SeaBird Exploration: Fourth quarter report 2016

24 February 2017, Limassol, Cyprus

Statement

SeaBird recorded a 28.8% active vessel utilization during the fourth quarter of 2016, with two stacked vessels. The utilization was impacted by a weak winter season and market softness. SeaBird continues its active marketing of the fleet to secure new projects. Seismic tender activity has picked up recently, but contracting lead-time remains long with substantial competition and high market uncertainty. The company continues to proactively optimize its cost base to improve its relative cost position in the 2D and source markets.

As a result of the significant market uncertainty as well as upcoming debt maturities, the company has engaged financial advisors to evaluate financial alternatives. Such alternatives may involve the raising of additional capital as well as refinancing or restructuring existing obligations. Any such transactions may result in a significant dilution to current shareholders.

2016 Summary observations for the fourth quarter

• Revenues for the quarter were $3.4 million, a decrease of 87% compared to Q4 2015 and down 83% relative to Q3 2016.
• Contract revenues for the period were $2.6 million, down 90% from Q4 2015 and a decrease of 87% from Q3 2016.
• Multi-client revenues were $0.9 million, up from $0.5 million reported in Q4 2015 and an increase from $0.3 million reported in Q3 2016.
• Adjusted EBITDA of negative $2.9 million. Reported EBITDA was negative $1.9 million compared to positive $4.6 million for Q4 2015 and positive $10.7 million for Q3 2016.
• Adjusted EBIT of negative $6.5 million. Reported EBIT for the quarter was negative $5.5 million compared to negative $5.6 million for Q4 2015 and negative $3.0 million for Q3 2016.
• Net non-recurring gain of $1.0 million mainly relatingto reversal of bad debt charges.
• Active vessel utilization for the period was 28.8%. Contract surveys during the fourth quarter represented 21.5% of vessel capacity compared to 100% during the fourth quarter 2015. Multi-client surveys accounted for 7.3% of vessel capacity compared to 0% in the fourth quarter 2015. For 2016, the utilization was recorded at 73.2%

Key highlights

Operational review

The fourth quarter of 2016 was challenging with weak seismic market demand. Although there are signs of market improvement, total vessel utilization for the quarter was low and the timing of a sustained market recovery is still highly uncertain.

Active vessel utilization for the fourth quarter of 2016 was 28.8%, down from 84.0% in the third quarter. Contract surveys represented 21.5% of vessel capacity compared to 78.6% for the third quarter of 2016. Technical downtime for the fleet was 0.4% in Q4 2016, down from 7% in Q3.

Northern Explorer completed the remaining part of the Mexico Gigante project and transited to South America where it started on a 2D contract survey towards the end of the period. Osprey Explorer mobilized and commenced a source project in West Africa in the period. Harrier Explorer completed its multi-client survey in the Barents Sea early in the quarter.

The Munin Explorer remained stacked. Aquila Explorer was impacted by hurricane Matthew in the Bahamas and was transited to Las Palmas for repairs during the quarter. The Hawk Explorer was sold and delivered for decommissioning. The company retained the vessel's seismic equipment.

Yard stay represented 0.0% of active vessel capacity during the quarter.

Multi-client surveys represented 7.3% of vessel utilization in the quarter, compared to 5.4% in the previous quarter and nil the same quarter last year. Multi-client revenues were $0.9 million in the period, compared to $0.3 million in the previous quarter.

The Mexico Gigante project and the company's prefunded 4,000 km multi-client survey in the Barents Sea were completed during the quarter. The company announced a new source contract in West Africa and a 2D contract survey in South America during the quarter. Both these surveys commenced towards the end of the quarter and are expected to be completed in quarter one 2017. The company has a contract backlog of $6.3 million as of 31 December 2016.

Operational expenses were reduced further during the fourth quarter relative to previous quarters as a result of ongoing cost cutting initiatives and reduced fleet size.

Total net non-recurring gains were $1.0 million in the quarter, mainly relating to a reversal of bad debt costs. Capital expenditures were $0.5 million during the quarter compared to $0.5 million Q4 2015.

Lost time injury frequency (LTIF) rate for the quarter was 0.47.

Regional review

Europe, Africa and the Middle East (EAME) was the most active region during the quarter. EAME revenues of $2.5 million represented 72% of total Q4 revenues. Harrier Explorer completed a multi-client project in the quarter, while Osprey Explorer commenced a source project towards the end of the quarter.

North and South America (NSA) revenues of $0.9 million represented 26% of total Q4 revenues. Northern Explorer completed the remaining part of the Mexico Gigante survey and commenced production on a 2D contract survey in South America towards quarter-end.

No SeaBird vessels worked in Asia Pacific (APAC) during the quarter. Revenues in the region were $0.1 million coming from multi-client late sales and represented 2% of total Q4 revenues.

Outlook

Global seismic demand continued to be weak in the fourth quarter and the company's fleet capacity has been reduced to better reflect market demand. SeaBird continues to evaluate and execute savings initiatives to reduce the company's overall cost level and this may include temporary stacking of additional vessels.

While we are seeing a significant pick-up in requests for quotes, the first quarter 2017 revenues are expected to be negatively impacted by idle periods as well as the potential repositioning of vessels before start-up of new projects. The company is reviewing a number of survey opportunities. However, the current market uncertainty makes it difficult to predict the level of contract coverage that is possible to obtain.

Financial comparison

All figures below relate to continuing operations unless otherwise stated. For discontinued operations, see note 1. 

The company reports net loss of $6.9 million for Q4 2016 (net loss of $6.5 million in the same period in 2015).

Revenues were $3.4 million in Q4 2016 ($27.1 million). The decreased revenues are primarily due to lower utilization and reduced fleet size.

Cost of sales was $3.8 million in Q4 2016 ($18.2 million). The decrease is predominantly due to fewer vessels in operation and lower operating expenses as a result of implemented cost cutting efforts.

SG&A was $3.1 million in Q4 2016, down from $4.5 million in Q4 2015. The decrease is principally due to cost saving initiatives and reduced headcount.

Reversal of bad debt charges was $1.2 million in Q4 2016.

Other income (expense) was $0.3 million in Q4 2016 ($0.2 million).

EBITDA was negative $1.9 million in Q4 2016 (positive $4.6 million).

Depreciation, amortization and impairment were $3.6 million in Q4 2016 ($10.3 million). The decrease is due to fleet reduction and impairment recognized in Q4 2015.

Finance expense was $1.3 million in Q4 2016 ($1.0 million).

Other financial items were $0.0 million in Q4 2016 ($0.1 million).

Income tax expense was $0.0 million in Q4 2016 (positive $0.0 million).

Capital expenditures in the quarter were $0.5 million ($0.5 million).

Multi-client investment was $1.3 million in Q4 2016 (nil).

Financial review

Liquidity and financing

Cash and cash equivalents at the end of the period were $15.0 million ($6.3 million in Q4 2015), of which $0.5 million was restricted in connection with deposits and taxes. Net cash from operating activities was $5.4 million in Q4 2016 ($2.4 million in Q4 2015).

The company has one bond loan, one secured credit facility and one unsecured note.

The SBX04 secured bond loan (issued as "SeaBird Exploration Finance Limited First Lien Callable Bond Issue 2015/2018") is recognized in the books at amortized cost of $27.6 million per Q4 2016 (nominal value of $29.3 million plus accrued interest of $0.2 million plus amortized interest of $2.5 million less fair value adjustment of $4.4 million). This bond has been issued in two tranches; tranche A amounting to $5.0 million and tranche B amounting to $24.3 million. The SBX04 bond tranche A is carrying an interest rate of 12.0% and Tranche B is carrying an interest rate of 6.0%. Interest is paid quarterly in arrears with the first interest instalment being paid on 3 June 2015. The bond matures on 3 March 2018, with principal amortizations due in quarterly instalments of $2.0 million starting at 3 June 2017. The outstanding loan balance is scheduled to be paid at the maturity date. Interest paid during Q4 2016 was $0.5 million. The bond is listed on Nordic ABM, and it is traded with ticker SBEF01 PRO and SBEF02 PRO for the respective two bond tranches.

The three-year secured credit facility is recognized at amortized cost of $2.2 million (nominal value of $2.3 million plus accrued interest of $0.01 million plus amortized interest $0.2 million less fair value adjustment of $0.4 million). Coupon interest rate is 6.0%. Interest is to be paid quarterly in arrears and the first interest amount was paid on 3 June 2015. The facility's final maturity is 3 March 2018 and quarterly instalments of $0.2 million are due starting on 3 June 2017. Principal repayments during Q4 2016 amounted to $0.1 million and additional amounts drawn on the credit facility during the period was $0.1 million. Interest paid during Q4 2016 was $0.03 million.

The three year unsecured loan is recognized at amortized cost of $0.9 million (initial nominal value of $2.1 million plus amortized interest $0.2 million less fair value adjustment of $0.3 million less principal repayments of $1.2 million). Coupon interest rate is 6.0%. Stated maturity is 1 January 2018. Interest is paid quarterly in arrears and the first payment was due on 1 April 2015. The principal will be repayable in nine equal instalments of $0.2 million, commencing 1 January 2016. Interest paid during Q4 2016 was $0.02 million and principal repayments during Q4 2016 was $0.2 million.

Net interest bearing debt was $15.6 million as at the end of Q4 2016 ($27.5 million in Q4 2015).

Accrued interest on the bond loan, credit facility and the unsecured note for Q4 2016 was $0.2 million ($0.2 million).

The company was in compliance with all covenants as of 31 December 2016.

The total outstanding amount of common shares in the company is 3,065,434. The company has also issued 884,686 warrants, convertible into 884,686 ordinary shares. The warrants are listed on the Oslo Stock Exchange with ticker SBX J.

The company's accounts have been prepared on the basis of a going concern assumption. In the view of the board of directors, the continued very challenging market conditions, the company's limited working capital and low level of firm contract backlog creates a material risk to this assumption. In the event that new backlog cannot be secured on satisfactory rates or at all, project performance is significantly worse than expected or contracts and other arrangements in respect of the employment of SeaBird's vessels are cancelled, or significantly delayed, the company would need to sell assets or raise additional financing, which may not be available at that time. Reference is made to the Going Concern section in selected notes and disclosures for further details on the financial position of the company.

Subsequent events

The company does not have any significant post balance sheet date events to report.

The Board of Directors and Chief Executive Officer

SeaBird Exploration Plc

23 February 2017

The fourth quarter 2016 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.