Profitability

Accounting treatment of projects under construction

As stated, Directional reporting differs from IFRS. Under IFRS, the construction of FPSO ONE GUYANA and finalized EPC works on FPSO Prosperity contributed to both Turnkey revenue and gross margin over the period. This is because these contracts are classified as finance leases as per IFRS 16 and are therefore accounted for as a direct sale under IFRS.

The same treatment applied to the construction of FPSO Almirante Tamandaré, FPSO Alexandre de Gusmão and FPSO Sepetiba, which fully contributed to both Turnkey revenue and gross margin over the period, given these contracts are classified as finance leases. Under Directional, the contribution to Turnkey revenue and gross margin for these projects is limited to the portion of the sale to partners in the special purpose entity owning the units (i.e. respectively 35.5%, 45% and 45%).

With regards to the FPSO for the Whiptail development project and expected award of construction and installation agreements (subject to necessary government approvals and final work order to be received from the client), these align with Directional. As such, the full revenue and margin will be recognized during the construction period as the FPSO’s ownership is expected to be transferred to the client at the end of the construction period and before start of operations in Guyana. It will be recognized as a construction contract falling in the scope of IFRS 15.

Finally, contrary to Directional, the FPSO Liza Unity sale did not contribute to revenue and margin in the current year as finance lease arrangements are treated as direct sales under IFRS and therefore revenue and margin are recognized over time during the construction period for the present value of the future lease payments, which include the contractual sale price.

Revenue

Total revenue increased by 1% to US$4,963 million compared with US$4,913 million in 2022.

This increase has driven the Lease and Operate segment. Lease and Operate revenue increased by 11% to US$1,563 million, compared with US$1,414 million in the year-ago period. This reflects mainly the following events: (i) FPSO Prosperity joining the fleet upon successful delivery of the EPCI project during the last quarter of 2023 and (ii) an increase in reimbursable scopes and an improved performance of the fleet, partially offset by (iii) FPSO Capixaba, which finished production in 2022 (no contribution to revenue in 2023, in the decommissioning phase), (iv) the remeasurement of future demobilization costs in finance lease contracts leading to the recognition of a reduction of revenue, for the present value of the change and (v) a regular declining profile of interest revenue from finance leases.

Turnkey revenue decreased by 3% to US$3,400 million, compared with US$3,499 million in the year-ago period, mainly explained by (i) the completion of the FPSO Liza Unity project during the first quarter of 2022, (ii) a reduced level of progress on FPSO Almirante Tamandaré and FPSO Alexandre de Gusmão during 2023 compared to the prior-year period, consistent with the commencement of topsides integration, and (iii) reduced level of activity on FPSO Prosperity, which was in a preparation phase for its first oil in November 2023. This was partially offset by (iv) the higher level of activity on FPSO ONE GUYANA during the period and the start of FPSO FEED work for the Whiptail development project and (v) additional variation orders on FPSO Prosperity (including the variation orders for the compensation of costs incurred by the Company after topside readiness, before the commencement of the charter at first-oil).

EBITDA

EBITDA based on IFRS accounting policies amounted to US$1,239 million, representing a 2% increase compared with US$1,209 million in the year-ago period.

• Turnkey EBITDA increased to US$646 million in the current year, compared with US$569 million, as a result of (i) the successful close-out of the construction activities of FPSO Prosperity, delivered over the last quarter of 2023 and (ii) increase in margin contribution from FPSO ONE GUYANA, given that the project only reached the requisite ’stage of completion’ to allow margin recognition at the very end of 2022. These positive impacts were partially offset by the same elements impacting the decrease in IFRS Turnkey revenue.
• The Turnkey EBITDA margin was at a robust level of 19% of Turnkey revenue, despite some impacts from macro-environment and associated inflation impacts.
• Lease and Operate EBITDA for the current period decreased by 3% to US$695 million versus US$719 million in the same period prior year. The positive impact from the same drivers as the increase in IFRS Lease and Operate Revenue was offset by additional non-recurring maintenance costs for the fleet under operation and the comparative impact of a number of prior-period positive one-offs, including some insurance recoveries. In relation to FPSO Cidade de Anchieta, repair costs of the asset incurred in 2023 did not impact the Lease and Operate EBITDA as they met the criteria of capitalization under IAS 16 and therefore have been recognized as an increase in the property, plant and equipment value of FPSO Cidade de Anchieta.

The other non-allocated costs charged to EBITDA amounted to US$(101) million in 2023, a US$(21) million increase, compared with the US$(80) million in the year-ago period, which is mainly explained by the implementation of an optimization plan related to the Company’s support functions’ activities (including US$11 million of restructuring costs), and continuing investment in the Company’s digital initiatives.

EBITDA is reconciled to the consolidated income statement as follows:

Net income

Depreciation, amortization and impairment decreased by US$95 million year-on-year, primarily due to: (i) the US$92 million FPSO Cidade de Anchieta impairment booked in the prior year, following the shutdown of the vessel and the capitalization of associated tank repair costs (refer to section 4.3.13 Property Plant and equipment) and (ii) FPSO Capixaba, which finished production in 2022.

Net financing costs totalled US$(575) million in 2023, compared with US$(373) million in the year-ago period, an increase of 54% compared with the prior year period, mostly explained by (i) increased project financing to fund continued investment in growth of the five FPSOs under construction during the period, (ii) additional interest expense on FPSO Liza Destiny and FPSO Liza Unity project loans and (iii) interest on the US$125 million funding loan agreement secured in 2023 with CMFL in relation to FPSO Cidade de Ilhabela, in line with the Company aim to diversify its sources of debt and equity funding and to accelerate equity cash flow from the backlog, partially offset by (iv) the scheduled amortization of project loans.

The effective tax rate over 2023 decreased to (4)%, compared with 16% for the prior year period. The decrease is primarily driven in 2023 by the recognition of a deferred tax asset on a tax goodwill in Switzerland (absent this deferred tax asset, the effective tax rate would stand at 20%).

As a result, 2023 consolidated net income attributable to shareholders stood at US$491million, an increase of US$41 million from the previous year.