This Form 10-Q includes "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995. Such forward-looking
statements concern management's expectations, strategic objectives, business
prospects, anticipated economic performance and financial condition and other
similar matters and involve significant known and unknown risks, uncertainties
and other important factors that could cause the actual results, performance or
achievements of results to differ materially from any future results,
performance or achievements discussed or implied by such forward-looking
statements. Certain of these risks, uncertainties and other important factors
are discussed in the Risk Factors and Management's Discussion and Analysis of
Financial Condition and Results of Operations of the Company's 2019 Annual
Report and this Quarterly Report on Form 10-Q. However, it should be understood
that it is not possible to identify or predict all such risks, uncertainties and
factors, and others may arise from time to time. All of these forward-looking
statements constitute the Company's cautionary statements under the Private
Securities Litigation Reform Act of 1995. The words "anticipate," "estimate,"
"expect," "project," "intend," "believe," "plan," "target," "forecast" and
similar expressions are intended to identify forward-looking statements Forward
looking statements speak only as of the date of the document in which they are
made. The Company disclaims any obligation or undertaking to provide any updates
or revisions to any forward-looking statement to reflect any change in the
Company's expectations or any change in events, conditions or circumstances on
which the forward-looking statement is based. It is advisable, however, to
consult any further disclosures the Company makes on related subjects in its
Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports
on Form 8-K filed with the Securities and Exchange Commission.
Overview
The following analysis of our financial condition and results of operations
should be read in conjunction with the unaudited consolidated financial
statements and notes thereto included in this Quarterly Report on Form 10-Q, as
well as Management's Discussion and Analysis of Financial Condition and Results
of Operations contained in the 2019 Annual Report.
The Company provides global marine and support transportation services to
offshore oil, natural gas exploration and windfarm development and production
facilities worldwide. As of June 30, 2020, the Company and its joint ventures
operated a diverse fleet of 146 support and specialty vessels, of which 103 were
owned or leased-in, 40 were joint ventured and three were managed on behalf of
unaffiliated third parties. The primary users of the Company's services are
major integrated oil companies, large independent oil and natural gas
exploration and production companies and emerging independent companies, as well
as windfarm operations and installation contractors.
The Company's fleet features offshore support and specialty vessels that deliver
cargo and personnel to offshore installations; handle anchors and mooring
equipment required to tether rigs to the seabed; tow rigs and assist in placing
them on location and moving them between regions; provide construction, well
workover and decommissioning support; carry and launch equipment used underwater
in drilling and well installation, maintenance and repair; and provide windfarm
installation, maintenance and repair support. Additionally, the Company's
vessels provide accommodations for technicians and specialists, safety support
and emergency response services. The Company's fleet also features CTVs used
primarily in windfarm operations.
The Company operates its fleet in five principal geographic regions: the U.S.,
primarily in the Gulf of Mexico; Africa, primarily in West Africa; the Middle
East and Asia; Latin America, primarily in Mexico, Brazil and Guyana; and
Europe, primarily in the North Sea. The Company's vessels are highly mobile and
regularly and routinely move between countries within a geographic region. In
addition, the Company's vessels are redeployed among the geographic regions,
subject to flag restrictions, as changes in market conditions dictate. The
number and type of vessels operated, their rates per day worked and their
utilization levels are the key determinants of the Company's operating results
and cash flows. Unless a vessel is cold-stacked, there is little reduction in
daily running costs for the vessels and, consequently, operating margins are
most sensitive to changes in rates per day worked and utilization. The Company
manages its fleet utilizing a global network of shore side support,
administrative and finance personnel.
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Certain macro drivers somewhat independent of oil and natural gas prices also
have the ability to continue to support the Company's business, including: (i)
underspending by oil and gas producers during the current industry downturn
leading to pent up demand for maintenance and growth capital expenditures; and
(ii) improved extraction technologies. While alternative forms of energy may
gain a foothold in the long term, for the foreseeable future, the Company
believes demand for gasoline and oil will be sustained, as well as demand for
electricity from natural gas.
Low oil prices and the subsequent decline in offshore exploration have forced
many operators in the industry to restructure or liquidate assets. The Company
continues to closely monitor the delivery of newly built offshore support
vessels to the industry-wide fleet, which is creating situations of oversupply,
thereby further lowering the demand for the Company's existing offshore support
vessel fleet. A continuation of (i) low customer exploration and drilling
activity levels, and (ii) continued excess supply of offshore support vessels
whether from laid up fleets or newly built vessels could, in isolation or
together, have a material adverse effect on the Company's business, financial
position, results of operations, cash flows and growth prospects.
The Company adheres to a strategy of cold-stacking vessels (removing from active
service) during periods of weak utilization in order to reduce the daily running
costs of operating the fleet, primarily personnel, repairs and maintenance
costs, as well as to defer some drydocking costs into future periods. The
Company considers various factors in determining which vessels to cold-stack,
including upcoming dates for regulatory vessel inspections and related docking
requirements. The Company may maintain class certification on certain
cold-stacked vessels, thereby incurring some drydocking costs while
cold-stacked. Cold-stacked vessels are returned to active service when market
conditions improve, or management anticipates improvement, typically leading to
increased costs for drydocking, personnel, repair and maintenance in the periods
immediately preceding the vessels' return to active service. Depending on market
conditions, vessels with similar characteristics and capabilities may be rotated
between active service and cold-stack. On an ongoing basis, the Company reviews
its cold-stacked vessels to determine if any should be designated as retired and
removed from service based on the vessel's physical condition, the expected
costs to reactivate and restore class certification, if any, and its viability
to operate within current and projected market conditions. As of June 30, 2020,
18 of the Company's 103 owned and leased-in, in-service vessels were
cold-stacked worldwide, and an additional two owned vessels and one leased-in
vessel were retired and removed from service.
The Company's business is, to a large extent, tied to the level of offshore
exploration, development and production activity by oil and gas companies around
the world. In the recent months, oil prices have experienced record declines in
response to a significant amount of anticipated oversupply in oil and natural
gas caused by (i) the COVID-19 pandemic that began in late 2019 and has led to a
substantial decrease in global economic activity and (ii) supply decisions
principally by Russia and Saudi Arabia resulting in failure to agree on terms to
maintain production limits and the ensuing influx of additional oil to an
already oversupplied market. These recent declines in oil and natural gas prices
come on top of prices that have, for the last few years, been below historic
averages. On January 2, 2020, West Texas Intermediate ("WTI") crude oil prices
closed at a price of $61.18 per barrel. On April 20, 2020, the New York
Mercantile Exchange ("NYMEX") WTI oil futures price for May 2020 went "negative"
to -$37.63 per barrel. While OPEC+ members have implemented production cuts, the
cuts have failed to return oil and natural gas prices to levels seen prior to
the COVID-19 pandemic. On June 30, 2020, the last trading date of the second
quarter of 2020, WTI crude oil prices closed at a price of $39.27 per barrel,
well below historic averages. To the extent that the outbreak of COVID-19
continues to negatively impact demand, the Company expects there to be excess
supply of oil and natural gas for the foreseeable future. This excess supply
could, in turn, result in transportation and storage capacity constraints in the
United States, or even the elimination of available storage.
The decrease in oil and natural gas prices has led to a decrease in demand for
our products and services as oil and gas companies delay or otherwise reduce
activity levels of offshore oil and gas projects, and to the extent that oil and
gas companies decide to abandon or further delay these projects due to the lower
demand for oil and natural gas and resulting lower prices, it could have a
material adverse effect on our business and financial condition.
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There are a number of steps the Company has and can take to mitigate any adverse
effects to its business stemming from the COVID-19 pandemic and the resulting
depressed oil and natural gas price environment, including sales of assets,
workforce reductions and other cost reduction measures. In addition, as a result
of the changes in the current U.S. tax law included in the CARES Act, we expect
to receive a net amount of cash tax refunds of approximately $28.2 million, with
approximately $23.7 million expected to be received within the next nine months,
subject to filing to the necessary tax refund claims and the refund schedule of
the Internal Revenue Service. These tax refunds are subject to the terms of a
Tax Refund Agreement with SEACOR Holdings. The Tax Refund Agreement does not
restrict the use of approximately $16.0 million of the refund, with the
remaining approximately $12.2 million required to be deposited into an account
to be used solely to satisfy certain of the Company's obligations that remain
guaranteed by SEACOR Holdings. See "-Recent Developments-Tax Refund Agreement"
below.
Recent Developments
SEACOSCO Acquisition. On June 30, 2020, the Company completed the acquisition of
the SEACOSCO Interests. As a result of the completion of the acquisition, the
Company owns 100% of the membership interests in SEACOR Offshore Delta LLC,
formerly known as SEACOSCO Offshore LLC ("SEACOR Offshore Delta"). The price
paid by SEACOR Offshore Asia, a wholly-owned subsidiary of SEACOR Marine, for
the membership interests was $28.2 million (the "SEACOSCO Purchase Price"), $8.4
million of which was paid to the Sellers at the closing of the transaction, with
annual installment payments of $1.0 million, $2.5 million and $2.5 million
payable in the first, second and third year after the signing date (the
"SEACOSCO SPA Signing Date"), respectively, and the remaining $13.7 million is
due four years after such signing date. The deferred portion of the SEACOSCO
Purchase Price accrues interest at a fixed rate of 1.5%, 7.0%, 7.5% and 8.0% for
the first through fourth years after the SEACOSCO SPA Signing Date,
respectively. The SEACOSCO Sellers obtained a second lien mortgage on the SEACOR
Delta PSVs to secure the payment of the deferred portion of the SEACOSCO
Purchase Price, and SEACOR Marine provided a limited deficiency guarantee solely
with respect to the short-fall in vessel collateral value, if any, in the event
the SEACOSCO Sellers exercise their remedies under the mortgages. The SEACOR
Delta PSVs were initially acquired by the SEACOR Delta SPVs pursuant to the
Guangdong DPAs under which an aggregate of approximately $100.8 million was
outstanding as of June 30, 2020. The Guangdong DPAs provide for amortization of
the purchase price for each vessel over a period of 10 years from delivery at a
floating interest rate of three-month LIBOR plus 4.0%. SEACOR Offshore Delta has
taken delivery of seven of the eight SEACOR Delta PSVs, each with a 2018 or 2019
year of build, and expects to take delivery of the final SEACOR Delta PSV in
2020. The payment obligations of the SEACOR Delta SPVs under the Guangdong DPAs
for each vessel is secured by a first lien mortgage on the applicable vessel and
a pledge of the SEACOR Delta SPV's equity, and SEACOR Marine provided a limited
deficiency guarantee solely with respect to the short-fall in vessel collateral
value, if any, in the event the COSCO (Guangdong) Shipyard exercises its
remedies under the mortgages.
Tax Refund Agreement. On June 26, 2020, the Company entered into the Tax Refund
Agreement with SEACOR Holdings. The Tax Refund Agreement will enable the Company
to utilize NOLs generated in 2018 and 2019 to claim refunds for tax years prior
to the Company's spin-off from SEACOR Holdings in 2017 (at which time the
Company was included in SEACOR Holdings consolidated tax returns) that are now
permitted to be carried back pursuant to the provisions of the CARES Act and for
which SEACOR Holdings needs to claim the refund on behalf of the Company. As a
result, the Company expects to receive a net amount of cash tax refunds of
approximately $28.2 million, with approximately $23.7 million expected to be
received within the next nine months, subject to the filing of the necessary tax
refund claims and the refund schedule of the Internal Revenue Service.
Approximately $10.4 million of the restricted cash relates to scheduled monthly
payments toward vessel operating leases, most of which will mature on or prior
to December 2021.
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SEACOR Holdings will retain certain of the funds to facilitate tax savings
realized by SEACOR Holdings of no less than 35% of the amount of its own 2019
NOLs. The $28.2 million of the refunds the Company expects to receive is net of
these holdbacks and of a $3.0 million transaction fee paid to SEACOR Holdings
concurrently with the signing of the agreement as consideration for its
cooperation in connection with the filing of the applicable tax refund returns.
The Tax Refund Agreement does not restrict the use of approximately $16.0
million of the refund, with the remaining approximately $12.2 million required
to be deposited into an account to be used solely to satisfy certain of the
Company's obligations that remain guaranteed by SEACOR Holdings. These
obligations primarily relate to vessel operating leases, an office lease and
certain U.K. pension liabilities.
Amendment to SEACOR Marine Foreign Holdings Credit Facility. On June 29, 2020,
SEACOR Marine, SMFH, and certain vessel-owning subsidiaries of SEACOR Marine,
entered into the SMFH Credit Facility Amendment to that certain SMFH Credit
Facility. The SMFH Credit Facility Amendment provides for, among other things,
(i) the modification of certain financial maintenance and restrictive covenants
contained in the SMFH Credit Facility or the guaranty provided by SEACOR Marine
with respect thereto, including with respect to EBITDA coverage ratios,
mandatory prepayment events, and the exclusion of certain indebtedness
associated with the acquisition by SEACOR Marine, through an indirect
wholly-owned subsidiary, of the SEACOSCO Interests, and (ii) the placement of
mortgages on two additional vessels owned by vessel-owning subsidiaries of
SEACOR Marine as security for the indebtedness under the SMFH Credit Facility.
Amendment of Falcon Global Credit Agreement. On February 7, 2020, SEACOR Marine,
FGUSA, and certain subsidiaries of FGUSA, entered into an FGUSA Omnibus
Amendment to that certain (i) FGUSA Credit Facility and (ii) FGUSA Guaranty. The
FGUSA Omnibus Amendment provides for, among other things (i) the extension from
March 2020 to March 2021 of the commencement of monthly repayment of the term
loan, with payments being the lesser of (a) $0.8 million per month and (b) the
amount outstanding under the term loan and (ii) the extension of the term of the
FGUSA Guaranty for an additional one year from February 8, 2020 to February 8,
2021.
On April 29, 2020, FGUSA and certain subsidiaries of FGUSA, entered into the
FGUSA Sixth Consent and Agreement, which provides that, among other things, (i)
the deadline for delivery of the FGUSA 2019 Audited Financial Statements is
extended from April 29, 2020 to May 31, 2020, (ii) the FGUSA 2019 Audited
Financial Statements are not required to be without a "going concern" or like
qualification, commentary or exception, and (iii) the deadline for delivery of
certain physical vessel appraisals is extended to December 31, 2020.
Sale of North Sea Standby Safety Fleet. On December 2, 2019, SEACOR Capital (UK)
Limited, an indirect wholly-owned subsidiary of SEACOR Marine, completed the
sale of its standby safety fleet business, which we refer to as the emergency
response and rescue vessel ("ERRV") fleet, for approximately $27.4 million.
Unless the context indicates otherwise, all of the results presented in this
Quarterly Report on Form 10-Q exclude the ERRV fleet operations which are
classified as discontinued operations.
Costs and Restructuring Initiatives. During the third quarter of 2019, the
Company initiated certain cost reduction initiatives to better align its
operating expenses with the current state of its business and the offshore
marine industry, including a reduction of workforce, reorganization of the
management structure, closure and/or consolidation of certain facilities and
streamlining of operations. The Company expects these initiatives, which will
impact all of its reportable segments, to be completed by the third quarter of
2020 and is targeting annualized recurring savings of at least $8.0 million once
completed. For the six months ended June 30, 2020, the Company incurred one-time
restructuring charges totaling $0.9 million related to these restructuring
activities. Management continues to focus on optimizing the cost structure and
regional footprint of the business to help maintain the Company's
competitiveness in the industry, improve its operating leverage and position
itself to take advantage of market opportunities.
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