing in the right direction.
Alessandro Pozzi
Okay. So is it a full restart potentially still the start of next year? Or maybe it could be...
Alessandro Puliti
I cannot say a precise date, but what I can tell you is that the work that has been done, and I repeat what I said before, in terms of the social sustainability is impressive. And the work that we are doing in regarding coming to an acceptable cost for restart is progressing, and I will say it's progressing in the right direction.
Alessandro Pozzi
And just -- I had another question on the potential partnership in offshore drilling for the shallow water fleet. Is there any update there?
Alessandro Puliti
We are keeping evaluating possible partnership, you know that especially for the shallow water drilling fleet. As I said before, this is an area where we achieved a long-term contract order intakes that gives stability of revenues to this kind of business. So this business remains an ideal target for possible part of monetization of the -- of its value in the near term. So we are evaluating possibilities in this direction.
Operator
The next question is from Massimo Bonisoli with Equita. Please go ahead.
Massimo Bonisoli
On your question regarding -- and back to the question of Alessandro before -- if I understood correctly, your guidance implies a flat EBITDA versus second quarter of this year, while drilling should be improving in the second half. And as you mentioned before, Energy Carriers is expected to be positive in terms of EBITDA. So I struggle to reconcile the outlook, I mean, there should be a worsening of the offshore transaction. If you can provide some color on that, please.
Paolo Calcagnini
Well, if you're referring to drilling, we let Scarabeo 9 undergoing the cyclical maintenance. So this is a few weeks of -- a few weeks not charging any daily rate to clients, and even though in the same period that there are going to be other vessels entering into the fleet. And that explains why you can expect overall positive results but not the growth you might have in mind if you take the Q2 and then multiply the Q2 by four or by three and adding the results late in Q1, which is, I guess, the number you're referring to.
Massimo Bonisoli
Very clear. And the second question...
Alessandro Puliti
Let me add also that also the Saipem 7000 by towards the end of the year will enter into yard to complete the works to reestablish the full lifting capacity of the crane that was [indiscernible] in the incident last year. So just to complete the framework of the utilization of our vessel in the very end of the year.
Massimo Bonisoli
Very clear now. And the second question on the remaining backlog-review for the second half, considering that the first half was quite sizable?
Paolo Calcagnini
So as I understand your question is how much we expect to deliver on the backlog in the second half?
Massimo Bonisoli
Yes.
Paolo Calcagnini
We expect a similar number. But obviously, it depends on the number of conditions that are, to some extent, outside the Saipem control, first of all, weather conditions when we refer to the work in the offshore wind. This is to say that some works can be either anticipated or postponed based on the general conditions that we find when we work.
So it's -- it's not a liner activity where you progress a certain percentage every week. Sometimes you go faster, sometime you're going to be slower. The -- we expect to do a similar number. That's the expectation.
Massimo Bonisoli
Thank you again. Very clear.
Operator
The next question is from Richard Dawson with Berenberg. Please go ahead.
Richard Dawson
My first question relates to the Energy Carriers segment. I appreciate with a number of projects in there that are still running at those margins. But when can we expect those projects to no longer drive the performance for that segment? So to put a different way, when do you expect those projects to be complete?
And then secondly, my second question relates to the backlog. So last year, a significant backlog-review was undertaken. But has anything similar been undertaken since and or are you confident that project execution and margins within that backlog remain in line with your expectations? I know that is clearly positive, the offshore wind projects are completing according to plan, but what about the other projects?
Alessandro Puliti
Okay. So the cycle for completing project on the onshore, as you know, is far longer than the offshore projects. So while we will clear our backlog of offshore wind projects that were part of the backlog-review almost by year-end because then the remaining only one project to be executed at that point.
When we focus on Energy Carriers, then we have to consider that our typical cycle of the project in this area is for four to five years. So just one year enough has elapsed since we had the backlog review January in 2022. So we will have at least another 1.5 years ahead of us, prior weekly are all the backlog of the Energy Carriers of the project that were part of the backlog-review. This is something that we have to -- that we have to recognize. Then the second question was on the backlog.
Paolo Calcagnini
Yes. So if we understand the second question is whether we see risks of a new better review, is that correct? The quality of the audio was not perfect.
Richard Dawson
Yes, that's correct. It's just to see if project execution and margins within the current backlog sort of remain in line with your expectations?
Paolo Calcagnini
No. Actually, the fact that we are making so much revenues, especially in Energy Carriers, but also in wind and with margins that are very low, close to zero for Energy Carriers, but still in the positive area. In our view, it's a signal that while we deliver on those projects, there are no bad surprises when it comes to the overall cost.
So we see -- when I said that we see the glass half, full or three quarters full is I meant precisely that progressing on the portfolio, especially on the backlog review is the best way to derisk the overall portfolio, especially the backlog-reviewed projects. And the more we progress and the more we make revenues, the stronger the signal that the -- what we provisioned one year ago is sufficient to cover the full time -- full life cost of those projects.
Operator
The next question is from Peter Testa with One Investments. Please go ahead.
Peter Testa
I'll go one at a time. Maybe just a follow-on on the topic you just discussed. I was wondering if you could give us any sense on the cash flow side. The extent would you think the cash flow outflow on the zero-margin project should be in H2? And how much of the cash flow outlook is still left for 2024, please?
Paolo Calcagnini
Sure. So we made a €220 million of cash outflows in the Q1. The projection for the full year was just slightly above €400 million. So the remaining for the second half is roughly €200 million. That's the number you can have in mind. And for 2024, we expect still €100 million of cash outflows from the backlog-review. So it's €200 million this year, €100 million the next year.
Peter Testa
Okay. And then for the backlog or the value of the backlog that remains in this category for, say, Offshore E&C and Onshore E&C, can you give some sense as to the value you would expect a backlog to remain at the end of the year?
Paolo Calcagnini
Good question. I guess, I will need to give you the numbers after the call. There's not the -- the precise figures in front of me. So I apologize for not giving you the strict answer, but we'll get in touch after the call and share the numbers.
Peter Testa
That would be appreciated. And then the other question I had was looking at the activity in the Offshore E&C and looking at the listing essentially your largest vessels are winning contracts and business, which seems to be really the sweet spot.
And I was trying to understand, if you looked at the quality of backlog for these vessels, the extent to which '23 might be still not less, not so optimal, but whether that mix is substantially changing in '24 and '25 in terms of I'm thinking things like the FDS 2, Saipem 7000, Castorone, these are your core assets. And I was just wondering whether you could give some qualitative discussion on how the contracts you're active on now versus what you're winning is changing the nature of utilization for these assets?
Alessandro Puliti
Okay. Clearly, as we said before, the backlog is covering already almost more than, I would say, 75% of the capacity of our fleet in 2024. That is already booked. And we are almost 50% in 2025. And what I can share with you is that in the next week, you will see the [indiscernible] project will join our portfolio. So when we lap in the -- in 2024 is that we will have almost complete utilization of the fleet both in terms of installation and pipelay vessel, and I would say 100% of the fleet in terms of drilling.
And really, the addition of the JDS 6000, really, is the physical proof of the fact that we couldn't complete all the jobs for our client with existing fleet, but we took JDS 6000 to serve all the demand from our clients. So this is the situation where we are in.
Clearly, there is a tension. So basically, when JDS will exit from the yard, they will go straight, for example, to serve a lot of project in Brazil. So that's the -- that's really the situation. Clearly, also, we expect an increase of marginality of this project as an effect of the increase of the balance between offer and demand in the market.
Peter Testa
And that leads to my last question was if you could give some sort of sense, having learned the lessons of the past years and being in a different market. Any sort of sense as you can give in terms of how you've managed to evolve contract terms to manage risk?
Alessandro Puliti
Okay. So I believe that you are referring to the wind -- especially to the wind project. Certainly, the lesson was very much learned, not only by Saipem, but I would say, by the entire supply chain of the wind projects.
So the coming new projects that will certainly have a better balance out between risk reward between the developers and the supply chain and simply because what happened to Saipem, but what happened also to many other important suppliers in the supply chain is that what it has been awarded in 2019, 2020 and partially also 2021 [ph] was not sustainable by the supply chain. So definitely, there is a rebalancing.
Regarding the other contracts, we are doing -- we are applying a different strategy that protects, that's our Saipem by the complexity of the world in which we are in. So we have much more reimbursable items in the new contracts we are taking. We introduced escalation price closes, especially for all commodities.
These two protect us in situation like we experienced just after the Ukrainian war, the cost increase in escalation. And then we have a general policy that we would like to go to enter MPC activities basically only if we have been doing front-end engineering exercise ourselves, that this is what is giving the EPC contractor the right protection against any surprise and engineering default if done by others than not ourselves.
Peter Testa
And would you say that those comments you made on reimbursable escalation, is that to also include -- or apply to the Energy Carriers Contracts?
Alessandro Puliti
Definitely, definitely, that we apply to new contracts for Energy Carriers. This is a general policy, even more for Energy Carriers because duration, as I said, before, typical duration, our contract in Energy Carriers is longer than in the offshore business. So these closures are even more needed in the Energy Carriers business.
Paolo Calcagnini
Just to add an information you asked for in terms of weight of backlog-review projects on over the total of the backlog, the number is roughly €3 billion. So we still have €3 billion of backlog reviewed projects out of the €25.4 billion, which is the total backlog on absolute.
Peter Testa
And that's primarily in Energy Carriers and execution in '24, '25?
Paolo Calcagnini
Yes. It's mostly in Energy Carriers and there's more piece in asset-based, mostly wind.
Operator
The next question is from Kevin Roger with Kepler Cheuvreux. Please go ahead.
Kevin Roger
Yes. It's coming back on the Energy Carriers, please. If I remember, in Q1, you were saying that 40% of the top line was made by the nonperforming backlog. So I was wondering if you can give us the color for the Q2. And then if you can help me to understand the performance, because I understand that you are still impacted by the nonperforming backlog.
So I would like to understand, first of all, is the nonperforming backlog with a 0% EBITDA margin or less than that? And then if it's at zero, can you help me understand why the 60-plus percent backlog related to new orders is not generating more than 0.5% or 1% EBITDA margin because you are still close to breakeven. So it's trying to understand the dynamic around the weight of the nonperforming. Is it 0% or less than that and the margin of the new backlog?
And then just a technical question to understand the backlog coverage that you have for next year in Energy Carriers. This is lower at the end of Q2 than at the end of Q1? So is it related to Mozambique? Or what has been the dynamic also on the lower backlog rate for next year, please?
Paolo Calcagnini
So the first question on the relative weight of zero-margin projects on the Energy Carriers, it was 40% in Q1, the figure is not different in Q2. It's just slightly -- slightly lower. And then, yes, you're correct. The remainder of the portfolio is still a low-margin portfolio, if you run the numbers, the remaining portfolio has a single-digit -- low single-digit overall EBITDA margin. And then...
Alessandro Puliti
So just if I may, it means that the nonperforming net zero and the performing is that non -- something like that.
Paolo Calcagnini
Yes, roughly.
Kevin Roger
Okay. Understood. And maybe for the backlog coverage next year, please?
Paolo Calcagnini
On the -- well, yes, the coverage for 2024 for Energy Carriers is a bit lower than it was in Q1. The reason being that we have been as -- we said quite a few times, very selective in the new acquisitions. And because we feel that acquiring -- well, we are following a very simple, even trivial rule, which is value over volumes.
We want to acquire projects whereby we can increase that very limited margin that we are doing today. And obviously, by being more selective, the volume of acquisitions is lower than in the past few years, but it's consistent with the strategy we're following in Energy Carriers.
Kevin Roger
Okay. Understood.
Operator
The next question is from Daniel Thomson with BNP Paribas Exane. Please go ahead.
Daniel Thomson
Just one quick question on offshore drilling and related to the sort of escalation mechanisms we were talking about earlier. I mean, could you provide some color on the frequency of rate reviews within the longer-term contracts in offshore drilling.
How frequent are these usually? And does -- do the rates get fully rebased to current market conditions? Or is there some sort of lag or index there? Just trying to gauge how exposed the -- rather fully booked portfolio is to the increasing day rate environment in offshore drilling?
Alessandro Puliti
Okay. So offshore drilling, you see nowadays is, it is characterized by heavy demand and a demand that many clients want to -- would like to cover by signing long-term contracts to secure the drilling activity for long terms. This clearly give us a good advantage because it gives security of revenues and income from activity.
But as you said, it exposed to some risk in case for whatever reason the rate that we are fixing today that they can become lower than the market in the future. Normally, in these contracts, we are running with fixed rates, the first year of the contract and then we keep an option to reopen negotiations according to prevailing market conditions. So this is the way we ensure those long-term contracts are following the market -- the current market trends.
And before we said that we got a 10-year contract on the shallow water drilling. But I would like to mention also the fact that we are currently under a negotiation with a client that we cannot disclose; long-term contracts also for the deep water activities. This means that really there is -- and when I say long-term contracts, we are speaking about five years plus contracts in the quarter activity. That this means really that nowadays where operators are looking basically for securing drilling capacity in the future years also for the quarter.
Daniel Thomson
Okay. That's helpful.
Operator
[Operator Instructions] Mr. Puliti, there are no more questions registered at this time. I'd like to turn the conference back to you for the closing remarks.
Alessandro Puliti
Okay. So we can close here the conference call. Thank you for all the participants. And remain in touch, in case there are further questions, our Investor Relations function will be happy to . Thank you all.
Operator
Ladies and gentlemen, the conference is now over. Thank you for joining. You may disconnect your telephones.
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Saipem SpA (SAPMF) Q2 2023 Earnings Call Transcript