REVENUE ON TRACK; GUIDANCE REITERATED
Year-to-date 2017 Directional revenue in line with management expectations at US$1,254 million
Reiterating 2017 Directional revenue guidance of around US$1.7 billion and underlying Directional EBITDA guidance of above US$750 million
Update of the provision for onerous contract related to the DSCV SBM Installer long term charter at a cost of c. US$30 million
Full impairment of net investment in the construction yard Paenal in Angola at a cost of c. US$30 million
As announced on November 6, 2017 provision of US$238 million based on advanced discussions with the U.S. Department of Justice ("DoJ") in relation to their reopened investigation into legacy issues and Unaoil
Bruno Chabas, CEO of SBM Offshore commented:
"During the past difficult few years, SBM Offshore's teams have continued to deliver for our clients. This has led to solid year-to-date operational performance in both Lease and Operate as well as in Turnkey. The prospect of closure with the DoJ is a significant step in settling our legacy issues, however the process to reach a resolution in Brazil remains complex. While we are continuing to work to reach an acceptable conclusion for these historical issues, it is important to note that since 2012, the Company has fundamentally changed by improving its ways of working and changing the business model.
As we focus on the future, these new foundations are allowing us to successfully leverage our industry leading experience to deliver technology-driven solutions that can transform the industry. Our recent decision to proceed with the order of the first Fast4WardTM hull demonstrates this fact. Further based on our confidence that our experience and products can help make deepwater competitive, even in a lower oil price environment, we have invested in retaining core competence and experience through the cycle. Combining this with our balance sheet position, we are well positioned to benefit from the gradual recovery in the market that is proceeding in line with our earlier expectations. This is evidenced by the award of FPSO Liza and increasing Turnkey activity."
Year-to-date 2017 Directional revenue came in at US$1,254 million compared to US$1,574 million for the same period last year. This represents a decrease of 20%, caused by lower activity in Turnkey as three major projects were delivered in 2016. The decrease in Turnkey revenue is partially offset by an increase in revenues from the Lease and Operate segment. This increase is driven by the addition of the three Floating, Production, Storage and Offloading vessels (FPSOs) to the fleet during 2016 which contributed in full during the period.
Under Directional reporting, Turnkey activity is booked as capital expenditure adding to property, plant and equipment for the portion of the asset which is built for own account. At present, FPSO Liza is 100% owned by SBM Offshore and as such did not contribute to the Company's revenue line during the period.
Compared to year-end 2016, directional net debt as of September 30, 2017 decreased by c. US$400 million to c. US$2.6 billion, due to positive operating cash flow from Lease and Operate and cash received under the Yme settlement. Part of the Yme settlement monies are required to be used to reimburse legal fees and other claim related expenses incurred to date. The remainder of the settlement monies will be equally distributed between SBM Offshore and project partner Repsol in accordance with the terms of a Settlement Agreement made on March 11, 2013 which concluded the Yme project.
SBM Offshore continues to pursue its claim against all remaining insurers including the two excess layers, with trial proceedings scheduled to commence October 2018.
In a separate press release dated November 6, 2017 the Company provided an update on its compliance-related legacy issues in the United States and Brazil. A summary is provided below, however, for further information and detail, reference is made to this separate release.
The Company is in advanced discussions with the United States DoJ concerning a potential resolution of the DoJ's investigation that the DoJ had closed in 2014 and reopened in 2016 and its inquiry into the Company's relationship with Unaoil. Based on these investigations and the applicable U.S. statutory rules, the DoJ has concluded that the evidence not only supports jurisdiction in the United States but also requires a further penalty in the Unites States. Confronted with the DoJ's conclusions and in anticipation of a final resolution, the Company has made a provision of US$238 million.
The proposed terms under discussion reflect confidence in the quality of the Company's compliance program and efforts by current management.
Final resolution with the DoJ remains subject to, amongst other matters, agreement on the terms and conditions of the resolution, including subsequent approval thereof by the Company's Supervisory Board.
The discussions relating to the leniency agreement which was signed on July 16, 2016 but which was ultimately sent back for adjustment to the Public Prosecutor by the Brazilian Fifth Chamber for Coordination and Review and Anti-corruption are complex. It has transpired that two leniency agreements are now required which necessitate agreement and coordination among the multiple parties involved. Consequently, a resolution has not yet been reached.
The Company confirms its commitment to close out its legacy issues in Brazil and its willingness in principle to pay the previously agreed substantial amounts. However, to enter into the proposed leniency agreements, the Company would need to be in a position to reach satisfactory closure with all Brazilian authorities and Petrobras on all outstanding leniency issues at the same time. In view of the current situation, the Company cannot guarantee that a satisfactory resolution will be reached. The Company will await resolution before participating in Petrobras-operated tenders.
The following non-cash adjustments to the accounts are the result of SBM Offshore's regular review as part of its planning process.
Because offshore oil and gas industry conditions continue to be challenging, SBM Offshore expects a reduced utilization of its Diving Support and Construction Vessel (DSCV) SBM Installer. As a result, the contract continues to be classified as onerous and the non-cash provision is to be increased by c. US$30 million, to be recognized in the Gross Margin of the Turnkey segment. SBM Offshore's investment (25% ownership) in the Joint Venture which owns the vessel is consolidated using equity accounting.
As the activity outlook for the Paenal construction yard operating in Angola has continued to deteriorate, SBM Offshore's investment in the Joint Venture owning the Paenal construction yard (30% ownership) is to be fully impaired to a net book value of zero, resulting in an additional impairment charge of c. US$30 million. Because this investment is consolidated using the equity method, this non-cash impairment is to be recognized in the Company's consolidated income statement on the line item share of profit of equity-accounted investees.
An agreement with Keppel Shipyard Ltd (Keppel Shipyard) was signed for the conversion of a Very Large Crude Carrier (VLCC) into an FPSO for the Liza project offshore Guyana, operated by an ExxonMobil affiliate. The shipyard's work scope includes refurbishment and life extension works, such as the upgrading of living quarters, fabrication and installation of spread mooring systems, as well as the installation and integration of topside modules. The VLCC is scheduled to arrive at the shipyard in November 2017 with vessel related work scope planned to commence by the end of this year.
SBM Offshore continued to improve its safety performance with a Reported Total Recordable Injury Frequency Rate (TRIFR) below its 2017 target of 0.32.
The Lease and Operate fleet uptime performance year-to-date was 98.5% compared to 96.4% for the year 2016.
Dow Jones Sustainability Index ("DJSI")
On September 11, 2017, for the eighth consecutive year, SBM Offshore was included as an index component of the DJSI (Energy Equipment & Services industry).
Outlook and Guidance
The Company is reiterating its 2017 Directional revenue guidance of around US$1.7 billion, of which around US$1.5 billion is expected in the Lease and Operate segment and around US$200 million in the Turnkey segment. The Company also reiterates its underlying Directional EBITDA guidance of above US$750 million.
The accounting for the Turritella sale will impact both 2017 and 2018 Directional accounts. The partner compensation and costs relating to the unwinding of the loan and hedge will be booked in 2017. The former will impact EBITDA, the latter net financing cost. The net gain on disposal will be booked in 2018, impacting EBITDA.
Underlying 2017 Directional EBITDA guidance excludes impacts relating to the non-cash provision relating to the SBM Installer charter contract, one-off elements of the Yme settlement, the partner compensation booked on the sale of FPSO Turritella and the provision for US DoJ settlement. These impacts are currently estimated to have an aggregate impact on EBITDA in excess of US$200 million.
SBM Offshore has scheduled a conference call followed by a Q&A session at 10:00 am Central European Time on Wednesday, November 8, 2017.
The call will be hosted by Bruno Chabas (CEO), Philippe Barril (COO), Erik Lagendijk (CGCO) and Douglas Wood (CFO). Interested parties are invited to listen to the call by dialing +31 (0) 20 531 5851 in the Netherlands, +44 (0) 20 3365 3210 in the UK or +1 866 349 6093 in the US.
A replay will be available shortly after the end of the conference call. Interested parties can listen to the replay by dialing +31 (0) 20 530 0220 and using access code 126152# until December 8, 2017.
SBM Offshore N.V. is a listed holding company that is headquartered in Amsterdam. It holds direct and indirect interests in other companies that collectively with SBM Offshore N.V. form the SBM Offshore group ("the Company").
SBM Offshore provides floating production solutions to the offshore energy industry, over the full product life-cycle. The Company is market leading in leased floating production systems with multiple units currently in operation and has unrivalled operational experience in this field. The Company's main activities are the design, supply, installation, operation and the life extension of Floating Production, Storage and Offloading (FPSO) vessels. These are either owned and operated by SBM Offshore and leased to its clients or supplied on a turnkey sale basis.
As of December 31, 2016, Group companies employ approximately 4,750 people worldwide. Full time company employees totaling c. 4,250 are spread over five regional centers, ten operational shore bases and the offshore fleet of vessels. A further 500 are working for the joint ventures with several construction yards. For further information, please visit our website at www.sbmoffshore.com.
The companies in which SBM Offshore N.V. directly and indirectly owns investments are separate entities. In this communication "SBM Offshore" is sometimes used for convenience where references are made to SBM Offshore N.V. and its subsidiaries in general, or where no useful purpose is served by identifying the particular company or companies.
The Management Board
Amsterdam, the Netherlands, November 8, 2017
Full-Year 2017 Earnings - Press Release
Annual General Meeting of Shareholders
Trading Update 1Q 2018 - Press Release
Half-Year 2018 Earnings - Press Release
Trading Update 3Q 2018 - Press Release
Note: date in bold was changed from May 10, 2017 before market opening to May 9, 2017 after market close to accommodate Ascension Day
SBM EUR 13,405 -8ct vol. 250.795