Subsea 7 S.A. announced results for the second quarter and first half of 2016 which ended 30 June 2016.
Jean Cahuzac, Chief Executive Officer, said:
‘Subsea 7 delivered a good operational performance in the second quarter, maintaining its track record of safe and reliable project execution. Financial performance continued to be impacted by the industry downturn with diminishing activity levels as planned work was completed and client investment in oil and gas production remained low.
Second quarter revenue of $961 million was down 29% on the prior year’s quarter. Adjusted EBITDA of $280 million and margin of 29% reflected good execution and reduced risk profiles and costs on certain projects as offshore phases progressed. Adjusted EBITDA included a $53 million restructuring charge related to the Group’s global resizing and cost reduction measures. The restructuring charge for the full year is expected to be less than $100 million.
Active vessel utilisation increased to 82% in the second quarter from 71% in the prior quarter as offshore phases of several projects progressed and seasonal work in the North Sea increased as anticipated. Two vessels, Seven Waves and Seven Antares, which were stacked previously, resumed activities on a temporary basis contributing to an increase in total vessel utilisation to 67%.
In June, Subsea 7 announced a further global resizing and cost reduction programme commensurate with the lower levels of activity and more efficient ways of working. The workforce of 9,200 people as at the end of May will be reduced to approximately 8,000 by early 2017 and up to five vessels will leave the active fleet. The resizing is expected to deliver annualised savings of approximately $350 million.
Subsea 7’s order intake was $1.6 billion, including approximately $1.3 billion related to the Beatrice wind farm project and a Pipeline Bundle solution for the Callater project, both offshore UK. Order backlog at the end of June was $7.1 billion, $0.6 billion higher than at the start of the quarter, this included adverse foreign exchange impacts of approximately $50 million.
The delivery dates for the new-build vessels were rescheduled in line with revised operational requirements; Seven Sun and Seven Cruzeiro will be delivered at the back end of the contracted delivery windows agreed with the client. Seven Arctic and Seven Kestrel will be delivered in the first half 2017. The overall cost of the new-build programme is expected to be within original estimates.
The Group’s financial and liquidity position remains strong. Cash and cash equivalents was $1.2 billion as at 30 June and net cash was $728 million.
In the Northern Hemisphere and Life of Field Business Unit significant progress was made on the Catcher project, offshore UK, with the tow-out and installation of all three Pipeline Bundles. The Aasta Hansteen project progressed with the first Steel Catenary Riser installed in Norwegian waters, completed by Seven Oceans. Offshore Norway, the Martin Linge and Maria projects progressed well. The Holstein Deep and Stones projects in the Gulf of Mexico were substantially completed, as was the Montrose project, offshore UK. Subsea 7 reorganised its operations to combine Life of Field with the i-Tech division to create i-Tech Services, which provides a comprehensive service offering across the whole lifecycle of oil and gas fields to clients worldwide.
In the Southern Hemisphere and Global Projects Business Unit the TEN project, offshore Ghana, was substantially completed with all Subsea 7 offshore activities concluded in the quarter. Offshore Angola the Lianzi Topside project was substantially completed as was the Baobab project, offshore Ivory Coast. Operations offshore Egypt progressed well with first gas achieved in May on the Ha’py field on the East Nile Delta project with fabrication and testing underway on the West Nile Delta phase one project. Offshore Brazil the contract for Pipelay Support Vessel (PLSV) Seven Mar was cancelled due to Brazilian maritime law that prioritises Brazilian-flagged vessels over international vessels of a similar specification. The owned PLSV Seven Mar was subsequently substituted for the chartered PLSV Normand Seven in the contract for Normand Seven with no other significant changes to the contractual terms and conditions. Subsea 7’s PLSVs on long-term contracts offshore Brazil delivered another quarter of high utilisation.
Subsea 7 reorganised its operational and reporting segments effective 1 July 2016. The three new segments comprise: SURF and Conventional, i-Tech Services and Corporate (including Renewables and Heavy-lift). These will replace the ‘Southern Hemisphere and Global Projects’ and ‘Northern Hemisphere and Life of Field’ Business Units and Corporate segments previously reported.
The sustained downturn in oil company expenditure continues to result in low industry activity and the timing of new awards to market is still uncertain. The reduction in Subsea 7’s workforce and active vessel capacity will enable the business to adapt to the lower levels of activity expected in the foreseeable future. Early discussions with clients are taking place more frequently on solutions to offset decline rates in production of existing fields through extended tieback and marginal field developments in various locations worldwide.
Subsea 7 remains focused on commercial and long-term strategic priorities, enhanced by its new organisation structure and new ways of working. The fundamental long-term outlook for subsea field developments remains positive and the Group is committed to maintaining its core capabilities and remaining a leading global subsea engineering and construction service provider.’