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2014 SUMMARY OBSERVATIONS FOR THE SECOND QUARTER

  • Revenues for the quarter were $44.7 million, an increase of 19% compared to Q2 2013 and up 33% relative to Q1 2014.
  • Contract revenues for the period were $41.0 million, up 22% from Q2 2013 and an increase of 34% from Q1 2014.
  • Multi-client revenues were $3.7 million, down 8% from $4.0 million reported in Q2 2013 and an increase of 16% from $3.2 million reported in Q1 2014.
  • Contract surveys during the second quarter represented 72% of vessel capacity compared to 64% during the first quarter 2014; as a result of increased activity across the fleet.
  • EBITDA was $12.6 million compared to $3.1 million for Q2 2013 and $10.2 million for Q1 2014.
  • EBIT for the quarter was negative $2.6 million compared to negative $3.0 million for Q2 2013 and $2.4 million for Q1 2014.
  • Vessel utilization for the period was 85%.

Operational review

Second quarter revenues increased from the prior period as a result of solid 2D and source vessel performance. However, demand in the niche 3D segment has been slower to recover.

Contract surveys represented 72% of vessel capacity compared to 64% for the first quarter of 2014. Hawk Explorer and Northern Explorer completed the joint 2D survey in East Africa. Osprey Explorer completed another 2D survey in South America.  Aquila Explorer performed four 2D surveys with oil companies in Australasia and continues to operate within this region.  Voyager Explorer completed two 2D surveys in the Asia Pacific region. Harrier Explorer and Munin Explorer both performed source operations in the North Sea during the period.

Multi-client sales increased compared to the previous quarter. The majority of multi-client revenues related to prefunding of Geo Pacific's West African survey and the remaining portion is attributable to late sales from the existing multi-client library. An impairment of $6.2 million was charged to Geo-Pacific's multi-client survey in West Africa due to a number of technical issues which have delayed the survey completion date until Q3 2014. Multi-client utilization was 13% for the period.  

In June, Hawk Explorer and Osprey Explorer both entered planned dry dock. Hawk Explorer completed its yard stay towards the end of the period while work on Osprey Explorer continued into early Q3 2014. Yard stays represented 8% of vessel capacity during the quarter.

Vessel utilization was 85%, up from 76% in the first quarter. Operational performance for the quarter was strong, with the exception of the technical issues encountered by the Geo Pacific in West Africa. Technical downtime for the overall fleet was 6%. 

The company delivered another quarter of solid health, safety, security, environment and quality (HSSEQ) results.  The lost time injury frequency (LTIF) rate for the period was zero.  During the quarter, SeaBird commenced an analysis of past performance to further improve HSSEQ processes and procedures.

Regional overview

Revenues remained strong in Europe Africa and the Middle East (EAME) during the quarter. Asia Pacific (APAC) revenues increased from the first quarter of 2014 as a result of continued 2D demand in the Australasia region.  North and South America (NSA) remained flat compared with last quarter.

Sales in EAME of $23.8 million accounted for 53% of total revenues. The increase in EAME revenues compared to the prior period was mainly due to the joint project undertaken by Northern Explorer and Hawk Explorer in East Africa. The Munin Explorer repositioned to the North Sea at the beginning of the quarter as part of its long-term source charter agreement. Towards the end of Q2 2014 the Harrier Explorer completed its source contract in the North Sea.

APAC sales of $14.1 million accounted for 32% of total revenues. APAC revenues were up meaningfully compared to the first quarter 2014. Aquila Explorer continued its campaign in Australasia which made up a large portion of APAC revenues. The vessel completed four back-to-back surveys in Q2 2014 and thereafter immediately mobilized for another survey in the area. Voyager Explorer also completed two 2D projects within the region.

Sales in NSA of $6.8 million represented 15% of total revenues. NSA revenues remained stable with the Osprey Explorer being utilized on a 2D project in South America which was completed in the latter half of the period.

Outlook

Market demand in the 2D segment was strong entering the second quarter, resulting in high utilization in the first half of the period. However, we have recently seen increasing competition from 3D vessels entering the 2D and source markets.  Additionally, the overall 2D market activity has moderated as of late. While we do not see a longer-term change in market demand, we do expect the current situation to negatively impact the company's third quarter.

We are continuing to see an increased interest in entering longer-term contracts and framework agreements. We also continue to see positive developments in the source market which is supported by growth in the ocean bottom seismic sector. We expect that the source market will remain an important part of fleet utilization going forward.

The niche 3D market is still to recover and the tender activity remains below historical market levels.

Pricing in all segments and regions has generally remained firm, but we do believe that the current market situation may selectively have a negative impact on pricing in the second half of the year.

Multi-client late sales have been slower to materialize and securing prefunding for new projects has been taking somewhat longer. Moreover, we do expect our late sales to remain erratic until the library is properly scaled. We continue to see multi-client activity as a core part of our strategy and will continue expanding our efforts in this segment.

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 $7.9 million for Q2 2014 (loss of $4.1 million in the same period in 2013).

The loss for the first half of 2014 was $8.5 million, compared to a loss of $2.3 million in 2013.

Revenues were $44.7 million in Q2 2014 ($37.6 million). The increased revenues are primarily due to higher vessel utilization and lower multi-client activity during the period.

Revenues for the first half of 2014 were $78.4 million compared with $87.6 million for 2013.

Cost of sales was $28.4 million in Q2 2014 ($30.0 million). The decrease is predominantly due to increased capitalization of costs to the multi-client library, partially offset by higher vessel utilization for the period and completion of multiple surveys. For the first half of 2014, cost of sales was $48.1 million, down from $64.1 million in 2013.

SG&A was $5.1 million in Q2 2014, up from $4.9 million in Q2 2013. This is principally due to an increase in employee numbers in line with a larger fleet size partially offset by a reduction in consultancy costs.

SG&A for the first half of 2014 was $10.0 million compared with $9.5 million for 2013.

EBITDA was $12.6 million in Q2 2014 ($3.1 million). EBITDA for the first half of 2014 was $22.7 million compared with $14.5 million for 2013.

Depreciation, amortization and impairment were $15.2 million in Q2 2014 ($6.1 million). The increase is predominantly due to an increase in multi-client sales amortization and impairment; along with the de-recognition of a number of cyclical assets as a result of the dry docking activities undertaken during the period. Impairment expense was $6.2 million in Q2 2014 (Nil). The charge relates to the Geo Pacific's multi-client survey in West Africa.

For the first half of 2014 depreciation, amortization and impairment were $22.9 million compared with $12.1 million for 2013.

Interest expense was $3.6 million in Q2 2014 ($3.0 million). For the first half of 2014, interest expense was $6.6 million, up from $6.0 million in 2013.

Other financial items, net expense, of negative $0.9 million in Q2 2014 (positive $0.5 million). The change is mainly due to currency fluctuations.

For the first half of 2014 other financial items, net expense, were negative $0.7 million compared with positive $0.4 million for 2013.

Income tax expense was $0.8 million in Q2 2014 (tax benefit of $1.5 million). This variance is predominantly due the reassessment of a number of historical tax provisions that occurred in Q2 2013.

For the first half of 2014, income tax expense was $1.0 million compared to a tax benefit of $0.9 million recorded in 2013.

Capital expenditures were $3.3 million in Q2 2014 ($3.7 million). The majority of the capital cost incurred during the quarter related to the planned dry docking of Hawk Explorer and Osprey Explorer. The remaining portion related to the purchase of routine seismic and other equipment across the fleet.

Multi-client investment was $7.5 million in Q2 2014 ($3.7 million), which related to the Geo Pacific's 3D multi-client survey in West Africa.

Net profit from discontinued operations was $0.6 million for Q2 2014 (loss of $0.3 million). Discontinued operations represent the remaining contractual obligations of the ocean bottom node (OBN) business which was divested in 2011.

For the first half of 2014, net profit from discontinued operations was $1.0 million, compared to a net loss of $0.8 million reported in 2013.

Liquidity and financing

Cash and cash equivalents at the end of the period were $12.6 million ($13.8 million), of which $0.5 million was restricted in connection with deposits. Net cash from operating activities was $13.2 million in Q2 2014 ($10.8 million).

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 $81.9 million and is recognized in the books at amortized cost of $75.8 million per Q2 2014. 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. 
  • The 1% unsecured convertible loan with Perestroika AS has a face value of $14.9 million and is recognized in the books at amortized cost of $14.7 million per Q2 2014. 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 2014 in relation to the convertible loan.
  • The lease of Hawk Explorer is recognized in the books as a finance lease at $7.2 million per Q2 2014. Installments of $1.1 million against the Hawk lease principal and $0.2 million against the interest portion were paid during Q2 2014 ($0.9 million and $0.3 million in Q2 2013, respectively). During the third quarter 2013, the company announced that it will exercise its option under the current charter agreement to purchase the vessel and related equipment for $6.5 million. The vessel and equipment will be delivered at the end of the lease term 31 August 2014 against settlement of the purchase price.

Management is currently reviewing possible refinancing alternatives open to the company.

Net interest-bearing debt was $85.2 million at the end of Q2 2014 ($86.9 million). 

Accrued interest for Q2 2014 was $0.3 million ($0.2 million).

The company was in compliance with all covenants as of 30 June 2014. 

Important events in the first half of the year

During the first half of 2014, the company signed a three-year master service agreement with a major industry participant. Moreover, the company executed a letter of intent with TGS-NOPEC Geophysical Company to acquire up to 200,000 kilometers of 2D seismic data in Mexico.

During the quarter, SeaBird extended the bareboat charter for the Voyager Explorer from 17 August 2014 to 17 August 2016 at a fixed rate of USD 13,200 per day with three one-year options to extend the contract beyond the fixed charter period.

Recently, the company announced that it will close down its office in Dubai and transfer activities to other offices. This effort will help to enhance management oversight, improve business processes and reduce costs.

On 3 April 2014, Mr. Åge Korsvold was elected chairman of the board, replacing Mr. Henrik Christensen. Mr. Korsvold is currently a board member of i.a. Timex Group B.V., Vardia ASA, Green Resources AS and Aweco Invest AS.

Responsibility statement

We confirm that, to the best of our knowledge, the condensed set of financial statements for the first half year of 2014, 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 2014 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
14 August 2014

The second quarter 2014 presentation will be transmitted live at http://www.sbexp.com/investor-relations.aspx.

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