Sluggish market and intense competition arouse concern at SeaBirdCompany News // November 6, 2015
SeaBird Exploration says the third quarter was characterized by sustained low oil prices and weak market sentiment for oil exploration. Seismic tender activity has continued to be sluggish with intense price competition. The company said the 2D/source market has continued to experience significant competition from multi-streamer 3D vessels. The negative market sentiment has exacerbated industry risk factors and increased the uncertainty related to timing of a market recovery.
"The company continued its cost reduction effort," said SeaBird. "The office in St Petersburg was closed at the end of the quarter. The quarterly run-rate SG&A is in line with the cost savings targets communicated earlier this year. Operating expenses are reduced as a result of the stacking of vessels and the continuing effort to execute on the savings initiatives. Capital expenditures are in line with the lower spending estimates highlighted earlier. In addition to cost reductions, the company is actively focusing on cost flexibility measures as well as improving operational efficiency."
Vessel utilization was 86 per cent during third quarter of 2015, up from 68 per cent in the previous quarter. Technical downtime for the fleet was 9 per cent, up from 2 per cent for the second quarter of 2015. The increase is due to technical start-up challenges for the vessels operating in Mexico. Third quarter yard stay represented 7 per cent of vessel capacity. Contract surveys represented 86 per cent of vessel capacity compared to 68 per cent for the second quarter of 2015.
SeaBird said global seismic demand continued to show weakness in the third quarter and there are no signs of market improvement. Oil industry spending is anticipated to remain sluggish through 2016 and the seismic sector is expected to remain under pressure as a result.
A high proportion of the company's fleet is expected to be employed on the Mexico Gigante project until mid-2016 assuming the full project size of approximately 186,000 kilometer is to be completed. The current market uncertainty makes it difficult to predict the level of contract coverage that is possible to obtain beyond the company's current backlog.
The company said its accounts were prepared on the basis of a going concern assumption. In the view of the board of directors, the current challenging market conditions and the company's limited working capital creates a material risk to this assumption. In the event that project performance is significantly worse than expected, contracts and other arrangements in respect of the employment of SeaBird's vessels are cancelled, or significantly delayed, new backlog cannot be secured on satisfactory rates or at all, the company would need to sell assets or raise additional financing.