The amount of work Subsea 7 is securing in the renewables sector, primarily offshore wind, continues to grow significantly, as oil and gas work accounts for a smaller proportion of contract wins
Reporting on the company’s Q2 2020 results, Subsea 7 chief executive officer John Evans said the quarter saw the company report a negative adjusted EBITDA of US$9M, reflecting reduced activity in the SURF and conventional business unit, the impact of the Covid-19 pandemic, and the recognition of US$104M of restructuring costs related with the company’s resizing programme.
Nevertheless, the quarter was marked by several notable achievements including US$1.7Bn of new orders in renewables, strong cash generation and progress on the previously announced cost reduction measures.
Each of these played a part in enhancing the group’s resilience to the current downturn in oil and gas while enabling it to capture opportunities in the offshore wind market and a 10-year track record in renewable energy.
Subsea 7 ended Q2 with a robust backlog of US$7.0Bn, including a record US$2.2Bn in renewables.
New orders recorded in backlog during the quarter included Seagreen, an integrated EPCI project offshore Scotland, Kaskasi, an integrated contract offshore Germany, and Hollandse Kust Zuid, an integrated contract for the first planned subsidy-free windfarm project offshore the Netherlands.
In total, Subsea 7 is currently executing contracts for projects representing 4.8 GW of offshore wind power, enough to power approximately 5.3M homes.
Despite headwinds in the quarter, the group increased cash and cash equivalent by US$144M and increased its net cash balance, excluding lease liabilities, to US$262M.
During the quarter, lease liabilities decreased to US$292M from US$367M. This was achieved through a combination of robust operating cash flow, active working capital management and disciplined capital expenditure.
Subsea 7’s access to liquidity was reinforced in the quarter by a two-year extension of an US$656M revolving credit facility (RCF) to September 2023. The RCF and Euro Commercial Paper programme remain undrawn.
These facilities together with a cash balance of US$483M represent access to diverse sources of liquidity of over US$1Bn.
In May 2020, the company announced measures to reduce its cost base in anticipation of a sharp downturn in oil and gas activity driven by low oil prices. The employee consultation process to reduce the group’s headcount by around 3,000 (approximately 1,000 employees and 2,000 non-permanent personnel) is underway.
Progress is also being made to reduce its fleet by up to 10 vessels. At the end of June, two chartered vessels had been released and two further vessels had been stacked, reducing the active fleet to 28.
An additional net reduction of six vessels is currently planned for the coming 12 months, corresponding to the phasing of the projected workload.
“We remain on track to meet our target to reduce annualised operating costs by US$400M by the end of the second quarter of 2021,” Subsea 7 said. “As a result of implementation of the cost reduction plan, a restructuring charge of US$104M was recorded in the quarter.”
During the second quarter, the Covid-19 pandemic adversely impacted EBITDA by approximately US$30M. Operational impacts due to Covid-19 in the second quarter included three weeks’ downtime on Seven Sun in Brazil and the temporary closure of certain onshore facilities.
“Our project teams were quick to adapt to new work practices and to date have minimised disruption to our clients’ projects,” the company said. “While the challenges persist, we have had no further significant outbreaks on vessels and our onshore facilities are now operational, albeit with higher costs and reduced productivity due to quarantine and social distancing measures.”
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