Deep Sea Supply Reports First Quarter Results (Cyprus)

Deep Sea Supply reports consolidated revenues of MUSD 24.0 in 1Q 2011 compared to MUSD 26.1 in 1Q 2010. Total operating costs in 1Q 2011 were MUSD 21.9 compared to MUSD 17.4 in 1Q 2010. This resulted in EBITDA of MUSD 2.0 in 1Q 2011. Net financial items were negative MUSD 9.4, including unrealized currency losses of MUSD 2.9. Pre-tax result was negative MUSD 14.3 in 1Q 2011, compared to negative MUSD 5.8 in 1Q 2010.

Cash flow

Cash flow from operations was negative MUSD 6.6 in the quarter. Sale of vessels net of commissions generated MUSD 74.8. Net repayment of debt in the quarter was MUSD 38.1. In addition, Capex related to delivery of two new vessels and upgrading of vessels came in at MUSD 29.2. Interest paid was MUSD 5.6.

Cash and cash equivalents were MUSD 37.3 end of 1Q 2011 compared to MUSD 41.9 end of 4Q 2010. Net interest bearing debt was MUSD 417.6.

Balance sheet

Book value of the fleet was MUSD 557.2 end of this quarter compared to MUSD 603.2 end of 4Q 2010. The change is explained by the sale of the vessels Sea Wolf 1, Sea Cougar and Sea Weasel, partly offset by the delivery of two new AHTS vessels. Freight income not received was MUSD 24.5 mill, down from MUSD 26.0 last quarter. At the end of 1Q 2011, the Company had total assets of MUSD 699.6 mill.

Total shareholders equity was MUSD 147.5 or 21.1% of total assets, and total number of outstanding shares in the Company is 126.863.860.

OPERATIONS

Fleet

As per end of 1Q 2011, Deep Sea Supply had 13 AHTS vessels and 8 PSVs in operation, in total 21 vessels. The vessels were operating in the following areas:

North Sea: 2 AHTS and 1 PSV Brazil: 3 AHTS and 5 PSVs West Africa: 1 PSV Mediterranean: 1 AHTS Asia: 7 AHTS and 1 PSV

Freight revenues

Freight revenues for the AHTS fleet were MUSD 12.0 mill with a utilization ratio of 60% in 1Q 2011. The figures are negatively impacted by both low rates and high commercial offhire in the quarter. In addition, special circumstances as termination of a time charter contract and technical offhire related to a special survey also contributed negatively.

Freight revenues for the PSV fleet were MUSD 11.9 with a utilization ratio of 88%. 7 out of 8 PSVs are on long term contracts.

In 2011, the Company has secured medium term charter contracts for 4 AHTS vessels operating in Asia and 1 AHTS vessel operating in Mediterranean; “Sea Cheetah”, “Sea Jaguar”, “Sea Ocelot” and “Sea Hawk” (time chartered in from external owner for the purpose) will commence on a 175 days time charter with 60 daily options to Gazflot for operations in Sakhalin, and “Sea Bear” has been chartered to Mellittah Gas for operations in Mediterranean until January 2012. Furthermore, the Company has achieved several short term contracts in Asia and the North Sea spot market.

Ship management and operating expenses

During the last months, the Company has established organizations in Singapore and Brazil for the purpose of doing technical and crew management of the DESS fleet. DESS is now technical manager for 13 vessels and this will further increase throughout 2011. The Company will also gradually assume crew management of the vessels in 2011.

Vessels’ operating expenses increased from MUSD 17.0 in 1Q 2010 to MUSD 19.8 in 1Q 2011. This is largely explained by a shift in geographic mix as the Company has increased the number of vessels operating in Brazil from 1 to 8 in this period. Brazil remains a priority for the Company, however local content requirements increase the vessels operating expenses and specially the crew wages. Brazilian seafarers are expensive, and after 3 months all vessels must have 1/3 Brazilian seafarers in all departments. This is further increased to 50% and 2/3 after 6 and 12 months, respectively.

The vessels Sea Otter and Sea Marten were sold in Q4 2010, but have been operated by Deep Sea Supply under the time charter contract with Petrobras until ultimo March. In this period, the Company has paid bareboat hire to new owners of MUSD 1.7 mill and full operating costs. The time charter contracts were transferred to new owners in March 2011.

Reduction of operating expenses is a priority for the Company, and DESS has taken many actions that will reduce these costs going forward. Such actions include;

– In-house technical and crew management of the fleet

– Reduction of number of intermediaries

– Local EBN status (Brazilian Shipping Company) that allows the Company to hold contracts directly with oil companies in Brazil.

As the Company assumes management of the vessels, more competence and experience is kept within the Company. However, until the newly established ship management organizations are fully utilized, the Company is experiencing increased operating expenses. This will reduce as more and more vessels are managed in-house.

Newbuilding program

During 1Q 2011, the Company took delivery of two 6.800 BHP AHTS vessels “Sea Fox” and “Sea Jackal” from ABG Shipyard in India. Another 3 vessels of the same type are expected to be delivered in 2011.

The Company has one 4,700 DWT PSV under construction in Brazil with expected delivery in 1Q 2012.

OUTLOOK

The market for offshore supply vessels was weak throughout 1Q 2011. However, we remain positive about the future outlook for the OSV sector. The long term fundamentals remain in place with a high oil price driving E&P and oil field service spending. The continued order build up for jackups, semis and drillships is positive for the market balance and will drive demand for offshore supply vessels.

In the short and medium term, DESS expects improved utilization and a modest increase in rates internationally. The North Sea spot market, while volatile, looks strong near term.

The Company is expected to benefit from strategic moves made in Brazil and Asia and more recent in West Africa, which should improve utilization and results in 2Q 2011.

[mappress]
Source: Deep Sea Supply ,May 12, 2011;