HIGHLIGHTS FOURTH QUARTER 2008
- All time high quarterly revenues of USD 60.8 million, an increase of 72% compared to Q4 2007.
- EBITDA of USD 13.4 million, an increase of 41% compared to Q4 2007, despite a provision for bad debt of USD 4.0 million in Q4 2008.
- Impairments of vessels and seismic equipment charges of USD 15.9 million for the quarter.
- Net debt reduced to USD 172.7 million, partly explained by unrealized foreign exchange gain of 14.1 million for the quarter.
- Loss for the quarter of USD 0.7 million, compared to USD 3.0 million for Q4 2007.
- Eight vessels in operation while the Kondor Explorer was idle during the quarter, with average vessel utilization for the whole fleet of around 77%.
- Market outlook in the short term is weaker within 2D, shallow water 3D and source.
- Three super majors have now committed to the use of our ocean bottom nodes technology securing backlog well into 2010 proving the potential of this technology.
- Hugin's node operation for Total in Angola has resumed with significant improvement of productivity.
KEY FINANCIAL PERFORMANCE FIGURES
The SeaBird Group ("Seabird") reported all time high quarterly consolidated revenues of USD 60.8 million for Q4 2008, an increase of 72% compared to Q4 2007. The increase of revenues are mainly caused by increased average rates and adding the Hugin Explorer to the fleet in 2008. Earnings before interest, taxes, depreciation and amortization ("EBITDA") were USD 13.4 million for the quarter, compared to USD 9.5 million for Q4 2007.
Charter hire and operating expenses increased from USD 20.2 million in Q4 2007 to USD 36.2 million in Q4 2008. The main reason for this substantial increase is the commencement of operations for the Hugin Explorer in July 2008 causing a substantial increase of operating expenses. Furthermore, in Q4 2008 we recognized third party data processing cost of around USD 3.5 million related to the projects in India, with corresponding revenue. Third party data processing costs and revenues have been close to zero in previous periods. In addition, we have experienced general cost inflation in the industry for main cost elements as payroll and fuel and we have operated on contracts with higher project variable cost. SeaBird had selling, general and administrative ("SG&A") expenses of USD 11.4 million in Q4 2008, compared to USD 6.9 million in Q4 2007. SG&A expenses in Q4 2008 include provision for bad debt of a total of USD 4.0 million explaining the main part of the increase from Q4 2007.
Earnings (loss) before interest and taxes ("EBIT") were negative with USD 13.8 million in Q4 2008 compared to a positive USD 2.5 million in Q4 2007. Depreciation and amortization increased to USD 11.3 million in Q4 2008, up from USD 7.0 million in Q4 2007 and USD 10.6 million in Q3 2008. In Q4 2007 we recognized our first revenues of our only multi-client survey with USD 1.4 million, and we recognized a corresponding amortization charge of USD 1.4 million. Excluding the multi-client amortizations, the increase of depreciations from Q4 2007 is mainly caused by commencing depreciations on the investments in patent technology, nodes, seismic equipment, node handling equipment, conversion cost of the Hugin Explorer and other investments related to our ocean bottom node business which commenced operations in July 2008, while the decrease (adjusted for multi-client amortizations) from Q3 2008 is caused by fine-tuning of depreciation periods for various asset categories as part of the year-end close procedures.
As part of the year-end close we have done impairment evaluations of all assets resulting in impairment charges of a total of USD 15.9 million, mainly related to one vessel and equipment held for sale (see further details under the note "Property, plant and equipment" and "Capital work in progress").
Interest expenses decreased from USD 4.6 million in Q4 2007 to USD 4.4 million in Q4 2008. Capitalized interest and borrowing cost on capital work in progress was zero in Q4 2008 compared to USD 1.0 million in Q4 2007. The reduction of interest expenses is in line with a decrease of net interest bearing debt from USD 213.0 million by the end of Q4 2007 to USD 172.7 million by the end of Q4 2008 and a decrease of the average interest rate. Other financial items for the quarter were positive with USD 13.5 million compared to a loss of USD 0.8 million in Q4 2007. The unrealized foreign exchange gain on translation of our bond loans of NOK 600 million, contributed with a gain of USD 17.2 million for the quarter in line with the strengthening of the USD against NOK, which was partly offset by a loss on financial instruments of around USD 4.8 million (see further details under the note "Financial Instruments").
Historically, current taxes have generally been withheld taxes which have been presented as a reduction of revenues. To be more in line with industry practice we have now amended the presentation format to include withheld taxes as a tax expense. Consequently, revenues and tax expense have been increased compared to prior period classification. Comparable periods have been amended to show comparable figures.
Loss for Q4 2008 was USD 0.7 million, compared to a loss of USD 3.0 million for Q4 2007.
Revenues for the twelve months ended 31 December 2008 were USD 215.8 million which is 120% higher than 2007. EBITDA for 2008 increased with 172 % to USD 69.5 million, while EBIT increased 160 % to USD 17.6 million. Interest expenses increased from USD 10.6 million in 2007 to USD 16.8 million in 2008, while other financial items, net, improved from a loss of USD 3.8 million in 2007 to a gain of USD 20.0 million in 2008. Unrealized foreign exchange gains on the bond loans of NOK 600 million constituted USD 25.5 million in 2008, mainly offset by unrealized losses of financial instruments of USD 6.5 million (see further details under the note "Financial Instruments").
Profit for the twelve months ended 31 December 2008 was USD 20.2 million, compared to a loss of USD 8.9 million in 2007.
The strengthening of the USD has in general a positive impact on our operating expenses, interest expenses and gross debt as we have significant costs in other currencies and bond loans of a total of NOK 600 million.
OPERATIONAL HIGHLIGHTS Q4 2008
SeaBird had nine vessels in operation in the fourth quarter with an average vessel utilization of around 77% for the full quarter which is down from 82% in Q4 2007 and 84% for the third quarter in 2008 and 83 % for the full year 2008. The main reasons for the negative development of vessel utilization are the Kondor Explorer being idle for the whole quarter and low utilization for the Hugin Explorer. For this purpose vessel utilization is defined as the percentage of the full quarter where the vessel is in paid work either in the form of acquisition, mobilization, demobilization, steaming, standby or other.
Three of the vessels (Aquila Explorer, Harrier Explorer and Hawk Explorer) were on time charter contracts for the whole quarter and had an average vessel utilization and chargeable time of 95%. Harrier and Hawk are on time charters ending in September 2011 and November 2009, respectively. Aquila Explorer ended a time charter contract in early January 2009 and SeaBird has now equipped her with our own solid streamer and other seismic equipment. We have currently secured satisfactory backlog for the Aquila Explorer for the first half of 2009.
Kondor Explorer ended a long contract with CGGVeritas at the end of August and has been idle since. Consequently the vessel utilization was zero for the fourth quarter. We are working with employment options for the Kondor Explorer. The Kondor Explorer is intended to be part of the ocean bottom node survey for BP and Chevron in 2009, but might be replaced with an alternative vessel from our current fleet and laid up. The lay-up costs for this vessel are low as she is contracted in on a bareboat charter at favourable rates.
Osprey Explorer continued to acquire data at the East-Coast of India for the whole quarter with utilization of 94%. The Northern Explorer completed a four months time charter contract in the Far East towards the end of October. Then she returned to finalize some work on the West-Coast of India before she joins Osprey Explorer on the East-Coast India projects. Vessel utilization for the Northern Explorer was 80% for the quarter. Expected completion of the current projects in East-Coast India is mid-2009.
Munin Explorer was working on various contracts in Africa and had a vessel utilization of 95% for the quarter. She completed a contract at the East-Coast of Africa in the beginning of January and was subsequently mobilized for a project at the West-Coast of Africa. However, upon arrival the ongoing contract negotiations for that survey were terminated. The vessel has several leads, but is currently idle.
The Geo Mariner has been working in the Middle-East for the full quarter with a vessel utilization of 95%. Geo Mariner completed a survey in February 2009 where we currently have total invoices outstanding of around USD 13 million. Following recent discussions, we expect to recover the major part of the outstanding, and have provided for a loss of around USD 2.8 million as of 31 December 2008. In December 2008, we received a letter of award of a new contract for the Geo Mariner in the Middle East, which was due to commence after an intermediate docking in February/March for 5-6 months. However, the client has not signed the final contract and the status of this contract is currently uncertain, hence we have also started to market the vessel to other clients subsequent to the intermediate docking.
The Hugin Explorer is in Angola on her first full scale ocean bottom node survey for Total and completed recovery of nodes from the first of two survey areas in November. Some of the nodes recovered experienced challenges with the electronics and necessary adjustments had to be made. Consequently, the vessel utilization for the quarter was 47%. Around 1/3 of the nodes will be redeployed and reshot. This is expected to delay the completion of the Angola survey until May 2009. Hugin is awarded a survey for BP in the US Gulf of Mexico on the Atlantis field and also a survey for Chevron in Nigeria on the Abgami field. This secures backlog into 2010 for the Hugin Explorer and one source vessel. We are currently evaluating the geographical positioning of the Hugin Explorer with both companies.
At 31 December 2008, cash and cash equivalents amounted to USD 14.9 million, compared to USD 11.6 million at the end of 2007 and USD 10.1 million at the end of Q3 2008. Net cash flow from operating activities for Q4 2008 was USD 6.5 million, compared USD 2.2 million for Q4 2007. Net cash flow from operating activities for the twelve months ended 31 December 2008 was USD 56.2 million, compared to USD 3.2 million in 2007. Capital expenditures for the quarter were USD 0.2 million and USD 58.7 million for the twelve months ended 31 December 2008. Borrowings decreased with a net of USD 2.2 million for the quarter, mainly caused by regular instalments on various loans, partly offset by increased draw down of short term credit facilities with USD 5 million during the quarter. Net interest bearing debt was USD 172.7 million at 31 December 2008 compared to USD 213.0 million at the end of 2007 and USD 196.9 million at the end of Q3 2008. The reduction of USD 24.3 million from Q3 2008 is mainly related to the reduction in the USD equivalent of NOK 600 million of bond loans caused by the strengthening of the USD against NOK (USD 17.2 million) combined with an increase of cash and cash equivalents (USD 4.8 million).
SeaBird has from the beginning of 2006 invested almost USD 350 million in a significant expansion of the fleet. The investment program initiated in 2005 is now finalized and paid and we have no further significant committed investments, except normal replacements and equipment upgrades. As of 31 December 2008, the short term credit facilities and current portion of long term debt amounts to USD 64.9 million. The major part of this is a bond loan of NOK 200 million due in July 2009 and draw down under a renewable short term credit facility of USD 15 million together with ordinary debt repayments on various credit facilities and term loans.
At 31 December 2008, SeaBird had a cash balance of USD 14.9 million and no further undrawn credit facilities. Based on the current business plan and the projected cash flow from operations we expect to be able to repay the debt as they fall due until the end of Q2 2009. However, our financial situation leaves limited room for deviations from the business plan and we may have to re-negotiate repayment schedules or find alternative forms of financing. When it comes to the bond loan of NOK 200 million with maturity in July 2009, we are working with various alternatives to refinance this. With the current uncertainties in the market the total debt level is on the high side. We are evaluating alternatives to improve liquidity and reduce the amount of short term debt. Over the last few months SeaBird has negotiated certain changes to several of our bank loans and have agreed to certain increases in interest margins.
We have now started to see indications of delayed projects and a slower demand in the 2D and source markets and more available capacity. As a consequence, we are preparing for higher uncertainty in the short to medium term. In the strong market we have experienced over the last 3-4 years we have seen limited new capacity within our high end 2D and shallow water 3D niche, except what SeaBird has brought into the market. A substantial part of the capacity available within the 2D market in general is old and may be taken out of the market when demand is slowing down. With a lot of areas still unexplored across the globe, we are still optimistic to this segment in the longer term, but we don't project any further growth. Currently, we have backlog for all of the vessels in this niche until mid-2009, except for the Munin Explorer, the Kondor Explorer (source capabilities only) and Geo Mariner. We are evaluating closely whether we should temporarily reduce capacity with one vessel as well as using one vessel as a second node vessel.
We are very optimistic about the long term outlook for our ocean bottom node business, as we believe advanced 4D/4C and production seismic in general will continue to grow and we expect it to represent more than 30% of our revenues in a short period of time. However, this is a new technology and it involves risks and uncertainties. Therefore, we are very pleased with the award of three major contracts from three oil majors (Total, BP and Chevron) in a short period of time, securing backlog for this vessel and one source vessel into 2010. This confirms the commercial potential and we also experience strong interest from other players for this technology. We have also seen a surge of interest in our 250 first generation nodes and should be able to have them deployed during the year.
Capital expenditures for 2009 will only be normal replacement and equipment upgrades on the existing fleet. In particular, we have invested USD 8-9 million in seismic equipment on the Aquila Explorer in January 2009 post re-delivery from PGS. Total capital expenditure for 2009 is expected to be in the range of USD 20-25 million.
The Board of Directors and Chief Executive Officer
SeaBird Exploration Ltd
26 February 2009
The presentation and the full report with tables can be downloaded from the following links: