Subsea 7 Reviews 3Q Financial, Operational Results
Subsea 7 has reported its results for the third quarter of 2009.
- Strong project execution in all regions, delivering EBITDA of US $140.1 million, equivalent to an EBITDA margin of 21.2%.
- Awarded three new significant contracts, valued at a combined total in excess of US $480 million.
- Launched a private placement of US $275 million of convertible notes. The notes were issued and proceeds received post-quarter.
- Efficiencies being realised from cost-cutting initiatives that have been implemented.
Post Quarter Highlights
- Awarded an engineering, procurement, installation and commissioning contract for Petrobras in respect of the P-55 development in the Roncador field offshore Brazil. The contract is valued in excess of US $200 million.
The North Sea region performed well during the quarter. Centrica's Grove and Venture's Channon/Barbarossa projects were substantially completed. The Seven Navica completed StatoilHydro's Vega and Troll O2 pipelines along with the pipelay scope of Venture's F3-FA project in the Netherlands. Following these campaigns, the vessel commenced a planned drydock. In Norway, four of the Company's construction vessels, including the Seven Seas and Seven Sisters, were working on umbilical lay, riser installation and tie-ins on BP's Valhall Re-Development, and StatoilHydro's Vega, Troll O2, Snorre Riser and Vigdis Riser projects. The Vigra spoolbase was busy with the fabrication of the clad pipeline for BP Skarv. Inspection, Repair and Maintenance (IRM) operations continued on the Shell, ConocoPhillips, Total and BP frame agreements.
Operations continued on BP's Block 18 Life of Field project, offshore Angola, while the Skandi Neptune completed Mobil Equatorial Guinea Inc.'s Serpentina project in Equatorial Guinea. Project management and engineering continued in respect of BP's Block 31 contract and commenced in respect of the newly awarded Block 18 Gas Export Line contract. During the quarter, additional income was recognized in respect of Chevron's Tombua Landana and Addax's Okwori projects as a result of the settlement of variation orders and releases of contingency.
The Brazil region had another busy quarter. Offshore installation was completed on both Shell's BC-10 and Petrobras' Roncador projects. The Normand Seven commenced the flexible pipeline installation phase of StatoilHydro's Peregrino project. Petrobras' Sul Capixaba and Hybrid Steel pipeline installations were completed by the Seven Oceans and final precommissioning is ongoing. Pipeline fabrication operations on Petrobras' Tambau Urugua project were ongoing at the Ubu spoolbase. The Lochnagar and K3000 continued to support Petrobras on day-rate operations. During the quarter, the Company booked a provision of $29.5 million for losses which are expected to arise during the remaining periods of these construction contracts.
Engineering and project management continued on Petrobras' Chinook/Cascade project and the Skandi Neptune commenced its mobilization for offshore operations. The Port Isabel spoolbase continued with pipeline fabrication operations on Marathon's Droshky project during the quarter, with offshore installation scheduled to be undertaken during the fourth quarter of 2009.
During the quarter, the Rockwater 2 supported Woodside's Enfield development in Australia. ConocoPhillips' Xijiang project was successfully completed in the South China Sea. Engineering and project management commenced on Santos’ Henry project with the Seven Navica due to arrive in the region towards the end of the fourth quarter of 2009.
During the quarter, the Company continued to hold investments in listed equity shares and debt securities. At September 30, 2009, these investments were treated as 'Available-for-sale financial assets' and were marked-tomarket in the balance sheet, giving rise to an increase in their carrying value during the quarter of US $26.5 million (YTD increase of US $73.9 million). US $16.7 million of this increase in the quarter (US $44.2 million YTD) has been reflected directly in Shareholders' equity. The remaining US $9.8 million (US $29.7 million YTD), which reflects the remeasurement at fair value of the embedded option contained within the debt securities, is included in the consolidated income statement.
On September 30, 2009, the Company repurchased US $25 million (par value) of the US $300 million 2.8% Subsea 7 Inc. convertible notes due 2011 for US $24.06 million, or 96.2% of the par value. US $1.1 million of the repurchase price has been treated as payment for the equity component of the note and has been recognized within equity. In addition a gain on repurchase of the liability component of USD 0.2 million has been included within finance income in the consolidated income statement.
In September 2009, the Company announced the pricing of its private placement of US $275 million convertible notes. The notes have an annual coupon of 3.5% and are convertible into common shares of the Company at a conversion price of US $17.98, representing a conversion premium of 37.5%. The reference price of the Company's common shares has been set at US $13.08 and the total number of new common shares to be issued, if all the notes are converted, would be 15,294,772. The notes are redeemable at 100% of their principal amount and will, unless converted or purchased and cancelled, mature in October 2014. The notes were issued and proceeds received on October 13, 2009.
In September 2009, the outstanding loan balance due to Siem Industries Inc. was repaid and following the quarter end, the revolving credit facility was cancelled. The remaining undrawn loan facilities available to the Company at the date of this report total US $250 million.
Third Quarter 2009
Revenue for the third quarter 2009 was US $661.0 million compared to US $628.6 million for the same period in 2008.
Net operating profit for the third quarter 2009 was US $107.8 million compared to US $136.0 million for the same period in 2008. Net operating margins as a percentage of revenue were 16.3% in the third quarter 2009 compared to 21.6% in the third quarter 2008. One of the main reasons for this difference is the provision that was booked in Brazil in respect of anticipated losses which are expected to arise during the remaining periods of the Lochnagar and K3000 construction contracts.
Net financial income for the third quarter 2009 was US $11.4 million compared to net financial expense of US $38.1 million for the third 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 $14.9 million (of which US $9.8 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 $15.4 million in the third quarter 2008. Additionally, net currency gains of US $3.3 million were recognised during the quarter compared to losses of US $15.1 million in the third quarter 2008. Taxation expense for the third quarter 2009 was US $34.7 million which equates to an effective rate of 28.6%. Net profit attributable to equity shareholders for the third quarter 2009 was US $86.6 million, or US $0.59 per share, compared to a net profit of US $65.7 million, or US $0.45 per share, for the third quarter 2008.
The construction of the diving support vessel Seven Atlantic continued to progress during the quarter. 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 also progressed during the quarter with steel fabrication and piping systems now well underway. The vessel is scheduled for delivery in the fourth quarter of 2010.
During the quarter, 42,500 share options were exercised under the Company's share option plan at a strike price of NOK 29.49 per share.
The Company had 146,961,880 shares issued and outstanding at September 30, 2009.
The Group was awarded new contracts, including commitments under frame agreements, of an aggregate amount of US $800 million during the quarter. The worldwide order book of the Group at September 30, 2009 was approximately US $3.0 billion, comprised of approximately US $2.2 billion of day-rate contracts and US $800 million of lump-sum contracts.
MAJOR NEW CONTRACTS
In July 2009, the Company announced that it had been awarded a pipeline engineering, construction and installation contract in Angola, offshore West Africa. The contract was subsequently confirmed as being for a gas export pipeline for BP and is valued in excess of US $150 million. In September 2009, the Company announced that it had been awarded a contract by Petrobras for its pipelay vessel Normand Seven. The contract is for the exclusive use of the vessel for a period of four years and is valued in excess of US $250 million. In September 2009, the Company announced that it had been awarded a major subsea pipeline and installation services contract by Santos Limited for the Casino-Henry field, offshore Victoria, Australia. The contract is valued in excess of US $80 million. In October 2009, the Company announced that it had been awarded an engineering, procurement, installation and commissioning contract by Petrobras for the P-55 development in the Roncador field, offshore Brazil. The contract is valued in excess of US $200 million.
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