SeaBird Exploration Plc: Second quarter report 2016

19 August 2016, Limassol, Cyprus

2016 SUMMARY OBSERVATIONS FOR THE SECOND QUARTER

• Revenues for the quarter were $22.2 million, an increase of 14% compared to Q2 2015 and down 14% relative to Q1 2016.
• Contract revenues for the period were $21.4 million, up 14% from Q2 2015 and a decrease of 17% from Q1 2016.
• Multi-client revenues were $0.8 million, up from $0.7 million reported in Q2 2015 and nil reported in Q1 2016.
• EBITDA was $6.3 million compared to negative $6.5 million for Q2 2015 and $7.4 million for Q1 2016. 
• EBIT for the quarter was $1.9 million compared to negative $15.7 million for Q2 2015 and positive $3.6 million for Q1 2016. 
• Vessel utilization for the period was 82.0%. Contract surveys during the second quarter represented 74.9% of vessel capacity compared to 68.1% during the second quarter 2015. Multi-client surveys accounted for 7.0% of vessel capacity compared to 0% in the prior period.
• 5.8% technical downtime in the quarter compared to 1.9% for Q2 2015 and 6.8% previous quarter.
• Zero lost time injury frequency (LTIF) in the quarter.  

Key highlights

Operational review

The second quarter of 2016 was challenging with weak seismic market demand. Timing of a sustained market recovery is still highly uncertain.

Vessel utilization for the second quarter of 2016 was 82.0%, down from 90.3% in the first quarter. Contract surveys represented 74.9% of vessel capacity compared to 90.3% for the first quarter of 2016. Technical downtime for the fleet was 5.8% in Q2 2016, down from 6.8% in Q1.

Hawk Explorer, Harrier Explorer, Northern Explorer and Aquila Explorer were in production on the Mexico Gigante project during the quarter. Osprey Explorer left the Gigante project at the start of the quarter, completed its scheduled dry dock in Denmark and mobilized for a source contract in the North Sea. Harrier Explorer worked on the Mexico Gigante project until May, then transited to North West Europe to complete a multi-client survey. The vessel subsequently mobilized for a 2D survey in North West Europe which commenced in quarter three.

Osprey Explorer completed its scheduled maintenance in Denmark in June. Yard stay represented 9.9% of vessel capacity during the quarter.

Munin Explorer and Voyager Explorer remained stacked during the period. During the quarter the company made the decision to redeliver the Voyager Explorer to its owners following the completion of its bareboat charter in August 2016.

Multi-client surveys represented 7.0% of vessel utilization in the quarter, compared to 0% in the previous quarter and 0% the same quarter last year. Multi-client revenues were $0.8 million in the period, compared to nil in the previous quarter.

The company signed two new contracts during the quarter; one for source work in the North Sea and one 2D survey in the North West Europe region, representing approximately four vessel months in total.

Operational expenses were reduced during the second quarter relative to previous quarters as a result of ongoing cost cutting initiatives.

Capital expenditures were $1.5 million during the quarter.

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

Regional review

North and South America (NSA) continued to be the most active region during the quarter. NSA revenues of $21.3 million represented 96% of total revenues for the quarter.

Europe, Africa and the Middle East (EAME) revenues of $0.9 million represented 4% of total Q2 revenues. Harrier Explorer completed a significantly prefunded multi-client project and Osprey Explorer commenced a source project in the region during the quarter.

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

Outlook

Global seismic demand continued to be weak in the second quarter. Oil industry exploration spending is anticipated to remain depressed for the foreseeable future and this is likely to continue to negatively impact seismic activity.

The Mexico Gigante project is expected to be completed during the third quarter of 2016, with three vessels employed on the project in that reporting period. The remaining active fleet is currently employed in the North West Europe region. The company is reviewing a number of survey opportunities for quarter four of 2016 as well as fiscal 2017. However, the current market uncertainty makes it difficult to predict the level of contract coverage that is possible to obtain beyond the company's firm backlog. Consequently, the company is reviewing its fleet capacity and other measures to further reduce its operating cost level. This may include stacking of additional vessels and further fleet reduction.

Financial review 

Financial comparison

All figures below relate to continuing operations unless otherwise stated. For discontinued operations, see note 1. The company reports net income of $0.1 million for Q2 2016 (net loss of $16.8 million in the same period in 2015).

Revenues were $22.2 million in Q2 2016 ($19.6 million). The increased revenues are primarily due to higher fleet utilization.

Revenues for first half of 2016 were $48.2 million ($43.8 million).

Cost of sales was $12.9 million in Q2 2016 ($20.0 million). The decrease is predominantly due to fewer vessels in operation, lower operating expenses and non-recurring restructuring charges for onerous long-term lease contracts taken in Q2 2015.

For the first half of 2016, cost of sales amounted to $27.9 million, down from $37.0 million for same period during 2015.

SG&A was $3.2 million in Q2 2016, down from $6.1 million in Q2 2015. The decrease is principally due to one-off bad debt expenses on long-dated receivables incurred in Q2 2015 and reduced onshore headcount.

SG&A for the first half of 2016 was $7.1 million ($9.9 million).

Other income (expense) was $0.2 million in Q2 2016 (nil).

Other income (expense) for the first half was $0.5 million ($0.1 million).

EBITDA was $6.3 million in Q2 2016 (negative $6.5 million).

EBITDA for first half of 2016 was $13.7 million ($1.7 million).

Depreciation, amortization and impairment were $4.3 million in Q2 2016 ($9.2 million). This decrease is largely due to an impairment on the multi-client library taken in Q2 2015.

For the first half of 2016, depreciation amortization and impairment were $8.2 million ($13.7 million).

Finance expense was $1.5 million in Q2 2016 ($1.3 million).

For the first half of 2016 finance expense was $2.9 million ($2.3 million).

Other financial items were negative $0.1 million in Q2 2016 (positive $0.1 million).

For the first half of 2016, other financial items were negative $0.2 million (negative $0.1 million).

Income tax expense was $0.3 million in Q2 2016 ($0.3 million).

For the first half of 2016 income tax expense was $0.5 million ($0.8 million).

Capital expenditures in the quarter were $1.5 million ($3.1 million).

Multi-client investment was $0.7 million in Q2 2016 ($0.2 million).

Liquidity and financing

Cash and cash equivalents at the end of the period were $8.1 million ($7.4 million in Q2 2015), of which $0.4 million was restricted in connection with deposits and tax. Net cash from operating activities was $1.5 million in Q2 2016 (negative $4.1 million in Q2 2015).

The company has one bond loan, one secured credit facility, one unsecured note and the Hawk Explorer finance lease.

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 $26.8 million per Q2 2016 (nominal value of $29.3 million plus accrued interest of $0.2 million plus amortized interest of $1.8 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 first interest instalment 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 will be paid at the maturity date. Interest paid during Q2 2016 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 $2.1 million (initial nominal value of $2.3 million plus accrued interest of $0.02 million plus amortized interest of $0.2 million less fair value adjustments 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 matures at 3 March 2018 with quarterly instalments of $0.2 million starting on 3 June 2017. The outstanding loan will be repaid in full at maturity. Principal repayments during Q2 2016 amounted to $0.7 million and additional amounts drawn on the credit facility during the period was $0.5 million. Interest paid during Q2 2016 was $0.03 million.

The three-year unsecured loan is recognized at amortized cost of $1.4 million (initial nominal value of $2.1 million plus amortized interest $0.2 million less fair value adjustment and accrued interest of $0.2 million less principal repayments of $0.7 million). Coupon interest rate is 6.0%. Stated maturity date is on 1 January 2018. Interest is paid quarterly in arrears and the first payment was due on 1 April 2015. The principal will be repayable in nine equal quarterly instalments of $0.2 million commencing on 1 January 2016. Interest paid during Q2 2016 was $0.02 million and principal repayments during Q2 2016 was $0.2 million.

The lease of Hawk Explorer is recognized in the books as a finance lease at $2.8 million per Q2 2016. Instalments and interest amounting to $0.6 million were paid during Q2 2016 ($0.6 million in Q2 2015).

Net interest bearing debt was $25.0 million as at the end of Q2 2016 ($26.4 million in Q2 2015).

Accrued interest on the bond loan, credit facility and the unsecured note for Q2 2016 was $0.2 million ($0.2 million).

The company was in compliance with all covenants as of 30 June 2016.

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 and the company's limited working capital 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 may not be available at that time. Reference is made to the Going Concern section in selected notes and disclosures for further details on the financial position of the company.

Important events in the first half of the year

In January 2016, the company announced that Mr. Christophe Debouvry was appointed as new CEO.

The company signed four new contracts during the first half of the year; two source work awards, one 2D survey and one 2D multi-client survey, all in the North West Europe region.

On 10 May 2016, the annual general meeting of the company was held. At this meeting, board members Annette Malm Justad (Chairman), Kitty Hall (Director), Olav Haugland (Director) and Hans Petter Klohs (Director) were re-elected for a new term.

Responsibility statement

We confirm that, to the best of our knowledge, the condensed set of financial statements for the first half year of 2016, which have been prepared in accordance with IAS 34 "Interim Financial Reporting", gives a true and fair view of the company's consolidated assets, liabilities, financial position and results of operations. We also confirm that, to the best of our knowledge, the first half 2016 report includes a fair review of important events that have occurred during the first six months of the financial year and their impact on the condensed financial statements, a description of the principal risks and uncertainties for the remaining six months of the financial year and major related parties' transactions.

The Board of Directors and

Chief Executive Officer

SeaBird Exploration Plc

18 August 2016

The second quarter 2016 presentation will be transmitted live at

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