Subsea 7 Inc. Reports 1Q 2009
Subsea 7 Inc. (Oslo Stock Exchange: SUB) reported results for the first quarter of 2009. Quarter Highlights:
• Good project execution and profitable in all regions.
• Successful completion of a number of projects, including Chevron (CVX)’s Tombua Landana development.
• Awarded contract by Petrobras in Brazil valued at approximately USD 200 million in support of the Tambau Urugua and P-56 developments.
The Group’s accounts are prepared in accordance with International Financial Reporting Standards (IFRS).
Highlights for the quarter included the successful completions of Venture’s Chestnut P2 development and Ithaca’s Jacky project. Engineering and procurement activity continued on Centrica (CPYYY)’s Grove project during the quarter and offshore work on Venture’s Channon / Barbarossa and Eon’s Rita developments also progressed as planned. In Norway, offshore activity on the StatoilHydro Vega project commenced towards the end of the quarter whilst onshore fabrication of the pipeline was undertaken at the Vigra base. Project management, engineering and procurement continued on BP (BP)’s Skarv and Valhall Re-Development projects. Inspection, Repair and Maintenance (IRM) operations continued on the Shell, ConocoPhillips (COP), Total and BP frame agreements.
The final offshore phase of Chevron’s Tombua Landana project in Angola was successfully completed during the quarter. Operations continued on the BP Block 18 Life of Field project offshore Angola and engineering and project management activities progressed in respect of BP’s Block 31 contract. Activity continued in support of Addax’s Okwori field in Nigeria.
The pipe for the StatoilHydro Peregrino project and the shore-approach section of the Petrobras Sul Capixaba project were installed during the quarter. The remainder of the Sul Capixaba pipeline will be installed during the third quarter of 2009. Shell’s BC-10 project continued to progress with completion scheduled for the third quarter of 2009. The Seven Oceans and Seven Seas continued to perform well in support of this development. The K3000 and Lochnagar continued to support Petrobras on day-rate operations. The Normand Seven made good progress on the Roncador project for Petrobras having temporarily suspended work to successfully complete Shell’s Salema riser replacement project.
The Skandi Neptune continued to support BP’s Thunder Horse project with some further work being undertaken for BP’s Atlantis development. This vessel was off-hire from the end of January 2009 until the middle of February 2009 for a planned drydock. Engineering and project management continued in respect of the Petrobras Cascade and Marathon Droshky projects. Construction work at the Port Isabel spoolbase in Texas progressed well. The works are on track to be concluded in the second quarter of 2009 with welding in respect of the Marathon Droshky project due to commence on schedule.
The Rockwater 2 continued to support Allseas offshore India, before commencing a scheduled drydock at the end of March 2009. The Venturer continued to support Woodside’s operations in Australia during the quarter. In February 2009, the Company and Technip announced their agreement to dissolve their joint venture, Technip Subsea 7 Asia Pacific, once it has completed all its existing projects and tendered work. The companies intend to pursue separate strategic development opportunities in the region.
During the quarter, the Company continued to hold investments in listed equity shares and debt securities. At 31 March 2009, these investments were treated as ‘Available-for-sale financial assets’ and were marked-to-market in the balance sheet, giving rise to an increase in their carrying value during the quarter of $23.8m. $15.7m of this increase in the quarter has been reflected directly in Shareholders’ equity. The remaining 8.1m, which reflects the re-measurement at fair value of the embedded option contained within the debt securities, is included in the consolidated income statement.
On 31 March 2009, the Company repurchased $15m (par value) of the $300m 2.8% Subsea 7 Inc. convertible notes due 2011 for $11.03m, or 73.5% of the par value. The company did not previously hold any of its own convertible notes. A gain of $2.5m in respect of this repurchase has been included within finance income in the consolidated income statement. On 2 April 2009, the company concluded a three-year revolving credit facility with HSBC Bank plc for $50m. The undrawn loan facilities available to the company at the date of this report total $150m.
Revenue for the first quarter 2009 was $602.8m compared to $562.1m for the same period in 2008. Net operating profit for the first quarter 2009 was $82m compared to $84.7m for the same period in 2008. Net financial expense for the first quarter 2009 was $5.1m compared to $4.9m for the first quarter 2008. Taxation expense for the first quarter 2009 was $24.7m, which equates to an effective rate of 31%. Net profit attributable to equity shareholders for the first quarter 2009 was $55m, or $0.37 per share, compared to a net profit of $55.1m, or $0.37 per share, for the first quarter 2008.
The construction of the diving support vessel Seven Atlantic progressed during the quarter with delivery expected by the end of the third quarter of 2009. Engineering and procurement continued in respect of the new-build pipelay and construction vessel to be named Seven Pacific. This vessel is scheduled for delivery in the fourth quarter of 2010.
During the quarter, 7,500 share options were exercised under the Group’s share option plan at a strike price of NOK 29.49 per share. The company had 146,919,380 shares issued and outstanding at 31 March 2009.
The Group was awarded new contracts, including commitments under frame agreements, of an aggregate amount of $0.3b during the quarter. The worldwide order book of the Group at 31 March 2009 was approximately $2.9b, comprised of approximately $1.9b of day-rate contracts and $1b of lump-sum contracts. This compares to a worldwide order book of the Group of $3.9b at 31 March 2008.
Major new contract awards since 1 January 2009
In March 2009, the company announced that it had been awarded a contract by Petrobras for the Tambau Urugua and P-56 developments in the Santos and Campos basins, offshore Brazil. The contract is valued at approximately $200m, with the offshore pipeline installation campaign scheduled to take place during 2010.
The market outlook continues to retain a degree of uncertainty for the medium term as a result of the current economic climate. As indicated previously, national oil companies and major operators are generally expected to maintain their spending levels. Notwithstanding this, the whole industry is taking time to re-assess projects and take advantage of potential cost reductions given the current environment. This is resulting in delays in contract awards and, in respect of some of the smaller players in the North Sea and North America, a cancellation or deferment of projects. The company continues to focus on its efforts to reduce costs and improve efficiencies in the supply chain in order to remain competitive in the current market.