HIGHLIGHTS FOURTH QUARTER 2010
Discussions with Petroleum Geo-Services ASA (GPS) were progressing during December 2010, and successfully concluded in January 2011 with a Cooperation Agreement and the PGS investment in SeaBird with a NOK 240 million convertible loan. Subsequent to this, two representatives of PGS were elected to the SeaBird Board.
The Ocean Bottom Node (OBN) operation with Hugin Explorer and Munin Explorer was successfully completed for Shell Nigeria Exploration & Production 20 November 2010.
With an average 3 of 7 2D/Source vessels idle or in standby mode during Q4 2010, and no new work secured for the OBN until beginning of Q2 2011, revenues are reduced to USD 37.6 million in Q4 2010 from USD 43.2 million in Q3 2010.
Multiclient sales during Q4 2010 amounted to USD 3.1 million, the highest result from sales in any quarter.
Impairment of vessels and equipment amounting to USD 25.1 million in total, of which USD 10.5 million recognised in the income statement and USD 14.7 million recognised against Revaluation Reserve (equity).
KEY FINANCIAL PERFORMANCE FIGURES
For comparisons of income and expenses for the full year 2010 and 2009, several changes in the operating performance of the OBN activity and the market rates and utilisation of the 2D have significantly affected the revenues for SeaBird.
The OBN operation with Hugin Explorer incurred significant losses on its first survey during 1st half 2009, while the OBN operation with Hugin Explorer and Kondor Explorer (replaced by Munin Explorer in August 2010) as source vessel has been very successful in 2010 and generated revenues in excess of expectations during 1st half 2010. However, the idle period for the OBN operation following completion of the Bonga survey for Shell in Nigeria end of November 2010 has badly affected the revenue level in Q4 2010.
Both in 2009 and 2010, the revenue levels and utilisation for SeaBird's 2D fleet were high in Q1 and Q2, while Q3 and Q4 were unsatisfactory. Both years showed low utilisation in Q3. While utilisation improved considerably in Q4 2009, the market continued to deteriorate in Q4 2010, and only 3 out of 7 vessels were working or committed at year end 2010. The activity now seems to build up in Q1 2011.
Consolidated revenues for SeaBird decreased to USD 37.6 million in Q4 2010 from USD 43.2 million in Q3 2010, mainly due to the OBN survey completed on the Bonga Field for Shell Nigeria Exploration and Production end of November without subsequent work. Also the 2D fleet has contributed slightly less to the revenues this quarter due to lower utilisation with two more vessels in partial standby. Revenues include Multiclient sales of USD 3.1 million compared to USD 2.0 million in each of the two previous quarters.
Operating expenses including bareboat charter hire increased to USD 36.6 million in Q4 2010 from USD 30.1 million in Q3 2010. OBN operating cost is up by USD 2.7 million compared to Q3 2010 due to mobilising back to Nigeria from mid August 2010, where operating cost is higher than in the North Sea, and the use of Munin Explorer as source vessel for the OBN operation with a higher bareboat charter hire than the Kondor Explorer. 2D operating cost is also up, partly due to having performed 2 vessel-months of Multiclient work with capitalised operating costs of USD 2.2 million during Q4 2010, compared to 3.5 vessel months and USD 3.9 million capitalised in Q3 2010.
Selling, general and administrative ("SG&A") expenses were high at USD 8.2 million in Q4 2010 including USD 2.0 million write-off for bad debts, leaving a net SG&A expenses of USD 6.2 million, which is in line with previous quarters in 2010. This is the first write-off of bad debts since Q2 2009.
Earnings before interest, taxes, depreciation and amortisation ("EBITDA") were negative at USD 7.1 million in Q4 2010 compared to positive earnings of USD 7.9 million in Q3 2010. Reduced EBITDA in Q4 2010 compared to Q3 2010 refers mainly to reduced revenues and increased operating expenses explained above.
Depreciation is up to USD 16.5 million in Q4 2010 compared to USD 13.7 million in Q3, mainly due to increased amortisation of Multiclient library.
As part of the year-end close we have made impairment testing of vessels and seismic equipment resulting in an impairment of USD 25.2 million in total, mainly related to three vessels with belonging seismic equipment and some additional redundant equipment. Part of the impairment, USD 14.7 million is recognised against Revaluation Reserve (equity), and USD 10.5 million is recognised in the income statement. See further details under the notes "Property, plant and equipment".
Interest expense at USD 3.0 million in Q4 2010 is on the same level as previous quarters.
Other financial expenses of USD 1.4 million for the quarter refers mainly to unrealised loss on exchange.
For change in fair value of conversion rights at USD 2.7 million, see explanation under "LIQUIDITY AND FINANCE" below.
The income tax of USD 2.2 million in Q4 2010 refers to corporate and withholding tax in various jurisdictions where the SeaBird vessels have been operating. This is in line with previous quarters.
Net loss after tax in Q4 2010 was USD 43.2 million compared to a net loss of USD 19.9 in Q3 2010, while Q4 2009 had a loss of USD 16.9 million. Net loss for the year 2010 is USD 55.9 million.
Capital expenditure was USD 3.9 million during Q4 2010, of which USD 1.4 million relates to investment in additional nodes on Hugin Explorer, USD 1.4 million classification of Harrier Explorer and 0.7 million for extended streamer capacity on Aquila Explorer. Capital expenditure for the year 2010 amounts to USD 11.9 million.
A weakening of USD against NOK and Euro has in general a negative impact on the operating expenses, interest expenses and gross debt, as SeaBird has significant costs in other currencies than USD and bond loans of a total of NOK 478 million.
OPERATIONAL HIGHLIGHTS Q4 2010
The vessel utilisation for the 9 seismic vessels operated by SeaBird was 51% in Q4 2010, down from 76% in Q2 2010 and 66% in Q3 2010.
The Ocean Bottom Node ("OBN") operations with Hugin Explorer and Munin Explorer as source vessel successfully completed the OBN contract for Shell Nigeria Exploration and Production, with Hugin Explorer demobilising back to Lagos end of November, while Munin Explorer completed a 15 days survey as source vessel for a separate contractor's platform undershoot program offshore Nigeria. Since their respective assignments, both vessels have been moved to Ghana for taking onboard consumables and testing of equipment. Mobilisation started earlier this week to the North Sea for docking/classification before commencing a new survey for Chevron North Sea Limited on the Rosebank field (stage 2) beginning May 2011. Stage 1 of Rosebank was completed by SeaBird in August 2010. The utilisation for the two vessels in Q4 2010 was 61%, compared to 99% in Q3.
Management is in process of securing a 2-3 months employment after the Rosebank survey expected to be completed during August 2011. Work opportunities are coming up for various OBN surveys during 2011 and into 2012, evidenced by tender invitations and budgetary requests received. One of these new tenders is a recently announced invitation for the first repeat OBN survey in Nigeria for a Chevron subsidiary where SeaBird successfully performed the first survey early 2010. Continued employment for the SeaBird OBN crew is expected through the end of 2011 and beyond.
Utilisation for the 2D/3D and source vessels was 49% in Q4 2010, down from 62% in Q3 2010. The main reasons for the reduced utilisation were that Kondor Explorer was laid up in a cold stacked mode from 12 August 2010, Hawk Explorer was idle in a standby mode since mid July 2010, and Osprey Explorer was idle in standby mode from end September to 26 December2010. For idle vessels in standby mode, crew and other operating expenses are substantially reduced compared to operational mode.
The rest of the fleet has performed well in Q4 2010, with utilisation at 100% for Harrier Explorer, 60% for Northern Explorer, and 82% for Geo Mariner (shallow water 3D).
The backlog for the 2D vessels going forward into Q1 2011 is improving, and more opportunities could materialise, and an increase in utilisation for this part of our fleet will be seen towards the end of Q1 2011.
Guiding of EBITDA for Q1 2011
The EBITDA level will remain at negative numbers for Q1 2011; mostly due to lack of revenues from the OBN operation before mobilisation to the Chevron/Rosebank contract.
LIQUIDITY AND FINANCE
At 31 December 2010, cash and cash equivalents amounted to USD 1.1 million, compared to USD 26.3 million at the end of Q3 2010. The decrease is partly due to SeaBird changing part of a revolving credit facility to an overdraft facility. This overdraft facility of USD 5 million was not drawn at year-end. Another reason for the reduced cash is due to overdue receivable of approximately USD 17 million, paid in January 2010. This has been settled in Q1 2011.
In September 2010 SeaBird restructured bank debt of USD 46.9 million to a loan with a 5 years repayment profile, but with a balloon after two years.
SeaBird issued a NOK 120 million convertible loan in favour of Perestroika AS with three years maturity in September 2010. Conversion price is at NOK 3.35 per share. The loan carries 1% interest.
This NOK 120 million unsecured, non-transferable, convertible having a conversion price in NOK, while the functional currency for SeaBird Group is USD, results in the conversion right being recognised separately from the debt instrument as an embedded derivative at fair value. Using an option pricing model, the fair value of the embedded derivative was USD 3.8 million at inception. At 31 December 2010, the fair value of the embedded derivative was estimated to USD 6.5 million, resulting in a financial loss of USD 2.7 million in the income statement. The debt instrument amounts to USD 17.0 million at 31 December 2010. The convertible loan is thus reflected by USD 17.0 million under "Non-current interest-bearing debt" and USD 6.5 million under "Fair value of conversion rights" per year-end 2010.
Net cash flow from operating activities for Q4 2010 was negative at USD 11.2 million against negative at USD 0.4 million for Q3 2010.
Instalments of USD 3.6 million were paid to banks and USD 0.7 million on the lease of Hawk Explorer during Q4 2010.
Net interest-bearing debt (includes cash and currency adjusted debt) increased to USD 172.1 million end of Q4 2010 from USD 159.9 million end of Q3 2010. The increase reflects the issued convertible loan of NOK 120 million, and reduced cash following losses in Q4 2010.
SeaBird is in compliance with all covenants under the bonds and bank loans agreements, with the exception on the Book Equity to Total Assets at 37% (min. Requirement: 40%). A waiver application has been filed, and waiver is expected within a few days.
There are no further significant committed investments, except normal maintenance type expenditures and certain equipment upgrades for our present fleet of vessels. However, the Management and the Board of Directors are evaluating an expansion of the Ocean Bottom Node operation through investing in a second OBN crew.
Oil prices have continued to show strength in the last months, and the substantial increases in oil companies E&P budgets for 2011 are very encouraging both for frontier and production seismic exploration going forward.
The last six months of 2010 showed a high interest for Ocean Bottom Node seismic, and this has resulted in several tenders coming out for OBN work in North Sea, India, Gulf of Mexico, Brazil and West Africa, and in addition further budgetary quotations have been requested for these areas and for East Africa and Far East. We maintain that the demand for SeaBird's OBN services is expected to increase significantly in Q2 and onwards with limited capacity available in the market.
We have also seen the development of OBN acquisition being used on a developing field in West Shetlands where there is no infrastructure in place, but the field operator has chosen OBN as the preferred option for a 4C/4D baseline survey.
The 2D tendering activity remained slow across the start of 2011, and SeaBird continued with idle vessels into February 2011. Now we have seen more activity in the 2D sector with most vessels fixed from March and April 2011. We expect the nature of surveys to be of short duration and this to continue into second half of 2011. We also see higher interest in wide azimuth surveys and have received several enquiries for source vessel contracts in second half of 2011, which can lower our exposure in 2D whilst still giving a satisfactory result.
With idle time in mind, we have accelerated docking and maintenance schedules from Q3/Q4 2011 for two of the vessels into Q1 2011, thereby utilising the current idle time and having the vessels in full revenue generating mode in second half of 2011.
We are very excited about the future prospects following the execution of a co-operation agreement with Petroleum Geo Services where we see a number of great opportunities as we move forward, and especially in the combination of Multi-Streamer and OBN surveys in which both companies strongly believe as a complete solution for oil company demand. In consequence of this, we are finalising the design, operational and finance structures for our second node operation.
The Board of Directors and Chief Executive Officer
SeaBird Exploration PLC
22nd February 2011
This information is subject of the disclosure requirements pursuant to section 5-12 of the Norwegian Securities Trading Act.