HIGHLIGHTS FIRST QUARTER 2009
- Refinancing and partly redemption of the NOK 200 million bond loan was resolved in March with a USD 6.1 million profit to be booked in April 2009, when the bondholders exercised their put option.
- Net interest-bearing debt end of the 1st quarter USD 172.7 million reduced to USD 160 million after refinancing in April.
- Following several problems with our Sea Bottom Node seismic, technical challenges have been overcome to our client's satisfaction and the first survey area completed in Angola.
- Seven out of nine vessels on contract and one completing class certification for contract mobilization at the end of the 1st quarter.
- Lay-up of 1-2 vessels is under consideration.
- Although market outlook in the short term is weak within 2D, shallow water 3D and source, there have been some signs of an increased tender activity over the last few weeks for 2nd half of 2009.
- Super majors have now committed to the use of our ocean bottom nodes technology, securing backlog well into 2010, and proving the potential of this technology.
KEY FINANCIAL PERFORMANCE FIGURES
Consolidated revenues for the SeaBird Group "SeaBird" are down by 23.6% from USD 60.8million in Q4 2008 to USD 46.5 million in Q1 2009, but still higher than Q1 2008 at USD 39.4 million. The main reason for reduced revenues from Q4 2008 is a drop in utilisation from 77% in Q4 2008 to 62% in Q1 2009, as explained under Operational Highlights below. Earnings before interest, taxes, depreciation and amortization ("EBITDA") were USD 4.3 million for the quarter compared to USD 11.4 million for Q1 2008.
Charter hire and operating expenses in Q1 2009 were USD 35.2 million, about the same level as the previous quarter, but up from USD 23.5 million the same quarter last year. The main reason for this increase is the operations for the Hugin Explorer commencing in July 2008. Selling, general and administrative ("SG&A") expenses were USD 7.1 million in Q1 2009, compared to USD 5.1 million in Q1 2008, partly due to provision for bad debt and challenging operations on Hugin Explorer.
Earnings (loss) before interest and taxes ("EBIT") were negative with USD 5.8 million in Q1 2009 compared to a positive USD 4.3 million in Q1 2008. Depreciation and amortization were USD 10.1 million in Q1 2009, up from USD 7.1 million in Q1 2008. The increase of depreciations from Q1 2008 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.
Interest expenses decreased from USD 4.5 million in Q1 2008 to USD 4.2 million in Q1 2009. Taking into account the capitalized interest of USD 0.6 million in Q1 2008, the net interest payments have been reduced by USD 0.9 million from Q1 2008 to Q1 2009. The decrease in interest expenses corresponds to the decrease of net interest bearing debt from USD 207.0 million by the end of Q1 2008 to USD 172.7 million by the end of Q1 2009.
Other financial items for the quarter were USD 3.1 million net loss compared to net loss of USD 6.6 million in Q1 2008. The unrealized foreign exchange gain on translation of our NOK 600 million bond loans contributed to a loss of USD 4.1 million in the quarter, in line with the strengthening of the NOK against USD, which was partly offset by a gain on financial instruments of around USD 1.28 million (see further details under the note "Financial Instruments"). The income tax of USD 2.2 million in Q1 2009 and USD 1.3 million in Q1 2008 refers mainly to withholding tax in various jurisdictions around the world where the SeaBird vessels have been operating.
Loss for Q1 2009 was USD 15.3 million compared to a loss of USD 8.1 million in Q1 2008.
Capital Expenditures (CAPEX) for Q1 2009 was USD 13.3 million, of which USD 8.0 million refers to Aquila Explorer which was equipped with its own streamers and seismic equipment previously provided by client. Kondor Explorer has been upgraded by USD 2 million to be used as source / support vessel together with Hugin Explorer for BP E&P Inc in GoM. USD 2 million refers to Hawk Explorer acquiring a streamer from Fugro.
Write off for bad debt of USD 0.7 million has been booked for Q1 2009. Some discount to secure a payment from a Middle East client might be recognised in Q2 2009.
The continued strong 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 Q1 2009
The vessel utilization for the 9 seismic vessels operated by SeaBird for Q1 2009 is reduced to 62%, down from 77% in Q4 2008 and 83% in average for last year. The low utilization during the first quarter is due to the following:
Kondor Explorer continuing to be idle prior to being rigged for the engagement as source/support vessel for the Ocean Bottom Node contract for Hugin Explorer with BP E&P Inc in GoM expected to commence in July 2009.
Munin Explorer had a utilization of 25% after being idle for most of the quarter before mobilizing for her next contract offshore Mozambique where she started on a survey 1st week of April.
Geo Mariner had a utilization of 43% after the planned docking and class maintenance during February and March before mobilizing for her next contract to work offshore Mozambique.
Hawk Explorer and Harrier Explorer have continued on their long term time charters to Fugro Geoteam (to end November 2009) and PGS (to October 2011) and have a utilization of 82% and 99% respectively. Hawk Explorer had 12 days off hire due to technical downtime in February. Osprey Explorer and Northern Explorer continued to acquire data at the East Coast of India for the whole quarter with utilization of 98% and 90% respectively. The Northern Explorer completed work for ONGC on the West Coast of India end of January and then mobilized to join Osprey Explorer on the East Coast surveys. Completion of the contract with ONGC is expected in July 2009.
Aquila Explorer had a utilization of 82% mainly due to upgrading with a solid streamer following her redelivery from PGS in January. The Vessel has been working offshore South America during February and beginning of March, and was then mobilized to the Far East to commence her next survey in Vietnam.
The Hugin Explorer has continued in Angola on her first full scale Ocean Bottom Node Seismic survey for Total and has completed the Dalia survey. The vessel has just started mobilizing for GoM for the Green Canyon Field survey for BP E&P Inc. Following the completion of the BP contract and the survey in Nigeria in 2010, we expect to return to Angola.
Vessel utilization for Hugin Explorer for the quarter continued to be low at 38%, mainly due to redeployment and reshooting following the problems experienced earlier with the electronics and handling systems. These initial start-up problems have been addressed and the vessel performance has improved after modifications. SeaBird has experienced more problems on the first full scale Ocean Bottom Node Seismic survey for Total than expected. However, we believe most of these difficulties are now behind us. Furthermore the fact that the company has been able to secure two more substantial contracts for this front end technology for two major oil companies BP E&P Inc in GoM and Chevron affiliate Star Deepwater offshore Nigeria, has given SeaBird a boost in confidence for the future of this niche seismic technology.
Liquidity and Financing
At 31 March 2009, cash and cash equivalents amounted to USD 17.6 million, thereof USD 9.2 million restricted for repaying part of NOK bond loan, compared to USD 28.2 million at the end of Q1 2008 and USD 14.9 million at the end of 2008. Net cash flow from operating activities for Q1 2009 was USD 6.8 million, same level as for Q4 2008, compared to USD 15.4 million for Q1 2008. Borrowings decreased with a net of USD 1.3 million for the quarter, mainly caused by payment of regular instalments. Net interest-bearing debt was USD 172.7 million at 31 March 2009 compared to USD 207.0 million at the end Q1 2008 and USD 172.7 million at the end of 2008.
SeaBird has from 2006 invested almost USD 350 million in a significant expansion of the fleet. The investment program initiated in 2005 was finalized last year, and there are no further significant committed investments, except normal maintenance type expenditures and certain equipment upgrades.
SeaBird has from the beginning of Q1 2009 been working actively for a restructuring of the NOK 200 million bond loan due with maturity on 14 July 2009. On 3 March 2009 SeaBird completed a Private Placement raising a total of NOK 61.8 million and USD 5 million in new bank debt for the purpose to partly finance the bond restructuring. Consequently, a bondholders' meeting was held on 12 March 2009. Bondholders representing 97% of the votes agreed to amend the loan agreement. By doing so each of the bondholders was offered to either:
put its bonds to SeaBird for cash consideration for the bonds of 55% of par plus accrued and unpaid interest on the redeemed amount, or
continue as a bondholder, however so that 25% of the bonds shall be redeemed at 100% of par plus accrued and unpaid interest on the redeemed amount and so that the terms for the Bond Loan 1 are amended to extend maturity with two years and the negative pledge provisions are removed.
46% of the bondholders exercised the put option on 27 April 2009. This refinancing transaction will generate a USD 6.1 million profit in Q2 2009. The remaining balance of the NOK 200 million loan is NOK 78.7 million (net of NOK 4 million of own bonds held by SeaBird) due 14 July 2011.
In addition to the new debt facility of USD 5 million mentioned above, the banks agreed in December 2008 to defer instalments of a total USD 10 million due in Q4 2008 - Q2 2009.
Based on the current business plan and the projected cash flow from operations SeaBird expects to be able to repay the debt as it falls due until the end of Q2 2009. However, our financial situation leaves limited room for deviations from the business plan and we might have to re-negotiate repayment schedules or find alternative forms of financing for the 2nd half of 2009.
With the current uncertainties in the market the total debt level is on the high side. We continue to evaluate various alternatives to improve liquidity and reduce the debt.
Our 2D operation will be affected by reduced seismic acquisition in 2009/2010. We have seen the effects from delayed/cancelled projects and more available capacity from the existing 2D vessels. Some low end 2D vessels will be stacked or scrapped. This will help to balance the effect and no new 2D tonnage is coming into the market. Revenue rates are falling to 2007 levels, which are still levels where SeaBird can operate successfully. We continue to be optimistic in the longer terms.
In our shallow water 2D/3D operation with the Geo Mariner, the employment prospects are mainly from the smaller independents. This niche operation can result in numbers of smaller surveys in these development areas.
In our ocean bottom node operation, we remain very optimistic for future growth in the long term. With oil price forecast to be $60/$70+ for the next 2 years we see no reduced effect in demand for reservoir imaging, rather the opposite as increased production levels and reduced drilling CAPEX create an enormous economical benefit to the oil companies. Despite our disappointing technical start-up problems, the initial feedback from the Dalia Field is that the raw data is excellent and exceeds original expectations.
SeaBird has made significant advances in methodology and business plan, and is not purely reliant on other major seismic contractors to employ the vessels as before. Our future lies mainly with Supermajors, NOC's and IOC's and we have a fleet which is designed to be flexible between frontier 2D and source for long offset or WAZ, and a bright future in 4C/4D OBN operations.
However, we cannot be complacent about the coming months and the effects that SeaBird along with other seismic operators, will experience from a reduced seismic activity level. Accordingly we have instituted cost cutting regimes across all areas of our operation, and we are fully prepared and have planned for layup and/or warm/cold stacking of one or two of our vessels.
The Board of Directors and Chief Executive Officer
SeaBird Exploration Ltd
7 May 2009
The presentation and the full report with tables can be downloaded from the following links: