24 October 2006 Subsea 7 Inc. (Oslo Stock Exchange: SUB) today reports the results for the third quarter of 2006.

Transcription

1 SUBSEA 7 INC. REPORT FOR THE THIRD QUARTER October 2006 Subsea 7 Inc. (Oslo Stock Exchange: SUB) today reports the results for the third quarter of PERFORMANCE SUMMARY Financial Results Quarter Highlights - Strong financial performance underpinned by good project execution - Continued high level of asset utilisation - Backlog increases to USD 3.5 billion at 30 September 2006, an increase of USD 1.9 billion during the quarter Post Quarter Highlights - Award of 6 year contract for K3000 valued at USD 250 million Three months ended Year to date 30-Sep Sep Sep Sep-05 In USD millions (unless otherwise stated) Unaudited Unaudited Unaudited Unaudited Revenue from continuing operations , EBITDA Profit before tax from continuing operations Profit after tax from continuing operations Loss from discontinued operations (see note) (4.0) Profit attributable to equity shareholders Per share data Earnings per share from continuing operations (USD) Earnings per share from discontinued operations (USD) (0.03) Net earnings per share (USD) Note: As noted in previous reports, the Company completed the de-merger of the non-subsea activities effective 30 June 2005 and the results of this part of the business are reported as discontinued operations. Prior period comparatives have been restated accordingly. Details of these adjustments are set out in the first quarter report. OPERATIONS in General The consistently high project activity and asset utilisation experienced in the first and second quarters of 2006 continued in the third quarter. With the exception of maintenance and drydocking, the fleet was fully utilised. The Company s focus on project execution continued to deliver good financial results, particularly in the North Sea and West Africa. North Sea Activity continued at a high level throughout the third quarter. The Venture Production PLC partnership, Shell s integrated services contract operations, the BP West of Shetland contract and the BP North West Area Development (BP NWAD) contract all contributed to the results for the quarter. An early completion bonus was also earned from Venture in respect of the Goosander pipeline bundle that was installed during the second quarter. The Wintershall L5C and Talisman Enoch contracts continued on schedule, both commencing offshore activities during the third quarter. The contracted scopes of work on the Skinfaks Rimfaks project for Statoil and the FTP Bypass for Conoco Phillips were executed successfully with both contracts being substantially complete by the end of the quarter. AB-X-MD

2 Asia Pacific The Murphy Kikeh project progressed on schedule during the quarter. The production problems of a supplier referred to in the last quarterly report have been resolved. Offshore activities are scheduled to commence in the fourth quarter as planned. The Rockwater 2 successfully completed its scope of work for Technip on the Pokohura project during the quarter and is currently in drydock undergoing a crane upgrade ahead of the Kikeh project. The Joint Venture with Technip commenced business on 1 July Legacy projects previously awarded to either Joint Venture partner in the region will be performed in accordance with the existing contractual terms but will be resourced by joint venture assets and personnel. All new work bid since 1 July 2006 will be executed by the Joint Venture. Brazil It was originally planned that the K3000 would undergo a significant upgrade including changing its lay mode from triple lay to single lay in order for it to be able to execute the flexible pipe installation scope on the Roncador project. However, due to Petrobras need to retain the existing triple lay capacity to service their ongoing requirements, we have negotiated a 6 year contract for the K3000. This contract will commence in the first quarter of 2007, is valued at USD 250 million, and will require minor upgrade to its triple lay system. To meet our contractual requirement for the Roncador contract, agreement has been reached to substitute the Normand 7 to complete this work scope. The Normand 7 is currently under construction and will be delivered in the third quarter of 2007, commencing its eight year charter. It will remain committed on Roncador until early A modular flexible pipelay spread is being built for installation on the Normand 7 deck to perform this scope of work. This change in vessel and equipment has had a negative impact on the Roncador profitability, pushing it in to a projected loss, which we have recognised this quarter. Despite the impact on the Roncador project the Company consider this to be a very positive outcome. It has secured 6 years of firm work for the K3000 without the requirement of a major upgrade whilst allowing the investment in a modular lay spread which can be used for the long term thereby optimising our return on capital. The K3000 and Lochnagar continued working for Petrobras on day rate contracts and work continues on the PDEG project. Gulf of Mexico Projects progressed on schedule with management and engineering ongoing for the BP Atlantis and Chevron Blind Faith projects which are due to go offshore in The Independence Subsea project commenced its offshore scope during the third quarter 2006 and is progressing well. West Africa The remaining offshore phase of the Lobito Tomboco project was successfully completed and final variation orders and claims agreed and recognised in the quarter. A further phase of the offshore scope of the Addax (Phase 2) project was completed with the flowlines and wells being successfully installed in the third quarter, ahead of the client s schedule. Project management, procurement and engineering are ongoing on the Petro SA and Agbami projects. Project teams have been established in Houston and London for the Tombua Landana and Saxi Batuque projects respectively. Investments Progress on the new-build deepwater rigid lay vessel Seven Oceans and the deepwater flexlay / J lay vessel Seven Seas continued on schedule. The hull of the Seven Oceans came off the slipway on 22 September 2006 and is on schedule for delivery end of the second quarter of Good progress is being made on the construction of the long-term committed charter vessels which are due for delivery in the second half of Finalisation of contracts with shipyards and charterers is ongoing for the new DSV (Subsea 7-owned) and ROVSV (chartered) in respect of the six years frame agreement with Shell. Financials Revenue from continuing operations for the third quarter 2006 was USD million compared to USD million for the same period in The increase in revenue is attributable to increased project activity and higher utilisation of the company s assets. AB-X-MD

3 Net operating profit from continuing operations for the third quarter of 2006 was USD 73.7 million compared to USD 33.4 million for the same period in The major reasons for this improvement include higher activity levels, improved pricing and improved project execution across the group. Net financial costs for the third quarter of 2006 were USD 4.7 million compared to USD 3.3 million for the third quarter It should be noted that USD 3.3 million of the financial costs for the quarter have resulted from the mark-tomarket valuation of outstanding financial derivative instruments. Income tax expense for the third quarter was USD 22.9 million compared to USD 22.3 million for the corresponding quarter in The net profit attributable to shareholders for the third quarter of 2006 was USD 46.1 million, or USD 0.31 cents per share, compared to a net profit of USD 7.7 million, or USD 0.06 cents per share, for the third quarter Cash and short term deposits at 30 September 2006 were USD million compared to USD 64.9 million at 31 December Net assets at 30 September 2006 totalled USD million compared to USD million at 31 December Share Capital During the quarter, a total of 60,187 share options were exercised under the Company s share option plan at the following strike prices 32,000 options at NOK per share, 13,500 options at NOK per share, 5,000 options at NOK per share and 9,687 options at NOK per share. Also during the quarter, 32,500 share options at NOK per share and 4,375 share options at NOK per share were forfeited. The Company had 147,194,024 shares issued and outstanding at 30 September Backlog During the third quarter of 2006, the Company was awarded new contracts for its subsea activities, including call-offs on frame agreements, of an aggregate amount of USD 2.3 billion. The worldwide order book of the Company for the subsea activities at 30 September 2006 was approximately USD 3.5 billion. The worldwide order book for the Company comprises approximately USD 2.0 billion of day-rate contracts and USD 1.5 billion of lump sum contracts. Main new contracts since 1 July 2006 On 3 July 2006, the Company announced two contract awards by Shell Exploration and Production. Both contracts are for a firm period of six years and have a further four one-year options. The combined value of the firm period of these contracts is in excess of USD 1.1 billion. The first contract, valued in excess of USD 400 million, is to support the subsea activities throughout Shell s infrastructure and for the design, construction and operation of a Remotely Operated Vehicle Support Vessel (ROVSV). A vessel will be chartered by the Company to service this contract. The second contract award, valued in excess of USD 700 million, is for DSV support and the execution of Shell s North Sea fields inspection, repairs and maintenance works. The Company will commit to the design, construction and operation of a DP3 Diving Support Vessel to support this contract. On 7 July 2006, the Company announced the award of a contract in the North Sea by Talisman Energy, valued at USD 50 million, and is scheduled for offshore execution in On 14 July 2006, the Company announced that it had been awarded a contract in the region of USD 55 million by BP Norge AS for fabrication, installation and tie-in of two new pipeline systems at the Valhall field. On 17 July 2006, the Company announced that in consortium with Technip Offshore Norge AS it had received a letter of intent from Statoil for a 2 year frame contract for reeled pipe installation services in Norway. A total contract value of USD 255 million is estimated. This includes project management, engineering, fabrication and installation of all Statoil`s reeled pipe applications for 2007 and AB-X-MD

4 On 6 September 2006, the Company announced the award of a contract in the Dutch Sector by Total E&P Netherlands B.V.. The contract for the Company is valued at USD 70 million and is scheduled for multiple offshore phases throughout On 15 September 2006, the Company announced the award of the Saxi Batuque contract from ESSO Angola Ltd with a value of approximately USD 200 million. The Company will perform the design, pipe fabrication and installation of 50km of steel flowlines. Installation will commence during the fourth quarter of On 29 September 2006, the Company announced an award of a contract from Cabinda Gulf Oil Company Limited with a value in the region of USD 290 million for the development of the Tombua and Landana fields in Block 14. The work scope includes project management, engineering, fabrication and installation. On 19 October 2006, the Company announced an award of a contract from Petrobras with a value in the region of USD 250 million for the use of the K3000 for a fixed period of 6 years commencing in February Market outlook The Company does not see any weakening of the market and the outlook remains positive for the foreseeable future. Bidding activity continues at a high level, right across the regions, for projects that extend through to 2010 and beyond. On behalf of the Board of Directors of Subsea 7 Inc. 24 October 2006 Kristian Siem Chairman AB-X-MD

5 Subsea 7 Inc. - Accounts prepared in accordance with IFRS Income Statement 3Q Q 2005 YTD 30/09/2006 YTD 30/09/ (figures in USD 1,000) Unaudited Unaudited Unaudited Unaudited Audited Continuing operations Revenue 414, ,849 1,275, ,264 1,287,028 Total operating expenses (324,674) (292,280) (1,040,668) (808,725) (1,121,110) EBITDA 89,975 48, , , ,918 Depreciation & amortisation (16,492) (14,656) (48,436) (45,533) (60,314) Impairment (3,286) Gain on sale 190 (518) 1,321 (361) 175 EBIT 73,673 33, ,850 76, ,493 Change in fair value of derivative financial instruments (3,296) 431 7,901 (3,871) (4,178) Net currency item 2,011 (2,519) 4, (2,716) Finance income 1, ,926 1,538 2,239 Finance costs (4,946) (1,965) (8,792) (7,916) (7,947) Share of post tax loss from joint venture (400) - (400) - - Net financial items (4,686) (3,332) 9,874 (9,430) (12,602) Profit before tax 68,987 30, ,724 67,215 89,891 Taxation (22,866) (22,318) (65,247) (37,802) (44,687) Profit from continuing operations 46,121 7, ,477 29,413 45,204 Discontinued operations Loss from discontinued operations (3,971) (3,971) Profit attributable to equity shareholders 46,121 7, ,477 25,442 41,233 Average number of issued shares ('000) 147, , , , ,327 Earnings per share Earnings per share, from continuing operations Average number of issued shares, diluted ('000) 147, , , , ,916 Earnings per share, diluted Earnings per share, diluted, from continuing operations Balance Sheet 30/09/ /09/ /12/2005 (figures in USD 1,000) Unaudited Unaudited Audited Assets Non-current assets Goodwill 73,665 73,665 73,665 Intangible assets 2,373 7,492 5,199 Property, plant and equipment 510, , , , , ,238 Current assets Inventories 31,438 16,789 19,246 Trade and other receivables 478, , ,675 Derivative financial instruments 4, Deferred tax assets 5,094 2,240 4,825 Available for sale assets Cash and short term deposits 140,772 53,972 64, , , ,692 Total assets 1,245, , ,930 Equity and liabilities Shareholders' equity Share capital 1,472 1,349 1,398 Share premium reserve 283, , ,791 Other reserves 96,262 (13,217) (26,744) Result for period 132,477 25,441 41, , , ,678 Non-current liabilities Borrowings 240,313 67,000 51,500 Deferred tax liability 22,483 11,487 15, ,796 78,487 66,762 Current liabilities Borrowings - 59,031 41,757 Derivative financial instruments 372 2,358 4,207 Trade and other payables 429, , ,754 Current tax liability 39,637 41,690 18,395 Finance leases - 2, , , ,490 Total liabilities 732, , ,252 Total shareholders' equity and liabilities 1,245, , ,930 AB-X-MD

6 Subsea 7 Inc. - Accounts prepared in accordance with IFRS Cash Flow (figures in USD 1,000) 30/09/2006 Unaudited 30/09/2005 Unaudited 31/12/2005 Audited Continuing Discontinued Continuing Discontinued Continuing Discontinued Net profit/(loss) 132,477-29,413 (3,971) 45,204 (3,971) Adjustments for: Tax 65,247-37, , Share based payments Depreciation and amortisation 48,436-45,533 1,332 60,314 1,332 Impairment of fixed assets ,037 3,286 1,037 (Profit)/Loss on disposal of property, plant and equipment (1,321) (175) - Interest income (6,926) - (1,538) (96) (2,239) (96) Interest expense 8,792-7, , Share of post tax results of joint ventures (2,734) - (2,734) Changes in working capital (excluding effects of acquisitions and disposal of subsidiaries): Increase in inventories (12,192) - (7,505) - (9,962) - (Increase)/decrease in trade and other receivables (109,815) - (139,364) 10,917 (90,731) 10,917 Increase/(decrease) in payables (51,402) - 162,587 (4,258) 187,234 (4,258) Decrease in provisions (898) - Decrease in pensions (39) - (39) Cash generated from operations 74, ,617 3, ,219 3,063 Total Total Total Cash flows from operating activities Cash generated from operations 74, , ,282 Interest received 6,920 1,634 2,335 Interest paid (3,230) (7,397) (7,729) Tax paid (26,616) (23,563) (51,656) Net cash from operating activities 51, , ,232 Cash flows from investing activities Investment in joint ventures (15) - - Demerger (net of cash disposed) - (31,588) (31,588) Proceeds from sale of property, plant and equipment 1,741 5,425 5,981 Purchase of property, plant and equipment (197,365) (66,705) (109,717) Dividend received - 3,379 3,379 Net cash used in investing activities (195,639) (89,489) (131,945) Cash flows from financing activities Net proceeds from issue of ordinary share capital 1,028 9,738 9,862 Purchase of own shares (13,573) - (1,067) Finance lease principal payments (377) (5,012) (7,608) Repayment of bank loans (66,500) (68,000) (83,500) Repayment of other borrowings - (1,236) (1,236) Proceeds of convertible bond loan 300, Net cash from/(used in) financing activities 220,578 (64,510) (83,549) Effects of exchange rate changes (726) 7,932 (1,506) Net increase/(decrease) in cash and cash equivalents 75,855 (36,713) (25,768) Cash and cash equivalents at start of period 64,917 90,685 90,685 Cash and cash equivalents at end of period 140,772 53,972 64,917 Shareholders' equity 30/09/ /09/ /12/2005 (figures in USD 1,000) Unaudited Unaudited Audited Shareholders' equity at start of period 288, , ,454 Share issues 24,235 16,600 31,045 Purchase of own shares (13,573) - (1,066) Spin-off Siem Offshore Inc - (59,408) (59,408) Result for the period 132,477 25,442 41,233 Share based payment Convertible bond equity component 63, Currency translation differences 17,636 3,534 (10,132) Shareholders' equity at end of period 513, , ,678 AB-X-MD

7 Subsea 7 Inc. - Accounts prepared in accordance with IFRS Segment reporting 3Q 2006 North West Gulf of Asia Continuing Revenue 231,161 80,533 60,770 20,588 19,511 2, ,649 Profit/(loss) before tax 61,392 22,808 (8,955) 4,338 2,874 (13,470) 68,987 Discontinued Revenue Profit/(loss) before tax Profit/(loss) before tax 61,392 22,808 (8,955) 4,338 2,874 (13,470) 68,987 3Q 2005 North West Gulf of Asia Continuing Revenue 187,955 80,339 32,442 16,142 20,930 3, ,849 Profit/(loss) before tax 34,587 4,961 (6,084) 2,681 2,501 (8,583) 30,063 Discontinued Revenue Profit/(loss) before tax Profit/(loss) before tax 34,587 4,961 (6,084) 2,681 2,501 (8,583) 30,063 YTD 30/09/2006 North West Gulf of Asia Continuing Revenue 583, , ,053 65,012 92,263 7,090 1,275,633 Profit/(loss) before tax 135,044 67,893 (9,894) 12,172 9,332 (16,823) 197,724 Discontinued Revenue Profit/(loss) before tax Profit/(loss) before tax 135,044 67,893 (9,894) 12,172 9,332 (16,823) 197,724 YTD 30/09/2005 North West Gulf of Asia Continuing Revenue 450, ,402 90,277 65,206 62,992 9, ,264 Profit/(loss) before tax 65,814 17,446 (3,353) 9, (22,304) 67,215 Discontinued Revenue , ,339 Profit/(loss) before tax - - (3,478) (3,478) Profit/(loss) before tax 65,814 17,446 (6,831) 9, (22,304) 63,737 The 'Global' segment includes the vessel management group based in Grimstad, Norway which is responsible for the management and maintenance of the vessels and equipment, and the global support team and treasury function which are both based in Aberdeen, Scotland. Interest income and costs, derivative instrument fair value changes, and net currency items are also allocated to this segment. AB-X-MD