ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENT
In accordance with the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, this Quarterly Report on Form 10-Q and the information incorporated herein by reference contain certain forward-looking statements which reflect our current view with respect to future events and future financial performance. Forward-looking statements are all statements other than statements of historical fact. All such forward-looking statements are subject to risks and uncertainties, many of which are beyond the control of the Company, and our future results of operations could differ materially from our historical results or current expectations reflected by such forward-looking statements. Some of these risks and uncertainties include, without limitation, the risks related to fluctuations in worldwide energy demand and oil and natural gas prices, and continuing depressed levels of oil and natural gas prices without a clear indication of if, or when, prices will recover to a level to support renewed offshore exploration activities; fleet additions by competitors and industry overcapacity; our limited capital resources available to replenish our asset base as needed, including through acquisitions or vessel construction, and to fund our capital expenditure needs; uncertainty of global financial market conditions and potential constraints in accessing capital or credit if and when needed with favorable terms, if at all; changes in decisions and capital spending by customers in the energy industry and the industry expectations for offshore exploration, field development and production; consolidation of our customer base; loss of a major customer; changing customer demands for vessel specifications, which may make some of our older vessels technologically obsolete for certain customer projects or in certain markets; rapid technological changes; delays and other problems associated with vessel maintenance; the continued availability of qualified personnel and our ability to attract and retain them; the operating risks normally incident to our lines of business, including the potential impact of liquidated counterparties; our ability to comply with covenants in our indentures and other debt instruments; acts of terrorism and piracy; the impact of regional or global public health crises or pandemics; the impact of potential information technology, cybersecurity or data security breaches; integration of acquired businesses and entry into new lines of business; disagreements with our joint venture partners; natural disasters or significant weather conditions; unsettled political conditions, war, civil unrest and governmental actions, such as expropriation or enforcement of customs or other laws that are not well developed or consistently enforced; the risks associated with our international operations, including local content, local currency or similar requirements especially in higher political risk countries where we operate; interest rate and foreign currency fluctuations; labor changes proposed by international conventions; increased regulatory burdens and oversight; changes in laws governing the taxation of foreign source income; retention of skilled workers; enforcement of laws related to the environment, labor and foreign corrupt practices; the potential liability for remedial actions or assessments under existing or future environmental regulations or litigation; the effects of asserted and unasserted claims and the extent of available insurance coverage; and the resolution of pending legal proceedings.
Forward-looking statements, which can generally be identified by the use of such terminology as “may,” “can,” “potential,” “expect,” “project,” “target,” “anticipate,” “estimate,” “forecast,” “believe,” “think,” “could,” “continue,” “intend,” “seek,” “plan,” and similar expressions contained in this Quarterly Report on Form 10-Q, are not guarantees or assurances of future performance or events. Any forward-looking statements are based on our assessment of current industry, financial and economic information, which by its nature is dynamic and subject to rapid and possibly abrupt changes, which we may or may not be able to control. Further, we may make changes to our business plans that could or will affect our results. While management believes that these forward-looking statements are reasonable when made, there can be no assurance that future developments that affect us will be those that we anticipate and have identified. The forward-looking statements should be considered in the context of the risk factors listed above, discussed in this Quarterly Report on Form 10-Q, and discussed in our Annual Report on Form 10-K for the year ended December 31, 2019, filed with the SEC on March 2, 2020, as updated by subsequent filings with the SEC. Investors and prospective investors are cautioned not to rely unduly on such forward-looking statements, which speak only as of the date hereof. Management disclaims any obligation to update or revise any forward-looking statements contained herein to reflect new information, future events or developments.
In certain places in this Quarterly Report on Form 10-Q, we may refer to reports published by third parties that purport to describe trends or developments in energy production and drilling and exploration activity and we specifically disclaim any responsibility for the accuracy and completeness of such information and have undertaken no steps to update or independently verify such information.
18
The following information contained in this Quarterly Report on Form 10-Q should be read in conjunction with the unaudited condensed consolidated financial statements and notes thereto included in Part 1, Item 1 of this Quarterly Report on Form 10-Q and related disclosures and our Annual Report on Form 10-K for the year ended December 31, 2019, filed with the SEC on March 2, 2020.
About Tidewater
Our vessels and associated vessel services provide support for all phases of offshore oil and natural gas exploration, field development and production. These services include towing of, and anchor handling for, mobile offshore drilling units; transporting supplies and personnel necessary to sustain drilling, workover and production activities; offshore construction and seismic and subsea support; and a variety of specialized services such as pipe and cable laying. In addition, we have one of the broadest geographic operating footprints in the offshore vessel industry. Our global operating footprint allows us to react quickly to changing local market conditions and to be responsive to the changing requirements of the many customers with which we believe we have strong relationships. We are also one of the most experienced international operators in the offshore energy industry with a history spanning over 60 years.
At March 31, 2020, we owned 208 vessels with an average age of 10.7 years (excluding three joint venture vessels, but including 38 vessels classified as held for sale) available to serve the global energy industry. The average age of our 170 active vessels at March 31, 2020 is 10.1 years.
Principal Factors That Drive Our Results
Our revenues, net earnings and cash flows from operations are largely dependent upon the activity level of our offshore marine vessel fleet. As is the case with the numerous other vessel operators in our industry, our business activity is largely dependent on the level of exploration, field development and production activity of our customers. Our customers’ business activity, in turn, is dependent on current and expected crude oil and natural gas prices, which fluctuate depending on expected future levels of supply and demand for crude oil and natural gas, and on estimates of the cost to find, develop and produce crude oil and natural gas reserves.
Our revenues in all segments are driven primarily by our fleet size, vessel utilization and day rates. Because a sizeable portion of our operating and depreciation costs do not change proportionally with changes in revenue, our operating profit is largely dependent on revenue levels.
Operating costs consist primarily of crew costs, repair and maintenance costs, insurance costs, fuel, lube oil and supplies costs and other vessel operating costs. Fleet size, fleet composition, geographic areas of operation, supply and demand for marine personnel, and local labor requirements are the major factors which affect overall crew costs in all segments. In addition, our newer, more technologically sophisticated vessels generally require a greater number of specially trained, more highly compensated fleet personnel than our older, smaller and less sophisticated vessels. Crew costs may increase if competition for skilled personnel intensifies, though a weaker offshore energy market should somewhat mitigate any potential inflation of crew costs.
Costs related to the recertification of vessels are deferred and amortized over 30 months on a straight-line basis. Maintenance costs incurred at the time of the recertification drydocking that are not related to the recertification of the vessel are expensed as incurred. Costs related to vessel improvements that either extend the vessel’s useful life or increase the vessel’s functionality are capitalized and depreciated.
Insurance costs are dependent on a variety of factors, including our safety record and pricing in the insurance markets, and can fluctuate over time. Our vessels are generally insured for up to their estimated fair market value in order to cover damage or loss resulting from marine casualties, adverse weather conditions, mechanical failure, collisions, and property losses to the vessel. We also purchase coverage for potential liabilities stemming from third-party losses with limits that we believe are reasonable for our operations, but do not generally purchase business interruption insurance or similar coverage. Insurance limits are reviewed annually, and third-party coverage is purchased based on the expected scope of ongoing operations and the cost of third-party coverage.
Fuel and lube costs can also fluctuate in any given period depending on the number and distance of vessel mobilizations, the number of active vessels off charter, drydockings, and changes in fuel prices. We also incur vessel operating costs that are aggregated as “other” vessel operating costs. These costs consist of brokers’ commissions, including commissions paid to unconsolidated joint venture companies, training costs, satellite communication fees, agent fees, port fees and other miscellaneous costs. Brokers’ commissions are incurred primarily in our non-United States operations where brokers
19
sometimes assist in obtaining work. Brokers generally are paid a percentage of day rates and, accordingly, commissions paid to brokers generally fluctuate in accordance with vessel revenue.
Sonatide Joint Venture
We previously disclosed the significant financial and operational challenges that we confront with respect to operations in Angola, as well as steps that we have taken to address or mitigate those risks. Most of our attention has been focused in three areas: (i) reducing the net receivable balance due from Sonatide, our Angolan joint venture with Sonangol, for vessel services; (ii) reducing the foreign currency risk created by virtue of provisions of Angolan law that require that payment for a portion of the services provided by Sonatide be paid in Angolan kwanza; and (iii) optimizing opportunities, consistent with Angolan law, for services provided by us to be paid for directly in U.S. dollars. The amounts due from Sonatide are denominated in U.S. dollars; however, the underlying third-party customer payments to Sonatide were satisfied, in part, in Angolan kwanzas. We and Sonangol, our partner in Sonatide, have had discussions regarding how the net losses from the devaluation of certain Angolan kwanza denominated accounts should be shared. In late 2019, we were informed that, as part of a broad privatization program, Sonangal intends to seek to divest itself from the Sonatide joint venture.
Refer to Note (7) of Notes to Unaudited Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for further details on the Sonatide joint venture.
Industry Conditions and Outlook
Our business is directly impacted by the level of activity in worldwide offshore oil and natural gas exploration, development and production, which in turn is influenced by trends in oil and natural gas prices. In addition, oil and natural gas prices are affected by a host of geopolitical and economic forces, including the fundamental principles of supply and demand. In particular, the oil price is significantly influenced by actions of the Organization of Petroleum Exporting Countries, or OPEC. Prices are subject to significant uncertainty and, as a result, are extremely volatile. The industry experienced a severe downturn beginning in late 2014 that lasted through 2018 with prices falling into the high $20’s per barrel before recovering to average between $50.00 and $65.00 per barrel in 2019. We had expected to begin to experience consistent operating cash flow in 2020.
In early 2020, it became evident that a novel coronavirus originating in Asia (COVID-19) could become a pandemic with worldwide reach. By mid-March, when the World Health Organization declared the outbreak to be a pandemic (the “COVID-19 pandemic”), much of the industrialized world had initiated severe measures to lessen its impact. The ongoing COVID-19 pandemic has created significant volatility, uncertainty, and economic disruption during the first quarter of 2020.
With respect to our particular sector, the COVID-19 pandemic has resulted in a much lower demand for oil as national, regional, and local governments impose travel restrictions, border closings, restrictions on public gatherings, stay at home orders, and limitations on business operations in order to contain its spread. During this same time period, oil-producing countries have struggled to reach consensus on worldwide production levels, resulting in both a market oversupply of oil and a precipitous fall in oil prices.
Combined, these conditions have adversely affected our operations and business during the latter part of the first fiscal quarter of 2020 and we expect our operations and business in 2020 to be negatively impacted. The reduction in demand for hydrocarbons together with an unprecedented decline in the price of oil has resulted in our primary customers, the oil and gas companies, making material reductions to their planned spending on offshore projects, compounding the effect of the virus on offshore operations. Further, these conditions, separately or together, may continue to impact the demand for our services, the utilization and/or rates we can achieve for our assets and services, and the outlook for our industry in general. Although, as of the date of this filing, oil-producing countries have reached a tentative agreement regarding future output, crude oil prices will remain depressed as long as the market is oversupplied.
The spread of COVID-19 to one or more of our locations, including our vessels, could significantly impact our operations. While we have implemented various protocols for both onshore and offshore personnel in efforts to limit the impact of COVID-19, there is no assurance that those efforts will be fully successful. The spread of COVID-19 to our onshore workforce could prevent us from supporting our offshore operations, we may experience reduced productivity as our onshore personnel works remotely, and any spread to our key management personnel may disrupt our business. Any outbreak on our vessels may result in the vessel, or some or all of a vessel crew, being quarantined and therefore impede the vessel’s ability to generate revenue. We have experienced challenges in connection with our offshore crew changes due to health and travel restrictions related to COVID-19, and those challenges and/or restrictions may continue or worsen despite our
20
efforts at mitigating them. To the extent the COVID-19 pandemic adversely affects our operations and business, it may also have the effect of heightening many of the other risks set forth in our SEC filings.
The effect on our business includes lockdowns of shipyards where we have vessels performing drydocks which will delay vessels returning to service and the cancellation and/or temporary delay of certain revenue vessel contracts allowed either under the contract provisions or by mutual agreement with our customers. These cancellations and delays affect approximately 20% of our 2020 contracts with durations in excess of one month which typically comprise over 90% of our contractual revenue. It is possible that there will be additional cancellations or delays.
As a company, we have undertaken the following temporary measures to assist us in weathering the COVID 19 pandemic and allow us to recover as soon as possible:
|
•
|
Planned capital and dry dock expenditures tied to contracts referenced above will be temporarily delayed or cancelled. As a result of the ongoing contract cancellations and delays we have postponed drydocks expected to cost approximately $20.0 million in 2020. It is possible that additional planned drydocks will be cancelled or delayed due to contract cancellations or delays. We cannot predict the number or cost of any additional cancellations or delays.
|
|
•
|
We have the ability to rapidly respond to contract cancellations and delays. We have or will remove the crews and shut down all operations, depending on contract terms, on vessels associated with cancelled or delayed contracts. We are also in the process of evaluating our general and administrative costs to reflect the current demand for our offshore support vessels.
|
The full impact of the COVID-19 pandemic is unknown and is rapidly evolving. The extent to which it impacts our business and operations will depend on the severity, location, and duration of the effects and spread of the pandemic itself, the actions undertaken by national, regional, and local governments and health officials to contain the virus or treat its effects, and how quickly and to what extent economic conditions improve and normal business and operating conditions resume. As we cannot predict the duration or scope of this pandemic, the anticipated negative financial impact to our operating results cannot be reasonably estimated but could be both material and long-lasting.
We consider these events to be indicators that the value of our offshore vessel fleet may be impaired. As a result, we performed a Step 1 evaluation of our offshore fleet under FASB Accounting Standards Codification 360, which governs the methodology for identifying and recording impairment of long-lived assets to determine if any of our asset groups have net book value in excess of undiscounted future net cash flows. Our evaluation did not indicate impairment of any of our asset groups. Our evaluation did, however, identify one asset group with a net book value of approximately $40.0 million where the undiscounted future net cash flows total was within 10% of the net book value of that asset group as of March 31, 2020. The eventual impact of the oil price reduction and the COVID 19 pandemic on our future operations is not known. Depending on the severity of the impact, our expected cash flows in future periods could indicate impairment of this identified asset group or other asset groups in our vessel fleet. We will continue to monitor the expected future cash flows and the fair market value of our asset groups for impairment.
Results of Operations – Three Months Ended March 31, 2020 compared to March 31, 2019
Revenues for the quarters ended March 31, 2020 and 2019, were $116.4 million and $122.1 million, respectively. The decrease in revenue is primarily due to the decrease in West Africa, with ten less active vessels. Overall, we had 15 less average active vessels in the first quarter of 2020 than in the first quarter of 2019. Active utilization decreased slightly from 80.6% in 2019 compared to 78.5% in 2020.
Vessel operating costs for the quarters ended March 31, 2020 and 2019, were $78.8 million and $82.2 million, respectively. The decrease is primarily due to a decrease in crew costs, as we have 15 less active vessels in our fleet in the first quarter 2020.
Depreciation and amortization expense for the quarters ended March 31, 2020 and 2019, was $27.1 million and $22.9 million, respectively. The decrease in depreciation from the sale in 2019 of over 40 vessels was more than offset by the increase in amortization expense related to deferred drydock expenditures.
21
General and administrative expenses for the quarters ended March 31, 2020 and 2019, were $21.4 million and $27.1 million, respectively. The decrease is primarily due to decreased personnel and stock compensation costs related to the significant restructuring of our executive management and corporate administrative functions in 2019.
Included in gain on asset dispositions, net for the quarter ended March 31, 2020, are $5.3 million of net gains from the disposal of 9 vessels and other assets. During the quarter ended March 31, 2019, we recognized net gains of $1.3 million related to the sale of 16 vessels and other assets.
During the quarter ended March 31, 2020 we recognized foreign exchange gains of $0.9 million and during the quarter ended March 31, 2019 we recognized foreign exchange losses of $0.5 million. The foreign exchange gains and losses were primarily the result of the revaluation of our Norwegian kroner-denominated debt to our U.S. dollar reporting currency.
22
The following table compares vessel revenues and vessel operating costs by geographic segment for our owned and operated vessel fleet and the related percentage of vessel revenue for the periods indicated:
|
|
Three Months
|
|
|
Three Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
March 31, 2020
|
|
|
March 31, 2019
|
|
(In thousands)
|
|
|
|
|
|
%
|
|
|
|
|
|
|
%
|
|
Vessel revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas
|
|
$
|
31,859
|
|
|
|
28
|
%
|
|
$
|
35,279
|
|
|
|
29
|
%
|
Middle East/Asia Pacific
|
|
|
24,828
|
|
|
|
22
|
%
|
|
|
20,456
|
|
|
|
17
|
%
|
Europe/Mediterranean
|
|
|
29,491
|
|
|
|
26
|
%
|
|
|
28,558
|
|
|
|
24
|
%
|
West Africa
|
|
|
25,796
|
|
|
|
23
|
%
|
|
|
35,369
|
|
|
|
30
|
%
|
Total vessel revenues
|
|
$
|
111,974
|
|
|
|
100
|
%
|
|
$
|
119,662
|
|
|
|
100
|
%
|
Vessel operating costs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Crew costs
|
|
$
|
14,186
|
|
|
|
45
|
%
|
|
$
|
17,099
|
|
|
|
49
|
%
|
Repair and maintenance
|
|
|
2,171
|
|
|
|
7
|
%
|
|
|
3,619
|
|
|
|
10
|
%
|
Insurance
|
|
|
417
|
|
|
|
1
|
%
|
|
|
741
|
|
|
|
2
|
%
|
Fuel, lube and supplies
|
|
|
2,615
|
|
|
|
8
|
%
|
|
|
2,445
|
|
|
|
7
|
%
|
Other
|
|
|
2,673
|
|
|
|
8
|
%
|
|
|
2,772
|
|
|
|
8
|
%
|
|
|
$
|
22,062
|
|
|
|
69
|
%
|
|
$
|
26,676
|
|
|
|
76
|
%
|
Middle East/Asia Pacific:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Crew costs
|
|
$
|
10,085
|
|
|
|
41
|
%
|
|
$
|
8,627
|
|
|
|
42
|
%
|
Repair and maintenance
|
|
|
2,586
|
|
|
|
10
|
%
|
|
|
1,581
|
|
|
|
8
|
%
|
Insurance
|
|
|
591
|
|
|
|
2
|
%
|
|
|
589
|
|
|
|
3
|
%
|
Fuel, lube and supplies
|
|
|
2,665
|
|
|
|
11
|
%
|
|
|
2,335
|
|
|
|
11
|
%
|
Other
|
|
|
1,696
|
|
|
|
7
|
%
|
|
|
1,733
|
|
|
|
9
|
%
|
|
|
$
|
17,623
|
|
|
|
71
|
%
|
|
$
|
14,865
|
|
|
|
73
|
%
|
Europe/Mediterranean :
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Crew costs
|
|
$
|
11,696
|
|
|
|
40
|
%
|
|
$
|
13,059
|
|
|
|
46
|
%
|
Repair and maintenance
|
|
|
3,141
|
|
|
|
11
|
%
|
|
|
2,578
|
|
|
|
9
|
%
|
Insurance
|
|
|
431
|
|
|
|
1
|
%
|
|
|
561
|
|
|
|
2
|
%
|
Fuel, lube and supplies
|
|
|
1,098
|
|
|
|
4
|
%
|
|
|
1,891
|
|
|
|
7
|
%
|
Other
|
|
|
2,522
|
|
|
|
9
|
%
|
|
|
2,994
|
|
|
|
10
|
%
|
|
|
$
|
18,888
|
|
|
|
64
|
%
|
|
$
|
21,083
|
|
|
|
74
|
%
|
West Africa:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Crew costs
|
|
$
|
8,520
|
|
|
|
33
|
%
|
|
$
|
9,360
|
|
|
|
26
|
%
|
Repair and maintenance
|
|
|
2,700
|
|
|
|
10
|
%
|
|
|
1,923
|
|
|
|
5
|
%
|
Insurance
|
|
|
346
|
|
|
|
1
|
%
|
|
|
287
|
|
|
|
1
|
%
|
Fuel, lube and supplies
|
|
|
3,374
|
|
|
|
13
|
%
|
|
|
2,674
|
|
|
|
8
|
%
|
Other
|
|
|
5,312
|
|
|
|
21
|
%
|
|
|
5,335
|
|
|
|
15
|
%
|
|
|
$
|
20,252
|
|
|
|
79
|
%
|
|
$
|
19,579
|
|
|
|
55
|
%
|
Vessel operating costs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Crew costs
|
|
$
|
44,487
|
|
|
|
40
|
%
|
|
$
|
48,145
|
|
|
|
40
|
%
|
Repair and maintenance
|
|
|
10,598
|
|
|
|
9
|
%
|
|
|
9,701
|
|
|
|
8
|
%
|
Insurance
|
|
|
1,785
|
|
|
|
2
|
%
|
|
|
2,178
|
|
|
|
2
|
%
|
Fuel, lube and supplies
|
|
|
9,752
|
|
|
|
9
|
%
|
|
|
9,345
|
|
|
|
8
|
%
|
Other
|
|
|
12,203
|
|
|
|
11
|
%
|
|
|
12,834
|
|
|
|
11
|
%
|
Total vessel operating costs
|
|
$
|
78,825
|
|
|
|
70
|
%
|
|
$
|
82,203
|
|
|
|
69
|
%
|
23
The following table presents general and administrative expenses in our four geographic segments both individually and in total and the related general and administrative expenses as a percentage of the vessel revenues of each segment and in total for the quarter ended March 31, 2020 and 2019:
|
|
Three Months Ended
|
|
|
Three Months Ended
|
|
|
|
March 31, 2020
|
|
|
March 31, 2019
|
|
(In thousands)
|
|
|
|
|
|
%
|
|
|
|
|
|
|
%
|
|
Segment general and administrative expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas
|
|
$
|
3,465
|
|
|
|
11
|
%
|
|
$
|
3,371
|
|
|
|
10
|
%
|
Middle East/Asia Pacific
|
|
|
2,534
|
|
|
|
10
|
%
|
|
|
2,302
|
|
|
|
11
|
%
|
Europe/Mediterranean
|
|
|
2,238
|
|
|
|
8
|
%
|
|
|
3,346
|
|
|
|
12
|
%
|
West Africa
|
|
|
4,001
|
|
|
|
16
|
%
|
|
|
3,233
|
|
|
|
9
|
%
|
Total segment general and administrative expenses
|
|
$
|
12,238
|
|
|
|
11
|
%
|
|
$
|
12,252
|
|
|
|
10
|
%
|
The following table presents segment depreciation and amortization expense by our four geographic segments, the related segment vessel depreciation and amortization expense as a percentage of segment vessel revenues, total segment depreciation and amortization expense and the related total segment depreciation and amortization expense as a percentage of total vessel revenues for the quarter ended March 31, 2020 and 2019:
|
|
Three Months Ended
|
|
|
Three Months Ended
|
|
|
|
March 31, 2020
|
|
|
March 31, 2019
|
|
(In thousands)
|
|
|
|
|
|
%
|
|
|
|
|
|
|
%
|
|
Segment depreciation and amortization expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas
|
|
$
|
7,496
|
|
|
|
24
|
%
|
|
$
|
6,261
|
|
|
|
18
|
%
|
Middle East/Asia Pacific
|
|
|
5,527
|
|
|
|
22
|
%
|
|
|
4,450
|
|
|
|
22
|
%
|
Europe/Mediterranean
|
|
|
6,819
|
|
|
|
23
|
%
|
|
|
7,446
|
|
|
|
26
|
%
|
West Africa
|
|
|
6,404
|
|
|
|
25
|
%
|
|
|
4,444
|
|
|
|
13
|
%
|
Total segment depreciation and amortization expense
|
|
$
|
26,246
|
|
|
|
23
|
%
|
|
$
|
22,601
|
|
|
|
19
|
%
|
The following table compares operating loss and other components of loss and its related percentage of total revenue for the quarter ended March 31, 2020 and 2019:
|
|
Three Months Ended
|
|
|
Three Months Ended
|
|
|
|
March 31, 2020
|
|
|
March 31, 2019
|
|
(In thousands)
|
|
|
|
|
|
%
|
|
|
|
|
|
|
%
|
|
Vessel operating profit (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas
|
|
$
|
(1,164
|
)
|
|
|
(1
|
%)
|
|
$
|
(1,030
|
)
|
|
|
(1
|
%)
|
Middle East/Asia Pacific
|
|
|
(856
|
)
|
|
|
(1
|
%)
|
|
|
(1,162
|
)
|
|
|
(1
|
%)
|
Europe/Mediterranean
|
|
|
1,547
|
|
|
|
1
|
%
|
|
|
(3,317
|
)
|
|
|
(3
|
%)
|
West Africa
|
|
|
(4,863
|
)
|
|
|
(4
|
%)
|
|
|
8,115
|
|
|
|
7
|
%
|
Other operating profit
|
|
|
1,721
|
|
|
|
1
|
%
|
|
|
1,704
|
|
|
|
1
|
%
|
|
|
|
(3,615
|
)
|
|
|
(3
|
%)
|
|
|
4,310
|
|
|
|
3
|
%
|
Corporate expenses
|
|
|
(10,042
|
)
|
|
|
(9
|
%)
|
|
|
(15,200
|
)
|
|
|
(12
|
%)
|
Gain on asset dispositions, net
|
|
|
5,331
|
|
|
|
5
|
%
|
|
|
1,270
|
|
|
|
1
|
%
|
Long-lived asset impairments
|
|
|
(10,207
|
)
|
|
|
(9
|
%)
|
|
|
—
|
|
|
|
—
|
|
Operating loss
|
|
$
|
(18,533
|
)
|
|
|
(16
|
%)
|
|
$
|
(9,620
|
)
|
|
|
(8
|
%)
|
Results for three months ended March 31, 2020 compared to March 31, 2019
Americas Segment Operations. Vessel revenues in the Americas segment decreased 10%, or $3.4 million, during the quarter ended March 31, 2020, as compared to the quarter ended March 31, 2019. This decrease is primarily the result of four fewer active vessels and the reduction in active utilization from 87.2% in 2019 to 85.7% in 2020. However, average day rates increased by 4% partially offsetting these declines.
24
Vessel operating loss for the Americas segment for the quarter ended March 31, 2020 was $1.2 million, which was $0.1 million more than the operating loss for the quarter ended March 31, 2019. The decrease in revenue was substantially, but not completely, offset by the decrease in operating costs.
Middle East/Asia Pacific Segment Operations. Vessel revenues in the Middle East/Asia Pacific segment increased 21%, or $4.4 million, during the quarter ended March 31, 2020, as compared to the quarter ended March 31, 2019. Active utilization for the quarter ended March 31, 2020 increased from 76.1% to 77.7%, average day rates increased 9% and average active vessels in the segment increased by four.
The Middle East/Asia Pacific segment reported an operating loss of $0.9 million for the quarter ended March 31, 2020, compared to an operating loss of $1.2 million for the quarter ended March 31, 2019 primarily due to increased revenue.
Europe/Mediterranean Segment Operations. Vessel revenues in the Europe/Mediterranean segment increased 3%, or $0.9 million, during the quarter ended March 31, 2020, as compared to the quarter ended March 31, 2019. Average day rates during these same periods increased 14% because of increasing demand for vessels in the North Sea and Mediterranean. Active utilization also increased 3 percentage points during the quarter ended March 31, 2020 compared to the quarter ended March 31, 2019. However, the vessel fleet decreased by four active vessels which partially offset these improvements.
The Europe/Mediterranean segment reported an operating profit of $1.5 million for the quarter ended March 31, 2020, compared to an operating loss of $3.3 million for the quarter ended March 31, 2019 due to increased revenue and a $2.2 million decrease in operating costs, primarily due to lower personnel and fuel and supply costs.
West Africa Segment Operations. Vessel revenues in the West Africa segment decreased 27% or $9.6 million, during the quarter ended March 31, 2020, as compared to the quarter ended March 31, 2019. The West Africa active vessel fleet decreased by ten vessels during the comparative periods. West Africa segment active utilization decreased as well from 76.8% during the first quarter of 2019 to 67.8% during the first quarter of 2020, and average day rates decreased slightly by less than 1 percent.
Vessel operating profit for the West Africa segment decreased from $8.1 million for the quarter ended March 31, 2019 to an operating loss of $4.9 million in the quarter ended March 31, 2020 primarily due to decreased revenue, coupled with higher operating costs.
Vessel Utilization and Average Day Rates by Segment
Vessel utilization is determined primarily by market conditions and to a lesser extent by drydocking requirements. Vessel day rates are determined by the demand created largely through the level of offshore exploration, field development and production spending by energy companies relative to the supply of offshore support vessels. Specifications of available equipment and the scope of service provided may also influence vessel day rates. Vessel utilization rates are calculated by dividing the number of days a vessel works during a reporting period by the number of days the vessel is available to work in the reporting period. As such, stacked vessels depress utilization rates because stacked vessels are considered available to work and are included in the calculation of utilization rates. Average day rates are calculated by dividing the revenue a vessel earns during a reporting period by the number of days the vessel worked in the reporting period.
25
Vessel utilization and average day rates are calculated on all vessels in service (which includes stacked vessels and vessels in drydock) but do not include vessels owned by joint ventures (3 and 4 vessels at March 31, 2020 and 2019, respectively).
The following tables compare day-based utilization percentages, average day rates and average total, active and stacked vessels by segment for the quarter ended March 31, 2020 and 2019:
|
|
Three Months
|
|
|
Three Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
March 31, 2020
|
|
|
March 31, 2019
|
|
SEGMENT STATISTICS:
|
|
|
|
|
|
|
|
|
Americas fleet:
|
|
|
|
|
|
|
|
|
Utilization
|
|
|
57.1
|
%
|
|
|
48.4
|
%
|
Active utilization
|
|
|
85.7
|
%
|
|
|
87.2
|
%
|
Average vessel day rates
|
|
|
11,854
|
|
|
|
11,436
|
|
Average total vessels
|
|
|
52
|
|
|
|
71
|
|
Average stacked vessels
|
|
|
(17
|
)
|
|
|
(32
|
)
|
Average active vessels
|
|
|
35
|
|
|
|
39
|
|
|
|
|
|
|
|
|
|
|
Middle East/Asia Pacific fleet:
|
|
|
|
|
|
|
|
|
Utilization
|
|
|
63.0
|
%
|
|
|
61.5
|
%
|
Active utilization
|
|
|
77.7
|
%
|
|
|
76.1
|
%
|
Average vessel day rates
|
|
|
7,863
|
|
|
|
7,205
|
|
Average total vessels
|
|
|
55
|
|
|
|
51
|
|
Average stacked vessels
|
|
|
(10
|
)
|
|
|
(10
|
)
|
Average active vessels
|
|
|
45
|
|
|
|
41
|
|
|
|
|
|
|
|
|
|
|
Europe/Mediterranean fleet:
|
|
|
|
|
|
|
|
|
Utilization
|
|
|
63.6
|
%
|
|
|
60.1
|
%
|
Active utilization
|
|
|
87.3
|
%
|
|
|
84.1
|
%
|
Average vessel day rates
|
|
|
12,514
|
|
|
|
10,964
|
|
Average total vessels
|
|
|
41
|
|
|
|
48
|
|
Average stacked vessels
|
|
|
(11
|
)
|
|
|
(14
|
)
|
Average active vessels
|
|
|
30
|
|
|
|
34
|
|
|
|
|
|
|
|
|
|
|
West Africa fleet:
|
|
|
|
|
|
|
|
|
Utilization
|
|
|
45.7
|
%
|
|
|
49.4
|
%
|
Active utilization
|
|
|
67.8
|
%
|
|
|
76.8
|
%
|
Average vessel day rates
|
|
|
9,539
|
|
|
|
9,627
|
|
Average total vessels
|
|
|
65
|
|
|
|
83
|
|
Average stacked vessels
|
|
|
(21
|
)
|
|
|
(29
|
)
|
Average active vessels
|
|
|
44
|
|
|
|
54
|
|
|
|
|
|
|
|
|
|
|
Worldwide fleet:
|
|
|
|
|
|
|
|
|
Utilization
|
|
|
56.4
|
%
|
|
|
53.6
|
%
|
Active utilization
|
|
|
78.5
|
%
|
|
|
80.6
|
%
|
Average vessel day rates
|
|
|
10,267
|
|
|
|
9,806
|
|
Average total vessels
|
|
|
213
|
|
|
|
253
|
|
Average stacked vessels
|
|
|
(60
|
)
|
|
|
(85
|
)
|
Average active vessels
|
|
|
153
|
|
|
|
168
|
|
Average active vessels exclude stacked vessels. We consider a vessel to be stacked if the vessel crew is furloughed or substantially reduced and limited maintenance is being performed on the vessel. We reduce operating costs by stacking vessels when management does not foresee opportunities to profitably or strategically operate the vessels in the near future. Vessels are stacked when market conditions warrant and they are no longer considered stacked when they are returned to active service, sold or otherwise disposed. When economically practical marketing opportunities arise, the stacked vessels can be returned to active service by performing any necessary maintenance on the vessel and either rehiring or returning fleet personnel to operate the vessel. Although not currently fulfilling charters, stacked vessels are included in the calculation of utilization statistics. We had 59 and 71 stacked vessels at March 31, 2020 and 2019, respectively.
26
Vessel Dispositions
We seek opportunities to sell and/or scrap our older vessels when market conditions warrant and opportunities arise. The majority of our vessels are sold to buyers who do not compete with us in the offshore energy industry. Vessels sales in 2020 included eight vessels that were classified as assets held for sale and one vessel from our active fleet. The following is a summary of the number of vessels disposed of by segment:
|
|
Three Months
|
|
|
Three Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
March 31, 2020
|
|
|
March 31, 2019
|
|
Number of vessels disposed of by segment:
|
|
|
|
|
|
|
|
|
Americas
|
|
|
1
|
|
|
|
13
|
|
Middle East/Asia Pacific
|
|
|
2
|
|
|
|
1
|
|
Europe/Mediterranean
|
|
|
6
|
|
|
|
2
|
|
West Africa
|
|
|
—
|
|
|
|
—
|
|
Total
|
|
|
9
|
|
|
|
16
|
|
Liquidity, Capital Resources and Other Matters
Availability of Cash
At March 31, 2020, we had $204.0 million in cash and cash equivalents (including restricted cash), including amounts held by foreign subsidiaries, the majority of which is available to us without adverse tax consequences. Included in foreign subsidiary cash are balances held in U.S. dollars and foreign currencies that await repatriation due to various currency conversion and repatriation constraints, or partner or tax related matters, prior to the cash being made available for remittance to our domestic accounts. We currently intend that earnings by foreign subsidiaries will be indefinitely reinvested in foreign jurisdictions in order to fund strategic initiatives (such as investment, expansion and acquisitions), fund working capital requirements and repay debt (both third-party and intercompany) of our foreign subsidiaries in the normal course of business. Moreover, we do not currently intend to repatriate earnings of our foreign subsidiaries to the U. S. because cash generated from our domestic businesses and the repayment of intercompany liabilities from foreign subsidiaries are currently deemed to be sufficient to fund the cash needs of our operations in the U. S.
During the first quarter of 2020, the industry was impacted by a world-wide pandemic that had the effect of isolating people across the world and significantly reducing the demand and price for crude oil. See a detailed discussion under “Industry Conditions and Outlook” above. The reduced oil price will impact our industry in the near term and if it is prolonged could impact us beyond this year. We have significant cash on hand and the substantial portion of our debt is due in 2022. As a company, we have undertaken the following temporary measures to assist us in weathering the pandemic and allow us to recover as soon as possible:
|
•
|
Planned capital and dry dock expenditures tied to contracts cancellations and delays will be temporarily delayed or cancelled. As a result of the ongoing contract cancellations and delays we have postponed drydocks expected to cost approximately $20.0 million in 2020. It is possible that additional planned drydocks will be cancelled or delayed due to contract cancellations or delays. We cannot predict the number or cost of such possible cancellations or delays.
|
|
•
|
We have the ability to rapidly respond to contract cancellations and delays. We have or will remove the crews and shut down all operations, depending on contract terms on vessels associated with cancelled or delayed contracts. We are also in the process of evaluating our general and administrative costs to reflect the current demand for our offshore support vessels.
|
Our objective in financing our business is to maintain adequate financial resources and access to sufficient levels of liquidity. We do not have a revolving credit facility. Cash and cash equivalents and future net cash provided by operating activities provide us, in our opinion, with sufficient liquidity to meet our liquidity requirements.
Debt
27
Refer to Note (9) of Unaudited Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for further details on our indebtedness.
We may from time to time seek to retire or purchase our outstanding debt through cash purchases and/or exchanges for equity securities, in open market purchases, privately negotiated transactions or otherwise. Such repurchases or exchanges, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. The amounts involved may be material.
Operating Activities
Net cash used in operating activities for the quarters ended March 31, 2020 and 2019, was $27.5 million and $3.2 million, respectively.
Net cash used in operations for the quarter ended March 31, 2020, reflects a net loss of $18.5 million, which includes non-cash depreciation and amortization of $27.1 million, gain on asset dispositions, net of $5.3 million and long-lived asset impairments of $10.2 million. Combined changes in operating assets and liabilities and in amounts due to/from affiliate, net used $18.1 million in cash and cash paid for deferred drydocking and survey costs was $24.9 million.
Net cash used in operations for the quarter ended March 31, 2019 reflects a net loss of $21.3 million, which includes non-cash depreciation and amortization of $22.9 million, gain on asset dispositions, net of $1.3 million and stock-based compensation expense of $5.6 million. Combined charges in operating assets and liabilities and in amounts due to/from affiliate, net, provided $3.2 million of cash and cash paid for deferred drydock and survey costs of $12.3 million.
Investing Activities
Net cash provided by investing activities for the quarters ended March 31, 2020 and 2019, was $7.0 million and $6.5 million, respectively. Net cash provided by investing activities for the quarter ended March 31, 2020 primarily reflects the receipt of $9.5 million related to the disposal of nine vessels. Additions to properties and equipment were comprised of approximately $1.9 million in capitalized upgrades to existing vessels and equipment and $0.5 million for other property and equipment purchases.
Net cash provided by investing activities for the quarter ended March 31, 2019 primarily reflects the receipt of $9.7 million related to the disposal of 16 vessels. Additions to properties and equipment were comprised of approximately $2.2 million in capitalized upgrades to existing vessels and equipment and $0.9 million for other property and equipment purchases.
Financing Activities
Net cash used in financing activities for the quarters ended March 31, 2020 and 2019, was $3.1 million and $3.1 million, respectively. Net cash used in financing activities for the quarter ended March 31, 2020 included $2.6 million of scheduled semiannual principal payments on Troms offshore debt and $0.5 million of taxes paid to related share-based compensation.
Net cash used in financing activities for the quarter ended March 31, 2019 included $1.3 million of scheduled semiannual principal payments on Troms offshore debt, $1.6 million of taxes paid to related share-based compensation and the repurchase of $0.2 million of New Secured Notes resulting from a tender offer.
Other Liquidity Matters
Contractual Obligations and Other Contingent Commitments
We did not have any material changes in our contractual obligations and commercial commitments since the end of fiscal year 2019. Refer to Part II, Item 7 in our Annual Report on Form 10-K for the year ended December 31, 2019, for information regarding our contractual obligations and other contingent commitments.
Application of Critical Accounting Policies and Estimates
Our Annual Report on Form 10-K for the year ended December 31, 2019, filed with the SEC on March 2, 2020, describes the accounting policies that are critical to reporting our financial position and operating results and that require management’s most difficult, subjective or complex judgments. This Quarterly Report on Form 10-Q should be read in
28
conjunction with the discussion contained in our Annual Report on Form 10-K for the year ended December 31, 2019, regarding these critical accounting policies.
New Accounting Pronouncements
For information regarding the effect of new accounting pronouncements, refer to Notes (2) and (3) of Notes to Unaudited Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.