Polarcus Limited releases its third quarter 2020 results.
Polarcus CEO, Duncan Eley, commented:
“Our third quarter earnings demonstrated 10% improved revenue driven by higher achieved day rates compared to Q2 2020. Tight cost control and strong project execution led to improved EBITDA generation sequentially. With continued focus on preserving liquidity we managed to deliver positive cash flow from the business in Q3 2020 before debt service and working capital movements, despite low fleet utilization.
Tender activity slowly increased during the quarter with demand uncertainty remaining in the near term. We expect exploration and production spending to increase through 2021 with fundamentals supporting a longer-term recovery.
COVID-19 has seen significant changes impact our market during 2020. The enhanced business continuity measures and substantial cost reduction measures implemented earlier in the year will enable the Company to successfully navigate the near-term activity fluctuations.
Polarcus remains well positioned to continue securing and delivering premium projects around the globe.”
HEADLINES Q3 2020
Third quarter Segment revenues of USD 25.2 million improved 10% sequentially, but decreased significantly compared to the same period last year as activity in the marine seismic market remained subdued due to the global slow-down on the back of the COVID-19 pandemic. Vessel utilization during the quarter dropped to 43% compared to 50% in Q2 2020 as a result of V. Tikhonov being on standby for two months in Q3 2020. Core fleet utilization in the quarter remained flat sequentially, while realized day rates on contracts increased 26%, resulting in improved revenue compared to Q2 2020.
During the quarter, the V. Tikhonov charter was extended into Q4 2023 which largely compensates for the loss of future bareboat charter revenue from Ivan Gubkin (now Polarcus Amani) that was redelivered earlier than scheduled.
Operating cost continued to be tightly managed. With increased flexibility in the cost base introduced during the last six months, gross cost of sales dropped to USD 22.6 million compared to USD 23.5 million in the previous quarter and USD 63.0 million in Q3 2019. General and administrative costs reduced to USD 2.3 million compared to USD 2.8 million in the previous quarter and USD 3.1 million in Q3 2019. The cost management measures implemented since Q1 2020 resulted in a Segment EBITDA that improved sequentially to USD 3.4 million for the quarter.
Cash from operations in the quarter was negative USD 2.6 million impacted by negative working capital movements of USD 5.8 million. Total cash at quarter-end was USD 32.4 million compared to USD 44.8 million at the end of the previous quarter.
Polarcus continues to secure new projects despite the challenging market conditions, with four new awards announced since the end of Q2 2020. Backlog at 30 September 2020, together with the value of awards announced after the quarter-end, is estimated at USD 139 million compared to USD 141 million at the end of Q2 2020. The Company’s fleet is 50% booked to the end of H1 2021.
Continuing restrictions on economic activity worldwide to mitigate the effects of COVID-19 have negatively impacted the Company’s earnings over the past six months. This challenging market environment has led to a more uncertain outlook with subdued demand for seismic services, lower day-rates and extended payment terms. These market conditions continued through Q3 2020 and a recovery in tender activity, whilst underway, has been slow.
Sentiment related to oil price and COVID-19 restrictions will be an important factor for medium-term demand levels as E&P companies work with more compressed budget cycles. A negative or neutral sentiment enduring through Q4 2020 will likely mean that visibility of demand for the Company’s services for at least H1 2021 will remain limited. However, recent discussions with clients do indicate that E&P investment is currently expected to increase during 2021.
The reshaping of the marine seismic industry that has occurred, resulting in fewer acquisition companies, has led to an improved industry structure. Continued supply-side discipline has been observed since the first impact of the COVID-19 pandemic. Four vessels have been removed from the global vessel count since the end of 2019 resulting in 19 global active vessels at the end of Q3 2020. With only 12 of these 19 vessels working on projects going into Q4 2020, further supply-side discipline will be required in order to mitigate reduced demand observed in 2020.
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 highly efficient, modern and uniform fleet, combined with demonstrated operational excellence, Polarcus is well-positioned to continue securing and delivering premium projects around the globe, despite the near-term uncertainty in marine seismic acquisition demand.
Duncan Eley, CEO
+971 4 43 60 915
Hans-Peter Burlid, CFO
+971 50 559 8175
Polarcus 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