HIGHLIGHTS FIRST QUARTER 2011
· SeaBird entered into a Cooperation Agreement with Petroleum Geo-Services ASA (PGS) on 26 January 2011 and PGS invested in a NOK 240 million convertible loan. Subsequent to this, two representatives of PGS were elected to the SeaBird Board.
· SeaBird negotiated a 2 year extension with major Bondholders of the NOK 400 million Bond loan 2007/2012 (ISIN 001 0353915) with a postponed maturity to 14 February 2014.
· On 15 March 2011, SeaBird received approval by BN Bank (agent for a bank consortium) of a two years extension of the maturity of a USD 42.2 million loan. Instalments remain at USD 2.3 million per quarter, with a balance of USD 11.7 million due on 14 September 2014.
· Following off hire from December 2010, Hugin Explorer and Munin Explorer commenced mobilisation on 23 February 2011 for the OBN survey on Rosebank west of Shetland, arriving location 12 April 2011. Deployment of nodes started after 7 days waiting on weather. The mobilisation period included 20 days dry-dock at a Danish yard.
· Several 2D/3D contracts awarded during Q1 and April 2011, giving a significant improvement in contractual backlog compared to the utilisation in the beginning of 2011.
kEY FINANCIAL PERFORMANCE FIGURES For comparisons of revenues and expenses between Q1 2011 and Q1 2010, several changes in the operating performance of the Ocean Bottom Node ("OBN") activity and the utilisation of the 2D fleet have significantly affected the revenues for SeaBird.
While the OBN activity with Hugin Explorer retrieving and deploying nodes and Kondor Explorer working as source vessel on the Agbami field in Nigeria at high revenue levels through Q1 2010, the OBN activity (now with Munin Explorer as source vessel) has only been generating revenue from mobilisation during part of Q1 2011.
Also in the 2D segment the utilisation was low with only three vessels working at the start of Q1 2011. Although improving considerably during the quarter, utilisation in Q1 2011 was 57% compared to 74% in Q1 2010.
Consolidated revenues for the SeaBird Group was down to USD 21.2 million in Q1 2011 from USD 37.6 million in Q4 2010 and USD 66.0 million in Q1 2010. The low revenues are mainly due to the idle period until start of the mobilisation from Ghana 23 February 2011 of Hugin Explorer and Munin Explorer for the Rosebank contract and the dry dock period at a yard in Denmark from 13 March to 2 April 2011. Also, the revenues contribution from the 2D fleet is down slightly in this quarter compared to the previous quarter. Multiclient sales in Q1 2011 were USD 1.0 million compared to USD 7.1 million in 2010.
Earnings before interest, taxes, depreciation and amortisation ("EBITDA") were negative at USD 8.7 million in Q1 2011 against a negative EBITDA of USD 7.1 million in Q4 2010. Operating expenses decreased to USD 23.6 million in Q1 2011 from USD 36.6 million in Q4 2010, mainly due to reduced cost for vessels in standby, idle or under mobilisation, in addition to capitalised cost during dry-dock of Hugin Explorer and Munin Explorer, and capitalised cost during Multiclient survey on Osprey Explorer from mid February 2011 and about 3 weeks on Aquila Explorer.
If disregarding the write off of bad debt of USD 2 million in Q4 2010 the selling, general and administrative ("SG&A") expenses are continuing at the same level at about USD 6 million as in previous quarters. In Q1 2011, costs were up slightly to USD 6.3 million due to some additional legal cost due to debt refinancing.
Depreciation is down from previous quarters at USD 11.9 million, mainly due to impairment of three vessels amounting to USD 25.2 million at year end 2010, thus reducing depreciation for the remaining life of these vessels. Also amortisation of Multiclient library is reduced by about USD 1.3 million this quarter compared to average per quarter for 2010.
Interest expense is up by about USD 0.6 million in Q1 2011 to USD 3.6 million, mainly due to the interest of 9% on the convertible loan in favour of PGS and increased margin on bank loans as a result of extended maturity.
Other financial expenses of USD 5.6 million refer mainly to unrealised loss on exchange on the two NOK based bond loans totalling NOK 478 million.
For change in fair value of conversion rights at USD 3.0 million, see explanation under "LIQUIDITY AND FINANCE" below and under "SELECTED NOTES AND DISCLOSURES".
In Q1 2011 net loss after tax was USD 33.2 million compared to a loss in Q4 2010 of USD 43.2 million and a profit in Q1 2010 of USD 5.7 million.
Capital expenditure was low at USD 1.2 million during Q1 2011, compared to USD 12 million for 2010.
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.
OPERATIONALHIGHLIGHTS Q1 2011
The vessel utilisation for all vessels operated by SeaBird for Q1 2011 was 49% down from 51% in Q4 2010.
Following the completion of the Ocean Bottom Node ("OBN") contract for Shell Nigeria Exploration and Production Co with Hugin Explorer and Munin Explorer as source vessel end of November 2010, both vessels were in standby mode in Ghana until 23 February 2011, when the vessels were mobilised for the Rosebank Survey west of Shetland for Chevron North Sea Limited as operator. Both vessels have carried out classification and dry-docking at a yard in Denmark during this mobilisation period. The vessels arrived on location on 12 April 2011, but were stand-by waiting on weather until 19 April 2011 when the first nodes were deployed. The utilisation for the two vessels in Q1 2011 was 23% (as paid mobilisation), compared to 61% in Q4 2010.
SeaBird has been confirmed to be in 1st place for an OBN tender whereby an award is expected shortly. This will most likely give a continued program following completion of the Rosebank survey. SeaBird is also actively pursuing further work, and see an increase in work opportunities coming up for various OBN surveys through 2011 and into 2012, based on tender invitations and budgetary requests received.
Utilisation for the 2D/3D vessels in Q1 2011 was 57% compared to 49% in Q4 2010. The utilisation has improved considerably during the first quarter from only three vessels on contract in the beginning of the year to all 2D vessels (except Geo Mariner started mid April 2011) being on contract and generating revenues by the start of Q2 2011.
Aquila Explorer has had 84% utilisation in Q1 2011, and is employed to mid May 2011. Harrier Explorer has achieved 99% utilisation and is employed to PGS to September 2011. Northern Explorer had 87% utilisation, and is contracted until mid July 2011. Osprey Explorer had 60% utilisation and has completed a Multiclient survey in the US part of GOM and is presently in standby awaiting permission to continue on a Multiclient survey keeping the vessel busy into June 2011. Hawk Explorer had only 15% utilisation in Q1 2011, but is presently on contract through May in Equatorial Guinea, thereafter she is due for dry-dock. and Geo Mariner has mobilised to South East Asia and been awarded a 2D contract for one month survey with client option to extend for a further month together with an option for a further 3D survey. This will keep Geo Mariner busy till end of June 2011, prior to a scheduled docking.
SeaBird has excluded Kondor Explorer (pure source vessel) from the statistics above due to its long-lasting lay-up status from August 2010. This vessel is still under SeaBird control but at an insignificant cost to SeaBird and a high probability of the vessel being handed back to its owners in January 2012.
SeaBird expects utilisation in Q2 2011 for the total fleet to be in the region of 70-80%.
COOPERATION AGREEMENT WITH PGS
Based on Seabirds' position as the market leader in deepwater node seismic, a strategic cooperation to further develop OBN operations together with Petroleum Geo-Services ASA (PGS) was entered into in January 2011.
This agreement enables the two companies to provide a complete seismic solution in deep water areas, in areas with complex geology, and in areas with heavy infrastructure on the sea bottom.This agreement will strengthen each of the two companies leading positions in the reservoir monitoring market.
The use of OBN for 3D, 4C and 4D seismic to map complex reservoirs, will be particularly attractive combined with PGS' broadband GeoStreamer technology, and opens up for extending the application of the SeaBird OBN technology.
Under the terms of the agreement, PGS will gain exclusive rights to offer SeaBird's autonomous seabed recording technology at market terms in Brazil in solutions combining OBN and streamers. SeaBird will gain access to PGS' extensive worldwide marketing network and geophysical expertise and the parties have expressed intentions to explore further areas of cooperation, such as data processing and use of GeoStreamer on SeaBird's 2D vessels.
Furthermore, SeaBird expects that the cooperation with PGS will enhance the utilisation of our 2D and Source vessels when opportunities arise.
ACCOUNTING EFFECT OF THE CONVERTIBLE LOANS
In connection with the cooperation agreement with PGS, SeaBird issued a five year convertible loan of NOK 240 million directed towards PGS with a conversion price of 3.35 NOK per share and an annual interest of 9% that can be paid in cash or in kind. The terms of the convertible loan agreement were amended on 31 March 2011, when the currency of the convertible loan was changed from NOK to USD with a nominal value of USD 42.93 million. The loan can at any time be converted into ordinary shares at a conversion price of USD 0.5993 per share until the maturity date. The dilution effect through number of shares converted is unchanged. Also the interest rate remains unchanged at 9% and can be paid in cash or in kind. The conversion right has been recognised separately from the debt instrument as an embedded derivative at fair value in Q1 2011. Subsequent to amendment of the loan agreement, the conversion right will be recognised separately from the debt instrument as an equity instrument from 31 March 2011 onwards. Details regarding this loan are further described in selected notes and disclosures.
The life of the convertible loan from Perestroika was increased from three to four years on 26 January 2011. Further, the terms of the convertible loan agreement were amended on 31 March 2011. As from this date, the currency of the convertible loan was changed from NOK to USD with a nominal value of USD 21.47 million. The loan can at any time be converted into ordinary shares at a conversion price of USD 0.5993 per share until the maturity date. The dilution effect through number of shares converted is unchanged. Also the interest rate remains unchanged at 1% and can be paid in cash or in kind. The conversion right has been recognised separately from the debt instrument as an embedded derivative at fair value in Q1 2011. Subsequent to amendment of the loan agreement, the conversion right will be recognised separately from the debt instrument as an equity instrument from 31 March 2011 onwards. Details regarding this loan are further described in selected notes and disclosures.
LIQUIDITY AND FINANCING
At 31 March 2011, cash and cash equivalents amounted to USD 11.4 million. In addition SeaBird has an undrawn overdraft facility of USD 5.0 million.
In order to further establish a solid financial platform SeaBird also negotiated a 2 year extension of the NOK 400 million bond loan, with maturity 14 February 2012, now due in February 2014.
The loan restructuring consists of additional amendments of the Bond Loan whereby the interest rate is increased from NIBOR plus 4.5% to NIBOR plus 6.5% payable in cash and an additional 2% payable in cash or in the form of additional bonds at the discretion of the Company (the "PIK Interest"). The existing dividend restriction of the Bond Loan agreement is being amended so as to not allow dividends or other distributions as defined therein until maturity. The Borrower has call options to redeem the Bond Loan (plus any accrued interest) at 106% of par value at the interest payment date in February 2012 and at 103% of par value at the interest payment date in February 2013. Finally the bonds are being split so that 1 bond of NOK 500,000 denomination shall be converted to 500,000 Bonds of NOK 1 to facilitate the PIK Interest.
As part of the condition of restructuring the NOK 400 million Bond Loan, the bank consortium with BN Bank as agent accepted to extend the maturity of the USD 42.2 million loan by two years, now repayable on 14 September 2014 with a remaining balance of USD 11.7 million. The interest margin was increased from 4% to 7.5%. Furthermore, Perestroika accepted to extend the maturity of the Company's current convertible loan with one year to four years.
Net cash flow from operating activities for Q1 2011 was negative at USD 35.3 million, against negative USD 11.3 million for Q4 2010, and positive USD 12.7 million for Q1 2010. The substantial decrease in net cash in Q1 2011 refers mainly to substantial payment of trade payables.
During Q1 2011 instalments of USD 2.3 million were paid to banks and USD 0.7 million on the lease of Hawk Explorer. Net debt and borrowings increased to USD 201.4 million end of Q1 2011 from USD 172.1 million end of Q4 2010.
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 still evaluating an expansion of the Ocean Bottom Node operation through constructing a second OBN vessel.
As expected oil prices have continued at a high level into 2011. Spending on E&P lags behind oil price increase but already renewed interest is shown in surveys for H2-11 and beyond.
We continue to see high interest in SeaBird OBN technology with further tenders and quotations requested for high level OBN reservoir monitoring surveys.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 Chevron North Sea has chosen OBN as the preferred option for a 4C/4D baseline survey.
As previously advised, we accelerated docking and maintenance schedules from Q3/Q4 2011 for two of the vessels into Q1 2011, thereby utilisingthe idle time and having the vessels in full revenue generating mode in second half of 2011.
e are working together with PGS to develop the areas of co-operation for the rest of 2011 where we see an increased demand in Multi-Streamer and OBN surveys and the development of the offers in combination. Despite a challenging seismic market and difficult financial environment, SeaBird is progressing towards finalisation of expanding into a second node operation.
GUIDING OF EBITDA for Q2 2011
SeaBird expects a positive EBITDA result in Q2 2011 based on securing better utilisation of the 2D fleet as well as the OBN vessels Hugin Explorer and Munin Explorer being on the Rosebank Survey for Chevron through the quarter.
The Board of Directors and Chief Executive Officer
SeaBird Exploration PLC
3 May 2011
This information is subject of the disclosure requirements pursuant to section 5-12 of the Norwegian Securities Trading Act.