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Operator: Good day, and thank you for standing by. Welcome to the Subsea 7 Q3 2025 Results Conference Call. [Operator Instructions]. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Katherine Tonks. Please go ahead.
Katherine Tonks: Welcome, everyone. Thank you for joining us. With me on the call today are John Evans, our CEO; Mark Foley, our CFO; and Stuart Fitzgerald, CEO of Seaway 7. The results press release is available to download on our website, along with the slides that we'll be using during today's call. Please note that some of the information discussed on the call today will include forward-looking statements that reflect our current views. These statements involve risks and uncertainties that may cause actual results or trends to differ materially from our forecast. For more information, please refer to the risk factors discussed in our annual report or in today's quarterly press release. I'll now turn it over to John.
John Evans: Thank you, Katherine, and good afternoon, everyone. I will start with a summary of the quarter before passing over to Mark for more details of the financial results. Turning to Slide 3. Subsea 7 delivered third quarter adjusted EBITDA of $407 million, representing 27% growth year-on-year, and a margin of 22%. The increase in our profitability reflects strong project execution as well as the continued high-grading of our backlog. As Mark will discuss, we now expect to exceed our prior guidance for 2025 and to deliver continued momentum into 2026. Order intake was high in the quarter, at $3.8 billion, resulting in a book-to-bill of 2.1x for the quarter and 1.4x for the first 9 months of the year. Our backlog reached a record high, close to $14 billion. Slide 4 shows the backlogs of both Subsea and Conventional and Renewables, which continue to increase in quality as we completed work won before 2022 and shift our focus to contracts with more favorable terms. We have a combined backlog for execution in 2026 of $6 billion, giving us over 80% visibility on next year's revenue. And now I'll pass over to Mark to run through the financial results.
Mark Foley: Thank you, John, and good afternoon, everyone. I'll provide selective commentary on group, Subsea and Conventional and Renewables' financial performance in the third quarter before turning to the cash flow and financial guidance for 2025 and 2026. Slide 5 summarizes the group's revenue and adjusted EBITDA results for the third quarter, set in the context of recent quarterly performance. In the third quarter, revenue was $1.8 billion, in line with the high levels reported in the same quarter of the prior year. Adjusted EBITDA of $407 million, increased by 27% compared with the prior year period. And margin expanded by 460 basis points, to 22%. Net income was $109 million following depreciation and amortization of $175 million, net foreign exchange losses of $38 million, which were driven by noncash embedded derivatives. Net finance costs of $12 million. And taxation of $73 million. I'll cover the salient points concerning business unit performance in the next few slides. Slide 6 presents the key metrics for Subsea and Conventional. Revenue in the third quarter was $1.5 billion, representing growth of 6% year-on-year as high activity levels continued in Brazil, Türkiye and Norway. Adjusted EBITDA was $368 million, equating to a margin of 24%, an increase of 680 basis points from the same quarter last year. The margin improvement was underpinned by strong execution performance and high vessel utilization as well as the continued rebalancing of our portfolio towards projects with improved risk and reward characteristics. The results of Subsea and Conventional include an $11 million net income contribution from OneSubsea, in line with our expectations. Net operating income was $228 million, nearly 80% higher than the prior year period, equating to a net operating income margin of 15.1%. Selected Renewables performance metrics are shown on Slide 7. Revenue in the third quarter was $302 million, a reduction of 19% when compared with the high levels reported in the prior year period, which were driven by elevated activity in Taiwan, while in line with the second quarter of 2025. Activity progressed during the quarter at Dogger Bank C and East Anglia THREE in the U.K and at Revolution in the U.S. after a delayed start. Adjusted EBITDA was $52 million, equating to a margin of 17%, up 70 basis points from the same quarter last year. Net operating income was $21 million, representing a margin of 7%. Slide 8 shows the cash bridge for the third quarter. Net cash generated from operating activities was $283 million, which included an expected unfavorable movement in working capital of $82 million. Capital expenditure was $47 million, mainly associated with maintenance on vessels and equipment. Net cash used in financing activities was $123 million, which included lease payments of $79 million. At the end of the quarter, cash and cash equivalents increased by $132 million, to $546 million. Net debt was $505 million, including lease liabilities of $421 million, equating to a modest net debt to last 12 months adjusted EBITDA of 0.4x. The group had liquidity of $1.1 billion on the 30th of September. On the 6th of November, the company paid the second and last of its SEK 6.5 per share dividends to shareholders. Shareholders' returns this year represented solely by dividends amounted to approximately $376 million. To conclude the financials, we turn to Slide 7 -- sorry, Slide 9. We have refined certain guidance metrics for 2025. I will highlight the following favorable notable revisions. The upper and lower ends of revenue guidance have been narrowed by $100 million as we now expect revenue to be between $6.9 billion and $7.1 billion in the full year 2025. Given strong results in the first 9 months of the year, combined with high visibility and confidence in our execution performance, we have increased our guidance for adjusted EBITDA margin in 2025 to be between 20% and 21% from between 18% to 20%. We have also reduced our guidance for capital expenditure to a range from $300 million to $320 million. This reflects our continued focus on capital discipline as well as a rephasing of some cash capital expenditure from this year into 2026. Today, as is customary for Subsea 7 at the third quarter, we introduced initial guidance for next year. In 2026, we expect the group to continue to deliver growth in revenue and adjusted EBITDA. We anticipate revenue to be within a range from $7 billion to $7.4 billion with an adjusted EBITDA margin of approximately 22%. Capital expenditure is forecast to be between $350 million and $380 million, which includes rephasing of some capital expenditure from 2025, as mentioned some moments ago. Our confidence in this guidance is underpinned by the quality of our backlog which gives us over 80% visibility on revenue as well as the continued high tendering activity and the attractiveness of the prospects pipeline. I will now pass you back to John.
John Evans: Thank you, Mark. On the next 2 slides, we have a couple of highlights from our portfolio of technology-led solutions. On Slide 10, we'll take a look at 4insights, developed by our 4Subsea business in Norway. 4insight is software that combines real-time data from vessels and weather feeds and uses advanced algorithms to automate operating decisions on board. The result is an extension of the windows of operability of our vessels and increased performance in project delivery through a reduction in the cost and schedule risks associated with waiting on weather. By automating the decision-making process, 4insight also enhances collaboration between marine and project crews and maximizes the efficiency of our operations. The software has been rolled out across part of our fleet and has received excellent feedback from our offshore and onshore teams. In 2025 to date, it has added 35 days of operation to Seven Vega, an uplift of over 10% compared to our standard planning assumptions. Our second highlight slide focuses on our unique bundle pipeline technology. Last quarter, we touched on this when we discussed our activity at Yggdrasil in Norway, which included the launch of a large bundle during the summer. By combining active heating, flow lines and the control systems into one towable bundle, we reduce the complexity of the Subsea architecture and offer a cost-effective alternative to traditional models. The solution requires the use of our proprietary lining as well as highly specialized welding from our team in Wick in Scotland. Subsea 7 is the only contractor with a proven track record of delivering production system bundles with over 90 installations to date. Repeat orders from clients, including Aker BP, BP, Chevron, Equinor and Shell, are a testament to the success of this unique solution and more broadly to the innovative solutions offered by Subsea 7's advanced engineering and fabrication capabilities. Now on to a review of our prospects on Slide 12 and 13. In Subsea, tendering activities remain high across our key regions with a combined prospect value of around $21 billion. Most of the projects on this map are long-cycle deepwater developments with favorable economics. Many carry strategic significance to both the operators and their host nations. They will be sanctioned based on a view of commodity prices beyond the next 5 years, sheltering them from the change in spot price of oil and gas. Overall, we are confident in the long-term outlook of our Subsea business with demand for our technology-led solutions expected to remain at high levels. On next slide, we have a summary of the fixed offshore wind projects that could bid in the U.K.'s Allocation Round 7, AR7. Whilst the maximum strike price of GBP 113 per megawatt hour was well received, the recently announced budget for AR7 was lower than hopeful by the industry. As I said last quarter, the U.K. is the largest single market in global offshore wind sector outside China. And with a number of other markets showing slower-than-anticipated growth, the ultimate outcome of the AR7 process will be a key driver for the medium-term momentum in the industry. Subsea 7 continues to support a number of key clients to optimize the AR7 developments whilst remaining selective in the contracts we pursue to safeguard our future profitability. To conclude, we'll turn to our final slide on Page 14. Subsea 7 finished the third quarter of 2025 with a record backlog of firm orders valued at nearly $14 billion. We've increased our guidance for 2025 and our guidance for continued growth in 2026 demonstrates our confidence in the outlook. Looking further ahead, we have a high conviction in the resilience of deepwater Subsea market and combined with a differentiated offering and a strong track record of delivery, this positions Subsea 7 for success. And with that, we'll be happy to take your questions.
Operator: [Operator Instructions] We will take our first question, and the question comes from the line of Sebastian Erskine from Rothschild & Co Redburn.
Sebastian Erskine: Congratulations on the results today and great to see the backlog at a record level. I'd like to just follow up on the Renewables business. So I guess we can expect a seasonal uplift in Renewables margins in 4Q, which is consistent with the new guide. But how should we think about the original kind of 14% to 16% EBITDA margin guidance into '26? And I guess linked to this, I mean, you mentioned it in the prepared remarks, but could you provide an update on the time lines associated with Allocation Round 7 as there appears to be some stalling progress? So yes, it would be great to get your thinking on that.
John Evans: I'll ask Stuart to answer both those questions, please.
Stuart Fitzgerald: Yes. So I can answer on the guidance first. So we're maintaining that guidance going forward into 2026. Also, worthwhile to comment about backlog position in terms of visibility through '26 and into '27 is particularly strong. Then on to the Allocation Round 7. So submissions from the developers in terms of the different projects that they put into the allocation round has been happening over the last week. So that milestone is essentially complete as we understand it, and the results of that to be announced around mid-January. So the next key milestone in the time line here is a mid-January announcement of outcomes. But the submissions to the best of our knowledge, are now made.
Sebastian Erskine: Appreciate that, Stuart. And just if I can put another question, and I appreciate -- difficult one on the merger. We've seen the admission of kind of several interested third parties into the Brazilian antitrust process. Can you give us an update on that process and when we might expect to hear some ruling from CADE, if you're able to shed any light on that? And any other updates on the kind of geographies that you're submitting to, that would be helpful.
John Evans: Yes, I'll take those. As we've said many times on these calls, we won't be giving a sort of blow-by-blow account here, but let's stand back. When we announced the merger, initially with the signing of the MoU at the end of February, we targeted the second half of 2026, full completion. The CADE process is following the steps that we had expected it to follow. We make our submissions. Interested parties then identify themselves as interested parties. There is also a wider market consultation, including suppliers, our peers and our clients, and that process is underway. We will then have an opportunity to discuss with CADE our responses to the different topics that are raised. And then CADE will go into their review process next year. So we continue to believe that the time line for the merger and the critical path is through CADE and Brazil, should allow us to complete by the second half of 2026.
Operator: We will take our next question. The next question comes from the line of Victoria McCulloch from RBC.
Victoria McCulloch: Starting as well on Renewables. Can you just talk about the contribution for 2026? I appreciate you don't give it specifically, but on the basis of Stuart's commentary, should we then see the driver for the growth coming from the Subsea and Conventional business? And then, John, maybe a bit sort of larger sort of picture -- views. Can you give us a bit of color about how you've seen the tendering pipeline and engagement with your customers over the last 3 months? It remains a fairly unpredictable macro environment, but it would be interesting to hear the conversations you're having with the engagement you have with customers.
John Evans: Yes. Just to take the Renewables, Stuart was clear that we are comfortable with a guidance range of 14% to 16% EBITDA in Renewables in 2026. And as he says, he has a high coverage of work already on the books. So again, I don't think we will give any further information on that, Victoria, but we're comfortable that we have a good position in Renewables in '26, and as Stuart alluded to, also going into 2027. So for us, it's more about what it is in '28 and '29, and AR7 will be part of understanding that in the first quarter of next year. Coming to client interactions, I was down in Brazil at Rio OTC about 3 weeks ago. We've had a number of client discussions, which, as you'd expect, continue. We're seeing very little change in our clients' views. They are clear that they've got a number of large Subsea projects out there for bid or to be bid. The dialogue is all around timing of their bids, timing of their projects, what early commitments do they need to make, vessels availability. It's the traditional questions that we get in a busy market, Victoria. In Brazil, discussions with Petrobras. We expect to see the Petrobras' 5-year plan, announced in the next week or so, continued focus on Subsea projects being the main engine and the main driver for Petrobras. So their conversations are clear. A lot of other clients are about some big opportunities that they see. We're bidding work in Namibia. We're bidding work in Mozambique. And these were countries that weren't on our radar screen a couple of years ago. And down in Türkiye, in the first week in December. And again, that's about our ships are going in to do Phase 2. As you're aware, we picked up Phase 3, but there are other phases of Sakarya to come as well. And we continue to work with Equinor as planned on the developments of Wisting and Bay du Nord. The 2 big developments, one in the north of Norway, one in Canada. And they're quietly going on exactly as we had planned with Equinor that we'd be working with them, looking at multiple different scenarios. So long story short, we're not seeing a real change. And the other thing that we touched on in the last quarter was the pleasant surprise to see a number of new projects coming into Norway. The project with ConocoPhillips, which we expect to get sanctioned here at the end of the year. So there are very creative projects out there with a number of clients, and we remain confident. The only geography where that is not the case is the U.K., but I think everybody is clear that unless something changes in next month's budget, probably the U.K. is a bit out of sorts with the rest of the world.
Victoria McCulloch: And maybe just a follow-up on that is, it was interesting to hear, obviously, you've shown us a lots about the pipeline bundles that you've done for Yggdrasil, for Aker BP and how that's optimizing the CapEx and OpEx for your customer. I guess, how much, I guess, new ideas in AI are customers looking for and sort of new wins from that? Because I guess, AI is such a massive theme globally, but how much of that is part of conversations in terms of they're trying to get economics better because of AI?
John Evans: Yes. Our clients are always interested. Yggdrasil is an interesting example that we're using every single technology Subsea 7 has got, that huge greenfield development. We've got bundles in there. We've got traditional relay in there. We've got heated pipelines. We've got cool pipelines in the system. We've got everything in there. So that's why the customers come to us, is that we have a full toolkit, a full technology capability. If we come on to 4insight. 4insight is a form of AI technology that uses real-time data, analyzes huge volumes of data to give our offshore crews clarity as to what's going to happen in the next 24 hours and how they should think about whether we continue into the good weather, or do we stop, do we start and such like. Historically, that's all been done in a very static mode. Before we go offshore, we plan different scenarios. We take the scenarios out there. We have a book which tells us what we can and can't do. And if we're inside the parameters, we can work if we're outside the parameters. What 4insight has been is, say, let's take the actual parameters we got here and the actual parameters forecast and what you've had in the last 24 hours and exactly which way the weather is hitting the ship directionally and such like and can we continue pipeline. And again, as I said in my prepared remarks, we are finding some significant improvements. So it's a combination of the portfolio of technologies we've got, a real productivity to also just challenge the norms. We're also doing quite a bit of work with some of the regulators and some of the certifying authorities on how we run our DP vessels. dynamic position, rules were written in the 1980s when fuel was free. Nobody worried about emissions. And therefore, today, we are now finding different ways to run these ships, but we need the codes to change to do that. That allows us to improve our fuel efficiency, which our clients pay for, also reduces our emissions, but we need the codes to change to reflect that what was good in the '80s doesn't necessarily have to follow in the 2025 that we're in. So there's a lot of great things happening, Victoria, a lot of great engagement with our clients and with it, with every client on those type of technologies. So it's a good place that the industry is in. And as we know, deepwater subsea is one of the lowest cost per barrels lifted of any form of oil or gas out there. So I think we're in the right place at the right time.
Operator: We will take our next question, and the question comes from the line of Kevin Roger from Kepler Cheuvreux.
Kevin Roger: The first one is maybe in 2 way because when I look at the backlog execution for 2026, you are telling us that roughly your visibility is up by 13%, but the top line guidance imply only 3% growth in '26 versus '25. So can you give us a bit of color on that why the backlog for execution is up 13%, but the top line guidance is up by 3%? Is it related to the fleet utilization rate that is at the end already fully booked? Just to understand the rationale around the top line. And the second one, John, you roughly mentioned it, big project from Equinor for 2026. There has been some noise notably this morning saying that Equinor is currently hitting the market for fabrication tools. So just to understand on your side, would it be a kind of full scope, or then it will be phase by phase, meaning that for '26, it will be more than $1 billion as you have identified the projects in the pipeline or a smaller phase because that's going to be done in different phases?
John Evans: Yes. The backlog in 2026, I guess, which just reflects the fact that we're in a very busy market, and clients have committed to us earlier. We have a finite capacity, which is why the revenue doesn't grow as much. We would expect, of course, next year to have 100% backlog by the end of the year. So it's more of a timing question, Kevin. A lot of our clients have engaged with us early, and that's been going for a number of years now, making commitments to make sure that they have capacity available as they go into '26 and '27. So it's just a timing disconnect more than anything, not a fundamental issue. This quarter, we're running at 87% utilization. We're getting towards the highest end of what we can do, and we've discussed that a number of times on this call. The key to us is post-merger is to reduce the amount of transits between projects and such like. That's one of the real attractions for a number of our clients, is that there are more days available if you don't move these assets around. But at the moment, we've got the fleet that we've got. We know very well where they're going to be placed next year. So I don't see it as a disconnect. The revenue will be the revenue in the range that we've given. And the backlog is just higher than we would normally expect. But equally, in my memory, when the market gets busy, people secure their assets earlier. Taking your second question, Bay du Nord is a project that for us is done seasonally over multiple seasons, and we won't be offshore until later on this decade, and that's always been the case. And because of the weather conditions out there, we can do about 100 days per year. So it's a multiyear project. And next year, we'll continue to be in this work mode that we're in, which is working with Equinor on the field layouts and allowing them to go through their different decision gates, DG2 and DG3 that they need to go through. So for us, Bay du Nord has continued working with them in the mode that we've been in for a couple of years. And so they will make their key decisions, I suspect, in '27 when they have all their information about their fabrication, their local content as well as the SURF packages. What I would say, I think there's been good work between the SIA and Equinor over a couple of years, and there's been some very interesting thinking about how to phase the project and how it comes together. So coming back to your initial question, Kevin, it was always a phased project because the weather conditions out there and the remoteness of that part of the Atlantic offshore, Canada means that you have to do 100-day slots per year out there. And it's just how you sequence it and how you develop the wells and the reservoir that goes with it is the key to probably unlocking the economics in that field.
Operator: Your next question comes from the line of Guilherme Levy from Morgan Stanley.
Guilherme Levy: First one, thinking about your guidance, how much would you say the lower figure this year is driven by activity that might have been -- might have slipped into 2026? And if you can perhaps share with us what sort of activity that is? And then thinking about 2026, is this a reasonable level for us to think about your capital needs over the long term? Or is there any nonrecurring factor in the 2026 figures that we have? And then second one, thinking about Brazil. Earlier this year, there was a headline saying that Petrobras was keen to do a long-term lease of a vessel to do the installation of rigid pipes in the [ Pre-Salt ] itself. Do you feel like this is a live discussion? Are they actively looking to do that? Or do you feel like that was just a headline that didn't really evolve over the course of the year?
John Evans: I guess the question -- the first question asking about the sort of guidance between this year and next year on revenue and such like. You're very familiar with our projects. They work on a percentage of completeness at the end of -- completion at the end of each year. It varies big projects, a couple of percentage have quite a large influence on dollars. There's nothing to be concerned about. It's just how the different sequences of our projects are coming into play. In terms of 2026, as I answered Kevin previously, we're reasonably clear on how it will fit together. We've given you a range of revenues that we are comfortable with giving the market here, a high level of visibility as to how that fits and even the work that isn't in the backlog yet, we're pretty clear in our minds how that will sort of come together. And of course, as we've done consistently, if things change, we will give the market an update on each quarter as we see changes. Lastly, Petrobras are talking to the market about potentially the long-term lease of a rigid pipelay ship. Interesting enough, we had a contract many years ago, in 2012 to 2017, to do exactly the same, which was called hybrid steel, which was a contract that Subsea 7 had with Petrobras. So I'm old enough to know what those looks like, and we've done it before. Again, when Petrobras comes to the market, we will respond, and we'd be interested in that. But you just need to remember that the time scale is probably 4 or 5 major projects that need a pipelay each. So again, if they go down this path -- and I do understand. We've been speaking to them. This is about the timing of the arrivals of the FPSO, and the challenges of how you run different projects with different time scales with different arrivals of FPSOs. So maybe the hangoffs of the riser with a vessel more akin to a PLSV, which is more of a day rate contract where they can control it that way. So I understand fully the logic. It makes a lot of sense, and we will certainly be interested in the opportunity set should that come to the market next year.
Guilherme Levy: The first one, sorry, I was actually just referring to your new CapEx guidance. So yes, just thinking about your 2026 CapEx guidance, is there any reason why 2027 should be materially different from that?
Mark Foley: It really is a function of the vessels that have to go through their obligatory dry docking. So as you know, depending on where they are in the cycle, our CapEx increases and decreases. The majority of our CapEx is directed towards vessels and equipment. So I think we provided updated guidance for this year, slightly lower, driven by really strict capital discipline within the organization as well as a late phasing, a displacement of certain cash, capital expenditure into 2026 and then an amount that we've guided to for next year. So again, it will vary year-on-year depending upon the requirements of the vessels as well as the opportunities that we see in terms of growth, capital expenditure around minor modifications, around supplementary additions to equipment, et cetera. So hopefully, that provides some additional color.
Operator: Your next question comes from the line of Alejandra Magana from JPMorgan.
Alejandra Magana: On your SURF and Conventional margin strength, can you give us a sense of how much of the uplift reflects execution outperformance versus the roll-off of older, lower-margin projects? And how much reflects structurally better commercial terms or pricing power on more recent awards? And as the 2026 backlog converts, how do these contracts differ commercially from the ones you've executed this year?
John Evans: Okay. I won't go into the margin mix. As I said in my prepared remarks, it's a bit of everything. We are taking less projects, taken before 2022 into the portfolio this year, and there are none of those as we get into next year. As we discussed very openly on this market, each project is bid individually and therefore, then there is a mixture of margins in each of the different projects. Sometimes some projects suit us because the availability of equipment, timing and clients' decision-making, potential delays in other projects. So again, there's quite a complex mix in that. And lastly, as we've discussed, we've had very good execution throughout this year, and I'm very pleased with the execution that we've got. So when all these things come together, we get a very good margin in the business. But we won't discuss the segregation of those items. As we go into 2026, again, it's about the stack of projects that we've got in there. There is nothing pre-'22 in the mix. So it's the packages of work that we brought in over the last 3 years at the various stages that give us the margin that we expect to see next year. And so we have given you clarity through the guidance as to what revenue range, and we expect to be at around 22% next year EBITDA on the portfolio that we've got. And just to close out on that, we're reasonably confident in that because we've got over 80% of that margin already in the books. And as I touched on earlier, I'm reasonably sure I know how the remaining 20% will fit. The remaining 20% part of that is elements such as call-off agreements we have with a number of clients where we're already under contract. We know what the margin is, but we haven't received the call offers yet. So confidence level is pretty high here. And we'll just get into '26 and let it run and see how it goes from there.
Alejandra Magana: Very clear. And then on the new Brazil PLSV contracts, can you give us a sense of how the new rates compare with prior agreements? Do you expect a step-up in PLSV earnings over the next few years?
John Evans: Yes. So they were bid a year ago. That is information where if you go through the press releases that we've released and our competitors have released, it's all public information. You can -- you know that each contract is roughly 1,000 days. So they were better than we had for certain, and all 4 PLSVs are now on the new contracts. Just last week, the fourth of our PLSVs went on their new agreements. So next year, part of the uplift in our margin is around the fact that the mix of work that we've got next year, as we discussed earlier, is a better mix. So the PLSVs are public domain information. So if you go back and dig through those, you can work the figures out from where we were and where we are now.
Operator: [Operator Instructions]. Your next question comes from the line of Erik Aspen Fossa from SB1 Markets.
Erik Aspen Fossa: I have 2 questions at least. First for you, John. I think the understanding so far has been that we should expect a slight increase in activity from '25 to '26. And I'm just wondering how we should think about this into 2027 on a stand-alone basis for Subsea 7? Is there still room for further increases, for example, through fleet optimization and other such things? Or are we kind of plateauing now in terms of how much you can do with the fleet that you have?
John Evans: Okay, Eric, I think what's interesting for us is that we have a very strong backlog for '27. If you just look at the data we got $3.8 billion of backlog for 2027, which is a very good place for us to be looking this far ahead. There are some changes that we're doing next year. It's also about how we upgrade the margins in our projects. There has been some work that we've been doing, for example, on some Jones Act work that we won't continue next year. So we'll return those chartered vessels to the owners because we can't get the margins that we expect. We've returned the Champion in the Middle East. And so for us, it's also about just being very, very selective about which assets we deploy, how we deploy them and the returns that we get, and the risks that we take to earn those returns. So there is room for improvement. There's always room. But now it's about taking the asset base that we've got, as Mark said, being pretty brutal about what it's doing, where it's working, what it's returning for us. So you will see some changes in the fleet next year, some -- actually reductions in the size of our fleet next year whilst we're increasing the revenue. That's our task at the moment, is to maximize what we have in the cycles that we work in, Eric.
Erik Aspen Fossa: I think you also sort of started to answer my second question, and that was on the lease costs that decreased, slightly now this quarter. And I'm just wondering how we should view that into 2026, should it come down because of what you actually just explained now, John?
Mark Foley: Yes, Eric. We will see a directional downward movement in lease liability cash impact in 2026 as a result of releasing some of the lease vessels that we have in the portfolio today. As you know, out of the 41 vessels, we have 11 leased vessels, and some of those will be going back at the end of the charter period to the owners.
Erik Aspen Fossa: Was that just the Jones Act vessels, or are there any other vessels?
Mark Foley: All the vessels fleet, Eric.
John Evans: Yes. So I discussed the Champion, it was leased, and that was in the Middle East. That has already come back. There will be a couple of Jones Act vessels going back, and there will be at least one -- further one going back, but we're not ready to include that at the moment. But that's the direction of travel, as Mark is saying, that we're working our way through, making sure that if we bring additional tonnage in, first of all, is it adding value in the portfolio and can we -- what we're trying to do here is to grow the revenue, but also make sure we maintain the margin. So that's what this fine-tuning that we're doing is about. But that also brings our lease obligation line down, which again, I know has a lot of high focus in the market as well.
Erik Aspen Fossa: Just lastly, could you give some sort of indication on kind of the level that we could think about next year on the lease payments?
Mark Foley: It will be notably lower than we have incurred so far this year, Eric. I think we've spoken about it every quarter. We'll probably just be under $300 million cash out this year, principal plus interest, and we've given a flavor of the vessels that, all other things being equal, we'll leave the fleet. I'll allow you to apply your assumptions in terms of what that means around impact -- favorable impact to cash.
Operator: This concludes today's question-and-answer session. I'll now hand back to John Evans for closing remarks.
John Evans: Well, thank you very much for joining us. We have an interesting story to tell, and we appreciate your continued support and the questions that you ask and the papers that you publish about Subsea 7. We have a very good year ahead of us, I believe, in 2026. We tried to frame that for you and try to give you information to allow you to model it and look ahead. And we continue to be in some very positive discussions. Stuart has also been very open about the opportunity sets in Renewables in '28 and '29, which will become clearer in Q1 next year. So hopefully, when we meet with our Q4 results at the end of February, early March time, we will be able to give you more updates on how we see AR7 and what that means for Seaway 7. So as ever, thank you very much for your support and your questions, and we shall see you again soon. Thank you. Goodbye.
Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.