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6 May 2015, Limassol, Cyprus


2015 SUMMARY OBSERVATIONS FOR THE FIRST QUARTER

  • Revenues for the quarter were $24.2 million, a decrease of 28% compared to Q1 2014 and down 14% relative to Q4 2014.
  • Contract revenues for the period were $23.0 million, down 25% from Q1 2014 and a decrease of 2% from Q4 2014.
  • Multi-client revenues were $1.2 million, down 62% from $3.2 million reported in Q1 2014 and a decrease of 74% from $4.6 million reported in Q4 2014.
  • EBITDA was $8.2 million compared to $10.2 million for Q1 2014 and negative $28.5 million for Q4 2014.
  • EBIT for the quarter was $3.7 million compared to $2.4 million for Q1 2014 and negative $68.6 million for Q4 2014.
  • Vessel utilization for the period was 58%. Contract surveys during the first quarter represented 58% of vessel capacity compared to 52% during the fourth quarter 2014. None of the company's vessels were utilized for multi-client surveys during the period, compared to 5% of vessel capacity in Q4 2014.
  • The company completed its financial restructuring in the quarter. A non-recurring financial restructuring gain net of advisory fees of $61.3 million was reported, resulting from creditor debt forgiveness and partial conversion of debt to equity. Additionally, a non-recurring restructuring gain on leases of $4.7 million was reported as a result of debt forgiveness of outstanding operational lease payables.
  • Issued a 3-year secured bond in two tranches ("SBX04") raising gross proceeds of $5 million in tranche A and $24.3 million in tranche B originating from a debt conversion of existing outstanding debt and payables.
  • Completed private placement of 1.8 million preference shares and warrants, generating gross proceeds of NOK 88.5 million ($11.6 million).

 

Key highlights

Operational review

First quarter revenues decreased from the prior period due to continued softness in seismic market demand.

Vessel utilization was 58% during Q1 2015, up from 57% in the previous quarter. Technical downtime for the fleet was 5%, down from 6% for Q4 2014. Yard stay represented 2% of vessel capacity.

Contract surveys represented 58% of vessel capacity compared to 52% for the fourth quarter of 2014. Aquila Explorer was employed on its 2D survey in Australasia, while Osprey Explorer continued working on several 2D surveys in the Gulf of Mexico throughout the quarter. Northern Explorer performed a 2D contract survey in West Africa and was in transit to Las Palmas for planned maintenance and class certification towards the end of the quarter. Munin Explorer continued its long-term source contract. The vessel was in South America throughout the period. Harrier Explorer was off hire early in the quarter and finished the quarter in scheduled maintenance in Dubai, en route to a source contract in South East Asia. Hawk Explorer remained off hire during the quarter. Geo Pacific finished its 3D survey in West Africa and then transited to Norway for cold stacking.

During the quarter the company implemented measures to reduce costs. The lay-up of Geo Pacific, lower project activity, reduced vessel charter rates and lower crew headcount contributed to bring down costs of goods sold relative to 2014. The company also benefited from reduced bunker fuel prices and favorable exchange rates. Administrative costs were reduced as a result of the implementation of the closing of the Dubai office and reduced onshore headcount.

Multi-client surveys represented 0% of vessel utilization. Multi-client revenues were $1.2 million during the quarter.

Lost Time Injury Frequency (LTIF) rate for the quarter was zero. Industry-leading HSSEQ processes continue to ensure that the company provides a safe and healthy work environment both offshore and onshore while continuously improving operational performance and quality.

Regional overview

Revenues in the first quarter represented a geographical shift from Europe, Africa and the Middle East (EAME) towards Asia Pacific (APAC) and North and South America (NSA).

Sales in APAC of $10.6 million, an increase of 89% from the previous period, accounted for 44% of total revenues for the quarter. APAC revenues increased mainly due to Aquila being employed on a contract survey in Australasia during the quarter.

NSA revenues of $9.0 million represented 37% of total revenues for the quarter. Sales in this region increased by 79% compared to previous quarter due to higher contract utilization. Munin Explorer worked in the region under its long-term charter agreement and Osprey Explorer continued working on several contract surveys in the Gulf of Mexico.

Sales in EAME of $4.6 million accounted for 19% of total revenues. EAME revenues were down compared to Q4 2014 due to the decline in seismic demand. Northern Explorer completed a contract survey in West Africa and Geo Pacific finished its 3D contract survey in the region during the quarter.

Outlook

Global seismic market demand continued to show weakness in the first quarter. Reduced oil prices and increased market uncertainty impacted capital spending in the sector and selectively delayed or postponed contract start-ups.

In light of the challenging market conditions, we continue to evaluate and execute savings initiatives to reduce the company's overall cost level. We expect the current market softness to continue to negatively impact the seismic sector throughout 2015.

Multi-client demand was soft in the first quarter and available prefunding for new projects was limited. We anticipate that this weakness will persist over the foreseeable future and will impact multi-client sales.


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 profit of $63.3 million for Q1 2015 (net loss of $0.6 million in the same period in 2014).

Revenues were $24.2 million in Q1 2015 ($33.7 million). The decreased revenues are primarily due to reduced number of vessels in operation and lower multi-client activity during the period.

Cost of sales was $17.0 million in Q1 2015 ($19.7 million). The decrease is predominantly due to fewer vessels in operation as the Geo Pacific and Voyager Explorer are laid up, reduced charter hire and lower fuel cost.

SG&A was $3.8 million in Q1 2015, down from $4.9 million in Q1 2014. This is principally due savings related to the closing of the Dubai office and reduced onshore headcount.

Other income (expense) was positive $0.1 million in Q1 2015 (positive $1.1 million).

Restructuring gain on leases of positive $4.7 million in Q1 2015 (nil) as a result of negotiated debt forgiveness as a part of the company's financial restructuring that was completed during the quarter.

EBITDA was $8.2 million in Q1 2015 ($10.2 million).

Depreciation, amortization and impairment were $4.5 million in Q1 2015 ($7.8 million). This decrease is largely due to lower vessel book values and lower multi-client sales amortization.

Finance expense was $1.0 million in Q1 2015 ($3.0 million).

Other financial items, net expense, of negative $0.2 million in Q1 2015 (positive $0.2 million).

Restructuring gain of positive $61.3 million in Q1 2015 (nil) as a result of the completion of the company's financial restructuring during the quarter.

Income tax expense was $0.5 million in Q1 2015 ($0.3 million in Q1 2014).

Capital expenditures in the quarter were $0.2 million ($2.4 million).

Multi-client investment was nil in Q1 2015 ($7.8 million).

Financial restructuring

During the quarter the company announced and reached agreement on a financial restructuring to reduce indebtedness and provide additional funding:

  • Issue of new equity for a total of approximately $11.6 million or 884,687,500 new shares and 884,687,500 new warrants to acquire one share per warrant at an exercise price of NOK 0.10 per share.
  • Issue of a new 3-year secured bond in two tranches ("SBX04") subscribed by TGS-NOPEC Geophysical Company ASA for $5 million in tranche A and $24.3 million in tranche B originating from a debt conversion of the existing SBX03 bond, Perestroika convertible bond, charter hire and financial advisory payables.
  • Issue of a 3-year secured credit line facility of $2.4 million and a $2.1 million unsecured loan.
  • Approximately $16.2 million of the outstanding amount under the SeaBird Exploration Plc Senior Secured Callable Bond Issue 2011/2015 ("SBX03") was converted into SBX04 and the remaining approximately $64.7 million of SBX03 was converted into equity at NOK 0.30 per ordinary share.
  • Approximately $3.0 million of the company's convertible loan with Perestroika AS was converted into SBX04 and the remaining approximately $11.9 million of the Perestroika Loan was converted into equity at NOK 0.30 per ordinary share.
  • The outstanding charter hire for the Munin Explorer, Geo Pacific, Hawk Explorer and Voyager Explorer (the "Charterers") was partially converted into SBX04, a loan, partially converted into equity and partially written down. The ongoing charter obligations were amended including a reduction in total charter hire of above $25,000 per day, yielding an annual pre-tax cash flow improvement of above $9 million. Fuel vendors' outstanding balances of $3.4 million were converted into SBX04 Tranche B and $2.4 million was converted to the secured credit facility described above.
  • $0.7 million of restructuring advisory fees were converted into SBX04 and $2.8 million of restructuring advisory fees were converted into equity at NOK 0.30 per share.

The issue of new equity and warrants was booked directly to equity $10.9 million net of transaction cost, of which $8.2 million of the overall amount was accounted for in paid in capital (the preference shares issued) and $2.7 million was booked in equity component of warrants listed under the equity section in the balance sheet (warrants issued). The company has obtained external advice to correctly account for the fair value of preference shares and warrants, new debt instruments issued to investors and creditors at the 2 March 2015 transaction date. The fair value of preference shares issued have been set at NOK 38.2 per preference share (NOK 0.076 per ordinary share after the conversion) while the fair value of issued warrants have been set at NOK 11.8 (NOK 0.024 per warrant to acquire one ordinary share after the conversion). In total, the company has issued approximately 4.2 million preference shares (convertible to 2,123.2 million ordinary shares) to creditors, which have been valued at $21.4 million. In addition, the company issued SBX04 bond, the secured credit facility and the unsecured loan to creditors. The par value of the outstanding debt and liabilities from creditors of approximately $116.3 million (prior to creditor debt forgiveness and conversion) were converted to the preference shares and debt instruments listed above. 

At 31 March, SBX04 bond, the 3-year secured credit line facility and loan have been valued at nominal value less amortized cost using an effective interest rate of 14%. The amortized cost positive fair value adjustment for the debt facilities has been recognized as a restructuring gain, of which $1.4 million has been allocated to restructuring gain on leases and $3.7 million has been booked to the restructuring gain account under the finance cost section.

The issue of preference shares to individual creditors, partial debt forgiveness of outstanding principal, issue of the new bond SBX04 and converting outstanding payables to loans/credit facility was accounted for through the restructuring gain account in the other finance income section of the profit and loss statement. Outstanding debt and payables at the transaction date have been derecognized while the issued equity and debt instruments have been booked as described above net of advisory fees. The total gain resulting from the financial restructuring was $66.0 million, of which $4.7 million was reported under restructuring gain on leases and $61.3 million was reported as restructuring gain under the financing section.

On 18 February 2015, the bondholders of SBX03 approved the restructuring proposal with the requisite majority in a bondholder meeting. Furthermore, on 3 February 2015, the company called for an extraordinary general meeting ("EGM1") on 19 February 2015, for the creation of a new Class A of shares, conversion of debt into equity and exclusion of preemption rights in relation to new shares, all in order to carry out the restructuring as proposed.

Additionally, on 11 February 2015, the company called for a second extraordinary general meeting ("EGM2") that was held on 5 March 2015 to approve conversion of Class A shares into ordinary shares and reduction in capital with simultaneous increase of authorized capital to its former amount. In the general meetings all proposals on the agenda were adopted with requisite majority.

On 3 March 2015, the company announced that the conditions for the restructuring were fulfilled. Further, preferred shares were issued to certain creditors and the restructuring as set out in the preceding paragraphs was implemented. As a part of the transaction, the company issued 6,015,693 preference shares each with a par value US$0.1. Each preference share carries 500 times the rights of the common shares. The preference shares are to be converted into common shares following the approved reduction of the company's authorized and issued share capital, through the reduction of the nominal value of its shares from US$0.1 to US$0.0001 (the "reduction"). The conversion of the shares is estimated to occur during Q2 2015. After confirmation of the reduction, the preference shares will be converted at an exchange rate of 500:1 common shares per preference share, hence a total of 3,007,846,500 shares will be issued to preferred shareholders following the reduction. Post conversion of the preference shares, the total outstanding amount of common shares in the company will be 3,065,427,746. The company has also issued 1,769,375 warrants, convertible into 884,687,500 ordinary shares after the reduction.

Liquidity and financing 

Cash and cash equivalents at the end of the period were $15.9 million ($16.0 million), of which $0.2 million was restricted in connection with deposits and tax. Net cash from operating activities was negative $6.2 million in Q1 2015 ($14.9 million).

The company has one bond loan, one secured credit facility, one unsecured loan and the Hawk Explorer finance lease.

  • The SBX04 secured bond loan is recognized in the books at amortized cost of $25.1 million per Q1 2015 (nominal value of $29.3 plus accrued interest less fair value adjustment of $4.4 million). This bond has been issued in two tranches; tranche A amounting to $5.0 million and tranche B amounting to $24.3 million. The SBX04 bond tranche A is carrying an interest rate of 12.0% and Tranche B is carrying an interest rate of 6.0%. Interest will be paid quarterly, commencing 3 June 2015. The bond's stated maturity is 3 March 2018 and has principal amortization due in quarterly instalments of $2.0 million starting at 3 June 2017 with a balloon repayment to be made at maturity.
  • The three year secured credit facility is recognized at amortized cost of $1.9 million (nominal value of $2.4 million). Coupon interest rate is 6% whereas effective interest is 14%. Interest will be paid quarterly, commencing 3 June 2015. The facility's stated maturity date is 3 March 2018 and has principal amortization due in quarterly instalments of $0.2 million starting on 3 June 2017 with a balloon repayment to be made at maturity. Effective interest booked for Q1 2015 was $0.02 million.
  • The three year unsecured loan is recognized at amortized cost of $1.9 million (nominal value of $2.1 million). Coupon interest rate is 6% whereas effective interest is 14%. Stated maturity date is on 1 January 2018. Interest is paid quarterly in arrears with the first payment date falling due on 1 April 2015. The principal will be repayable in nine equal instalments of $0.2 million commencing on 1 January 2016. Effective interest booked for Q1 2015 was $0.06 million.
  • The lease of Hawk Explorer is recognized in the books as a finance lease at $4.7 million per Q1 2015. Instalments and interest amounting to $0.6 million were paid during Q1 2015 ($1.0 million in Q1 2014).

Net interest bearing debt was $17.5 million as at the end of Q1 2015 ($83.5 million in Q1 2014).

Accrued interest for Q1 2015 was $1.2 million ($1.4 million).

The company was in compliance with all covenants as of 31 March 2015.

The company's accounts have been prepared on the basis of a going concern assumption. In the view of the board of directors, the company does not have sufficient working capital for its current requirements, being understood as the requirements for a minimum of 12 months. In making such statement, the board of directors has taken into consideration working capital requirements in various scenarios, and in particular, in the event that contracts and other arrangements in respect of the employment of SeaBird's vessels are cancelled or significantly delayed and alternative employment cannot be secured at satisfactory rates. Should these contracts and other arrangements be commenced and completed in accordance with the plans entered into between SeaBird and the respective counterparties, SeaBird does not expect a working capital shortfall. However, in the event of such contracts being delayed, cancelled or not materializing, SeaBird could have a working capital shortfall which could result in the need for significant amounts of additional financing, which may not be available at that time. The timing of a potential shortfall would depend on the overall employment of SeaBird's vessels, but in the event of all contracts being delayed, could occur during the summer of 2015. The amount of such shortfall would also depend on the overall and alternative employment of SeaBird's vessels, but in a worst case scenario, could amount to approximately $50 million for a 12 month period. Reference is made to the Going Concern section in selected notes and disclosures and the recently issued prospectus for further details on the current financial position of the company.


The Board of Directors and

Chief Executive Officer

SeaBird Exploration Plc

6 May 2015

The first quarter 2015 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.