Faster Forward


SBM Offshore continues to deliver solid results. Turnkey is ramping up on the back of recent order wins in a market where recovery is gaining momentum. Both major projects in Turnkey, the Castberg turret mooring system and FPSO Liza 1, are progressing according to client schedule. The Company was awarded the Front End Engineering and Design (FEED) study for FPSO Liza 2. The next phase for this major project will represent SBM Offshore's first Fast4Ward^TM project, subject to final authorizations. FPSO Liza 2 will be the largest capacity FPSO the Company has ever delivered, at the same time following an accelerated time schedule.
Post period, SBM Offshore signed a Leniency Agreement with authorities in Brazil and Petrobras, with payment amounts in line with its provision. The agreement marks a key milestone towards a closure of the Company's legacy issues in Brazil, allowing the pursuit of new Petrobras tenders.

The market outlook shows signs of a cycle turning following years-long under-investment in oil and gas production infrastructure. SBM Offshore has positioned itself over the last five years to benefit from this, retaining experience and investing in Fast4Ward^TM. This program enables the Company to deliver larger capacity FPSOs faster, on a de-risked schedule using a standard new-build hull with a number of standardized topsides' modules.

"Building on our long history and experience, we are entering a new phase. Our Lease and Operate business has helped stabilize the Company through one of the longest and deepest oil and gas services crises in living memory and is continuing its record of strong operational performance and cash flow delivery. During the downturn, we invested in the industry-changing Fast4Ward^TM concept, capitalizing on the Company's unique experience in project delivery and offshore operations. Our first Fast4Ward^TM based contract and the level of client endorsement demonstrate that the concept is winning the confidence of the industry. We intend to apply the Fast4Ward^TM philosophy to our overall offering of products and services leveraging also the investments we are making in digitalization. Today, with full access to all markets, SBM Offshore is looking forward with confidence on the basis of increased demand, its strong strategic position and its uniquely experienced work force."


Highlights

• Underlying^[1] year-to-date Directional^[2] revenue of US$808 million and Directional EBITDA of US$414 million in line with the same period last year, with strong operational performance compensating for the impact from FPSO Turritella leaving the fleet
• An additional US$233 million EBITDA realized from the sale of FPSO Turritella and the net impact of an additional settlement for the Yme insurance claim
• Underlying Directional profit attributable to shareholders^[3] increased by 17% to US$81 million compared with first half of 2017, resulting in Underlying Directional EPS of US$0.40 per share
• Directional net debt^[4] decreased by US$0.6 billion compared with year-end 2017 to a total of US$2.3 billion
• Confirmed award for FPSO Liza 2 contracts by ExxonMobil, representing SBM Offshore's largest and first Fast4Ward^TM FPSO, next phase contracts (construction and installation) subject to authorizations
• Leniency Agreement signed with authorities in Brazil (CGU, AGU)^[5] and Petrobras on July 26, 2018; enabling SBM Offshore to compete in new tenders for Petrobras in Brazil
• 2018 Directional revenue guidance adjusted to around US$1.7 billion with US$1.3 billion from Lease and Operate and around US$400 million from Turnkey due to a revised assumption of FPSO Liza 1 remaining fully Company-owned
• Underlying 2018 Directional EBITDA guidance maintained at around US$750 million, excluding positive effects from the sale of FPSO Turritella and an additional Yme settlement but including the effect of early adoption of IFRS 16

The 2018 Half Year Results and Interim Financial Statements are published on the Company's website under https://www.sbmoffshore.com/investor-relations-centre/financial-information/financial-results/half-year-results/.


Overview

Directional revenue was stable, decreasing by 3% to US$808 million for the first half of 2018. This was due to lower Lease and Operate revenues, mainly as a result of FPSO Turritella leaving the fleet in January 2018 and planned maintenance. This decrease was partly offset by increased Turnkey activity which, compared to the same period last year, resulted in an increase in revenues by US$64 million to a total of US$154 million at mid-year 2018.

The Company's Underlying Directional EBITDA for the first half of 2018 decreased by 4% compared with the same period last year to a total of US$414 million. Lease and Operate EBITDA for the first half of 2018 was US$427 million, 11% lower than the first half of 2017, driven by the same factors as revenue. Turnkey saw a reduction in overheads compared with the same period last year and similarly benefited from successful project close-out with clients and suppliers, bringing the Underlying EBITDA to US$17 million for the first half of this year.

Underlying EBITDA excludes positive one-off effects from the realized gain on the sale of FPSO Turritella (US$217 million) and an additional settlement relating to the Yme insurance case (US$16 million, net of claim-related cost for the period). To ensure consistency with future reporting, Underlying EBITDA includes impacts from the early adoption of IFRS 16 where over the first half year of 2018 rental expenses amounting to US$15 million are replaced by US$13 million additional depreciation and financing cost.

While ramping up on two major projects entering construction, SBM Offshore continued to build on its safety performance, operating at a level better than its 2018 Total Recordable Injury Frequency Rate (TRIFR) target of 0.26 as of mid-year 2018. On May 15, 2018, the Company organized its fifth Life Day across all the Company's vessels and locations, involving all SBM Offshore staff and other stakeholders, emphasizing process safety, human rights and wellbeing at work. The Company continued its focus on safety awareness through its company-wide monthly campaigns, which included sessions on the 12 lifesaving rules and a focus on process safety monitoring.

In addition to last year's announced binding settlement with a group of the primary insurers relating to the Company's insurance claim arising from the Yme project, the Company has settled with the remaining primary insurers, as well as some additional insurers. SBM Offshore's share in this additional settlement is for US$16 million, net of claim related expenses. Under the terms of the settlement agreement with Repsol, all insurance claim recoveries after expenses and legal costs are to be shared equally between the Company and Repsol. The gross total recovery to be shared currently stands at around US$340 million.

SBM Offshore provides a pro-forma Directional backlog^[6] overview, which provides a normalized outlook of the existing leases. The pro-forma Directional backlog at the end of June 2018 decreased by c. US$0.7 billion to a total of US$16.1 billion. This decrease was mostly caused by the US$0.8 billion turnover for the period mainly coming from Lease and Operate. Various new orders in Turnkey more than offset other adjustments and caused a net increase in the backlog by c. US$100 million.

With respect to FPSO Liza 1, as disclosed on July 3, 2018 discussions with the client are underway regarding a potential accelerated transfer of ownership using the purchase option in the 10 year lease contract. The outcomes of these discussions are expected to lead to a transfer of the FPSO ownership and operation after a period of up to 2 years after startup. This however is not final as such and will be reflected in the backlog if and when this has become final.

At the end of June 2018, SBM Offshore had Directional cash and undrawn corporate committed credit facilities totaling US$1,842 million compared to US$1,878 million at year-end 2017. Strong Directional cash flow from operations driven by Lease and Operate, combined with the net proceeds from Turritella and Yme was broadly sufficient to fund investments in FPSO Liza 1 and the Fast4Ward^TM hull construction, pay interest and redeem project loans as well as pay dividend.

The MPF^[7] is not a party to the Leniency Agreement. The lawsuit brought by the MPF under the Brazilian Improbity Law against various SBM Group companies, and the requested associated provisional measure, are still pending, as reported on July 5, 2018. The Company has subsequently re-engaged with the MPF to discuss the impact of the Leniency Agreement on this lawsuit and the request for provisional measures.


Outlook and Guidance

The recovery in the oil and gas sector continues to progress. Increasingly, deep water developments demonstrate competitive break-even pricing on the basis of supply-chain efficiency gains. Industry sources are predicting an increased risk of a significant energy supply gap occurring in the mid-2020s, exacerbated by many years of under-investment in new projects. For clients who are moving forward with investments in major deep water projects, this trend has the potential to bring substantial upside to already attractive original project economics.

The oil and gas services industry has structurally lost significant capacity which, combined with continued demand growth should create opportunity for selected players. SBM Offshore's strategic position combined with its Fast4Ward^TM philosophy places the Company "in the right place, at the right time, with the right product offering". The Company will remain disciplined around tendering activities, evaluating risk and reward when selecting its opportunities. For the long term, considering a diverse range of third-party scenarios, the Company maintains its optimism about the role of deep water oil and gas in the energy mix of the future and continues to position itself to benefit from the anticipated energy transition towards more gas developments and renewable energy sources.

Subject to final outcome of the discussion with the client relating to the potential acquisition of the FPSO Liza 1, the Company has determined that it is optimal from an operational and financial perspective to retain full ownership as opposed to partnering and is changing its assumptions for 2018 guidance accordingly. As a consequence, under the Company's Directional accounting policy, the Company will not book revenue and margin deriving from partner contributions during the Turnkey phase of the project. The Company will instead book increased amounts related to the full 100% share in the Lease and Operate phase in line with the cash flow. The Company is therefore adjusting the guidance for Turnkey revenues for 2018 to around US$0.4 billion. The guidance for Lease and Operate revenues is maintained at around US$ 1.3 billion, meaning that the overall guidance for revenues now becomes around US$1.7 billion in aggregate.

2018 Underlying EBITDA guidance is maintained at around US$750 million. To ensure consistency for future reporting, this now includes the positive effect from early adoption of IFRS 16 in relation to which a total of c. US$30 million has moved from rental cost in EBITDA to depreciation and financing costs. This effect partially offsets the change in the assumption of partnering for Liza 1. One-off effects from the sale of Turritella (US$217 million) and the additional Yme insurance case settlement (US$16 million) are reported over and above the Underlying guidance.


Analyst Presentation & Conference Call

SBM Offshore provides floating production solutions to the offshore energy industry, over the full product lifecycle. The Company is market leading in leased floating production systems delivered to date, with multiple units currently in operation and has unrivalled operational experience in this field. The Company's main activities are the design, supply, installation, operation and the life extension of floating production solutions for the offshore energy industry.

As of December 31, 2017, Group companies employ approximately 4,800 people worldwide. Full time company employees totaling c. 4,300 are spread over offices in key markets, operational shore bases and the offshore fleet of vessels. A further 500 are working for the joint ventures with two construction yards. For further information, please visit our website at www.sbmoffshore.com.

This press release contains inside information within the meaning of Article 7(1) of the EU Market Abuse Regulation. This press release contains regulated information within the meaning of the Dutch Financial Markets Supervision Act (Wet op het financieel toezicht). Some of the statements contained in this release that are not  historical facts are statements  of future expectations and other forward-looking statements based on management's current views and assumptions and involve known and unknown risks and uncertainties that could cause actual results, performance, or events to differ materially from those in such statements. Such forward-looking statements are subject to various risks and uncertainties, which may cause actual results and performance of the Company's business to differ materially and adversely from the forward-looking statements. Certain such forward-looking statements can be identified by the use of forward- looking terminology such as "believes", "may", "will", "should", "would be", "expects" or "anticipates" or similar expressions, or the negative thereof, or other variations thereof, or comparable terminology, or by discussions of strategy, plans, or intentions. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those described in this release as anticipated, believed, or expected. SBM Offshore NV does not intend, and does not assume any obligation, to update any industry information or forward-looking statements set forth in this release to reflect subsequent events or circumstances. Nothing in this press release shall be deemed an offer to sell, or a solicitation of an offer to buy, any securities.

^[1] Underlying 1H18 EBITDA excludes the one off positive effects from the sale of FPSO Turritella (US$217 million) and additional settlement relating to the Yme insurance case (US$16 million); Underlying net profit 1H18 is adjusted for the same items, 1H17 was adjusted by US$11 million related to the unwinding effect on the net present value of future payments (instalments and bonus reductions) related to the Leniency Agreement, in financing cost.