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5 November 2015, Limassol, Cyprus

2015 SUMMARY OBSERVATIONS FOR THE THIRD QUARTER

  • Revenues for the quarter were $23.2 million, an increase of 2% compared to Q3 2014 and up 19% relative to Q2 2015.
  • Contract revenues for the period were $23.1 million, up 41% from Q3 2014 and an increase of 23% from Q2 2015.
  • Multi-client revenues were $0.1 million, down 99% from $6.3 million reported in Q3 2014 and a decrease of 88% from $0.7 million reported in Q2 2015.
  • EBITDA was $4.6 million compared to negative $2.1 million for Q3 2014 and negative $6.5 million for Q2 2015.
  • EBIT for the quarter was $0.0 million compared to negative $11.1 million for Q3 2014 and negative $15.7 million for Q2 2015.
  • Vessel utilization for the period was 86%. Contract surveys during the third quarter represented 86% of vessel capacity compared to 68% during the second quarter 2015. None of the company's vessels were utilized for multi-client surveys during the period, similar to Q2 2015.
  • Four vessels were active in operation on the Mexico Gigante survey. Aquila Explorer is scheduled to join during the fourth quarter.
  • Zero lost time injury frequency (LTIF) in the quarter.
  • 9% technical downtime in the quarter compared to 3% for Q3 2014.
  • Non-recurring gain on cost of sales of $0.9 million related to changes in estimates of lay-up provisions for onerous long-term lease contracts. During the quarter $0.5 million bad debt costs were charged to SG&A.

 

Key highlights

Operational review

The third quarter was characterized by sustained low oil prices and weak market sentiment for oil exploration. Seismic tender activity has continued to be sluggish with intense price competition. Furthermore, the 2D/source market has continued to experience significant competition from multi-streamer 3D vessels. The negative market sentiment has exacerbated industry risk factors and increased the uncertainty related to timing of a market recovery.

The company continued its cost reduction effort. The office in St. Petersburg was closed at the end of the quarter. The quarterly run-rate SG&A is in line with the cost savings targets communicated earlier this year. Operating expenses are reduced as a result of the stacking of vessels and the continuing effort to execute on the savings initiatives. Capital expenditures are in line with the lower spending estimates highlighted earlier. In addition to cost reductions, the company is actively focusing on cost flexibility measures as well as improving operational efficiency.

Vessel utilization was 86% during Q3 2015, up from 68% in the previous quarter. Technical downtime for the fleet was 9%, up from 2% for Q2 2015. The increase is due to technical start-up challenges for the vessels operating in Mexico. Q3 yard stay represented 7% of vessel capacity. Contract surveys represented 86% of vessel capacity compared to 68% for the second quarter of 2015.

Aquila Explorer completed a source project in South East Asia early in the quarter. Thereafter, the vessel undertook scheduled maintenance before starting transit to Mexico, where it is expected to commence production during the fourth quarter. Harrier Explorer mobilized for the Mexico Gigante survey and started production late in the quarter. Both Hawk Explorer and Osprey Explorer were in production on the Mexico Gigante project the whole quarter. Northern Explorer commenced acquisition on the Mexico Gigante project early in the quarter. Munin Explorer completed its long-term source contract in South America mid-quarter after which the vessel was laid up. Geo Pacific and Voyager remained cold-stacked during the quarter.

Multi-client surveys represented 0% of vessel utilization in the quarter compared to 30% in the same quarter previous year. Multi-client revenues were $0.1 million in the period. Due to weak market sentiment and poor visibility for future multi-client sales, the company decided to increase the minimum amortization rate, resulting in a $0.5 million higher charge in Q3. All multi-client assets are now classified as category two. Please see selected notes and disclosures for further details.

During the quarter, the company's costs were reduced. The lay-up of 3D vessels and Munin Explorer, reduced operating expenses, lower project activity, reduced vessel charter rates and lower crew headcount were the primary areas that contributed to bring down costs of sales relative to 2014 and Q2 2015.

Non-recurring gain on cost of sales in the quarter amounted to $0.9 million, which relates to changes in provision estimates for onerous long-term lease contracts.

Lost time injury frequency (LTIF) rate for the quarter was zero. The company continued its efforts to maintain its high standards in the health, safety, security, environment and quality (HSSEQ) area.

 

Regional review

North and South America (NSA) was the most active region during the third quarter. NSA revenues of $22.8 million represented 98% of total revenues for the quarter. Sales in this region increased significantly as Harrier Explorer and Northern Explorer joined Hawk Explorer and Osprey Explorer on the Mexico Gigante survey.

Sales in APAC of $0.2 million accounted for 1% of total revenues for the quarter. The revenues relate to a source contract completed by Aquila Explorer early in the quarter.

Sales in Europe, Africa and the Middle East (EAME) accounted for $0.2 million or 1% of total revenues. No SeaBird vessels were working in the region during the period, and the revenues recorded consist of multi-client late sales and management fees.

 

Outlook

Global seismic demand continued to show weakness in the third quarter and there are no signs of market improvement. Oil industry spending is anticipated to remain sluggish through 2016 and the seismic sector is expected to remain under pressure as a result.

A high proportion of the company's fleet is expected to be employed on the Mexico Gigante project until mid-2016 assuming the full project size of approximately 186,000 kilometer is to be completed. The current market uncertainty makes it difficult to predict the level of contract coverage that is possible to obtain beyond the company's current backlog.

 

 

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 $1.7 million for Q3 2015 (net loss of $20.2 million in the same period in 2014).

Revenues were $23.2 million in Q3 2015 ($22.7 million).

Cost of sales was $14.5 million in Q3 2015 ($19.8 million). The decrease is predominantly due to fewer vessels in operation as the Geo Pacific, Munin Explorer and Voyager Explorer are laid up, lower maritime and seismic operating expenses, reduced charter hire and lower fuel cost.

SG&A was $4.3 million in Q3 2015, down from $5.1 million in Q3 2014. The decrease is principally due to savings related to the closing of the Dubai office and reduced onshore headcount partially offset by bad debt costs.

Other income (expense) was $0.1 million in Q3 2015 ($0.1 million).

EBITDA was $4.6 million in Q3 2015 (negative $2.1 million).

Depreciation, amortization and impairment were $4.6 million in Q3 2015 ($9.0 million). This decrease is largely due to lower vessel book values, and no multi-client impairments in the period.

Financial expenses were $1.6 million in Q3 2015 ($8.1 million). The decrease is due to reduced debt levels resulting from the recent restructuring and an accelerated finance charge recognized in Q3 2014 as a result of the change in maturity of the SBX03 bond loan.

Other financial items was nil in Q3 2015 ($0.3 million).

Income tax expense was $0.2 million in Q3 2015 ($0.7 million).

Capital expenditures in Q3 2015 were $1.7 million ($2.0 million).

Multi-client investment was $0.1 million in Q3 2015 ($13.5 million).

 

Liquidity and financing

Cash and cash equivalents at the end of the period were $5.4 million ($10.0 million), of which $0.3 million was restricted in connection with deposits and tax. Net cash from operating activities was $1.0 million in Q3 2015 ($14.3 million).

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

The SBX04 secured bond loan (issued as "SeaBird Exploration Finance Limited First Lien Callable Bond Issue 2015/2018") is recognized in the books at amortized cost of $25.8 million per Q3 2015 (nominal value of $29.3 plus accrued interest of $0.2 million less fair value adjustment of $3.7 million including amortized interest). 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 is paid quarterly in arrears with first interest instalment paid on 3 June 2015. The bond matures on 3 March 2018, with principal amortizations due in quarterly instalments of $2.0 million starting at 3 June 2017. The outstanding loan balance will be paid at the maturity date. Interest paid during Q3 2015 was $0.5 million. The bond is listed on Nordic ABM, and it is traded with ticker SBEF01 PRO and SBEF02 PRO for the respective two bond tranches.

The three year secured credit facility is recognized at amortized cost of $2.0 million (initial nominal value of $2.4 million less net amortized cost of $0.4 million). Coupon interest rate is 6.0%. Interest is to be paid quarterly in arrears and the first interest amount was paid on 3 June 2015. The facility matures at 3 March 2018 with quarterly instalments of $0.2 million starting on 3 June 2017. The outstanding loan will be repaid in full at maturity. Effective interest booked for Q3 2015 was $0.1 million. Principal repayments during Q3 2015 amounted to $0.2 million and additional amounts drawn on the credit facility during the period was $0.2 million. Interest paid during Q3 2015 was $0.03 million.

The three year unsecured loan is recognized at amortized cost of $2.0 million (initial nominal value of $2.1 million less net amortized cost of $0.1 million). Coupon interest rate is 6.0%. Stated maturity date is on 1 January 2018. Interest is paid quarterly in arrears and the first payment was due on 1 April 2015. The principal will be repayable in nine equal instalments of $0.2 million commencing on 1 January 2016. Interest paid during Q3 2015 was $0.03 million.

The lease of Hawk Explorer is recognized in the books as a finance lease at $3.9 million per Q3 2015. Instalments and interest amounting to $0.6 million were paid during Q3 2015 ($1.3 million in Q3 2014).

Net interest bearing debt was $28.3 million as at the end of Q3 2015 ($92.9 million in Q3 2014).

Accrued interest on the bond loan, credit facility and the unsecured note for Q3 2015 was $0.2 million ($1.4 million).

The company was in compliance with all covenants as of 30 September 2015.

The total outstanding amount of common shares in the company is 3,065,427,746. The company has also issued 884,687,500 warrants, convertible into 884,687,500 ordinary shares. The warrants are listed on the Oslo Stock Exchange with ticker SBX J.

The company's accounts have been prepared on the basis of a going concern assumption. In the view of the board of directors, the current challenging market conditions and the company's limited working capital creates a material risk to this assumption. In the event that project performance is significantly worse than expected, contracts and other arrangements in respect of the employment of SeaBird's vessels are cancelled, or significantly delayed, new backlog cannot be secured on satisfactory rates or at all, the company would need to sell assets or raise additional financing. Reference is made to the Going Concern section in selected notes and disclosures for further details on the current financial position of the company.

 

The Board of Directors and

Chief Executive Officer

SeaBird Exploration Plc

4 November 2015

 

The third 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.