- Solid first half; Industry searching for new equilibrium
August 5, 2015
SBM Offshore is happy to report better than expected revenue. The Company continues to see a healthy appetite for its projects, as evidenced by the 45% taken up by joint venture partners in the Turritella project as well as the recently announced US$1.55 billion of project financing for Cidade de Saquarema. Progress in discussions with Brazilian authorities continues via the announced signing of a Memorandum of Understanding. SBM Offshore continued to achieve over 99% uptime across the fleet while Directional1 Backlog ended the period at US$20.0 billion. Full year Directional1 revenue guidance has been increased to at least US$2.6 billion.

Bruno Chabas, CEO of SBM Offshore, commented:
"The current downturn is having a profound impact on our industry, which is faced with the challenge to reinvent itself to survive profitably in the current oil price environment. SBM Offshore is determined and confident it can play its part based on its track record of technological innovation, its willingness to take decisive action through its restructuring and backed by its strong lease and operate cash flow."

Financial Highlights
Directional1 revenue ahead of expectations at US$1.6 billion
Underlying Directional1 EBIT of US$255 million and underlying EPS of $0.78 per share
Directional1 Backlog stood at US$20.0 billion
Cash and undrawn committed credit facilities at the end of the period stood at US$1,364 million
Proportional net debt at the end of June stood at US$3,568 million
Joint Venture partner participation in the Turritella project totaling 45%
Memorandum of Understanding signed with Brazilian authorities
Project financing secured post period for FPSO Cidade de Saquarema totaling US$1.55 billion

Guidance
The Company is updating 2015 Directional1 revenue guidance from at least US$2.2 billion to at least US$2.6 billion. The increase is primarily attributable to the announced 45% stake in the Turritella project taken up by joint venture partners. Turnkey revenue guidance for 2015 is now expected to be US$1.4 billion versus US$1.0 billion previously, while Lease & Operate segment guidance of US$1.2 billion remains unchanged. Proportional net debt guidance below US$3.5 billion is being confidently reiterated for FY2015.

Management is introducing Directional1 capital expenditure guidance. For the remaining three finance lease vessels under construction Directional1 capital expenditure is expected to total approximately US$265 million, with approximately 75% falling in the second half of 2015. Directional1 capital expenditure excludes changes in net working capital and is presented net of upfront payments for FPSOs Cidade de Maricá and Cidade de Saquarema.

FIRST HALF 2015 RESULTS

Project Review
FPSO Cidade de Maricá and Cidade de Saquarema (Brazil)
Construction is ongoing for the two finance leased vessels. Cidade de Maricá berthed safely at the Brasa yard near Rio de Janeiro on July 9, 2015 where topside integration work is ongoing in order to meet local content requirements. Delivery to the client is expected in 1Q16.

Concurrently refurbishment and conversion work on Cidade de Saquarema progressed during the first half of 2015 at a Chinese yard and is nearing completion. Sail away for Brazil, where integration of the topside will take place, is expected in the second half of 2015.

The charter contract for both vessels includes an initial period of 20 years with extension options. The client will make upfront payments at first oil totalling US$282 million, split between both vessels, of which US$158 million represents SBM Offshore's 56% share in the joint ventures. The two double-hull sister vessels will be moored in approximately 2,300 meters of water depth and possess a storage capacity of 1.6 million barrels each. The topside facilities of each FPSO weigh approximately 22,000 tons, will be able to produce 150,000 bpd of well fluids, have associated gas treatment capacity of 6,000,000 Sm3/d and water injection capacity will be 200,000 bpd each.

FPSO Turritella (US Gulf of Mexico)
Construction continued for the finance leased vessel in the first half of the year, with refurbishment and conversion work near completion at Keppel Singapore. Sail away for the Gulf of Mexico, where anchoring and commissioning will take place, is expected during the second half of 2015 with delivery to the client expected near the end of 1H16. The charter contract includes an initial period of 10 years with extension options up to a total of 20 additional years.

When installed at almost three kilometers of water depth, the FPSO Turritella will be the deepest offshore production facility of any type in the world. The vessel is a typical Generation 2 design, with a disconnectable internal turret and processing facility capacity of 60,000 barrels of oil per day (bpd) and 15 mmscfd of gas treatment and export.

N'Goma FPSO (Angola)

Formal Production Readiness Notice was received in early January 2015 going into effect retroactively to late November. The vessel is producing and has been on-hire generating dayrate retroactively since November 28, 2014.

FSO Yetagun (Myanmar)
Following fifteen years of operation with no lost time incident, the client has notified the Company of its intention to exercise an additional three-year extension option. Additionally, a brownfield life extension award totalling approximately US$30 million has been agreed upon. The Yetagun Life Extension project is expected to take 18 months and be completed in July 2016. The vessel will remain in normal operation while brownfield life extension work is being completed.

FPSO Marlim Sul (Brazil)
Previously announced decommissioning activities, that were expected to be completed during the second quarter of 2015, have ceased as the client reviews continued production alternatives for the Marlim Sul field. The vessel is receiving a standby dayrate through the end of 2015 while awaiting client confirmation to complete decommissioning activities.

Turret Mooring Systems
The three large, complex turrets for Prelude FLNG, Quad 204 and Ichthys are progressing in accordance to clients' schedule. Integration of the Quad 204 turret with the vessel has been completed in Korea and the client has accepted delivery, while fabrication work on Prelude FLNG has been completed in Dubai with final integration in Korea. The last elements of the Ichthys turret have been delivered for final integration in Korea with expected delivery in early 2016.

Main Projects Overview
Directional1 capital expenditure through the first half of 2015 amounted to a combined total of US$265 million, reflecting the advanced construction progress of the Company's main projects which are expected to be completed over the next twelve months. These amounts correspond to the SBM Offshore share in SBM Inc. (the Company's construction subsidiary) costs as well as costs directly incurred at the joint venture level.

HSSE
The Company has continued to achieve improved safety performance in the first half of 2015 with the lowest frequencies of recordable injuries and lost time injuries since 2007. Total Recordable Injury Frequency Rate (TRIFR) improved 30% to 0.15 compared to 0.22 at the end of 2014, while the Lost Time Injury Frequency Rate (LTIFR) improved by 80% to 0.01 in the first half of 2015 from 0.05 at the end of 2014.

Furthermore, the focus on the potentially severe incidents and on process safety has been strong allowing the Company to reach the lowest level frequency rate since 2011. The volume of gas flared was 25% better than target, however GHG emissions per unit of production was 25% above the industry benchmark for first half year. Offshore energy consumption and oil discharged from produced water improved compared to last year and stood well above the industry benchmark.

Compliance
On March 16, 2015 SBM Offshore announced the signing of a Memorandum of Understanding (MoU) with the Brazilian Comptroller General's Office (Controladoria-Geral da União - "CGU") and the Attorney General's Office (Advocacia Geral da União - "AGU"). This MoU sets a framework between the Company, the CGU and the AGU for discussions on a potential mutually acceptable settlement and for the disclosure by SBM Offshore of information relevant to the CGU's investigations.

The Company continues to cooperate with all requests for information and is in active dialogue with the Brazilian Comptroller General's Office in order to come to an agreement to close the matter in Brazil.

Turritella Joint Venture

Effective June 30, SBM Offshore completed the divestment of a 45% stake in the Turritella project to joint venture partners Mitsubishi Corporation (MC) and Nippon Yusen Kabushiki Kaisha (NYK Line). Subsequently, the Company cash called the joint venture partners for their share in the construction costs, and an amount of US$446 million was received on July 15, 2015. The total partners' cash contribution to the Turritella project is expected to amount to approximately US$590 million. Future milestone payments will follow the stages of completion of the project.

Post-Period Events
Cidade de Saquarema Project Financing
On July 27, 2015 the Company secured project financing for FPSO Cidade de Saquarema totalling US$1.55 billion, at a weighted average cost of debt of 5.1%, from a consortium of sixteen international banks with insurance cover from four Export Credit Agencies (ECA). The financing consists of three tranches, two with ECA insurance cover and one commercial, with fourteen year post-completion maturities. This is the largest project financing in the Company's history.

Directional1 Backlog
Directional1 backlog at the end of June 2015 came in at US$20.0 billion compared to US$21.8 billion at the end of 2014. This reduction reflects the low order intake of US$0.3 billion, the revenue generated during the first half of 2015 and the US$0.5 billion decrease related to the 45% stake in the Turritella project by joint venture partners. Approximately 37% of total future bareboat revenues will be generated from the lease contracts which have yet to commence operations. Those include FPSOs Cidade de Maricá, Cidade de Saquarema and Turritella.

Directional1 Turnkey backlog decreased to US$0.9 billion compared to US$1.1 billion at the end of 2014 due to the execution of projects under construction, while being partially offset by the 45% partner's stake in the Turritella project. Backlog as of June 30, 2015 is expected to be executed as per the below table:

Order Intake
New orders signed during the first half of 2015 totalled US$161 million, and variation orders totalled US$111 million. The main new orders signed during the period include the Yetagun brownfield life extension award and various offshore contracting awards.

Restructuring
As announced with the first quarter 2015 trading update on May 7, workforce reductions over the period 2014 and 2015 were revised from 1,200 to 1,500 positions as a result of a further review of the cost structure and a prolonged market downturn.

Upon announcement of the original restructuring on December 11, 2014 the Company stated that annualized savings of approximately US$40 million related to Company employees were expected. Management also indicated that redundancy costs were likely to total approximately US$25 million, of which US$8 million were taken in 2014 and a further US$17 million would be incurred in 2015.

Updated 2015 cost provisions of approximately US$49 million, an increase of US$32 million versus previous expectations, have been taken in the first half results and the Company anticipates realizing annualized savings of approximately US$80 million compared to previous guidance of US$40 million.

The Company's adaptation to market developments is focused on retaining core competencies. While expectations for order intake remain subdued, maintaining some engineering overcapacity remains crucial to being properly positioned for a market upturn.

Divestment Update
The Company completed the disposal of FPSO Brasil, Kuito and VLCC Alba in the first quarter of 2015.

Master Limited Partnership
Following the completion of a strategic review of alternatives, the Company announced on November 13, 2014 its intent to pursue the development of a master limited partnership (MLP). Structuring work is progressing with the Company working towards receiving the required regulatory approvals and filing a registration statement with the Securities and Exchange Commission. The Company currently expects any initial public offering of common units in the MLP to occur during the second or third quarter of 2016. This is revised from initial expectations of third quarter 2015. The anticipated offering would be subject to market conditions.

Extraordinary General Meeting of Shareholders

The Company will hold an Extraordinary General Meeting of Shareholders on November 4, 2015 where it will be proposed that Bruno Chabas (CEO) be reappointed as a member of the Management Board and CEO effective January 1, 2016 for a second four year term in office.

Investing in Our Future
The Company announced in 2014 a focused investment program in Research and Development (R&D), project capabilities (Odyssey24) and increased fleet maintenance, which would total approximately 2.5%-3% per year for two years of 2014 Directional1 revenue guidance of US$3.3 billion.

The R&D and Odyssey24 programs are on track with first half 2015 spending amounting to US$41 million compared to US$28 million in the year-ago period. R&D efforts are largely focused on the new reality of delivering complex deepwater projects in the current oil price environment, while Odyssey24 is focused on step changes in project and supply chain management with an expected payback on investment with the next Generation 3 FPSO project.

The Odyssey24 project will be completed in the second half of 2015, while the increased Research and Development efforts continue. A substantial part of the efforts represent internal workforce, making optimal use and retaining available engineering capacity during the current downturn.


Outlook and Guidance 2015

The market outlook remains challenging as the Company continues to see delays in final investment decisions, and ultimately awards, by clients. The Company maintains its positive medium to long-term outlook as the Company considers deepwater development a secular growth story.

The Company is updating 2015 Directional1 revenue guidance from at least US$2.2 billion to at least US$2.6 billion. The increase is primarily attributable to the announced divestment of a 45% stake in the Turritella project. Turnkey revenue guidance for 2015 is now expected to be US$1.4 billion versus US$1.0 billion previously, and Lease & Operate segment guidance of US$1.2 billion remains unchanged. Proportional net debt guidance below US$3.5 billion is confidently reiterated for FY2015.

Management is introducing Directional1 capital expenditure guidance. For the remaining three finance lease vessels under construction Directional1 capital expenditure is expected to total approximately US$265 million, with approximately 75% falling in the second half of 2015. Directional1 capital expenditure excludes changes in net working capital and is presented net of upfront payments for FPSOs Cidade de Maricá and Cidade de Saquarema.

FINANCIAL REVIEW
Directional1 Performance
In 2013, SBM Offshore decided to extend its reporting with non-IFRS disclosures showing audited disclosures of Backlog and Income Statement based on Directional1 principles. Directional1 reporting principles stand as follows:

Directional1 reporting represents an additional non-GAAP disclosure to IFRS reporting
Directional1 reporting assumes all lease contracts are classified as operating leases
Directional1 reporting assumes all JVs related to lease contracts are consolidated on a proportional basis
All other accounting principles remain unchanged compared to applicable IFRS standards.

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