Subsea 7, Inc. (SBEAF)
F1Q10 (Qtr End 31/03/10) Earnings Call
April 27, 2010 10:00 am ET
Kristian Siem - Chairman
Mel Fitzgerald - CEO
Barry Mahon - CFO
Pål Holde Dahl
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Good afternoon, ladies and gentlemen, and welcome to your Subsea 7 first quarter 2010 earnings release call hosted by Kristian Siem. My name is Steve and I am your event manager today. During the presentation, your lines will remain on listen only. (Operator Instructions)
I would like to hand over to Kristian.
Thank you, Steve. Ladies and gentlemen, good afternoon and welcome to the presentation and review of results for the first quarter of 2010. My name is Kristian Siem, I am the Chairman of the company. I am joined as usual by our CEO, Mel Fitzgerald and our CFO, Barry Mahon.
Our report for the first quarter 2010 was released prior to the market opening today. We intend to cover the main highlights of the report and we will refer to the slide presentations issued with the earnings release.
Mel will cover the operational performance and the market outlook and Barry will cover the financial performance. And we will then take any questions that you may have.
I would like to say that I am pleased with the financial performance and margins achieved during the quarter. It is the highest EBITDA at first quarter ever.
The net income, however, is affected by the accounting treatment of securities held-for-sale as Barry will explain in a few minutes. It is also very pleasing to see a more positive market outlook with tendering activity increasing globally and more confidence of projects being sanctioned for award.
We are continuing to focus our efforts on efficiency and cost reduction throughout the organization and this will help us to deliver even stronger results than the market recovers.
With that, I hand over to you, Mel.
Thanks, Kristian and good afternoon. Once again, I am very pleased with our results for the quarter. All regions performed well operationally, resulting in an EBITDA of $111 million, which is equivalent to 24.5% of revenue.
Our ability to deploy vessels into other regions during the winter months in the North Sea as again paid dividends with our Asia-Pacific region utilizing the Seven Navica to install pipe on Santos' Henry project in Australia and the Seven Seas successfully executing the Kikeh flexible projects for Murphy in Malaysia.
The commissioning of our new diving support vessel Seven Atlantic, was also completed during the quarter and the vessel commenced its long-term contract with Shell
Over the past 18 months, I have spoken during our earnings call about the challenging short-term markets and our confidence in growing our shareholders' value going forward. This confidence has been underpinned by two main projected outcomes.
The first, which is within Subsea 7's management control, involves the implementation and embedment of our key business improvement initiatives. These initiatives are now delivering predictability, operational excellence, a leaner and more efficient organization and a continuous focus on business improvement and costs.
Over the past 18 months of global financial crisis and recession, our results have demonstrated that these initiatives are embedded and continue to deliver improved shareholder value.
The second outcome, which is outside Subsea 7's control, those are view that the market would recover in the medium to long term. And that the recovery will be faster in certain regions such as the North Sea. However, our view of the market and how quickly it has rebounded depended on a global recovery, a stable robust oil price and the sentiment of the oil companies and the timing of increased CapEx spend.
I can say that, particularly over the past three months, I am seeing the start of a market rebound globally with clients moving from the testing the market to a realization of the need to push for projects sanctioned and contract award influenced by their desire to lock in prices that are moving steadily out of the bottom of the cycle.
This is most evident and immediate in the North Sea, which remains an important region and where tendering activity is particularly high. The award to Subsea 7 of major bundled project announced yesterday is the frontrunner of a number of epic construction contracts expected to be awarded in the coming quarters.
On that positive note, I would like to turn to each of regions shown on slides three to five of our presentation. In the North Sea, good progress is made on the project management and engineering scope of Statoil's Troll B Gas Injection, BP's Skarv and Valhall redevelopment and Total's K5CU projects.
Production of the BP Skarv clad flowlines continued as planned at the Vigra spoolbase in Norway. At the end of the quarter, the Skandi Seven and the Seven Seas mobilized for BP’s Skarv and Statoil’s Troll B Gas Injection projects respectively.
Life-of-Field operations continued on the Shell, ConocoPhillips, Total and BP frame agreements. Scheduled drydocks were completed during the quarter for the Pelican and Subsea Viking.
Turning now to Africa, during the quarter, the Rockwater 1 undertook work for Addax in its Okwori field development, offshore Nigeria. Operations continued on BP’s Block 18 Life-of-Field project, offshore Angola. Project management and engineering progressed well in respect of BP’s Block 31 and Block 18 Gas Export Line contracts, both of which are scheduled to commence offshore operations later in 2010.