Second quarter 2015
Jean Cahuzac, Chief Executive Officer, said: 'Subsea 7 delivered good operational and financial results in the second quarter, driven by strong execution and cost control discipline in a challenging market environment.
During the quarter Subsea 7 announced a cost reduction programme to resize the fleet and workforce in line with the declining workload. A US$100 million charge related to the resizing was recognised in the second quarter, out of an estimated total charge of US$140 million. The Group will reduce its capacity by 2500 people and 12 vessels byearly 2016, delivering expected annualised savings of approximately US$400 million in employee related costs and about US$150million in vessel costs.
Second quarter revenue of US$1352 million was down US$553 million on the prior year quarter, reflecting
the difficult industry conditions and declining workload.Adjusted EBITDA of US$275 million and margin of 20.3% included the US$100 million charge related to the cost reduction programme. Excluding this charge Adjusted EBITDA was US$375 million and the margin was 27.7%.
Global vessel utilisation increased to 82% in the second quarter from 68% in the prior quarter as the offshore phase of several projects progressed significantly and activity in the North Sea increased in part due to the seasonally better weather.
Order intake was US$0.9 billion reflecting Subsea 7’s competitiveness in a market that remained subdued. Announced awards comprised
a two year contract offshore Brazil for the pipelay support vessel (PLSV) Seven Seas and a large contract for the Maria project ,offshore Norway. Order backlog at the end of June was US$7.2 billion, US$0.4 billion lower than at the start of the quarter, with no material impact from foreign exchange movements
in the period.
Net debt of US$151 million compared to US$288million at the end of the first quarter, reflected US$297 million net cash generated from
operating activitiesin the second quarter which included a decrease in net operating assets. To further strengthen the Group’s liquidity position a new Export Credit Agency backed secured term loan facility of up to US$357 million was signed after the period close.
The Board of Directors has authorised a 24month extension to the US$200 million share repurchase programme initiated in July 2014, upholding
Subsea 7’s commitment to return excess cash to shareholders.
Operational highlights for the second quarter 2015
In the Northern Hemisphere and Life of Field Business Unit significant progress was made on several projects. The Montrose project completed
the installation of bundles and pipelines in the quarter. The Aasta Hansteen and Martin Linge projects, both progressed well with their offshore phases. Offshore installation on the Catcher project commenced with Seven Navica beginning pipelay at the end of the period. Life of Field and i-Tech
activity levels were similar to the first quarter.
In the Southern Hemisphere and Global Projects Business Unit the OFON 2 and Erha North projects, offshore Nigeria, progressed significantly, as did the two Lianzi projects,offshore Angola. The TEN project, offshore Ghana, proceeded with engineering, procurement and fabrication, and is due to commence offshore operations in the third quarter. The 7 PLSVs on long term contracts, offshore Brazil, delivered another strong quarter with high utilisation.
The sustained downturn in oil company expenditure continues to result in lower industry activity and the timing of new awards to market remains highly uncertain.By balancing the implementation of its cost reduction programme with a focus on maintaining its core in-house expertise and capability, Subsea 7 remains well positioned to continue to deliver its projects in a consistent and efficient manner and capture future business opportunities.
Subsea 7 is proactively working with clients to identify technical and operational solutions that will lower the cost of field development. The Group has recently formed two strategic alliances with market leading industry partners to enhance its scale and scope and reinforce its early engagement capabilities in the offshore and subsea market. The alliance with KBR and Granherne provides clients with market leading experience and expertise in Concept and Front End Engineering and Design (FEED) services during the critical stage of concept evaluation.
The alliance with OneSubsea ®offers clients fully integrated concept and system design, early engineering and FEED, including subsurface expertise, boosting and subsea production systems (SPS) and subsea umbilicals, risers and flowlines (SURF) solutions to improve the economics of field development from the reservoir to the production facility.
As guided previously, Group revenue is expected to be significantly lower in 2015 compared to the record level reported last year and Adjusted EBITDA margin is expected to decrease compared to 2014.
The fundamental long term outlook for deepwater subsea field developments remains intact despite the challenges facing the industry as a result of the lower oil price. Subsea 7 is being proactive in implementing a cost reduction programme and maintaining a solid financial position. By reinforcing its ability to engage early with clients and offer lower cost global solutions for the development of projects, Subsea 7 is strengthening its top tier position.'
Edited from a press release by Louise Mulhall