Songa Offshore Se Q3 2015 Report

Transcript

Third Quarter Report Period Ended 30 September 2015 Songa Offshore Group Third Quarter Report 2015 Third quarter key points Selected financial information (IFRS unaudited figures) Q3 2015 Q3 2014 Jan - Sep 2015 Jan - Sep 2014 Full year 2014 Total Revenue Operating expenses Operating profit before depreciation (EBITDA) Operating profit (EBIT) Net profit (loss) 124 (60) 64 (297) (317) 110 (68) 42 13 1 354 (177) 178 (249) (311) 415 (247) 169 25 (6) 495 (298) 197 17 (57) Earnings (loss) per share, basic and diluted (0.04) 0.00 (0.03) (0.01) (0.07) 873,913 873,913 873,913 873,913 873,913 Amounts in USD million Income statement data Number of shares (000) Financial performance Songa Offshore SE (“Songa Offshore” or “the Group” or “the Company”) reports: o Revenue of USD 124.2 million in the third quarter 2015 and USD 354.4 million for the nine months of 2015 o EBITDA in the third quarter of USD 63.8 million and USD 177.8 million for the nine months of 2015, with EBITDA margins of 51% for the third quarter 2015 and 50% for the nine months of 2015 o An impairment loss in the third quarter 2015 of USD 328.3 million was recognized o Loss in the third quarter of USD 317.5 million and USD 311.5 million for the nine months of 2015 o Loss per share in the third quarter of USD 0.04 and USD 0.03 for the nine months of 2015 Highlights o The Company took delivery of Songa Endurance on 24 August 2015 and has drawn down the rig related financing accordingly o Songa Equinox arrived in Norwegian waters 22 October 2015 o Songa Dee, Songa Delta and Songa Trym delivered 100% operational efficiency and an average of 97.6% earnings efficiency in the third quarter 2015 o Average operating expense in the third quarter 2015 was USD 137,000 per rig per day compared to USD 141,000 per rig per day in the second quarter 2015 o EBITDA in the third quarter 2015 was USD 63.8 million, compared to USD 60.4 million in the second quarter 2015, reflecting both higher revenue and lower cost o Following further developments in the Norwegian Continental Shelf (NCS) drilling market during the quarter, the Company performed an impairment test of its rigs, resulting in the recognition of an impairment for the third quarter 2015 of USD 328.3 million related to Songa Dee, Songa Delta and Songa Trym o On 2 November 2015 the Company received a notice of cancellation of the drilling contract with Statoil for Songa Trym effective from when the current well is completed around 12 November 2015. The Company will receive a contractual cancellation fee based on the current full day rate of USD 377,000 and the contractual end date early March 2016 2 Songa Offshore Group Third Quarter Report 2015 Review of financial results, financing and financial position of the Group for the third quarter 2015 Financial results Operating revenue in the third quarter 2015 was USD 99.7 million, compared to USD 91.1 million in the third quarter 2014. The increase is primarily due to higher revenue contribution from Songa Dee as the rig was partly in yard for its Special Periodic Survey (SPS) in the third quarter 2014. Other revenue in the third quarter 2015 was USD 10.8 million, compared to USD 10.7 million in the third quarter 2014. Total revenue in the third quarter 2015 was USD 124.2 million, compared to USD 109.6 million in the third quarter 2014. The main reason for the increase is the same as described above. Operating expenses were USD 37.9 million, compared to USD 49.1 million in the corresponding prior year quarter, primarily explained by USD 9.2 million of favourable currency fluctuation from stronger USD, and USD 2.2 million lower operating expenses related to the three operating rigs. General and Administrative (G&A) expenses were USD 9.8 million compared to USD 11.7 million in the corresponding prior year quarter. The decrease is mainly explained by lower South East Asia administration cost of USD 1.0 million and favourable currency fluctuation. EBITDA was USD 63.8 million compared to USD 42.1 million in the corresponding prior year quarter. This represents an EBITDA margin of 51%, compared to 38% in the third quarter 2014, reflecting the aforementioned changes. Depreciation was USD 32.5 million, compared to USD 27.6 million in the corresponding prior year quarter expense. The higher depreciation mainly reflects the 2014 Songa Dee SPS expenditures that are depreciated over five years. During the third quarter 2015, the Company incurred an impairment charge of USD 328.3 million related to Songa Dee, Songa Delta and Songa Trym, primarily reflecting the negative developments both in the global and the Norwegian Continental Shelf drilling markets. Loss before Interest and Tax (EBIT) was USD 296.9 million compared to a profit of USD 13.2 million in the same period in 2014, resulting from the above changes. Finance income was USD 1.4 million in the third quarter 2015. USD 1.3 million is related to interest income on financial assets related to the Songa Mercur and Songa Venus transaction that are recorded at a discounted value. Finance expenses in the third quarter 2015 were USD 4.4 million compared to USD 9.5 million in the third quarter 2014. The decrease in expensed finance cost is primarily explained by the additional capitalization of the finance cost related to Cat D new-builds. Other financial items were negative by USD 14.2 million in the third quarter 2015. USD 17.6 million represents realized foreign exchange losses in the third quarter in relation to foreign exchange forward transactions. This is partly offset by a gain of USD 3.4 million primarily related to unrealized mark-to-market valuation changes of foreign exchange forward transactions and balance sheet item revaluations. All items are reflecting the continued appreciation of the US Dollar vs. the Norwegian Kroner during third quarter. Loss before tax in the third quarter 2015 was USD 314.1 million compared to a profit of USD 3.4 million in the corresponding prior year quarter. Income tax expense in the third quarter 2015 was USD 3.3 million compared to USD 2.3 million in the third quarter 2014. Tax charges for the quarter were mainly of a non-cash nature and related to the Norwegian operations. Loss in the third quarter 2015 was USD 317.5 million, compared to a profit of USD 1.1 million in the third quarter 2014. 3 Songa Offshore Group Third Quarter Report 2015 Financing Cash position During the third quarter of 2015, the Group’s unrestricted cash position decreased by USD 13.4 million from USD 168.6 million in the second quarter to USD 155.2 million. This is primarily reflecting new financing of USD 455.0 million and USD 95.2 million in cash flow from operations, partly offset by USD 524.4 million of capital expenditures, primarily related to Songa Endurance, debt repayments of USD 19.0 million and cash outflows of USD 20.2 million related to interest payments. Songa Endurance credit facilities In connection with the delivery of Songa Endurance on 24 August 2015 the Company utilized all credit facilities related to the rig. These fully utilized facilities total USD 507 million and consist of USD 387 million of senior facilities and USD 120 million of junior facilities, of which USD 52 million were already drawn. Financial covenants As of 30 September 2015, the Company is in compliance with all financial covenants under its loan and bond agreements. Due to the impairment charge in third quarter 2015, as well as the balance sheet build-up from the upcoming Cat D 3 and 4 deliveries, financial covenants related to book equity will potentially come under pressure in 2016 when all Cat Ds are delivered. In this respect, the Company has had discussions with lenders and is working towards a conclusion on the matter during fourth quarter 2015. Rig Operations All Songa Offshore’s operating rigs are working for Statoil on the Norwegian Continental Shelf. The three rigs had an operational efficiency of 100.0% in the third quarter 2015. The average earnings efficiency was 97.6% in the quarter. Songa Dee achieved an operating efficiency of 100.0% during the third quarter 2015 and an earnings efficiency of 97.2%. Songa Delta achieved an operating efficiency of 100.0% during the third quarter 2015 and an earnings efficiency of 98.7%. Songa Trym achieved an operating efficiency of 100.0% during the third quarter 2015 and an earnings efficiency of 96.8%. On 2 November 2015 the Company received a notice of cancellation of the drilling contract with Statoil for Songa Trym effective from when the current well is completed around 12 November 2015. The Company will receive a contractual cancellation fee based on the current full day rate of USD 377,000 and the contractual end date early March 2016. 4 Songa Offshore Group Third Quarter Report 2015 Cat D New build Projects Songa Equinox was delivered from DSME on 30 June 2015 and arrived in Fensfjorden, Norway on 24 October 2015. All third party equipment was installed before the rig arrived in Norway. Currently the rig is carrying out the client’s Acceptance Test Program prior to contract commencement, targeted for end November 2015. Songa Endurance was delivered from DSME on 24 August 2015. It has completed the third leg of its transit from Korea to Norway and is currently in transit from Walvis Bay to Las Palmas. The rig is expected to arrive in Norway late November 2015. All third party equipment will be installed on the rig before it arrives in Norway. Upon arrival in Norway, the Songa Endurance will carry out the same acceptance tests as Songa Equinox. The application for Acknowledgement of Compliance (AoC) for Songa Equinox was submitted to Petroleum Safety Authorities Norway PSA(N) early March 2015, and the Songa Endurance’s application was submitted early August 2015. PSA audit and inspections have taken place at DSME with final verifications to take place shortly after rig arrival in Norway. The construction progress for Songa Encourage and Songa Enabler as per end of September 2015 was 92.2% and 79.6% respectively. Delivery of Songa Encourage is scheduled in late November 2015, while Songa Enabler is targeted to be delivered in the first half of the first quarter 2016. The “ready-to-drill” cost estimates have not materially changed at an average of approximately USD 690 million per rig, excluding deductible liquidated damages and costs for assisting tugs for the transit to Norway. Songa Offshore will in addition receive USD 40 million per rig from Statoil in mobilization fee in relation to delivery. The Company has received the mobilization fee for both Songa Equinox and Songa Endurance in August and September 2015 respectively. Cat D arbitration case with DSME In July 2015, Songa Offshore received from DSME notices of arbitration in respect of the construction contracts for the Cat D rigs. Since announcing the arbitration, DSME has not presented neither amount nor details of its claim. DSME has previously alleged that the design documents (often referred to as the FEED package) contained inherent errors and omissions, which, in turn, DSME asserted to have caused it to undertake extra work resulting in delays and cost overruns. DSME considers that those delays and cost overruns are the responsibility of Songa Offshore. As previously reported, the Company will vigorously defend its position, since it is of the view that DSME is responsible for the delays and any attempt to recover cost overruns is of no merit due to the "turn-key" nature of the construction contracts. Songa Offshore has continued to prepare its case and remains confident of its position. In this respect, the Company has obtained legal opinions from highly reputable law firms in the UK and Norway and from a Queen's Counsel all of which confirm the Company’s position. 5 Songa Offshore Group Third Quarter Report 2015 Contract Status as of 6 November 2015 Unit Customer Current Day rate 2015 2016 2017 2018 2019 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Option Day rate Norwegian Continental Shelf Songa Dee Statoil 362 Songa Trym Statoil 377 Songa Delta Statoil 369 Firm contract end rate Songa Equinox Statoil 490 Firm contract end rate + $15 k Songa Endurance Statoil 490 Firm contract end rate + $15 k Songa Encourage Statoil 443* Firm contract end rate Songa Enabler Statoil 447* Firm contract end rate NCS Newbuilds 8 year firm + 4x3 year options 8 year firm + 4x3 year options 8 year firm + 4x3 year options 78year yearfirm firm++4x3 4x3year yearoptions options *USDNOK quarter end rate of 8.50 Contract (incl. mob) Yard Option SPS The firm contract revenue backlog as of 30 September 2015 is USD 5.7 billion, with another USD 7.8 billion worth of options. Market conditions and outlook The Brent Crude Oil has continued to trend around USD 50 per barrel. The North Sea drilling market is still very challenging with only a few short-term contacts in the market, both on the NCS and in the UK. As a result, several rigs have come off contract and been stacked during the quarter. Visibility is still low and the competition for the few tenders in the market is fierce. Songa Offshore is of the view that 2016 and 2017 will be two challenging years for the industry. 6 November 2015 Limassol, Cyprus Board of Directors Songa Offshore SE Questions should be directed to: Bjornar Iversen, CEO + 357 99649152 Jan Rune Steinsland, CFO +47 97052533 6 Songa Offshore Group Third Quarter Report 2015 Consolidated Statement of Comprehensive Income (IFRS unaudited figures) For the period ended 30 September Q3 2015 Q3 2014 Jan - Sep 2015 Jan - Sep 2014 31.12.2014 Operating revenue Reimbursables Other revenue Total revenues 99,697 13,721 10,816 124,234 91,142 7,809 10,695 109,645 292,388 28,769 33,287 354,443 353,947 34,683 26,652 415,283 418,614 37,677 38,461 494,752 Operating expenses Reimbursables General and administrative expenses Other gain and loss Share of profits from joint venture Total expenses EBITDA EBITDA % (37,874) (12,668) (9,846) (60,388) 63,846 51% (49,105) (7,448) (11,667) (155) 823 (67,550) 42,095 38% (115,015) (26,990) (33,783) (866) (176,654) 177,789 50% (180,584) (30,285) (37,433) 697 823 (246,781) 168,502 41% (217,119) (33,196) (48,678) 799 Depreciation Impairment EBIT (32,457) (328,283) (296,894) (239%) (27,610) (1,254) 13,231 12% (98,297) (328,283) (248,790) (70%) (86,322) (57,218) 24,962 6% (114,299) (64,899) 17,360 Finance income Finance expenses Other financial items Net financial items Profit (loss) before tax Income tax (expense) credit 1,376 (4,405) (14,198) (17,227) (314,122) (3,345) 1,124 (9,492) (1,506) (9,874) 3,357 (2,298) 4,329 (19,703) (36,839) (52,213) (301,003) (10,455) 1,247 (25,313) (2,059) (26,126) (1,164) (5,224) 3,414 (33,546) (43,794) (73,926) (56,566) (97) Profit (loss) for the period (317,466) 1,060 (311,458) (6,388) (56,663) (0.04) 0.00 (0.03) (0.01) (0.07) (317,466) 1,060 (311,458) (6,388) (56,663) (7,103) 2,092 (565) (5,394) - (13,919) 6,275 (1,652) (5,355) - (13,824) (7,485) 2,092 5,427 (323,042) (4,335) (320,754) (11,743) (70,453) Amounts in USD ‘000 Earnings (loss) per share (USD) Basic and diluted (298,194) 196,558 40% Consolidated statement of comprehensive income (OCI) Profit (loss) for the period Other comprehensive income Remeasurements of post employment benefit obligations Financial derivatives hedging effects Foreign exchange forward hedge discontinued Tax OCI elements Total comprehensive income (loss) 7 Songa Offshore Group Third Quarter Report 2015 Consolidated Statement of Financial Position (IFRS unaudited figures) For the period ended Amounts in USD ‘000 30.09.2015 31.12.2014 651,976 1,819,371 17,939 96,371 43,099 2,628,756 1,063,416 731,057 53,722 72,740 52,971 1,973,907 45,611 6,091 33,546 36,684 318 12,946 200,061 335,256 41,577 4,597 25,419 14,894 246,161 332,648 2,964,013 2,306,554 132,762 633,869 (49,606) 717,024 132,762 633,868 269,138 1,035,768 1,223,974 254,378 116,099 253,102 74,239 15,867 270,642 282,292 109,649 172,089 22,335 22,512 Total non-current liabilities Current liabilities Current portion of bank loans and other facilities Trade payables Tax payable Deferred revenue Derivative financial instruments Other liabilities Total current liabilities Total liabilities 1,937,659 879,519 155,730 40,705 4,777 36,343 7,100 64,675 309,329 2,246,989 176,875 13,424 3,519 41,710 39,125 116,613 391,266 1,270,785 Total equity and liabilities 2,964,013 2,306,554 ASSETS Non-current assets Rigs, machinery and equipment New-builds Financial assets Derivative financial instruments Deferred tax assets Total non-current assets Current assets Trade receivables Prepayments Earned revenue Financial assets Derivative financial instruments Other assets Bank and cash balances Total current assets Total assets EQUITY AND LIABILITIES Capital and reserves Issued capital Share premium Other equity Total equity Non-current liabilities Bank loans and other facilities Bond loans Convertible bond Derivative financial instruments Deferred revenue Other long term liabilities 8 Songa Offshore Group Third Quarter Report 2015 Consolidated Statement of Changes in Equity (IFRS unaudited figures) Share Capital Share Premium Other reserves Post employment benefit reserve Hedging reserve Retained earnings Total equity 123,447 - 617,825 - 55,096 - (10,612) - 6,984 5,355 287,814 (6,388) - 1,080,554 (6,388) 5,355 - - - - 5,355 (6,388) (1,033) 9,314 - 16,049 - - - - - 25,364 - 9,314 16,049 - - - - 25,364 Balance as at 30 September 2014 132,762 633,874 55,096 (10,612) 1,629 281,426 Balance as at 1 January 2015 Profit for the period Other comprehensive income Total comprehensive income from the period 132,762 - 633,868 - 55,407 - (20,704) - 3,286 (9,296) 231,151 (311,458) - 1,035,768 (311,458) (9,296) - - - - (9,296) (311,458) (320,754) - - - - - - - - - 2,009 - - - 2,009 - - 2,009 - - - 2,009 132,762 633,869 57,416 (20,704) (6,009) (80,307) 717,024 Amounts in USD ‘000 Balance as at 1 January 2014 Loss for the period Other comprehensive income Total comprehensive income from the period Issue of share capital Issue of convertible bond Total transactions with owners, recognised directly in equity Issue of share capital Employee long term incentive program Total transactions with owners, recognised directly in equity Balance as at 30 September 2015 1,094,175 9 Songa Offshore Group Third Quarter Report 2015 Consolidated Statement of Cash Flows (IFRS unaudited figures) 30.09.2015 30.09.2014 (301,003) (1,164) Adjustment for: Depreciation Cost of option plans Impairment Finance costs Other financial items Other gain and loss 98,297 0 328,283 19,703 36,839 866 86,322 (51) 57,218 25,313 1,362 Movements in working capital: Change in receivables Change in payables Change in other liabilities Increase in restricted cash balances Cash generated from operations (11,706) 27,281 (25,393) (20,000) 153,166 15,607 7,676 (45,405) 146,878 Taxes paid Interest paid Financing fees paid Cash effect from other financial items Net cash generated from operating activities (385) (55,907) (5,753) (15,872) 75,249 (3,929) (33,695) (25,714) 83,540 (1,092,331) (1,092,331) (98,503) 102,500 3,997 1,140,000 (195,051) 944,949 25,495 103,662 (79) (227,860) (98,783) (72,133) 227,300 (11,246) 432,838 155,167 421,592 For the period ended Amounts in USD ‘000 Cash flows from operating activities: Profit (loss) before tax Cash flows from investing activities: Purchase of property, plant and equipment Proceeds from the sale of property, plant and equipment Net cash used in investing activities Cash flows from financing activities: Proceeds from share issue Proceeds from the issue of bonds and new bank loan raised Share issuance transaction cost Repayment of bonds and bank loans Net cash generated from financing activities Net increase/(decrease) in cash and cash equivalents Cash and cash equivalents at the beginning of the year Unrestricted cash and cash equivalents at the end of the period 10 Songa Offshore Group Third Quarter Report 2015 FINANCIAL STATEMENTS 1 General information In furtherance of a shareholder-approved plan to re-domicile to Cyprus, on 12 December 2008, Songa Offshore ASA was converted into a European public company limited by shares (“Societas Europaea” or “SE”) in accordance with Article 2 no. 1 of the European Council Regulation no. 2157/2001(the “SE Regulation”) and Section 5 of the Norwegian Act on European Companies of 1 April 2005 (the “SE Act”). The conversion into an SE was effected through a merger between Songa Offshore ASA and Songa Offshore Cyprus Plc. Effective 11 May 2009, the survivor of the merger, Songa Offshore SE, transferred its registered office to Cyprus in accordance with Article 8 of the SE Regulation and Section 7 of the SE Act (the “re-domiciliation”). Songa Offshore SE is a public limited liability company, subject to the laws and regulations of the Cyprus Companies Law, Cap. 113. The address of its registered office is: 4, Profiti Elia, Kanika International Business Centre, 6th Floor, Germasogeia. The Company’s shares have been listed on the Oslo Stock Exchange since 26 January 2006 with the ticker SONG. Songa Offshore SE (“the Company”) and its subsidiaries (together, “Songa Offshore” of “the Group”) are engaged in the business of constructing, owning and operating drilling rigs to be used in exploration and production. Songa Offshore operates in the international oil service industry within the offshore drilling sector, and owns and operates a fleet of three semi-submersible rigs, Songa Dee, Songa Delta and Songa Trym, all operating in the midwater segment in the Norwegian part of the North Sea. Drilling rigs, related equipment and crews are generally contracted on a day rate basis to exploration and production companies. The Songa Mercur and the Songa Venus, both previously owned 100% by Songa Offshore, now owned 100% by the Opus Offshore Group, are operated in South East Asia through a 50% owned Joint Venture established with Opus Offshore Group. In addition to the three semisubmersible drilling rigs in operation, Songa Offshore took delivery of Songa Equinox on 30 June 2015 and Songa Endurance on 24 August 2015. Furthermore, Songa Offshore has two semisubmersible Cat D drilling rigs, Songa Encourage and Songa Enabler, under construction at the DSME yard in Korea. Songa Dee, Songa Delta, Songa Trym, Songa Equinox and Songa Endurance and the remaining two rigs under construction, are contracted for employment in Norwegian waters, with Statoil as charterer. The Company is headquartered in Limassol, Cyprus, and the Norwegian rig operations are managed from Stavanger, Norway. 2 Basis for preparation The condensed unaudited consolidated interim financial statements have been prepared in accordance with IAS 34 Interim Financial Reporting. The interim financial statements should be read in conjunction with the annual consolidated financial statements for the year ended 31 December 2014, which have been prepared in accordance with IFRS as adopted by the European Union. The Group does not consider that its drilling operations are affected by seasonality factors. 11 Songa Offshore Group Third Quarter Report 2015 3 Accounting policies The condensed unaudited consolidated interim financial statements have been prepared under the historical cost convention except from the revaluation of certain financial instruments. In the current period, the Group has adopted all new and revised Standards and Interpretations issued by the International Accounting Standards Board (the IASB) and the International Financial Reporting Interpretations Committee (IFRIC) of the IASB that are relevant to its operations and effective for accounting periods beginning on 1 January 2015. The accounting policies, presentation and methods of computation applied in these condensed consolidated financial statements are consistent with those applied in the preparation of the Group’s consolidated annual financial statements for the year ended 31 December 2014. 4 Financial risk management and financial instruments Financial Risk Through its activities the Group is exposed to a variety of financial risks: market risk, foreign currency risk, interest rate risk, credit risk and liquidity risk arising from its operations and the financial instruments that it holds. The Group’s overall risk management program focuses on the unpredictability of financial markets and seeks to minimize potential adverse effects on the Group’s financial performance. The Group makes use of derivative financial instruments such as foreign exchange forward contracts and interest rate swaps to moderate certain risk exposures. The interim consolidated financial statements do not include all financial risk management information and disclosures required in the annual financial statements; they should be read in conjunction with the Group’s consolidated financial statements as at 31 December 2014. Fair value estimation The following table presents the Group’s assets and liabilities that are measured at fair value at 30 September 2015: Carrying amount / fair value at 30 September 2015 Amounts in USD ‘000 Financial assets: Financial assets Derivatives Financial liabilities: Derivatives Carrying amount / fair value at 31 December 2014 Amounts in USD ‘000 Financial assets: Financial assets Derivatives Financial liabilities: Derivatives Level 1 Level 2 Level 3 - 96,689 54,623 - - (260,202) - Level 2 Level 3 - 72,740 53,722 - - (211,214) - Level 1 12 Songa Offshore Group Third Quarter Report 2015 Level 1 Fair value is measured using list prices from active markets for identical financial instruments. No adjustment is made with a view to these prices. Level 2 The fair value of financial instruments not traded on an active market is determined using valuation methods which maximize the use of observable data, where available, and rest as little as possible on the Group’s own estimates. Classification at level 2 presupposes that all the significant data required to determine fair value are observable data. Level 3 Fair value is not based on observable market data (that is, unobservable inputs). 5 Rig, machinery and equipment Rigs New-builds Fixture Total 1,050,598 12,704 731,057 1,088,314 12,817 2,435 1,794,473 1,103,453 Reclassification to asset held for sale - - - - Machinery and equipment fully written off - - - - 1,063,302 (97,041) 1,819,371 - 15,253 (1,255) 2,897,926 (98,297) - - - - Amounts in USD ‘000 Period ended 30 September 2015 Opening net book amount Additions Book value before depreciations Total depreciation charge Reclassification to asset held for sale Impairment (328,283) - - (328,283) 697,978 1,819,371 13,997 2,471,347 Cost 1,331,244 1,819,371 18,049 3,168,664 Accumulated depreciation (693,265) - (4,052) (697,317) 637,978 1,819,371 13,998 2,471,347 Closing net book amount At 30 September 2015 Net carrying amount Estimated lifetime 2.5-25 years 3-10 years Depreciation rates 4-40% 10-33% Depreciation method Straight line Straight line The net additions of USD 1,088.3 million for the nine month period ended 30 September 2015, include capitalized interest on the Cat D new builds of USD 49.7 million. Total accumulated capitalized interest on the Cat D new builds amount to USD 181.8 million. The Company has identified impairment indicators and performed an impairment test of each individual rig, resulting in an impairment of USD 328.3 million. The impairment consist of USD 43.1 million for the Songa Dee, USD 149.6 million for the Songa Delta and USD 135.6 million for the Songa Trym. The rigs were written down to their recoverable amount. The Company estimated recoverable amount includes a number of assumptions such as future performance of the units, future contract opportunities, availabilities and day rates. A WACC of 8.9% has been applied. 13 Songa Offshore Group Third Quarter Report 2015 6 Borrowings As of 30 September 2015, total drawn and outstanding debt for the Group, including cross currency swaps related to the two unsecured bond loans, amounted to USD 1,962.2 million. Drawn and outstanding debt consisted of the following: USD 196.5 million outstanding of the bank facility that the Company entered into in October 2010, with a LIBOR + 2.91% margin. The loan is repaid with quarterly installments until final maturity in March 2018, on which date a balloon payment of USD 25 million is due. USD 169.2 million outstanding under the senior unsecured NOK 1,400 million bond issued in November 2011. The NOK bond carries an 8.40% fixed interest. In December 2013 and following the restructuring the full NOK 1,400 million bond was swapped to USD 250.0 million at a fixed coupon of 7.73%. The swap matures with the maturity of the NOK bond in May 2018. Upon maturity the bond will be repaid at 103.5% of par value. USD 85.2 million outstanding under the senior unsecured NOK 750.0 million bond issued in June 2012. The NOK bond carries a 7.50% fixed interest. In December 2013 and following the restructuring the full amount NOK 750 million bond was swapped to USD 124.7 million at a fixed coupon of 7.37%. The swap matures with the maturity of the NOK bond in December 2018. USD 150.0 million outstanding under the convertible bond issued in December 2013, with a book value of USD 116.1 at 30 September 2015. The convertible bond has a conversion price of USD 0.51032, semi-annual coupon payments at 4.00% per annum and matures in December 2019. USD 50.0 million outstanding under the unsecured shareholder loan from Perestroika AS. The interest rate is 3 months LIBOR + 8.00%. USD 387.0 million outstanding under the senior facilities for the financing of Songa Equinox, which were drawn in connection with the delivery of the rig in June 2015. The interest rate is 3 months LIBOR + 3.00%. USD 117.0 million outstanding under the junior facilities for the financing of Songa Equinox, which were drawn in connection with the delivery of the rig in June 2015. The interest rate is 7.50% fixed. USD 387.0 million outstanding under the senior facilities for the financing of Songa Endurance, which were drawn in connection with the delivery of the rig in August 2015. The interest rate is 3 months LIBOR + 3.00%. USD 120.0 million outstanding under the junior facilities for the financing of Songa Endurance, which were drawn in connection with the delivery of the rig in August 2015. The interest rate is 7.50% fixed. USD 180.0 million outstanding under the pre-delivery facility for the financing of Songa Encourage and Songa Enabler, witch where drawn on 30 June 2015. The interest rate is 3 months LIBOR + 3.00%. 7 Other financial items For the period ended 30 September Q3 2015 Q3 2014 Jan-Sep 2015 Jan-Sep 2014 31.12.2014 Revision of estimate of financial assets Gain / Loss on realised foreign exchange Forwards 17,573 - 3,157 45,752 - 8,693 5,420 Mark to Market change on financial derivatives Net foreign exchange loss/ (gain) Total Other financial items (1,392) (1,983) 14,198 (1,506) (1,506) (10,449) (1,621) 36,839 (2,059) (2,059) 32,438 (2,758) 43,794 Amounts in USD ‘000 14 Songa Offshore Group Third Quarter Report 2015 8 Bank and cash balances For the period ended 30 September Amounts in USD ‘000 Q3 2015 31.12.2014 Cash at the bank and in hand 155,167 227,300 Unrestricted cash and cash equivalents for the purpose of the cash flow statement 155,167 227,300 39,439 5,455 11,602 7,259 Other bank deposits Escrow account regarding employees’ tax Restricted bank balances Total bank and cash balances 44,894 18,861 200,061 246,161 9 Share capital The total number of issued shares in the Group as at 30 September 2015 was 873,912,544, each with a par value of EUR 0.11. 10 Tax – Australian Tax As reported in the 2014 Songa Offshore SE Annual Financial Report, the Australian Taxation Office (ATO) raised claims against Songa Offshore for the 2009 year in relation to the restructuring implemented in May 2009. The dispute, including all matters with the ATO, was settled on 4 September 2015 with Songa Offshore agreeing to make a cash payment of AUD 1.2m (approximately USD 0.8 million). A corresponding provision was made in the second quarter 2015 interim financial statement. 11 Main events after the end of third quarter 2015 On 2 November 2015 the Company received a notice of cancellation of the drilling contract with Statoil for Songa Trym effective from when the current well is completed around 12 November 2015. The Company will receive a contractual cancellation fee based on the current full day rate of USD 377,000 and the contractual end date early March 2016. 12 Approval of interim financial statements These interim condensed consolidated financial statements were approved by the Board of Directors on 6 November 2015. 15