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SeaBird Exploration Ltd. (OSL:SBX) HIGHLIGHTS SECOND QUARTER 2008
* New all time high quarterly revenues of USD 55.6 million, an increase of 222% compared to Q2 2007. * New all time high quarterly EBITDA of USD 21.5 million, compared to USD 1.2 million for Q2 2007. * Eight vessels in operation for the full quarter, with an average vessel utilization of around 87%. * Production rates above target for vessels in India. * Hugin Explorer, delivered from yard after conversion, has already completed her first commercial project and is now in transit to Angola to commence a full scale ocean bottom node survey for Total. * SeaBird is well positioned to benefit from the continued strong market with nine vessels operational and no exposure to uncertainty related to conversions and vessel delivery. * Contracts with a total value of more than USD 200 million awarded in the first six months of 2008.
KEY FINANCIAL PERFORMANCE FIGURES
The SeaBird Group reported consolidated revenues of USD 55.6 million for the second quarter of 2008, compared to USD 17.2 million for Q2 2007. Eight vessels were in operation with an average vessel utilization of around 87%. Earnings before interest, taxes, depreciation and amortization ("EBITDA") were USD 21.5 million for the quarter, compared to USD 1.2 million for Q2 2007. Even though vessel utilization was not optimal, revenues and EBITDA were substantially higher than any previous quarter in the company's history.
Substantial increases in costs, mainly due to having three more vessels in operations than in the comparable quarter of 2007, high operating costs for four vessels operating in India and general cost inflation in the industry, were more than offset by the substantial increase in revenues. SeaBird had selling, general and administrative expenses of USD 6.7 million in Q2 2008, compared to USD 3.9 million in Q2 2007 due to the expansion of operations.
Earnings before interest and taxes ("EBIT") were USD 14.5 million for the second quarter of 2008 compared to a loss of USD 2.3 million for Q2 2007. Depreciation increased to USD 7.0 million, up from USD 3.5 million for Q2 2007, as three vessels were added subsequent to Q2 2007.
Interest expenses increased from USD 1.1 million in Q2 2007 to USD 3.2 million in Q2 2008. Interest expenses are reduced with capitalized interest cost on capital work in process of USD 1.9 million for Q2 2008 and USD 2.2 million for Q2 2007. Adjusted for this, the increase of interest expenditures are in line with the increase of net interest bearing debt from USD 120.5 million by the end of Q2 2007 to USD 210 million by the end of Q2 2008. Net income for Q2 2008 was USD 11.4 million, compared to a net loss of USD 3.1 million for Q2 2007.
Revenues for the six months ended 30 June 2008 were USD 93.3 million which is 131% higher than the comparable period of 2007 and close to the full year revenues for 2007 of USD 95.8 million. EBITDA for the first six months of 2008 were USD 31.2 million, an increase of 196% from the comparable period of 2007 and higher than the full year EBITDA for 2007 of USD 23.3 million. EBIT for the first six months were USD 17.1 million, an increase of 348% from the first six months of 2007. Interest expenses increased from USD 2.3 million in the first six months of 2007 to USD 7.7 million in the comparable period in 2008, while other financial items, net increased from close to zero for the first six months of 2007 to an expense of USD 6.7 million for the first six months of 2008. Unrealized foreign exchange losses on Norwegian kroner bond loans of NOK 600 million constituted USD 6.9 million of other financial items, net. This loss was mainly recognized in Q1 2008, while the USD strengthened marginally against the NOK through Q2 2008 resulting in a marginal unrealized foreign exchange gain for the quarter. Net income was USD 3.4 million, compared to USD 1.9 million for the first six months of 2007.
The weak USD has in general had a negative impact on both operating expenses and on the capital expenditures related to the investments in the Hugin Explorer, nodes and related equipment, as a substantial part of costs and investments have been committed in other currencies than USD.
OPERATIONAL HIGHLIGHTS Q2 2008
Munin Explorer, Northern Explorer and Osprey Explorer were all operating in India in April and May on various contracts for Oil and Natural Gas Corporation Limited of India (ONGC). Munin Explorer left India for a proprietary survey in East-Africa early June, while Northern Explorer left India mid-June for a 3-4 months time charter contract in the Far East. Northern Explorer is then expected to return to India to continue working for ONGC. Osprey Explorer continues to acquire data off the East-Coast of India and is expected to stay in India throughout the monsoon period. Northern Explorer and Osprey Explorer are expected to be in India until the summer 2009. In total, these three vessels had average vessel utilization of about 87% in the second quarter. All three vessels suffered downtime and non-chargeable standby in excess of our targets. However this was offset by effective production when the vessels were acquiring data, and revenues were exceeding target.
Geo Mariner had vessel utilization above 95% and completed a short survey off the East-Coast of India and a survey off the East-Coast of Africa in the second quarter. The vessel is currently mobilizing for a survey in the Middle East.
Aquila Explorer, Harrier Explorer, Kondor Explorer and Hawk Explorer were all on time charter contracts for the whole quarter. Harrier Explorer had close to 94% utilization and chargeable time, while the three others had average vessel utilization slightly above 80%. The main part of the unpaid time for these vessels was planned upgrade and maintenance work. Hawk Explorer was out of production for eight days for improvements to the seismic equipment with the aim of bringing the vessel performance back to target levels. The client (Fugro) has exercised an option to extend the time charter contract on the Hawk Explorer to November 2009. Aquila Explorer is on time-charter to Petroleum Geo-Services ASA (PGS) until February 2009. Aquila Explorer was in yard for about three weeks for various maintenance work and upgrade to 2D mode, of which about two weeks were unpaid. The main capital expenditures related to the upgrade to 2D mode are covered by the charterer, while the charter rate will be increased around 10% to operate the vessel in 2D mode. Kondor Explorer was in yard close to three weeks for various maintenance works and continued operations for CGGVeritas for the rest of the quarter. The contract with CGGVeritas has been terminated and the vessel will be released from CGGVeritas at the end of August. We are currently working with alternative employment options for the Kondor Explorer. The Harrier Explorer is on time charter to PGS until 2011 with an extension option for two years.
The Hugin Explorer completed successful maritime and seismic sea-trials at the end of the second quarter and completed a small job in the North Sea in July. She is now in transit to Angola with 500 new deep-water nodes on board, to commence her first full scale ocean bottom node survey for Total. The total investment in nodes and vessel conversion and equipment is estimated to be around USD 75 million. The assignment for Total represents the first major recognition from oil companies of our seabed operations and is our first contract in this high end of the seismic industry where we see great potential for the future in reservoir imaging and 4C / 4D applications. SeaBird is very pleased to have reached this milestone and to have Total as the contractual partner in the first survey using Hugin Explorer and her autonomous node acquisition system in deepwater and congested areas.
LIQUIDITY AND FINANCING
At 30 June 2008, cash and cash equivalents amounted to USD 8.9 million, compared to USD 11.6 million at the end of 2007 and USD 28.2 million at the end of Q1 2008. Net cash flow from operating activities for the quarter was USD 22.6 million, compared to USD 2.0 million for Q2 2007. Net cash flow from operating activities for the first six months of 2008 was USD 38.1 million, compared to USD 21.2 million for the first six months of 2007. Capital expenditures for the quarter were USD 24.9 million and USD 50.8 million for the first six months of 2008. Borrowings were reduced with a net of USD 16.3 million for the quarter, mainly caused by repayment of short term credit facilities of USD 15 million during the quarter. These facilities can be drawn again and was an unused liquidity reserve at the end of the quarter. Net interest bearing debt was USD 210 million at the end of Q2 2008 compared to USD 213 million at the end of 2007 and USD 207 million at the end of Q1 2008.
Based on the current business plan, the peak liquidity need is projected to be throughout the third quarter of 2008. As described above, at 30 June 2008, SeaBird had a cash balance of USD 8.9 million and undrawn short term credit facilities of USD 15 million. SeaBird has successfully re-negotiated repayment schedules for short and long term loans constituting around USD 90 million to better align the repayment schedule with our projected cash flow from operations. However, should a significant shortfall in cash flow from operations materialize, we would have to re-negotiate the repayment schedule or find alternative forms of financing. As part of the amendment of these loan agreements, the company has agreed to certain margin increases.
OUTLOOK
SeaBird continues to see a positive development for all segments of the seismic offshore market. In response to a strong market there will be a number of additional 3D vessels entering the market in 2008 and beyond, but with continued strong demand we still believe the additional capacity will be absorbed and have limited impact on SeaBird's core business within high-quality 2D, source, shallow water 3D and ocean bottom nodes.
With the completion of Hugin Explorer, SeaBird has taken delivery of 6 converted seismic vessels in less than two years. This completes the aggressive vessel conversion program and focus is now on improving operational performance. To increase focus in this area, Mr Thor Higraff has been appointed Chief Operating Officer based in our Dubai office. Planned capital expenditure for the rest of the year, post completion of the Hugin Explorer, will only be smaller maintenance type investments on the existing fleet and some commitments for equipment purchases.
With nine vessels in the fleet we strongly believe we now are in a position to benefit from the significant investments done over the last three years.
We have high expectations for the Hugin Explorer and our ocean bottom node concept and are very excited to be on our way to commence our first full-scale node survey for Total in Angola. We believe this technology will be a growth area in the future.
Despite our optimism, there is still some uncertainty for the year in relation to the inherent risk in our first full scale node survey for the Hugin Explorer, effective production and utilisation of the vessels on contract in India and securing contracts for the few open slots we still have for the rest of the year for some of the vessels.
We currently expect revenues for 2008 to be between USD 210-220 million.
RESPONSIBILITY STATEMENT
We confirm that, to the best of our knowledge, the condensed set of financial statements for the first half year of 2008, which has 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 2008 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 Ltd 18 August 2008
The presentation and the full report with tables can be downloaded from the following links:
