SECOND QUARTER 2006
Main figures
(Figures in brackets refer to the corresponding period of 2005)
Operating profit for the second quarter came to USD 23 million (USD 29.2 million). The decline reflects a temporary downturn in fleet utilisation for Offshore Support Services owing to the demobilisation of two units from the US Gulf of Mexico and Nigeria respectively.
Net financial income for the second quarter amounted to USD 9.7 million (net expenses of USD 6.6 million). This high financial income is mainly attributable to the increased market value of forward exchange contracts. A large proportion of these contracts were concluded to hedge the company's tax exposure in connection with a refinancing of its bank debt early in the third quarter, and resulted in a currency gain in NOK which will imply a tax cost of USD 7 million in the third quarter. The refinanced debt was nominated in USD, and will not yield any currency gain in the consolidated accounts.
Net profit for the second quarter equalled USD 30.1 million (USD 21.3 million), and diluted earnings per share were USD 0.84 (USD 0.63).
Operating profit for the first half-year came to USD 54.6 million (USD 48.1 million). Net profit for the first half equalled USD 60.8 million (USD 36 million), and diluted earnings per share were USD 1.74 (USD 1.06).
Total assets at 30 June amounted to USD 1 846.8 million (USD 979 million), while the equity ratio rose to 53.3 per cent (46.7 per cent). The increase in both assets and equity primarily reflects the acquisition of Consafe.
Consafe acquisition
Prosafe ASA acquired 99.55 per cent of the shares in Consafe Offshore AB (Consafe) during June in exchange for shares in Prosafe ASA. Additional Consafe shares were acquired in July, bringing the overall holding to 99.78 per cent. Consafe's remaining shares will be acquired for cash through a compulsory process. The purchase price for all the Consafe shares amounts to about USD 532 million, including acquisition costs. Since the transaction date for accounting purposes has been set to 30 June 2006, the Consafe business has not been included in the consolidated profit and loss account for the second quarter. The excess of the purchase price over book equity in Consafe at the transaction date was USD 349.7 million, of which USD 129.4 million has been allocated to rigs and USD 220.3 million to goodwill.
Acquiring Consafe forms part of Prosafe's strategy of consolidating the market for semi-submersible accommodation/service rigs, and will cement its leading position in this market.
Refinancing
Prosafe refinanced its bank debt early in the third quarter. A seven-year facility of USD 450 million replaced two previous facilities totalling USD 257 million. The new facility has a grace period of 18-24 months followed by quarterly instalments of USD 18 million. It features a more flexible structure as well as substantially better terms than the previous facilities.
Debt in Consafe was also replaced at quarter-end by a new seven-year loan and guarantee facility of USD 150 million in total.
The new facilities will release liquidity which gives Prosafe greater room for manoeuvre and increased capacity for growth.
Offshore Support Services
Operating profit for the second quarter amounted to USD 14.7 million (USD 21.1 million). The utilisation ratio for the rig fleet was 86 per cent (95 per cent). The decline in operating profit reflects lower fleet utilisation owing to the demobilisation of two units during the quarter.
All five rigs working in the Gulf of Mexico, plus MSV Regalia which is on contract for Total off Angola, were in regular operation throughout the second quarter. Safe Scandinavia was under contract for Shell in the US Gulf of Mexico until mid-May. This rig commenced the contract with BG in the UK sector of the North Sea during July. Safe Caledonia completed the contract with Shell off Nigeria in April, and started the contract with Nexen on Buzzard in the North Sea during June.
Floating Production
Operating profit for the second quarter came to USD 9.1 million (USD 9.3 million). Work continued during the quarter on the conversion of MT Apollo and MT Ionikos. These projects are progressing as planned, with contracts expected to commence in the second quarter of 2007.
Outlook
Activity in Offshore Support Services focused during the second quarter on the acquisition of Consafe as well as extensions of existing contracts.
Safe Caledonia was awarded a one-year contract by Total worth USD 52 million in the first quarter for work on the Dunbar and Elgin/Franklin fields in the UK. The expected start date is 1 February 2007. As early as the second quarter, this contract was extended to two years with a firm value of USD 104 million. In addition, the client has the opportunity to extend the contract by a further year at a minimum value of USD 55 million. The present contract extension secures Safe Caledonia full utilisation until January 2009.
At quarter-end, the contract with Total for MSV Regalia off Angola was extended by three months from December 2006 to March 2007. This extension is worth USD 11.5 million. The client also has two one-month options on the same terms.
All Consafe's rigs were on hire during the second quarter. Safe Concordia commenced a 12- to 15-month contract in the Gulf of Mexico, Safe Bristolia began a contract with Samsung on Sakhalin, and Safe Astoria was engaged on a contract in Australia. The Safe Esbjerg jack-up continued its three-year contract for Mærsk in Denmark.
The market for semi-submersible accommodation/service rigs is strong, and Prosafe sees several opportunities for rigs with available capacity in 2007. Prosafe's fleet is well adapted to market demand, and several prospects are being pursued in the North Sea, west Africa and Australasia. Safe Astoria is currently located in Australia, and the outlook is promising for winning a new contract.
Activity in Floating Production remains at a high level. Several new prospects have been identified during the second quarter. This strengthens confidence in a strong market for coming years. Growth seems to be strongest in Prosafe's focus areas of west Africa, Brazil and Asia. Several new players entered the market during the first half of 2006. Their entry has been in the lower end of the sector, where the established players lack available capacity to meet demand, and where requirements for operational experience, technology and project management are lower.
During the fourth quarter of this year, Prosafe will be able to release resources from its two on-going conversion projects. This will put the company in a position to take on new conversion projects in the same period. Prosafe is actively working on several potential projects, and is sticking to the target of winning at least one new project during 2006.
Oslo, 9 August 2006
The board of directors of Prosafe ASA
