Main figures
(Figures in brackets refer to the corresponding period of 2004)
Prosafe ASA reached agreement on 29 June with KCA Drilling Deutag Norge AS on the sale of the Drilling Services division. This transaction was completed on 1 August and will generate a gain of about USD 80 million, which will be recognised in the third-quarter accounts.
The sale of Drilling Services represents the next step in Prosafe's strategy, and will allow the company to focus its managerial and financial resources on the Floating Production and Offshore Support Services divisions. These resources will be devoted to furthering the development of the positions held by these divisions in fast-growing offshore markets.
Operating profit for the second quarter came to USD 29.2 million (USD 16.6 million), excluding discontinued operations. The main reasons for the improvement are increased fleet utilisation and higher day rates in Offshore Support Services.
Net profit for the second quarter was USD 21.3 million (USD 12.8 million), and diluted earnings per share were USD 0.63 (0.38).
Operating profit for the first half-year amounted to USD 48.1 million (USD 36.1 million). Net profit for the first half was USD 36.0 million (USD 26.8 million), and diluted earnings per share were USD 1.06 (USD 0.79).
Total assets at 30 June amounted to USD 979.0 million (USD 972.4 million), while the equity ratio was 46.7 per cent (44.5 per cent).
The accounts have been prepared in accordance with the International Financial Reporting Standards (IFRS), and accord with International Accounting Standard (IAS) 34 for interim reporting. In 2004 and earlier, Prosafe reported in accordance with Norwegian generally-accepted accounting principles (NGAAP). Figures for 2004 have been restated to the IFRS to make them comparable. The effect on equity and results is shown in connection with the profit and loss account and balance sheet in this report, and in a separate stock exchange announcement issued on 26 April 2005.
Prosafe has taken advantage of the opportunity to implement IAS 32 and 39 relating to financial instruments with effect from 1 January 2005, so that the comparable figures for 2004 are based on NGAAP. From 1 January 2005, financial instruments are recorded at market value in the balance sheet and the change in value is recognised in the profit and loss account. The positive effect on book equity at the implementation date was USD 1.9 million. A loss of USD 4.6 million from the decreased market value of financial instruments was recognised for the second quarter. The loss for the first half amounted to USD 1.1 million.
Profit from Drilling Services is presented net in the profit and loss account under net profit from discontinued operations. Assets and liabilities relating to discontinued operations are shown separately in the balance sheet. Correspondingly, net cash flow from discontinued operations is presented separately in the cash flow statement.
Offshore Support Services
Operating profit for the second quarter came to USD 21.1 million (USD 10.4 million). The utilisation ratio for the rig fleet was 95 per cent (86 per cent). In addition to this high utilisation ratio, higher day rates for MSV Regalia, Safe Scandinavia and Safe Caledonia contributed to the improvement.
All five of the rigs working in the Gulf of Mexico were in regular operation throughout the second quarter. Safe Scandinavia was on contract off Tunisia until mid-April. Three weeks later, it commenced a contract in the UK sector of the North Sea. MSV Regalia and Safe Caledonia operated on Visund in the North Sea and on the Bonga field off west Africa respectively throughout the second quarter.
Floating Production
Operating profit for the second quarter was USD 9.3 million (USD 7.3 million). This improvement mainly reflects upgrading projects for several of the company's FPSOs and lower depreciation for FPSO Petróleo Nautipa.
Rig business and tax
As previously noted in the report for the fourth quarter of 2004 and in the 2004 annual report, European Union guidelines on state aid mean that Prosafe's rig business will no longer qualify for the Norwegian tonnage tax system from 1 January 2006.
The consultative paper issued by the Norwegian Ministry of Finance in March 2005 contained no transitional rules for the companies affected. In connection with the consideration of the revised national budget by the Norwegian Storting (parliament) in June, however, the government was asked to propose transitional rules which ensure that the annual tax burden for the companies concerned does not become unreasonably large, and that their equity is not unreasonably weakened in the transitional years. The transitional rules will be announced in connection with the presentation of the national budget for 2006 in November.
Prospects
During 2005, Offshore Support Services has won a contract for MSV Regalia worth USD 6.5 million and another for Safe Caledonia worth USD 9.9 million. This has secured a fleet utilisation of 90 per cent for 2005, 86 per cent in 2006, 62 per cent in 2007 and 34 per cent in 2008.
The contract portfolio comprises a mix of long- and short-term assignments. Consequently, Prosafe still has the opportunity to take advantage of increased rate levels in the segment for accommodation and service rigs. Market prospects are also positive in a longer perspective, and the company takes a positive view of opportunities for continued profitable development of the division.
All units in Floating Production are on long-term contracts. At the same time, the company has seen a steady increase in bid activity and is accordingly optimistic about winning a new FPSO project in the short term. Simultaneously, the company is adding capacity to its organisation in order to carry out several projects at a time.
A good cost structure, high operating regularity and upgrading projects for existing units also ensure good results in periods without new conversion projects.
