SBM Offshore 2019 Half-Year Earnings

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Overig advies 08/08/2019 07:37
US$6.3 billion order intake year-to-date, driving a 36% backlog increase
Contracted cash flow from Lease and Operate fleet provides visibility up to 2045
Four major projects under execution in Turnkey, including three FPSOs, of which two based on Fast4Ward®
2019 Directional[1] revenue guidance increased to “above US$2 billion” due to Turnkey growth
2019 Directional EBITDA guidance increased to “above US$750 million”
Year-to-date Directional revenue US$965 million; Directional EBITDA US$399 million, in line with expectation
Returned US$272 million to shareholders via completed share repurchase program and dividend

The 2019 Half Year Results and Interim Financial Statements are published on the Company’s website under

Bruno Chabas, CEO of SBM Offshore, commented:

“SBM Offshore’s financial results are trending ahead of expectation for the year as it enters a period of significant growth. Developments of deep water reservoirs continue to rank favorably in client project portfolios. This is because these developments benefit from large scale production facilities. The Company’s Fast4Ward® program brings scale combined with a reliable execution schedule and shorter cycle time to first oil. The program also enables the Company to increase productivity and resource flexibility. Demand growth and limited FPSO contractor capacity mean that SBM Offshore will remain selective in its contract choices.

With the six billion increase in order backlog, SBM Offshore is going through a disciplined growth phase. The Company maintains flexibility to adapt to market dynamics. SBM Offshore is currently working on four major projects. Following successful integration of its topsides, FPSO Liza Destiny left Singapore quay side and set course for Guyana on July 18, 2019. The Johan Castberg turret mooring system continues to make good progress in Dubai. FPSO Liza Unity’s hull recently came out of dry dock, representing SBM Offshore’s first Fast4Ward® multipurpose floater. SBM Offshore recently won the Mero 2 award in Brazil, also on the basis of Fast4Ward®. This award demonstrates the Company’s ability to win new work for Petrobras in Brazil again.

SBM Offshore continues to expand on its flexible outsourcing model, including the cooperation with Nauvata in India. Fast4Ward® brings additional resource flexibility and efficiency from repetition and standardization. This effect is visible not only in execution, but also in tendering and in onboarding new staff in the new ways of working. SBM Offshore’s teams remain focused on executing our portfolio of major projects and on delivering the Company’s strategy.”

Directional revenue as of June 30, 2019 totaled US$965 million, representing an increase of US$157 million or 19% compared with the same period last year. This increase was driven by a higher activity level in Turnkey on various projects. The Company did not report adjustments for the period and, as such, reported EBITDA is the same as Underlying EBITDA. Directional EBITDA for the period was US$399 million, US$15 million below the Underlying EBITDA for the same period last year. This 4% decrease was primarily caused by the one-off nature of a number of positive close-out items for Turnkey projects during the first half of 2018.

Under Directional, the significant activity in Turnkey related to FPSO Liza Destiny, as well as FPSO Liza Unity, is not reflected in Revenues or EBITDA for the period as these are treated as operating leases and hence are booked in capital expenditure on the balance sheet. These projects will generate revenues, margin and cash flow in Lease and Operate starting at first oil. The sale to the client, which is anticipated after a period of up to two years of operations on both vessels, will be booked in Turnkey. See the section on backlog for more information.

Funding and Directional Net Debt

Net debt increased by US$0.6 billion to US$3 billion at June 30, 2019. While the Lease and Operate segment generated strong operating cash flow in line with expectation, the increase of the net debt mainly reflected significant capital expenditures over the period (c. US$320 million, including investment in the 3 Fast4Ward® hulls), the payment to Repsol of their share of Yme insurance proceeds (c. US$180 million of a total of US$390 million), shareholder returns (c. US$270 million), as well as the expected unwinding of a large portion of working capital in the Turnkey segment (significant milestone payments invoiced and received as of December 31, 2018).

At mid-year, the Company had undrawn credit facilities of US$1.3 billion comprising of US$0.6 billion available under the US$1 billion Revolving Credit Facility (RCF) and the Liza Destiny project financing for US$0.7 billion, currently available for drawdown. With respect to the foreseen Liza Unity project financing, commitments have been received from financial institutions in excess of the targeted financing amount. These latter two, when drawn, will reinstate capacity under the RCF.

With respect to Mero 2, SBM Offshore is in discussion with prospective partners for a divestment of a minority stake in the companies owning the FPSO. At present, the Company targets to divest 35% of the FPSO owning and operating entities. Following the signature of the Letter of Intent, SBM Offshore has started discussions with prospective lenders and Export Credit Agencies to put in place the target financial structure for the project, which is expected to be completed in 2020.

Cancellation of shares

Upon completion of the 2019 share repurchase program, in line with its reported objectives, SBM Offshore is planning to cancel 7 million shares currently held in Treasury. This represents c. 67% of the total shares repurchased. The cancellation is expected to take place before year end.

Directional Backlog

As ownership and change of ownership scenarios have the potential to significantly impact future cash flow, net debt balance as well as the profit and loss statement, the Company provides a pro-forma backlog on the basis of the most likely ownership scenarios for the various projects. The pro-forma Directional backlog increased by c. US$5.3 billion to a total of US$20.1 billion during the first six months of the year. This increase was mainly the result of the order wins for FPSO Liza Unity for ExxonMobil in Guyana and FPSO Mero 2 for Petrobras in Brazil. Turnover for the period consumed US$1 billion of backlog.

The pro-forma backlog reflects the following key assumptions:
The Lease and Operate backlog includes the FPSOs Liza Destiny and Liza Unity operating and maintenance scope, for which the FPSO Liza Unity is pending a final work order.
For both FPSO Liza Destiny and FPSO Liza Unity, two years of operations are added to the Lease and Operate backlog. The Liza Destiny contract covers 10 years of lease and operate but based on discussion with the client, it is expected that the client will purchase the unit after a period of up to two years of operations. The Liza Unity contract covers a maximum period of two years of lease and operate within which the unit will be purchased by the client. The subsequent sales are added to the Turnkey backlog for both FPSOs.
The pro-forma backlog of FPSO Mero 2 takes into account the initially targeted SBM Offshore ownership share (65%) in the 22.5 year lease and operate contracts. As a consequence, this targeted share was added to the Lease and Operate backlog and the partial divestment to partners (35%), which remains subject to finalization of the shareholder agreement and various approvals, was added to the Turnkey backlog.

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tijd 10.07
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