BW Offshore: Q4 2015 - Condensed interim consolidated financial information

  • EBITDA of USD 165.5 million including insurance recovery
  • Impairment USD 85 million recognised for damages on FPSO Cidade de São Mateus
  • Impairment on other vessels is recognised with USD 49.3 million
  • Impairment of Goodwill with USD 186.9 million
  • Contract extension for FPSO Polvo and FPSO Umuroa
  • Demobilisation of BW Athena in February 2016
  • Redelivery of Belokamenka
  • Recovery project for FPSO Cidade de São Mateus ongoing

Operating revenues for Q4 2015 amounted to USD 318.8 million, an increase of USD 10.1 million compared to Q3 2015. Operating expenses amounted to USD 153.1 million, an increase of USD 18.7 million.

EBITDA for the fourth quarter amounted to USD 165.5 million, a decrease of USD 8.5 million.

Depreciation amounted to USD 66.4 million, an increase of USD
2.0 million. Operating loss for the quarter amounted to USD 223.0 million. Net financial expenses for the quarter amounted to USD 2.3 million. Tax expense for the quarter amounted to USD 9.2 million.

Net loss for the quarter amounted to USD 234.5 million, compared to a net loss of USD 7.3 million last quarter.
           
EBITDA has been positively affected by an insurance recoverable of USD 85 million recorded in further quarter versus USD 75 million in third quarter for repairs to FPSO Cidade de São Mateus. This has been offset by certain one off provisions made during fourth quarter.

The Company completed its impairment review of fixed assets during fourth quarter 2015. As a result, the Company recorded an additional impairment of USD 85 million to reflect losses related to non-recoverable costs as well as direct damages to the FPSO Cidade de São Mateus. In addition, the Company recognised an impairment loss of USD 49.3 million related to other vessels.

Due to the expectations of a prolonged downturn in the Oil and Gas sector with limited new awards in the short to medium term, the Company has seen it necessary to record an impairment of USD 186.9 million related to Goodwill. Following this, net book value of Goodwill is zero.

Net financial expenses have decreased mainly because of higher interest rates reducing net liability on hedging contracts.

Total equity at 31 December 2015 amounted to USD 944.4 million, a decrease of USD 228.8 million. The equity ratio was 27.5% at the end of the quarter, down from 32.4%.

As of 31 December 2015, the Company had USD 911.2 million in interest-bearing loans and USD 60.0 million in letters of guarantee drawn under the USD 2,400 million credit facility. The committed amount on the USD 2,400 million credit facility was USD 1,197.4 million, following scheduled reductions. Total utilised debt facilities for the company, including bond loans and other facilities was USD 1,762.0 million. Total available liquidity as of 31 December 2015 amounted to USD 348.0 million.

Net debt amounted to USD 1,619.7 million at 31 December 2015 (USD 1630.8 million at 30 September 2015).

Net cash inflow from operating activities was USD 127.3 million (USD 101.2 million). Net cash outflow from investing activities was USD 106.6 million. Cash outflow on investing activities is mainly related to capitalisation on the Catcher project and capital expenditures for ongoing life extension activities. Life extension activities are generally either covered on a cost plus basis or reimbursed through higher day rates. Net cash inflow from financing activities was USD 11.9 million.

BW Offshore operates 17 units. The owned fleet consists of 14 FPSOs and one FSO. Average uptime during the fourth quarter was 99.6% (99.8%). Cidade de São Mateus is excluded from the average uptime until the unit recommences operations after the repair project.
The Company operates the FPSO Peregrino for Statoil and Sinochem on the Peregrino oil field offshore Brazil. The Company also operates the FPSO P-63 owned by Petrobras and Chevron on the Papa Terra field offshore Brazil in a joint venture with Queiroz Galvão Óleo e Gás S.A. ('QGOG'). The operation started in November 2013 and will end in May 2016.

The recovery project for Cidade de São Mateus continues, where the unit now has been freed of gas and condensate has been offloaded.  Riser and mooring disconnect commenced in December. The next significant step is to tow the vessel to a yard for repairs. As the unit is still at the field, it has been challenging to get access to make an accurate assessment of all the damages.

BW Offshore carries insurance cover on a fleet wide basis, for its crew and support staff, pollution and clean up and any damage to vessels. In addition, the FPSO Cidade de São Mateus is also covered by a loss of hire insurance from 12 May 2015 for a period of 12 months. The accident and its consequences will to a large extent be covered by these policies and BW Offshore is working closely with insurers and their loss adjusters in the recovery operations. Given the delay to the disconnection the unit is expected to be without rate for some time before repairs can be carried out and the unit returns to the field. The length of this period is still uncertain.

During fourth quarter, BW Offshore received a two-year contract extension for the lease and operation of the FPSO Polvo. The FPSO is operating on the Polvo field offshore Brazil for Petrorio. The firm period has been extended to third quarter 2018 (from third quarter 2016), with options until third quarter 2022.

In January 2016 BW Offshore also received a one-year contract extension for the lease and operation of the FPSO Umuroa during the quarter. The firm period has been extended to fourth quarter 2017 (from fourth quarter 2016). The FPSO is operating on the Umuroa field offshore New Zealand for AWE.

The finance lease for FSO Belokamenka was terminated during the quarter and the unit was redelivered to BW Offshore.

Except for Azurite that has been returned by the client before the end of the fixed contract and is marketed for new projects, and the redelivery of FSO Belokamenka, all other FPSOs and FSO are on contract per the end of the quarter.

BW Offshore and Ithaca Energy have agreed on a termination of the FPSO BW Athena, and the unit will be demobilised in February 2016. The Athena field is located in the Moray Firth area of the UK Continental Shelf. BW Athena has had an uptime of 98% since first oil in May 2012, and BW Offshore stood as duty holder for the unit. BW Athena
first operated under a three-year contract, and the operation was extended with a contract with mutual termination right.  The BW Athena is a versatile and cost efficient floating production unit with an oil processing capacity of 28,000 barrels per day. The FPSO is now marketed for new opportunities.

PROJECTS
The Catcher project remains within budget with expected first oil in 2017. During fourth quarter, the project made good progress on procurement and construction activities for topside, turret mooring system and hull. 

BW Offshore has previously reported that hull activities have slipped due to the yard's inability to progress the hull delivery in accordance with the contractual schedule. A mitigation plan has been implemented to minimise the impact to the overall project schedule. As of fourth quarter, this mitigation plan has worked well as there has been no further slippage.

BW Offshore is closely monitoring progress and safety in all the project activities, ensuring that mitigating actions are implemented quickly if any deviation is detected.

The Company is undertaking a number of modification and life extension activities on existing units. These activities are either covered on a cost plus basis or reimbursed through higher day rates.

OUTLOOK
The negative market sentiments continued in the fourth quarter. This led to a further drop in oil prices, which reached a 12-year low in January 2016. The worsened macro conditions for the offshore industry have reduced expected capital expenditure. This has led the company to recognise a non-cash impairment charge for goodwill and fixed assets.

BW Offshore still expects outsourcing of production to be a cost effective solution for oil and gas companies, but believes it is prudent to expect a prolonged downturn in contract awards. The company remains focused on managing costs and improving performance, while continuing to develop technologies that enables improved returns in a lower oil price environment. The Company has appointed advisors to evaluate strategic options.

The majority of BW Offshore's fleet remain on long-term contracts with national and independent oil companies, and the fleet should continue to generate a significant cash flow in the time ahead. However, with the rapid fall in oil prices, BW Offshore faces increased risks of customers defaulting on their obligations. Asset values may be affected should option periods not be declared or units not be redeployed, potentially affecting both liquidity and covenants. Redeployment of units coming off contracts will be affected by the reduced number of new developments.

The fleet asset values have been assessed according to a value-in-use methodology, with balanced assumptions on the likelihood of option periods and future projects. The basis for the impairment assessment is that the Company expects an improved market from mid-2017  where idle units are expected to return to employment.

As per year-end 2015 the Company is in compliance with all financial covenants. With regards to liquidity, the company has repayments due as detailed in note 5. The Company is closely monitoring all covenants, and initiatives have been undertaken to ensure compliance going forward.

Please see the attachments for the full quarterly report and presentation.

BW Offshore hosts a presentation of the financial results at 09:00 (local time) today at Hotel Continental in Oslo, Norway. The presentation will be given by CEO Carl K. Arnet and CFO Knut R. Sæthre.

The presentation will be broadcasted via webcast, and will also be available for replay. Please visit www.bwoffshore.com for login-details.

For further information, please contact:

Knut R. Sæthre, CFO, +47 9111 7876

Kristian Flaten, Vice President IR and Corporate Finance, +47 9509 2322

About BW Offshore:

BW Offshore is a leading global provider of floating production services to the oil and gas industry. BW Offshore is the world's second largest contractor with a fleet of 14 FPSOs represented in all major oil regions world-wide. The company also operates additional 2 FPSOs. BW Offshore has a long track record on project execution and operations, as well as a robust balance sheet and strong financial capabilities. In more than 30 years of production, BW Offshore has executed 38 FPSO and FSO projects. The company is listed on the Oslo Stock Exchange. Further information is also available on www.bwoffshore.com