Lower Activity Levels Hit Subsea 7 Profit

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Subsea 7 announced revenue for the third quarter 2015 of $1.2 billion, a decrease of $702 million compared to the prior year quarter.

Adjusted EBITDA of $351 million and margin of 29.2% reflected significant progress on several projects and included positive contribution from projects in the final stages of execution.

Adjusted EBITDA included a $36 million charge related to the cost reduction and resizing programme, in line with prior guidance.

Jean Cahuzac, Chief Executive Officer, said: “Subsea 7 has delivered another quarter of good results in the three months to 30 September, despite the continuation of difficult industry conditions and resultant decline in market activity, with strong operational performance in both Business Units driven by consistently good project execution.”

Net operating income for the quarter was $214 million, a decrease of $103 million compared to Q3 2014. Net income was $145 million in the quarter, compared to $199 million in Q3 2014. The reduction was primarily due to decrease in net operating income; and an increase in the tax charge of $13 million compared to Q3 2014. The effective tax rate for Q3 2015 was 40% compared to 29% for Q3 2014.

“Global vessel utilisation was 74% in the quarter reflecting a reduction in Life of Field work in the Northern Hemisphere and reduced activity levels as certain projects completed their offshore phases. In Brazil, there were high levels of vessel activity under the long-term PLSV contracts with Petrobras throughout the quarter.

“ Order intake, excluding the adverse foreign exchange impact, was $1.1 billion, which reflected the Group’s strong competitive position and collaboration with clients to capture opportunities in a market that has remained subdued.”

Operational highlights for the third quarter 2015

In the Northern Hemisphere and Life of Field Business Unit the Aasta Hansteen project, progressed its offshore installation phase with all major fabrication completed.

Offshore UK, the Montrose and Catcher projects made progress and concluded offshore activities for 2015, and the Mariner project also progressed with high levels of offshore activity in the quarter.

In the Gulf of Mexico, the Heidelberg project was completed. Life of Field activity remained low as clients continued to defer nonessential expenditure.

In the Southern Hemisphere and Global Projects Business Unit the TEN project, offshore Ghana, progressed well with fabrication, and Seven Borealis started pipelay activity.

The completion of the Gorgon project, offshore Australia, contributed positively to results in the quarter. Offshore Nigeria, the Erha North project was substantially completed with first oil achieved in September.

New awards in the quarter included a contract for phase one of the West Nile Delta project offshore Egypt. Towards the end of the quarter the newbuild pipelay support vessel (PLSV) Seven Rio joined the fleet and began work in the Gulf of Mexico; this vessel will subsequently transit to Brazil to start a five-year contract for Petrobras, the company said.

The cost reduction and resizing programme announced in May 2015 is on track to deliver approximately $550 million of annualised cost savings, as previously guided. The headcount and active fleet reduction has progressed as planned: of the 12 vessels to leave the active fleet by early 2016, six owned vessels have been stacked and one chartered vessel has been returned during the third quarter.

An impairment charge of $36 million was recognised during the quarter on Seven Polaris, which will be scrapped.

“The sustained low oil price environment continues to result in lower oil company expenditure and subdued industry activity. The timing of contract awards to market remains uncertain.

“Both revenue and Adjusted EBITDA percentage margin in 2016 are expected to be significantly lower than the Group’s forecasts for 2015.

“The fundamental long-term outlook for deepwater subsea field developments remains intact despite the challenges facing the industry as a result of the lower oil price,” added Cahuzac.

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