Polarcus First Quarter 2020 Results: Improved pricing and profitability
30 Apr 2020
Polarcus Limited (“Polarcus” or the “Company”) (OSE: PLCS) releases its first quarter 2020 results.
Polarcus CEO, Duncan Eley, commented:
“Polarcus delivered a solid increase in earnings for Q1 2020 with EBITDA more than doubling year-on-year driven by increased margins from improved pricing and continued operational excellence of our core fleet.
“Market conditions deteriorated in March 2020 with the sharp decline in oil price, exacerbated by the global response to the COVID-19 pandemic. Polarcus rapidly implemented enhanced business continuity initiatives for our onshore and offshore operations to navigate the COVID-19 related restrictions, prioritizing the health and safety of all personnel and maintaining our highly efficient operational performance. In addition, a substantial cost reduction plan was implemented during the quarter that will strengthen the financial resilience of the Company through 2020.
“The ability of our sales organization to secure two new project awards since quarter end demonstrates that industry activity continues, and E&P companies are placing trust in Polarcus to execute their seismic acquisition plans.
“Whilst 2020 will be a challenging year for the industry, I am confident that the decisive action taken will provide an effective foundation for Polarcus to manage the current market uncertainty and to position the Company to capture an increased level of activity anticipated through 2021-22.”
Q1 2020 HEADLINES
- Segment revenues of USD 66.3 million, compared to USD 67.1 million in Q1 2019
- Segment EBITDA of USD 22.2 million, up from USD 10.2 million in Q1 2019
- Segment EBIT of USD 8.5 million, up from USD 2.8 million in Q1 2019
- Total cash balance of USD 46.7 million
- Strong operational performance with low technical downtime
- Vessel utilization of 89%, compared to 92% in Q1 2019
- Implementation of 2020 cost reduction plan and enhanced business continuity initiatives in relation to COVID-19 restrictions
- Backlog of approximately USD 157 million, compared to USD 170 million at the same time last year
Segment revenues of USD 66.3 million in Q1 2020 were essentially flat relative to the same period last year. The Polarcus core fleet generated revenues during Q1 2020 that were 26% higher compared to Q1 2019 driven by improved pricing. In Q1 2019, additional revenue was generated related to a hybrid streamer-node project acquired by Polarcus using third party vessels. Bareboat revenue was flat year on year.
Improved day rates, combined with meticulous attention to cost control and more cost capitalized to multi-client, led to a solid improvement in profitability with segment EBITDA more than doubling to USD 22.2 million in the quarter compared to Q1 2019. Operational metrics were excellent during the quarter with industry-leading technical performance combined with high utilization and productivity.
Gross cost of sales of USD 45.2 million in the quarter decreased by 18% compared to USD 55.0 million in Q1 2019. The reduction was due to the elevated costs related to the hybrid project in Q1 2019. General and administrative costs during the quarter were held at USD 2.8 million, at similar levels to Q1 2019.
The cash flow during the quarter was impacted by a negative segment working capital movement of USD 18.1 million. Total cash at quarter end was USD 46.7 million including USD 25 million drawn from the USD 40 million working capital facility in March 2020. The cash balance at the end of the previous quarter was USD 36.5 million.
The sharp decline in oil price and the global response to the COVID-19 pandemic during March 2020 impacted the short-term activity outlook of the Company. An ongoing seismic acquisition project offshore West Africa was terminated prior to its scheduled completion date resulting in 6% standby time in the quarter. In addition, the Company’s backlog was impacted by the cancellation of a seismic acquisition project due to commence in Asia Pacific in Q2 2020, partly offset by two new projects announced since quarter end in North West Europe and Asia Pacific.
On 31 March 2020, the Company released details of enhanced business continuity initiatives to ensure continued efficient operations in light of the global COVID-19 pandemic response and also announced a substantial cost reduction plan to strengthen the financial resilience of the Company through 2020. The plan is expected to deliver cash cost savings in the order of USD 15 million during 2020 across capital expenditures, operating expenses and general and administrative costs which will help mitigate the financial impact of lower fleet utilization anticipated in the near term.
Backlog at 31 March 2020 together with the value of awards announced after the quarter end is estimated at USD 157 million compared to USD 170 million at the same time last year. The Company’s fleet is 50% booked for the remainder of 2020.
Tender activity continued to be strong during Q1 2020. However, the combined effects of the sharp decline in oil price in March 2020 and the global slow-down resulting from the COVID-19 pandemic have introduced uncertainty around E&P companies’ spending outlook over the short to medium term.
Whilst many clients remain focused on their seismic acquisition plans, the industry may encounter project deferrals, operational disruptions, and reductions in the size of awarded surveys as a consequence of the low oil price and the COVID-19 pandemic.
The Company continues to focus on managing its cost base appropriately with cash preservation being a key priority. Implementation of business continuity initiatives and cost reduction measures will help the Company navigate the current market uncertainty.
The reshaping of the seismic industry that has occurred, resulting in an increased number of multi-client companies without vessels, has led to a stable industry structure, provided that supply-side discipline continues to respond appropriately to demand levels.
Industry-wide focus on the environment continues to sharpen and Polarcus is receiving growing recognition for its Explore Green™ capabilities, a cornerstone of the Company since inception. Following a successful launch in 2019, Polarcus Cirrus™ is expected to gain further momentum as more E&P clients realize the opportunity of accelerated decision-making to compress the timeline for hydrocarbon production. With a young, highly efficient and uniform fleet, combined with demonstrated operational excellence, Polarcus is well-positioned to continue securing and delivering premium projects around the globe.
Note: All references above to “segment” results have been adjusted for IFRS 15 effects. Refer to Note 3 in the accompanying interim financial statements.
Duncan Eley, CEO
+971 4 43 60 915
Hans-Peter Burlid, CFO
+971 50 559 8175
Polarcus (OSE: PLCS) is a focused geophysical service provider of safe and environmentally responsible marine acquisition services globally. Our geophysical offering is driven by innovation and collaboration to provide clients with better seismic data faster. Polarcus operates a fleet of high performance seismic vessels with 3D and 4D imaging capabilities, which incorporate leading-edge technologies for improved environmental performance and operational efficiency. Polarcus offers contract seismic surveys and multi-client projects with advanced priority processing solutions including Cirrus, a suite of cloud-based applications and services designed to bring clients closer to acquired seismic data, enabling faster and better informed exploration decisions. The Company services its clients globally from its head office in Dubai and regional offices located in Houston, London, Singapore and delivers Group asset management services from Oslo. For more information, visit www.polarcus.com
The information included herein may contain forward-looking statements. Forward-looking statements include all statements that are not historical facts, including but not limited to statements expressing or implying the Company’s intent, belief or current expectations with respect to, among other things, forecasts, estimates, and predictions. Such forward-looking statements necessarily involve risks and uncertainties and are dependent on assumptions, information, data or methods that may be incorrect or imprecise. Actual results could differ materially from expectations expressed in the forward-looking statements if one or more of the underlying assumptions or expectations proves to be inaccurate or is unrealized. Some factors that could cause actual results to differ materially from those in the forward-looking statements include, but are not limited to, developments in the oil and gas industry, the demand for seismic services, the demand for data from the Company’s multi-client library, currency risks, political risks, regulatory risks, and unexpected operational setbacks. For a further description of other relevant risk factors we refer to our 2019 Annual Report. The reservation is also made that inaccuracies or mistakes may occur in the information given above concerning the current status of the Company or its business. Any reliance on the information given above is at the risk of the reader, and Polarcus disclaims any and all liability in this respect.
This information is subject to the disclosure requirements pursuant to Section 5-12 the Norwegian Securities Trading Act