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2013 SUMMARY OBSERVATIONS FOR THE SECOND QUARTER

  • Revenues for the quarter were $40.2 million, a decrease of 17% compared to the comparable period in 2012 and down 17% relative to Q1 2013.
  • Contract revenues for the period were $36.2 million, down 17% from Q2 2012 and down 25% from Q1 2013.
  • Multi-client revenues were $4.0 million, a decrease of 22% from $5.1 million reported in Q2 2012 and up from $0.1 million reported in Q1 2013.
  • Significant increase in investment in new multi-client surveys; multi-client activity during the period increased from 4% of vessel capacity in quarter one to 22% of vessel capacity in quarter two.
  • Contract surveys during the second quarter represented 57% of vessel capacity compared to 84% during quarter one; due to increased multi-client surveys, preparation of Geo Pacific for initial project and fleet repositioning.
  • EBITDA was $3.7 million compared to $17.2 million for Q2 2012 and $11.1 million for Q1 2013.
  • EBIT for the quarter was negative $2.4 million compared to $7.7 million for Q2 2012 and $5.1 million for Q1 2013.
  • Vessel utilization for the period was 79%.

Operational review

Revenues and earnings for the second quarter were down from the first quarter as the company actively increased investment in multi-client surveys, prepared the Geo Pacific for its first project and repositioned a number of vessels following the completion of existing contracts.

During the second quarter, SeaBird completed its three thousand kilometer multi-client project in the Caribbean and commenced two additional multi-client surveys, an expanded five thousand kilometer project in Namibia and a six thousand kilometer project in the Barents Sea.  Multi-client activity during the period increased from 4% of vessel capacity in quarter one to 22% of vessel capacity in quarter two.

We will continue our multi-client focus and will generally partner with other industry participants.  We anticipate attractive returns from our multi-client investments.  However, until the multi-client library reaches critical mass, revenues and EBITDA may be impacted.

The Geo Pacific commenced its first survey in mid-May.  The delayed start date was primarily a result of extended sea trials.  While the vessel operated successfully throughout the remainder of the quarter, the later than expected production start contributed negatively to EBITDA for the period.  Additionally, a number of start-up issues resulted in above-average technical down-time. These issues are  being addressed and going forward we expect to have the vessel perform in line with the rest of the fleet.  Nevertheless, the increased technical down-time also impacted earnings. 

However, the Geo Pacific completed its first survey on schedule and was immediately mobilized for its second project which is expected to keep the vessel occupied through the end of the third quarter.

Contract revenues for the second quarter were down compared to the prior period.  Contract surveys during the second quarter represented 57% of vessel capacity compared to 84% during quarter one.  The reduced contract survey utilization rate is in part a result of two vessels being dedicated to multi-client projects during the period.  In addition, fleet repositioning accounted for 15% of vessel capacity for the second quarter.  This includes the time allocated to mobilize the Geo Pacific for its first job as well as the repositioning of Voyager and Aquila following their Southern Asia Pacific campaigns.  Harrier was also repositioned to Northern Europe and subsequently commenced work in the Barents Sea.

During the second quarter we had two yard stays, representing 6% of vessel capacity for the period.

Utilization for the second quarter was 79%, down from 88% in the first quarter.

Operational performance was solid during the period.  Technical downtime for the fleet for the second quarter was 5% and the company's lost time injury frequency (LTIF) rate for the quarter was zero. 

The company has achieved early compliance with the new Maritime Labour Convention standards ratified in 2012.  Moreover, during the quarter, Northern achieved seismic vessel notation as part of our ongoing program with DNV.

Health, safety, security, environment and quality (HSSEQ) successfully completed a number of client prequalification audits as well as follow-up audits for ISO 9001/14001 and OHSAS 18001.  Several HSSEQ initiatives were commenced during the quarter as a part of the company's continuous focus to improve internal processes.

Regional overview

In the second quarter, geographic revenues were strongest in North and South America (NSA) where we saw a significant increase in activity.  Revenues in Asia Pacific (APAC) and Europe, Africa and Middle East (EAME) were down from the first quarter mainly due to vessel repositioning and increased multi-client focus.

NSA sales of $20.4 million represented 51% of total revenues. The significant increase in NSA revenues was in large part a result of Geo Pacific's first survey in the Caribbean.  In addition, we had two vessels active in the region throughout the quarter.

Sales in APAC of $13.2 million accounted for 33% of total revenues.  Revenues in the region were down compared to the first quarter as Aquila completed its projects in Australia in May and mobilized for its new contract in South East Asia, commencing its new survey in early July.  Additionally, Voyager completed its Australia and New Zealand campaign in April and transited to South East Asia for its next survey, commencing this project in June.

Sales in EAME of $6.6 million accounted for 16% of total revenues.  Revenues were reduced compared to the first quarter as Northern completed its survey in Africa in late May and Osprey and Harrier operated in the region on multi-client projects.  

Outlook 

Global industry demand in the quarter continued to be strong albeit vessel repositioning in certain geographies caused time delays.  Most significantly, we had two vessels in the Asia Pacific region during the second quarter which required more time than estimated to reengage following the completion of their surveys.  However, both vessels are currently active and we are seeing solid demand in the APAC region.

In spite of continued robust seismic market demand in all our core regions, we do expect that vessel repositioning from time to time will impact utilization.  That being said, going into the third quarter, vessel utilization across the fleet was strong.

Day rates for both 2D and niche 3D seismic contract surveys remained solid in the second quarter.  During the period we experienced stable to improving pricing trends in all geographies.  We are not seeing any signs indicating a changing pricing environment and we expect day rates to remain firm for the foreseeable future.

The increased focus on multi-client investment is continuing and we will be developing attractive multi-client opportunities throughout our geographic focal areas.

FINANCIAL REVIEW

Financial comparison

All figures below relate to continuing operations unless otherwise stated.  For discontinued operations, see note 1.

The company reports a net loss of $3.5 million for the second quarter 2013 (net profit $0.3 million same period in 2012). 

The loss for the first half of 2013 was $2.0 million, compared to a loss of $12.2 million in 2012.

Revenues were $40.2 million in Q2 2013 ($48.7 million).  The decreased revenues are primarily due to increased multi-client activity, reduced contract utilization and lower multi-client sales during the quarter.

Revenues for the first half of 2013 were $88.8 million compared with $83.0 million for 2012.

Cost of sales was $31.9 million in Q2 2013 ($27.6 million).  The increase is mainly due to the chartering of the Geo Pacific, fleet composition and operating in higher cost geographical regions relative to the same period in 2012. The cost increase was offset by increased multi-client activity for the quarter and a subsequent capitalization of expenses. 

For the first half of 2013, cost of sales was $65.0 million, up from $54.8 million in 2012.

SG&A was $4.9 million in Q2 2013, up from $4.0 million in Q2 2012.  The increase is principally due to higher consultancy costs related to the ongoing tax review and the costs associated with the bond refinancing review.

SG&A for the first half of 2013 were $9.6 million compared with $8.9 million for 2012.

EBITDA was $3.7 million in Q2 2013 ($17.2 million).  EBITDA for the first half of 2013 was $14.8 million compared with $20.1 million for 2012.

Depreciation and amortization were $6.1 million in Q2 2013 ($9.5 million).  The decrease is predominantly due to increased multi-client activity and a corresponding increase in capitalized depreciation, along with lower multi-client sales amortization for the period.

Depreciation and amortization decreased from $21.0 million in the first half of 2012 to $12.1 million in 2013.

Interest expense was $3.0 million in Q2 2013 ($3.1 million).  

For the first half of 2013, interest expense was $6.0 million, down from $6.1 million in 2012.

Other financial items, net expense, of positive $0.5 million in Q2 2013 (positive $0.2million).  The change is mainly due to currency fluctuations.

For the first half of 2013 other financial items, net expense, were positive $0.4 million compared with negative $0.3 million for 2012.

Income tax benefit was $1.5 million in Q2 2013 (expense of $4.6 million).  The decrease in tax cost is mainly due to the reassessment of a number of historical tax provisions, along with a reduction in corporate and withholding taxes directly related to the tax jurisdiction the vessels operated within during Q2 2013.

For the first half of 2013, income tax benefit was $0.9 million compared to a tax expense of $4.8 million recorded in 2012.

Capital expenditures were $3.7 million in Q2 2013 ($7.0 million).  Major capital cost items for the quarter included the engine overhaul of the Harrier Explorer, docking of the Northern Explorer and purchasing of seismic and other equipment across the fleet.

Multi-client investment was $5.5 million for the quarter ($1.2 million), which is related to the Snospurv Norway and Namibia multi-client surveys.

Net loss from discontinued operations was $0.3 million for Q2 2013 (gain of $2.3 million).  Discontinued operations represent the remaining contractual obligations of the ocean bottom node (OBN) business which was divested in Q4 2011.

For the first half of 2013, net loss from discontinued operations was $0.8 million, compared to a net profit of $7.5 million reported in 2012.

Liquidity and financing

Cash and cash equivalents at the end of the period were $13.8 million ($6.7 million), of which $0.2 million was restricted in connection with bank guarantees, deposits and the bond service account.  Net cash from operating activities was positive $10.8 million in Q2 2013 (positive $5.0 million).

During the quarter, the company completed a review of alternatives to refinance its SBX03 bond. The company concluded that the terms of the existing bond are more favorable than the terms currently available in the market.

The company has one bond loan, one convertible loan and the Hawk Explorer finance lease. 

  • The 6% secured bond loan has a face value of $85.9 million and is recognized in the books at amortized cost of $76.1 million per Q2 2013.  The bond loan matures 19 December 2015 and has principal amortization due in semi-annual increments of $2.0 million that started 19 December 2012.  Interest of $2.6 million was paid during Q2 2013 in relation to the bond loan.
  • The 1% unsecured convertible loan with Perestroika has a face value of $14.9 million and is recognized in the books at amortized cost of $13.3 million per Q2 2013.  The convertible loan matures 30 September 2014 and has no principal amortization.  Interest on the convertible loan is paid annually.  No interest was paid during Q2 2013 in relation to the convertible loan.
  • The lease of Hawk Explorer is recognized in the books as a finance lease at $11.3 million per Q2 2013.  Installments of $0.9 million against the Hawk lease principal and $0.3 million against the interest portion were paid during Q2 2013 ($0.8 million and $0.4 million in 2012, respectively).

Net interest-bearing debt was $86.9 million at the end of Q2 2013 ($96.9 million). 

Accrued interest for Q2 2013 was $0.2 million ($0.1 million).

The company was in compliance with all covenants as of 30 June 2013. 

Important events in the first half of the year

During the first half of 2013, the Geo Pacific was dry-docked and upgraded for increased power output and modified to reduce drag. The vessel performed successful sea trials and commenced its maiden survey in mid-May in the Caribbean.

The company issued 1,500,000 new shares at a subscription price of NOK 7.50 per share during the first half of 2013. Gross proceeds from this transaction were NOK 11.3 million ($2.0 million). The transaction closed in February 2013 and was targeted towards shareholders who did not have the opportunity to participate in the private placement of 2012.

Responsibility statement

We confirm that, to the best of our knowledge, the condensed set of financial statements for the first half year of 2013, which have been prepared in accordance with IAS 34 "Interim Financial Reporting", gives a true and fair view of the company's consolidated assets, liabilities, financial position and results of operations.  We also confirm that, to the best of our knowledge, the first half 2013 report includes a fair review of important events that have occurred during the first six months of the financial year and their impact on the condensed financial statements, a description of the principal risks and uncertainties for the remaining six months of the financial year and major related parties transactions.

The Board of Directors and
Chief Executive Officer
SeaBird Exploration Plc
15 August 2013

This information is subject of the disclosure requirements pursuant to section 5-12 of the Norwegian Securities Trading Act.