SBM Offshore Announces Half Year 2021 Earnings

Source: www.gulfoilandgas.com 8/5/2021, Location: Europe

Highlights
- Financial results in line with management expectations
- Record-level US$29.5 billion proforma backlog, up by c. US$8 billion
- Launch of EUR150 million (c. US$180 million) share repurchase program
- Scaling-up renewables: 200 MW floating offshore wind development
- 2021 Directional1 revenue guidance maintained at around US$2.6 billion
- 2021 Directional EBITDA guidance maintained at around US$900 million

Bruno Chabas, CEO of SBM Offshore, commented:
“All our three value platforms, Ocean Infrastructure, Growing the Core and New Energies show good performance in line with our vision and commitment for providing safe, sustainable and affordable energy.

Our staff and contractor teams continue to perform very well despite the challenging conditions from the continuing pandemic. We maintained our fleet uptime of 99%. Our projects under construction continue to progress well despite the various challenges that COVID-19 continues to pose to our project teams.

In addition, SBM Offshore has successfully secured significant backlog growth. The backlog of our Ocean Infrastructure platform is approaching a record-breaking US$30 billion. This contracted backlog allows us to deliver sustainable and resilient sector-leading value to our stakeholders including shareholder returns. Today’s announcement of a EUR150 million share repurchase demonstrates our commitment to this.

Our Growing the Core platform delivered two new awards in the first half. We now have five Fast4Ward® FPSOs under construction. The latest awards have an emission intensity of 8 to 11.5 kg CO2e/boe2, well below current industry average. We will further improve on this through our emissionZEROTM program.

New Energies is set to provide further growth and value. We are establishing a strategic position in the fast-developing floating offshore wind market. We intend to play a role in project co-development in order to enhance the positioning of our technology in the market. Our participation in the 200 MW Llyr Project in the UK marks a first step. The EPC activities for the deployment of our first project in France in 2022 remain on track.

We are delivering value to our stakeholders: helping our clients to transition towards lower carbon oil production at affordable cost, providing renewable and energy transition solutions and growing shareholder returns.”

Underlying Directional revenue for the first half of 2021 came in at US$1,147 million, broadly in line with 2020. Underlying Directional revenue from Lease and Operate was similar to last year’s figure with US$827 million recognized in the first half of 2021 against US$829 million in the year-ago period, reflecting the stability of the fleet. Directional Turnkey revenue reduced by 9% year on year to a total of US$321 million for the period. Despite the major growth phase in Turnkey, the balance of activities continues to be more weighted to projects to be transferred to the Lease and Operate portfolio with therefore lower contribution to Turnkey revenue. Three out of four FPSOs under construction were 100% owned by SBM Offshore during the period. As such, the decrease is mostly attributable to the comparative impact of the Johan Castberg turret project delivery which contributed to the first half year 2020 revenue.

Underlying Directional EBITDA for the first half 2021 totaled US$501 million, representing a 4% reduction compared with the prior period. Underlying Directional Lease and Operate EBITDA came in at US$531 million in the first half year of 2021, in line with the prior year period, despite the incremental costs from the additional measures linked to the safe management of the impacts from the COVID-19 pandemic.

Underlying Directional Turnkey EBITDA decreased by US$16 million to a total of US$9 million, mainly reflecting the same drivers as the decrease in the Turnkey revenue. The Other non-allocated cost was in line with the previous year and stood at US$(40) million and continues to include the Company’s investment in digital initiatives.

The increased level of activity in the construction of new FPSOs did not significantly contribute to EBITDA in 2021 under Directional reporting because the FPSO Liza Unity project and the FPSO Prosperity project are 100% owned by the Company and classified as operating lease as per Directional accounting policies. As such, these projects do not contribute to the Company’s net result before first oil. FPSO Almirante Tamandaré is also 100% owned by SBM Offshore; the planned partial divestment is subject to finalization of the shareholder agreement and various approvals by the Company and its prospective partners.

Underlying Directional Revenue and EBITDA includes US$75 million related to final cash received during the period under the final settlement signed with the client following the redelivery of the Deep Panuke MOPU in July 2020. These expected cash receipts in 2021 were excluded from the Underlying 2020 Revenue and EBITDA as reported in the 2020 Annual Report. Considering the associated depreciation of the vessel, this non-recurring item only negligibly impacted the Underlying profit attributable to shareholders.

Funding and Directional Net Debt
As a direct result of investment in growth, Directional net debt increased by US$510 million to US$4.6 billion compared with year-end. This includes capital expenditures associated with the FPSO projects Liza Unity, Sepetiba, Prosperity and Almirante Tamandaré and the expenditures on the Fast4Ward® multipurpose floater (MPF) hulls. While the Lease and Operate segment continues to generate strong operating cash flow, the Company drew under the project loan facility of Liza Unity (FPSO) and the Revolving Credit Facility (RCF) to fund continued investment in growth during the first half year 2021. The first drawdown on the US$1.05 billion project loan facility of Prosperity (FPSO) closed on June 25, 2021, occurred in July 2021 and allowed full RCF repayment.

The majority of the Company's debt at half year consisted of non-recourse project financing (US$3.1 billion) in special purpose companies. The remainder (US$1.7 billion) comprised mainly of borrowings to support the construction of Liza Unity (FPSO) and FPSO Sepetiba, the loan related to diving support and construction vessel SBM Installer and the Company’s RCF which was drawn for c. US$290 million as at June 30, 2021. The net cash balance stood at US$310 million and lease liabilities totaled c. US$61 million.

Directional Pro-Forma Backlog
Change in ownership percentages and lease contract durations have the potential to significantly impact the Company's future cash flows, net debt balance as well as the profit and loss statement. The Company therefore provides a pro-forma backlog on the basis of the most likely ownership scenarios and lease contract durations for the various projects.

The pro-forma Directional backlog increased by US$ 7.9 billion to a total of US$29.5 billion compared with the position at December 31, 2020. The increase was mainly the result of the awarded contract for the FPSO Almirante Tamandaré and the signed Letter of Intent for FPSO Alexandre de Gusmão.

The pro-forma Directional backlog at June 30, 2021 reflects the following key assumptions:

- The FPSO Liza Destiny contract covers 10 years of lease and operate.
- The FPSO Liza Unity and Prosperity contracts cover a maximum period of two years of lease and operate within which period the units will be purchased by the client. The impact of the sale is reflected in the Turnkey backlog, assumed at the end of the contractual lease and operate period.

FPSO Almirante Tamandaré and FPSO Alexandre de Gusmão are added to the backlog based on the initially targeted SBM Offshore ownership share (55%) in the lease and operate contracts. The partial divestment to partners (45%), which remains subject to finalization of the shareholder agreement and various other approvals, was included in the Turnkey backlog.

SBM Offshore’s construction activities continue to face challenges related to the COVID-19 pandemic with difficulties posed by remote working, travel restrictions and effects on yards capacity. Project teams are working closely with client teams and contractors to mitigate impacts on project execution and an update on individual projects schedule is provided below considering latest known circumstances.

Liza Destiny (FPSO)
The flash gas compression system on Liza Destiny (FPSO) is now operating. Approximately 96% of the gas produced is being consumed and reinjected, and production levels are at 120-125,000 bpd. The team continues to perform maintenance and optimization activities to minimize flaring until the arrival of the redesigned third stage flash gas compression system, still expected to be installed around the end of the year.

Liza Unity (FPSO)
The topsides integration phase is completed and the onshore commissioning campaign is making significant progress. The crew is currently mobilizing for the vessel departure from Singapore planned in the third quarter of this year. The project continues to target first oil in 2022 in line with client schedule.

FPSO Sepetiba
The Fast4Ward® MPF hull was successfully delivered and arrived safely in the integration yard allowing the commencement of the topsides modules lifting campaign. The project’s planned preliminary acceptance is at the end of 2022 with planned first oil in 2023.

Prosperity (FPSO)
The Fast4Ward® MPF hull has arrived safely in Singapore where the topsides fabrication phase is ongoing. The project is progressing in line with schedule with a planned completion in 2024.

FPSO Almirante Tamandaré
The FPSO construction is progressing as per plan with the expected first oil in the second half of 2024.

Fast4Ward® MPF hulls
Under the Company’s Fast4Ward® program, the total number of MPF hulls ordered to date stands at six, five of which have been allocated to FPSOs Liza Unity, Sepetiba, Prosperity, Almirante Tamandaré and Alexandre de Gusmão. The Company currently has one remaining MPF hull supporting its tendering activity.

Operational Update
Despite the ongoing challenging circumstances due to the COVID-19 pandemic, the Company demonstrated operational resilience. The fleet uptime in the first half of the year was 99.1%, in line with the fleet’s lifetime historical average.

HSSE
The Company’s Total Recordable Injury Frequency Rate stands at 0.10 as of June 30, 2021, compared with the full year 2021 target of below 0.18.

New Energies

Floating Offshore Wind
SBM Offshore has taken a position as co-developer in floating offshore wind projects with the establishment of the joint venture Floventis Energy, a newly established joint venture between SBM Offshore and Cierco Ltd. Floventis Energy seeks to secure seabed rights and relevant permits, to develop and implement state-of-the-art technologies for floating offshore wind activities.

Floventis Energy is working on its first project, the Llyr project, which covers the lease of two 100 MW floating wind test and demonstration sites in the Celtic Sea, for which the Crown Estate confirmed an intention to move forward with the lease process. The formal award will be subject to a Habitats Regulations Assessment, following which, the project will progress with environmental assessments and surveys in line with the regulatory consent processes.

The Company’s ambition as project co-developer is to enhance the positioning of its technology in the market. As such it is also targeting rights in various other regions of the world. The current opportunities for the floating offshore wind market amount to at least 6 GW for the next decade; this is expected to grow significantly over the next few years. The ambition is to co-develop or participate as a technology or turnkey provider in 2 GW of this existing global pipeline. Total associated development expenditure over the next 7 to 8 years is estimated to be c. US$150 to 200 million. The investments will be generally phased so that significant de-risking of returns has occurred before the final investment decision, committing most of the expenditure, is taken.

Through the further development and optimization of its technology, focusing on obtaining cost benefits from enhanced design and scale-up, the Company is on the pathway towards a competitive levelized cost of electricity.

Provence Grand Large
SBM Offshore is providing and installing 3 floaters and mooring systems for this 25 MW project. Assembly of first sub-components has started as planned for the floating substructures to be ready for load-out and installation at the end of 2022. This project is on track to be the first floating offshore wind project worldwide installed with tensioned leg platform technology.

Capital Allocation and Shareholder Returns
After having reviewed the current liquidity position including the incremental net cash proceeds from the FPSO Cidade de Ilhabela bond issuance in the first quarter 2021 and taking into account the progress with project financing and the capital requirements for growing the company business, the Company has determined that it currently has the capacity to repurchase shares. Consequently, on August 5, 2021 the Company will commence a EUR150 million (c. US$180 million) share repurchase program with the objective to be completed in the year. More details can be found in the Company’s press release announcing the share repurchase on August 5, 2021.

Outlook and Guidance
The Company’s 2021 Directional revenue guidance remains around US$2.6 billion, of which around US$1.6 billion is expected from the Lease and Operate segment and around US$1 billion from the Turnkey segment. 2021 Directional EBITDA guidance remains around US$900 million for the Company.

This guidance includes Directional revenues and EBITDA of US$75 million related to the cash receipts in 2021 from the Deep Panuke contract, which were both excluded from the 2020 outlook and underlying results. It also considers the currently foreseen COVID-19 impacts on projects and fleet operations. The Company highlights that the direct and indirect impact of the pandemic could continue to have a material impact on the Company’s business and results and the realization of the guidance for 2021.


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