SeaBird Exploration: First quarter 2017 report

5 May 2017, Limassol, Cyprus

Statement

SeaBird recorded a 36.4% active vessel utilization during the first quarter of 2017, with three vessels in operation. The utilization was impacted by a weak winter season and continued market softness. SeaBird continues its active marketing of the fleet to secure new projects. Seismic tender activity has picked up recently, but contracting lead-time remains long with substantial competition and high market uncertainty. The company continues to proactively optimize its cost base to improve its relative cost position in the 2D and source markets.

As a result of the significant market uncertainty, negative cash flow development for the first half of the year as well as upcoming debt maturities in 2017 and Q1 2018, the company together with its financial advisors are continuing to evaluate financial alternatives. Such alternatives may involve the raising of additional capital as well as refinancing or restructuring existing obligations. Any such transactions may result in a significant dilution to current shareholders.

2017 Summary observations for the first quarter

• Revenues for the quarter were $8.4 million, a decrease of 67% compared to Q1 2016 and up 145% relative to Q4 2016.

• Contract revenues for the period were $8.0 million, down 69% from Q1 2016 and an increase of 211% from Q4 2016.
• Multi-client revenues were $0.4 million, up from nil reported in Q1 2016 and a decrease from $0.9 million reported in Q4 2016.
• Adjusted EBITDA of negative $0.1 million. Reported EBITDA was negative $2.8 million compared to positive $7.4 million for Q1 2016 and negative $1.9 million for Q4 2016.
• Adjusted EBIT of negative $3.6 million. Reported EBIT for the quarter was negative $6.3 million compared to positive $3.6 million for Q1 2016 and negative $5.5 million for Q4 2016.
• Active vessel utilization for the period was 36.4%. Contract surveys during the first quarter represented 36.4% of vessel capacity compared to 90.3% during the first quarter 2016. Multi-client surveys accounted for 0% of vessel capacity compared to 0% in the first quarter 2016.
• Announced three new contract awards amounting to seven to eight vessel months.
• Net non-recurring charges of $2.7 million relating to the onerous lease on the Munin Explorer partially offset by changes in provision estimates for the Voyager Explorer. 

Key Highlights

Operational review

The first quarter of 2017 was challenging with weak seismic market demand. Although there are signs of market improvement, total vessel utilization for the quarter was low and the timing of a sustained market recovery is still highly uncertain.

Active vessel utilization for the first quarter of 2017 was 36.4%, up from 28.8% in the fourth quarter. Contract surveys represented 36.4% of vessel capacity compared to 21.5% for the fourth quarter of 2016. Technical downtime for the fleet was 0.8% in Q1 2017, up from 0.4% in Q4.

Northern Explorer undertook a 2D contract survey in South America while Osprey Explorer completed its source project in West Africa in the period. Harrier Explorer mobilized for and substantially completed its 2D contract survey in the Caribbean towards the end of the quarter.

Aquila Explorer was not active on projects in the quarter while the Munin Explorer remained stacked. During the quarter, the company booked an operational restructuring charge of $2.8 million for Munin Explorer. The vessel is currently estimated to return to operation in the beginning of Q1 2018.

Harrier Explorer completed its scheduled yard stay in the period. Yard stay represented 2.5% of active vessel capacity during the quarter.

Multi-client surveys represented 0% of vessel utilization in the quarter, compared to 7.3% in the previous quarter and nil the same quarter last year. Multi-client revenues were $0.4 million in the period, compared to $0.9 million in the previous quarter.

The company announced a new 2D contract in the Caribbean during the quarter. Subsequent to quarter closing, the company announced a letter of intent to provide a seismic source vessel for an upcoming survey in the Asia Pacific region with an expected duration of five to six months. The project is due to commence in quarter two and the company will be using the Voyager Explorer for the project. The company also announced a new 2D contract in West Africa, which will commence quarter two and will have a duration of approximately one month.

Operational expenses were maintained at a low level during the first quarter relative to previous quarters as a result of ongoing cost cutting initiatives and relatively low project activity.

The company had net non-recurring costs of $2.7 million during the quarter.

Capital expenditures were $0.6 million during the quarter compared to $0.7 million Q1 2016.

Lost time injury frequency (LTIF) rate for the quarter was 0.0.

Regional review

Europe, Africa and the Middle East (EAME) was the most active region during the quarter. EAME revenues of $6.3 million represented 74% of total Q1 revenues. Osprey Explorer completed its source project in the region towards the end of the quarter.

North and South America (NSA) revenues of $2.2 million represented 26% of total Q1 revenues. Northern Explorer completed the remaining part of its 2D contract survey in South America early in the quarter, while Harrier explorer commenced a 2D contract survey in the Caribbean.

No SeaBird vessels worked in Asia Pacific (APAC) during the quarter and revenues from the region were nil.

Outlook

Global seismic demand continued to be weak in the first quarter. SeaBird continues to evaluate and execute savings initiatives to reduce the company's overall cost level and this may include temporary stacking of additional vessels.

While we are seeing a significant pick-up in requests for quotes, the second quarter 2017 revenues are expected to be negatively impacted by slow contract award lead times, resulting in idle periods as well as the potential repositioning of vessels before start-up of new projects. The company is reviewing a number of survey opportunities. However, the current market uncertainty makes it difficult to predict the level of contract coverage that is possible to obtain.

Financial comparison

All figures below relate to continuing operations unless otherwise stated. For discontinued operations, see note 1. The company reports net loss of $7.9 million for Q1 2017 (net profit of $1.8 million in the same period in 2016).

Revenues were $8.4 million in Q1 2017 ($26.0 million). The decreased revenues are primarily due to lower utilization and reduced fleet size.

Cost of sales was $8.3 million in Q1 2017 ($15.0 million). The decrease is predominantly due to fewer vessels in operation, relatively low project activity and implemented cost cutting efforts, partially offset by non-recurring charges in relation to the Munin Explorer.

SG&A was $3.1 million in Q1 2017, down from $3.9 million in Q1 2016. The decrease is principally due to cost saving initiatives and reduced headcount.

Reversal of bad debt charges was $0.1 million in Q1 2017.

Other income (expense) was $0.0 million in Q1 2017 ($0.3 million).

EBITDA was negative $2.8 million in Q1 2017 (positive $7.4 million).

Depreciation, amortization and impairment were $3.5 million in Q1 2017 ($3.8 million). The decrease is due to fleet reduction.

Finance expense was $1.2 million in Q1 2017 ($1.4 million).

Other financial items were $0.0 million in Q1 2017 (negative $0.2 million).

Income tax expense was $0.4 million in Q1 2017 ($0.2 million).

Capital expenditures in the quarter were $0.6 million ($0.7 million).

Multi-client investment was nil in Q1 2017 (nil).

Financial review

Liquidity and financing

Cash and cash equivalents at the end of the period were $8.8 million ($10.1 million in Q1 2016), of which $0.3 million was restricted in connection with deposits and taxes. Net cash from operating activities was negative $5.2 million in Q1 2017 (positive $6.1 million in Q1 2016).

The company has one bond loan, one secured credit facility and one unsecured note.

The SBX04 secured bond loan (issued as "SeaBird Exploration Finance Limited First Lien Callable Bond Issue 2015/2018") is recognized in the books at amortized cost of $27.9 million per Q1 2017 (nominal value of $29.3 million plus accrued interest of $0.2 million plus amortized interest of $2.9 million less fair value adjustment of $4.4 million). This bond has been issued in two tranches; tranche A amounting to $5.0 million and tranche B amounting to $24.3 million. The SBX04 bond tranche A is carrying an interest rate of 12.0% and Tranche B is carrying an interest rate of 6.0%. Interest is paid quarterly in arrears with the first interest instalment being paid on 3 June 2015. The bond matures on 3 March 2018, with principal amortizations due in quarterly instalments of $2.0 million starting at 3 June 2017. The outstanding loan balance is scheduled to be paid at the maturity date. Interest paid during Q1 2017 was $0.5 million. The bond is listed on Nordic ABM, and it is traded with ticker SBEF01 PRO and SBEF02 PRO for the respective two bond tranches.

The three-year secured credit facility is recognized at amortized cost of $2.2 million (nominal value of $2.3 million plus accrued interest of $0.01 million plus amortized interest $0.3 million less fair value adjustment of $0.4 million). Coupon interest rate is 6.0%. Interest is to be paid quarterly in arrears and the first interest amount was paid on 3 June 2015. The facility's final maturity is 3 March 2018 and quarterly instalments of $0.2 million are due starting on 3 June 2017. Principal repayments during Q1 2017 amounted to $0.7 million and additional amounts drawn on the credit facility during the period was $0.7 million. Interest paid during Q1 2017 was $0.03 million.

The three year unsecured loan is recognized at amortized cost of $0.9 million (initial nominal value of $2.1 million plus amortized interest $0.2 million less fair value adjustment of $0.3 million less principal repayments of $1.2 million). Coupon interest rate is 6.0%. Stated maturity is 1 January 2018. Interest is paid quarterly in arrears and the first payment was due on 1 April 2015. The principal is repayable in nine equal instalments of $0.2 million, commencing 1 January 2016. Interest paid during Q1 2017 was nil and principal repayments during Q1 2017 was nil.

Net interest bearing debt was $22.3 million as at the end of Q1 2017 ($23.2 million in Q1 2016).

Accrued interest on the bond loan, credit facility and the unsecured note for Q1 2017 was $0.2 million ($0.2 million).

The company was in compliance with all covenants as of 31 March 2017.

The total outstanding amount of common shares in the company is 3,065,434. The company has also issued 884,686 warrants, convertible into 884,686 ordinary shares. The warrants are listed on the Oslo Stock Exchange with ticker SBX J.

The company's accounts have been prepared on the basis of a going concern assumption. In the view of the board of directors, the continued very challenging market conditions, limited working capital, low level of firm contract backlog and negative cash flow development for the first half of the year, creates a material risk to this assumption. In the event that new backlog cannot be secured on satisfactory rates or at all, project performance is significantly worse than expected or contracts and other arrangements in respect of the employment of SeaBird's vessels are cancelled, or significantly delayed, the company would need to sell assets or raise additional financing, which would be required in or around third quarter 2017, which may not be available at that time. SeaBird is currently reviewing financial alternatives to cover such a potential working capital shortfall. However, no definitive agreements are currently in place, and there is a risk that such plans and agreements may not materialize. Alternatives may exist to sell or otherwise monetize certain assets, but the ability to sell or otherwise monetize assets, being primarily made up of owned vessels and the multi-client library, would require consent from lenders as all such assets are held as security for loan arrangements, and may therefore not be available within a short time frame or at all. Should none of these financing arrangements be available at that time, such circumstance would have a significant negative effect on SeaBird's financing situation and its ability to continue operations.

In such a scenario, the company would be unable to meet its liabilities as they fall due and to continue as a going concern. In such event, SeaBird would be unable to realize the carrying value of its property, plant and equipment, whose values on a forced sale basis would be significantly lower than their carrying values. Furthermore, goodwill and intangibles would be written off as their carrying values largely represent their values in use.

As a result of the significant market uncertainty as well as upcoming debt maturities, the company has engaged financial advisors to evaluate financial alternatives. Such alternatives may involve the raising of additional capital as well as refinancing or restructuring existing obligations. Any such transactions may result in a significant dilution to current shareholders.

The Board of Directors and Chief Executive Officer

SeaBird Exploration Plc
4 May 2017

The first quarter 2017 presentation will be transmitted live at

http://www.sbexp.com/investor-relations.aspx.

This information is subject of the disclosure requirements pursuant to section 5-12 of the Norwegian Securities Trading Act.