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4 November 2016, Limassol, Cyprus

2016 SUMMARY OBSERVATIONS FOR THE THIRD QUARTER

  • Revenues for the quarter were $20.4 million, a decrease of 12% compared to Q3 2015 and down 8% relative to Q2 2016.
  • Contract revenues for the period were $20.1 million, down 13% from Q3 2015 and a decrease of 6% from Q2 2016.
  • Multi-client revenues were $0.3 million, up from $0.1 million reported in Q3 2015 and down from $0.8 million reported in Q2 2016.
  • Adjusted EBITDA of $6.9 million. Reported EBITDA was $10.7 million compared to $4.6 million for Q3 2015 and $6.3 million for Q2 2016. 
  • Adjusted EBIT of $3.1 million. Reported EBIT for the quarter was negative $3.0 million compared to $0.0 million for Q3 2015 and positive $1.9 million for Q2 2016. 
  • Net non-recurring charges of $4.6 million relating to reversal of bad debt charges and change in provisions for laid-up vessels, vessel impairment and financial gain on the Hawk Explorer lease.
  • Vessel utilization for the period was 84.0%. Contract surveys during the third quarter represented 78.6% of vessel capacity compared to 86.2% during the third quarter 2015. Multi-client surveys accounted for 5.4% of vessel capacity compared to 0% in the third quarter 2015.
  • 7.0% technical downtime in the quarter compared to 9.0% for Q3 2015.
  • Zero lost time injury frequency (LTIF) in the quarter.

KEY HIGHLIGHTS

Operational review

The third quarter of 2016 was challenging with weak seismic market demand. Although there are signs of a market stabilization, total vessel utilization is reduced and the timing of a sustained market recovery is still highly uncertain.

Active vessel utilization for the third quarter of 2016 was 84.0%, up from 82.0% in the second quarter. Contract surveys represented 78.6% of vessel capacity compared to 74.9% for the second quarter of 2016. Technical downtime for the fleet was 7.0% in Q3 2016, up from 5.8% in Q2.

Hawk Explorer, Aquila Explorer and Northern Explorer were in production on the Mexico Gigante project during the quarter. Hawk Explorer and Aquila Explorer left Gigante and transited to the Caribbean mid-quarter while Northern Explorer was in production on the Mexico Gigante project during the whole period. The Mexico Gigante project was 99.9% completed at the end of the quarter. Osprey Explorer finished its source project in North West Europe before commencing and completing an undershoot survey in the North Sea. Harrier Explorer completed a 2D contract survey in the Barents Sea and commenced a new multi-client survey in the same area.  

Voyager Explorer was redelivered to its owner in September. The Munin Explorer remained stacked. On 1 September, the company acquired the Hawk Explorer along with all seismic equipment on the vessel, further cancelling all future lease payments and additional obligations. Subsequent to quarter end, SeaBird announced that it had entered into an agreement for the sale and decommissioning of the Hawk Explorer. The decommissioning of the vessel will effectively improve the cash position and is a part of the company's efforts to reduce cost and adjust fleet capacity to better reflect current market demand. The company will retain the vessel's seismic equipment.

Voyager Explorer completed its scheduled docking in Singapore in September. Yard stay represented 0.0% of active vessel capacity during the quarter.

Multi-client surveys represented 5.4% of vessel utilization in the quarter, compared to 7.0% in the previous quarter and nil the same quarter last year. Multi-client revenues were $0.3 million in the period, compared to $0.8 million in the previous quarter.

The company announced one new prefunded 4,000 km multi-client survey in the Barents Sea during the quarter. The company commenced operation on this survey in September and will complete the project in the fourth quarter.

Operational expenses were reduced during the third quarter relative to previous quarters as a result of ongoing cost cutting initiatives.

Total net non-recurring charges were $4.6 million in the quarter. Of this amount, $3.3 million represented a reversal of bad debt costs and was charged to SG&A in the period. Additionally, the company booked an impairment of $9.9 million on the Hawk Explorer. Further, the company reported a $1.4 million gain in relation to the purchase of Hawk Explorer and settlement of the Hawk Explorer financial lease. Net non-recurring cost of sales in the quarter amounted to positive $0.5 million, which mainly relates to a $1.4 million cost reversal for Geo Pacific in relation to the final commercial settlement with its owner, partly offset by a $0.5 million charge for the planned sale and decommissioning of the Hawk Explorer and additional Voyager Explorer redelivery costs of $0.4 million.

Capital expenditures were $0.7 million during the quarter compared to $1.7 million Q3 2015.

Lost time injury frequency (LTIF) rate for the quarter was zero.

Regional review

North and South America (NSA) continued to be the most active region during the quarter. NSA revenues of $13.3 million represented 65% of total revenues for the quarter, all of which  were related to Mexico Gigante.

Europe, Africa and the Middle East (EAME) revenues of $7.2 million represented 35% of total Q3 revenues. Osprey Explorer completed a source job and an undershoot project in the quarter, while Harrier Explorer completed a 2D contract and commenced a prefunded multi-client project.

No SeaBird vessels worked in Asia Pacific (APAC) during the quarter and revenues were nil in the region.

Outlook

Global seismic demand continued to be weak in the third quarter. Oil industry exploration spending is anticipated to remain depressed for the foreseeable future and this is likely to continue to negatively impact seismic activity.

The company's fleet capacity has been reduced to better reflect current market demand. The company continues to evaluate and execute savings initiatives to reduce the company's overall cost level, and this may include temporary stacking of additional vessels.

The fourth quarter is expected to be negatively impacted by idle periods as well as the potential repositioning of vessels before start-up of new projects. We expect the current seismic market softness to continue to impact the seismic sector in 2017. The company is reviewing a number of survey opportunities.  However, the current market uncertainty makes it difficult to predict the level of contract coverage that is possible to obtain.

FINANCIAL REVIEW

Financial comparison

All figures below relate to continuing operations unless otherwise stated. For discontinued operations, see note 1. The company reports net loss of $3.0 million for Q3 2016 (net loss of $1.7 million in the same period in 2015).

Revenues were $20.4 million in Q3 2016 ($23.2 million). The decreased revenues are primarily due to lower utilization and reduced fleet size.

Cost of sales was $10.2 million in Q3 2016 ($14.5 million). The decrease is predominantly due to fewer vessels in operation, lower operating expenses and non-recurring restructuring charges for onerous long-term lease contracts taken in 2015.

SG&A was $3.1 million in Q3 2016, down from $4.3 million in Q3 2015. The decrease is principally due to cost saving initiatives, reduced headcount and bad debt charges incurred in Q3 2015.

Reversal of bad debt charges was $3.3 million in Q3 2016.

Other income (expense) was $0.2 million in Q3 2016 ($0.1 million).

EBITDA was $10.7 million in Q3 2016 ($4.6 million).

Depreciation, amortization and impairment were $13.7 million in Q3 2016 ($4.6 million). This increase is largely due to an impairment on the Hawk Explorer taken in the quarter.

Finance expense was $1.3 million in Q3 2016 ($1.6 million).

Other financial items were $1.4 million in Q3 2016 ($0.0 million). The increase is due to the financial gain recorded in relation to the settlement of the Hawk Explorer finance lease that was booked in the quarter.

Income tax expense was $0.1 million in Q3 2016 ($0.2 million).

Capital expenditures in the quarter were $0.7 million ($1.7 million).

Multi-client investment was $0.6 million in Q3 2016 ($0.1 million).

Liquidity and financing

Cash and cash equivalents at the end of the period were $11.8 million ($5.4 million in Q3 2015), of which $0.4 million was restricted in connection with deposits and tax. Net cash from operating activities was $7.6 million in Q3 2016 ($1.0 million in Q3 2015).

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

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 $27.2 million per Q3 2016 (nominal value of $29.3 million plus accrued interest of $0.2 million plus amortized interest of $2.1 million 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 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 2016 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 $2.1 million (initial nominal value of $2.3 million plus accrued interest of $0.02 million plus amortized interest of $0.2 million less fair value adjustments 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. Principal repayments during Q3 2016 amounted to $0.6 million and additional amounts drawn on the credit facility during the period was $0.6 million. Interest paid during Q3 2016 was $0.03 million.

The three-year unsecured loan is recognized at amortized cost of $1.1 million (initial nominal value of $2.1 million plus amortized interest $0.2 million less fair value adjustment and accrued interest of $0.3 million less principal repayments of $0.9 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 is payable in nine equal quarterly instalments of $0.2 million commencing on 1 January 2016. Interest paid during Q3 2016 was $0.02 million and principal repayments during Q3 2016 was $0.2 million.

On 1 September, the company acquired the Hawk Explorer along with all seismic equipment on the vessel and an agreement to cancel all future lease payments and additional obligations that were a part of the original charter agreement. The final Hawk lease settlement, instalments and interest amounting to $1.5 million were paid during Q3 2016 ($0.6 million in Q3 2015).

Net interest bearing debt was $18.6 million as at the end of Q3 2016 ($28.3 million in Q3 2015).

Accrued interest on the bond loan, credit facility and the unsecured note for Q3 2016 was $0.2 million ($0.2 million).

The company was in compliance with all covenants as of 30 September 2016.

The total outstanding amount of common shares in the company is 3,065,434. The company has also issued 884,686 warrants, convertible into 884,686 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 continued very challenging market conditions and the company's limited working capital creates a material risk to this assumption. In the event that new backlog cannot be secured on satisfactory rates or at all, project performance is significantly worse than expected or contracts and other arrangements in respect of the employment of SeaBird's vessels are cancelled, or significantly delayed, the company would need to sell assets or raise additional financing, which may not be available at that time. Reference is made to the Going Concern section in selected notes and disclosures for further details on the financial position of the company.

The Board of Directors and
Chief Executive Officer
SeaBird Exploration Plc
3 November 2016

The third quarter 2016 presentation will be transmitted live at

http://www.sbexp.com/investor-relations

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