SeaBird Exploration Plc: Fourth quarter and preliminary year-end results 2013

2013 SUMMARY OBSERVATIONS FOR THE FOURTH QUARTER

• Revenues for the quarter were $37.2 million, an increase of 7% compared to the comparable period in 2012 and down 28% relative to Q3 2013.
• Contract revenues for the period were $32.1 million, down 7% from Q4 2012 and down 36% from Q3 2013.
• Multi-client revenues were $5.1 million, up from $0.4 million reported in Q4 2012 and an increase of 183% from $1.8 million reported in Q3 2013.
• Contract surveys during the fourth quarter represented 53% of vessel capacity compared to 82% during the third quarter; the decrease is mainly due to lower vessel utilization across the fleet and higher vessel repositioning relative to the prior period.
• EBITDA was $3.9 million compared to $6.8 million for Q4 2012 and $13.2 million for Q3 2013. 
• EBIT for the quarter was negative $4.6 million compared to $0.9 million for Q4 2012 and $6.7 million for Q3 2013.
• Vessel utilization for the period was 56%.

PRELIMINARY YEAR END 2013 OBSERVATIONS

• Revenues for 2013 were $177.8 million, an increase of 9% compared to 2012.
• Contract revenues for 2013 were $166.8 million, up 18% from 2012.
• Multi-client revenues were $11.0 million, a decrease of 49% from $21.7 million reported in 2012.
• EBITDA was $31.9 million compared to $38.6 million for 2012.
• EBIT for 2013 was $4.9 million compared to $4.2 million for the prior year.  
• Vessel utilization for 2013 was 77%.

Operational review

Fourth quarter revenues and earnings were down from the previous quarter in light of reduced utilization across the fleet. In addition to normal seasonal variances, global demand for 2D, niche 3D and source seismic surveys was substantially weaker than prior quarters during the year.

Multi-client sales were significantly higher in the fourth quarter. The increase in multi-client revenues was a result of stronger late sales. A substantial portion of multi-client revenues for the period related to earlier surveys which collectively have limited remaining book value. Approximately 30% of multi-client sales for the quarter related to surveys completed in 2013.

Multi-client utilization was 3% for the period compared to 4% in the third quarter. During the quarter, the Harrier Explorer completed a one thousand five hundred kilometer survey in the North Sea which commenced during the third quarter. In the fourth quarter, the Geo Pacific mobilized for a two thousand six hundred square kilometer 3D multi-client program in West Africa. This survey is anticipated to be completed in the second quarter of 2014.

Contract revenues for the fourth quarter were down compared to the prior period. The weaker contract sales were a result of lower demand across all our geographic focus areas. Contract surveys during the fourth quarter represented 53% of vessel capacity compared to 82% for quarter three.

Although the fourth quarter is typically a slower period for the industry, demand during the period was below normal. In addition, contract postponements resulted in lower than expected contract utilization. In the Asia Pacific region, a 3D contract for Voyager Explorer which was expected to commence in the fourth quarter was cancelled.

During the quarter, the Geo Pacific finished the second of two surveys in the Caribbean. The Aquila Explorer completed a maintenance docking midway through the quarter in preparation for its deployment to Australasia. During the docking, a propulsion upgrade was also completed. Yard stays represented 3% of vessel capacity for the period.

Vessel utilization for the fourth quarter was 56%, down from 86% in the third quarter. Operational performance of the fleet was solid, with technical downtime below 4% for the quarter.

The company's continuing commitment to health, safety, security, environment and quality (HSSEQ) remained a core focus during the quarter. The lost time injury frequency (LTIF) for the year was 0.23. Measures continue to be implemented as part of SeaBird's lessons learnt principle for operational improvement.

Regional overview

Fourth quarter revenues were down compared to the prior period in both the Asia Pacific (APAC) and North and South America (NSA) regions. Revenues in APAC and NSA were impacted by reduced demand as well as repositioning. Comparatively, revenues in Europe, Africa and the Middle East (EAME) strengthened.

Sales in APAC of $13.4 million accounted for 36% of total revenues. APAC revenues were down compared to the third quarter as Voyager Explorer finished a 3D survey in the Philippines at the beginning of November and was unutilized for the remainder of the quarter. Aquila Explorer completed two 2D surveys in the region in the first half of the quarter and subsequently underwent a docking in preparation for its Australasia program. The vessel was in transit towards the end of the quarter; en route for a contract with a major oil company offshore New Zealand.

NSA sales of $13.0 million represented 35% of total revenues. The decrease in NSA revenues was mainly due to the repositioning of the Geo Pacific to West Africa after completing its survey in October. In addition, Osprey Explorer completed a 2D survey in the region in early November and remained unutilized for the rest of the quarter.

Sales in EAME of $10.8 million accounted for 29% of total revenues. Revenues increased compared to the third quarter as Harrier Explorer and Northern Explorer were both active in this region during the fourth quarter.

Outlook

In spite of the slow-down experienced in the fourth quarter, we are currently seeing a moderate improvement in global seismic demand. Nevertheless, we expect that the market softness is likely to have an impact on earnings in the first part of 2014. Pricing has remained firm in all regions and we would largely expect this to remain stable through the first half of the year.

EAME has seen an increase in demand following the generally slower winter period. With one vessel currently active in the North Sea and three vessels mobilizing to Africa, EAME will be a key region in the first half of 2014.

The prolonged environmental approval processes for surveys in Australia and New Zealand have delayed vessel deployment and contract startups within this region. However, we anticipate continued solid demand in this geography.

Multi-client late sales were strong in the fourth quarter and we expect to capitalize further on our existing library in 2014. However, timing of multi-client sales is difficult to predict. Furthermore, we continue to see a more challenging environment for obtaining prefunding for new surveys.

The company views multi-client investment as a core part of its operation and will capitalize on multi-client investment opportunities with attractive risk reward characteristics. We are actively reviewing opportunities in the multi-client sector.

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 $8.7 million for Q4 2013 (net loss $5.4 million in the same period in 2012).

Revenues were $37.2 million in Q4 2013 ($34.9 million). The increased revenues are primarily due to fleet composition and higher multi-client sales in Q4 2013, partly offset by greater vessel repositioning during the quarter resulting in lower contract revenues.

Cost of sales was $28.5 million in Q4 2013 ($24.4 million). The increase is mainly due to fleet composition with the chartering of the Geo Pacific at the end of 2013, partly offset by lower vessel utilization.

SG&A was $5.1 million in Q4 2013, up from $4.1 million in Q4 2012. The increase is principally due to an increase in employee numbers in line with an increased fleet size and higher consultancy costs.

EBITDA was $3.9 million in Q4 2013 ($6.8 million).

Depreciation and amortization were $8.5 million in Q4 2013 ($5.9 million). The increase is predominantly due to the de-recognition of a number of cyclical assets as part of an overall review of property plant and equipment carried out during the quarter.

Interest expense was $3.1 million in Q4 2013 ($3.2 million).

Other financial items, net expense, of negative $0.7 million in Q4 2013 (negative $0.4 million). The change is mainly due to currency fluctuations.

Income tax expense was $0.2 million in Q4 2013 (expense of $2.7 million). The decrease in tax cost is primarily due to the reassessment of selected historical tax provisions carried out in Q4 2013.

Capital expenditures were $1.5 million in Q4 2013 ($4.2 million). The majority of the capital cost incurred during the quarter related to the dry docking of Aquila Explorer. The remaining portion related to the purchase of routine seismic and other equipment across the fleet.

Multi-client investment was $1.4 million in Q4 2013 (2012: Nil), which related to the completion of a survey in the North Sea, along with the commencement of a new 3D multi-client survey in West Africa during Q4 2013.

Net profit from discontinued operations was $3.9 million for Q4 2013 (loss of $0.6 million). Discontinued operations represent the remaining contractual obligations of the ocean bottom node (OBN) business which was divested in Q4 2011. The profit from discontinued operations is due to the reassessment of selected historical tax provisions carried out in Q4 2013.

Liquidity and financing

Cash and cash equivalents at the end of the period were $12.2 million ($14.7 million), of which $0.4 million was restricted in connection with deposits and the bond service account. Net cash from operating activities was negative $0.2 million in Q4 2013 (negative $1.3 million).

The company has one bond loan, one convertible loan and the Hawk Explorer finance lease. 

• The 6% secured bond loan has a face value of $83.9 million and is recognized in the books at amortized cost of $76.0 million per Q4 2013. The bond loan matures 19 December 2015 and has principal amortization due in semi-annual increments of $2.0 million that started 19 December 2012. Interest and principal amounting to $4.6 million was paid during Q4 2013 in relation to the bond loan.
• The 1% unsecured convertible loan with Perestroika has a face value of $14.9 million and is recognized in the books at amortized cost of $14.0 million per Q4 2013. The convertible loan matures 30 September 2014 and has no principal amortization. Interest on the convertible loan is paid annually. No interest was paid during Q4 2013 in relation to the convertible loan.
• The lease of Hawk Explorer is recognized in the books as a finance lease at $9.3 million per Q4 2013. Installments of $1.0 million against the Hawk lease principal and $0.3 million against the interest portion were paid during Q4 2013 ($0.9 million and $0.4 million in Q4 2012, respectively). During the third quarter, the company announced that it will exercise its option under the current charter agreement to purchase the vessel and related equipment for $6.5 million. The vessel and equipment will be delivered at the end of the lease term 31 August 2014 against settlement of the purchase price.

The company completed a private placement of 12.0 million new shares directed towards Norwegian and international institutional investors. The placement was made at a subscription price of NOK 3.00 per share. Total gross proceeds from the private placement were NOK 36.0 million ($ 5.9 million).

During the quarter, SeaBird extended the bareboat charter for the Munin Explorer from 1 November 2014 to 31 October 2019. In connection with the bareboat extension, the charter rate is being reduced from USD 20,271 per day to USD 12,000 per day, commencing 1 February 2014. The charter rate will escalate with 2% per year throughout the charter period, in accordance with the original agreement.

Management is currently reviewing the possible refinancing alternatives open to the company.

Net interest-bearing debt was $87.1 million at the end of Q4 2013 ($87.4 million). 

Accrued interest for Q4 2013 was $0.1 million ($0.1 million).

The company was in compliance with all covenants as of 31 December 2013. 

The Board of Directors and
Chief Executive Officer
SeaBird Exploration Plc
25 February 2014

The fourth quarter and preliminary year-end 2013 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.