Subsea 7 Underscores 2Q Operational, Financial Results
Subsea 7 has posted its operational and financial results for the second quarter of 2009 and the half year 2009.
The North Sea region performed well during the quarter. Activity on Centrica's Grove project continued, with the pipelay scope completed. Eon's Rita project was closed out following the completion of offshore activity during the first quarter. Engineering, procurement and fabrication activity took place in respect of the F3-FA project for Venture, with offshore work being progressed for the Venture Channon / Barbarossa project.
In Norway, the StatoilHydro Vega project progressed well and, at the end of the quarter, the pipelay by the Seven Navica was substantially complete. The construction vessels Seven Seas, Toisa Perseus and Seven Sisters were also committed to umbilical lay and tie-ins on the Vega project.
The Vigra spoolbase was busy during the quarter with the fabrication of pipelines for StatoilHydro's Vega and Troll O2 projects. Project management, engineering and procurement continued on BP's Skarv and Valhall Re-Development projects.
Inspection, Repair and Maintenance (IRM) operations continued on the Shell, ConocoPhillips, Total and BP frame agreements.
The Subsea Viking completed a scheduled drydock during the quarter.
Other significant activities for the half year include the successful completion of Venture's Chestnut P2 development and Ithaca's Jacky project. The Rockwater 1, Toisa Polaris and Kommander Subsea vessels all completed scheduled drydocks during the first quarter.
The scope of work being undertaken for Addax Okwori, offshore Nigeria, was completed during the quarter. Operations continued on BP's Block 18 Life of Field project, offshore Angola, and engineering and project management activities continued in respect of BP's Block 31 contract.
Chevron's Tombua Landana contract was closed out during the quarter, with the settlement of variation orders and project costs.
Activity levels remained high in Brazil.
Shell's BC-10 project continued to progress well during the quarter, with high levels of offshore activity. StatoilHydro's Peregrino project also progressed well during the quarter, with post-lay survey and commissioning works completed on the rigid pipelay campaign. Petrobras' Sul Capixaba pipeline fabrication continued at the Ubu spoolbase with offshore installation planned for the third quarter of 2009. The directional drilling shore-approach and pull-back of two kilometres of pipe was successfully completed in early July. This was a significant achievement as the shore-approach scope was a technically challenging phase of the project.
The K3000 and Lochnagar continued to support Petrobras on day-rate operations while the Normand Seven supported the Petrobras Roncador project.
The Skandi Neptune continued to support BP's Thunder Horse project during the quarter. Engineering and project management continued on the Petrobras Cascade project.
The construction of the Port Isabel spoolbase in Texas was completed by the end of the quarter which allowed pipeline fabrication operations to commence on Marathon's Droshky project. Other significant activities for the half year include the successful completion of BP's Atlantis project.
The Rockwater 2 was in a planned drydock for 60 days and the Venturer was off-hire for a large part of the quarter due to a drydock. Accordingly, there was minimal offshore activity in the region, with the exception of some limited work for various Woodside developments in Australia.
Other significant activities for the half year include the announcement in February 2009 by the Company and Technip to dissolve their joint venture, Technip Subsea 7 Asia Pacific, once it has completed all its existing projects and tendered work.
During the quarter, the Company continued to hold investments in listed equity shares and debt securities. At June 30, 2009, these investments were treated as 'Available-for-sale financial assets' and were marked-to-market in the balance sheet, giving rise to an increase in their carrying value during the quarter of US $23.6 million (half year increase of US $47.4 million). US $11.7 million of this increase in the quarter (US $27.4 million for the half year) has been reflected directly in Shareholders' equity. The remaining US $11.9 million (US $20.0 million for the half year), which reflects the re-measurement at fair value of the embedded option contained within the debt securities, is included in the consolidated income statement.
In April 2009, the Company concluded a three-year revolving credit facility with HSBC Bank plc for US $50 million. In June 2009, the Company concluded a three-year revolving credit facility with Bank of Scotland plc for US $50 million. The undrawn loan facilities available to the Company at the date of this report total US $200 million.
At June 30, 2009, the Company reassessed the expected maturity of the US $175 million Subsea 7 Inc. zero coupon convertible notes 2007/2017. The notes were previously accounted for as if they would be redeemed either at the option of the holders on June 29, 2012 or at the option of the Company on July 13, 2012. It is now considered more likely that the convertible notes will be redeemed at their accreted principal amount at the option of the holders on June 29, 2010. The carrying value of the notes was therefore adjusted to reflect the revised estimated maturity. As a result, an additional US $20.3 million of accretion was booked within finance expense in the consolidated income
statement in June 2009. The revised carrying value of the notes of US $167.5 million has been presented within current liabilities.
Other significant activities to note for the half year include the repurchase by the Company in March 2009 of US $15 million (par value) of the US $300 million 2.8% Subsea 7 Inc. convertible notes due 2011 for US $11.03 million, or 73.5% of the par value. A gain of US $2.5 million in respect of this repurchase was included within finance income in the income statement for the first quarter. The repurchased convertible notes remain outstanding and have not been cancelled.
Second Quarter 2009
Revenue for the second quarter 2009 was US $637.2 million compared to US $598.9 million for the same period in 2008 primarily reflecting a higher level of project activity in Brazil.
Net operating profit for the second quarter 2009 was US $117.8 million compared to US $131.3 million for the same period in 2008. Net operating margin as a percentage of revenue for the second quarter 2009 was 18.5% compared to 21.9% in the second quarter 2008. The second quarter results for 2008 included a profit of approximately US $10.8 million from the sale of the K2000 vessel, which contributed to the higher margin.
Net financial income for the second quarter 2009 was US $0.8 million compared to net financial expense of US $11.7 million for the second quarter 2008. The main reasons for this difference are gains made in the marking-to-market of derivative financial instruments during the quarter of US $23.5 million (of which US $11.9 million relates to the remeasurement at fair value of the embedded option contained within the available-for-sale financial assets), compared with losses of US $6.6 million in the second quarter 2008. This was offset by US $20.3 million of additional accretion expense recognised on reassessment of the term of the 2007 convertible note as noted previously.
Taxation expense for the second quarter 2009 was US $36.9 million which equates to an effective rate of 31%. Net profit attributable to equity shareholders for the second quarter 2009 was US $82.2 million, or US $0.56 per share, compared to a net profit of US $86.3 million, or US $0.59 per share, for the second quarter 2008.
Half Year 2009
Revenue for the half year ended June 30, 2009 was US $1.24 billion, which represents an increase of 6.8% from US $1.16 billion in 2008.
Net operating profit for the half year ended June 30, 2009 was US $199.9 million, compared to US $215.9 million for the same period in 2008.
Taxation expense for the half year ended June 30, 2009 was US $61.7 million which equates to an effective rate of 31%, compared to an expense of US $63.2 million and an effective rate of 31% in 2008. Net profit attributable to equity shareholders for the half year ended June 30, 2009 was US $137.3 million, or US $0.93 per share, compared to a net profit of US $141.4 million, or US $0.96 per share in 2008.
Cash and short-term deposits at June 30, 2009 were US $84.8 million compared to US $91.7 million at June 30, 2008.
Shareholders' equity at June 30, 2009 totalled US $942.6 million compared to US $938.3 million at June 30, 2008.
The construction of the diving support vessel Seven Atlantic progressed well. Work continues on commissioning the vessel and final installation and commissioning of the dive system. The vessel is scheduled for delivery in the fourth quarter of 2009.
Construction of the new-build pipelay and construction vessel to be named Seven Pacific progressed during the quarter with steel fabrication now well underway. The vessel is scheduled for delivery in the fourth quarter of 2010.
There were no options exercised during the quarter under the Company's share option plan. During the half year, a total of 7,500 share options were exercised under the Company's share option plan at a strike price of NOK 29.49 per share. The Company had 146,919,380 shares issued and outstanding at June 30, 2009.
The Group was awarded new contracts and variation orders, including commitments under frame agreements, of an aggregate amount of US $350 million during the quarter, and an aggregate amount of US $600 million for the half year. The movement in backlog between the first and second quarters was impacted by the weakening of the US Dollar, primarily against Sterling, which had a positive effect of approximately US $250 million in the quarter and US $200 million for the half year. The worldwide order book of the Group at June 30, 2009 was approximately US $2.9 billion, comprising of US $2.1 billion of day-rate contracts and US $800 million of lump-sum contracts.
MAJOR NEW CONTRACTS SINCE JANUARY 1, 2009
In March 2009, the Company announced that it had been awarded a contract by Petrobras for the Tambau Urugua and P-56 developments in the Santos and Campos basis, offshore Brazil. The contract is valued at approximately US $200 million, with the offshore pipeline installation campaign scheduled to take place during 2010. In July 2009, the Company announced that it had been awarded a pipeline engineering, construction and installation contract in Angola, offshore west Africa, valued in excess of US $150 million.
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