Subsea 7 Inc. (SBEAF)

Q2 2010 Earnings Call Transcript

July 27, 2010 9:00 am ET


Kristian Siem – Chairman

Mel Fitzgerald – CEO

Barry Mahon – CFO


Ian Macpherson – Simmons & Co.

Fiona Maclean – Bank of America/Merrill Lynch

Martijn Rats – Morgan Stanley

Erik Tonne – Arctic Securities

Mick Pickup – Barclays Capital

Phillip Lindsay – RBS Greenwich Capital

Lars-Daniel Westby – DnB NOR Markets

Haakon Amundsen – Handelsbanken Capital Markets

Alex Brooks – UBS



Good day, ladies and gentlemen. And welcome to Subsea 7 quarterly report conference call hosted by Mr. Kristian Siem. My name is Anish and I’ll be your coordinator today. (Operator instructions) I would like to advise all parties this conference is being recorded for replay purposes. And now, I’d like to hand it over to Kristian. Over to you, Kristian.

Kristian Siem

Thank you, Anish, and good afternoon, ladies and gentlemen, and welcome to this Q2 conference call. I am here with Mel Fitzgerald and Barry Mahon, as usual. And before I hand over to Mel, I’d like to talk briefly about the proposed combination with Acergy, which we recently announced.

The proposed transaction will enable us to create a global leader in Subsea engineering and construction, which will enable us to undertake large and more complex projects worldwide with our combined fleet capable and technological expertise. Given the expected growth in the Subsea market in both the medium and long term the proposed combination is very positive for the company and will stand us in good stead to be able to meet our client’s needs with regard to reliability of execution of their projects.

Following the announcement we made in June, we have had a very positive feedback from clients, shareholders, suppliers and employees. We are currently preparing the necessary filings for the competition authorities, as well as the other documents required for shareholders and the deal is expected to close by the end of 2010 or during the first half of 2011, subject to the timing of the regulatory approvals. In the meantime, both Acergy and Subsea 7 are continuing to operate as separate companies.

And on that note, I'll hand over to you, Mel.

Mel Fitzgerald

Thank you, Kristian, and good afternoon, everybody. Let me start by saying that I am pleased with our results for the quarter. All regions had another strong quarter of operational performance resulting in an EBITDA of $126.8 million, which is equivalent to 24.4% of revenue.

As expected, revenue fell from $637 million in the second quarter of 2009 to $520 million this quarter. The fall in revenue was primarily due to less offshore activity in Brazil this quarter compared to a year ago, when offshore activity on the Shell BC-10 project was at its peak.

Activity levels elsewhere have been at similar levels to last year and it is particularly pleasing to see all regions again contributing positively to the overall result for the company. I would now like to turn to each of our regions shown on slides 3 to 7 of our presentation.

In the North Sea, the Seven Seas successfully completed the riser installation on Statoil's Troll B Gas Injection project. Fabrication of the BP Skarv clad flowlines was completed at our Viagra Spoolbase in Norway. Offshore installation continued on BP Skarv and Valhall redevelopment projects in the Norwegian sector. Pipeline fabrication and offshore installation was completed on Total's K5CU project. Life-of-Field operations continued on the Shell, ConocoPhillips, Total and BP frame agreements with the Seven Atlantic and Normand Subsea continuing to work on Shell's frame agreement.

Turning now to Africa, during the quarter, the Rockwater 1 completed work for Addax on its Okwori and Antan Field developments offshore Nigeria. Operations continued on BP's Block 18 Life-of-Field project offshore Angola. Preparation for spool-based operations on BP's Block 18 Gas Export Line project continued with offshore execution scheduled to commence in late 2010. Project management and engineering progressed well in respect to BP's Block 31 project, which is scheduled to commence offshore operations late 2010.

Moving on to Brazil, offshore operations were successfully completed on Statoil's Peregrino project as supported by the Seven Oceans. The Ubu spoolbase completed pipeline fabrication activity in respect of Petrobras's P-56 project with offshore installation rescheduled for the fourth quarter of 2010 due to the necessary permits not being available. Project management and engineering continued in respect of the P-55 project for Petrobras in the Roncador field. The Lochnagar, K3000 and Normand Seven continue to support Petrobras on day rate operations. The K3000 completed a scheduled drydock during this period.

Turning now to North America, Marathon's Droshky project was closed out following the completion of offshore activities from the first quarter of 2010. The Skandi Neptune supported BP in the Macondo field, Gulf of Mexico. Life-of-Field operations were completed for ENI, Newfield and Shell. Engineering and project management progressed well for the Anadarko Caesar Tonga project.

Moving on to Asia-Pacific, during the quarter, Murphy's Kikeh flexible project was closed out. The Rockwater 2 completed FPSO installation activities in Vietnam and undertook planned maintenance. Project management and engineering commenced on BHP's Stybarrow project in Australia.

Moving on to our backlog, our backlog split by region, contract type and year of execution is set out on pages 8 and 9 of our presentation. During the second quarter of 2010, the group was awarded new contracts, including commitments under frame agreements, of an aggregate $700 million.

Worldwide order book of the group at 30 June, 2010 was approximately $2.8 billion, comprising of approximately $2 billion of day rate contracts equivalent to 71% of total backlog and $800 million of lump-sum contracts equivalent to 29%.

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