Polarcus' 2Q Revenue Hit by Contract Cancellations, Lower Rates

July 22, 2020

Vyacheslav Tikhonov -Credit: Polarcus
Vyacheslav Tikhonov -Credit: Polarcus

Marine seismic contractor Polarcus saw its second-quarter revenue fall due to contract cancellations and lower dayrates caused by the slump in oil prices and the oil companies' exploration budget cuts that followed. 

During the quarter, the company saw its vessel utilization drop to 50%, compared to 72% in Q2 2019. Backlog was approximately USD 141 million, compared to USD 200 million at the same time last year. 

The Dubai-headquartered company doesn't see the seismic market situation improving much this year and expected fleet utilization to remain at similarly low levels in Q3 2020.

It is, however, somewhat optimistic about the next year, based on discussions with E&P companies, and on the expected global seismic fleet reduction.

Polarcus CEO, Duncan Eley, commented: "As guided, the Company’s Q2 2020 results were negatively impacted by low utilization as E&P companies re-assessed their near-term exploration plans following the global economic slow-down which has also delayed tender processes."

The seismic vessel owners' segment revenues for the quarter were $22.8 million, compared to $64.8 million in Q2 2019. Segment EBITDA was negative USD 2.5 million, compared to positive USD 16.0 million in Q2 2019. Net loss was $20.7 million, compared to a net profit of $0.6 million a year ago.

"Second quarter Segment revenues of USD 22.8 million decreased 65% compared to the same period last year as marine seismic acquisition activity was negatively impacted by the unprecedented global economic crisis triggered by the combined impacts of the COVID-19 pandemic and oil price volatility," Polarcus said.

"The revenue decline was driven largely by reduced utilization as a result of the canceled and terminated contracts announced in Q1 2020 and lower effective day rates on contract. Reduced revenue from V.Tikhonov further contributed to the revenue decline from the same quarter last year," Polarcus added.

V. Tikhonov is Polarcus' seismic vessel leased out to the Russian company Sovcomflot. Sovcomflot recently said it would return the vessel to Polarcus, but then opted to keep it some more. There is a caveat, though. Polarcus said it would not receive charter hire from May 31, 2020 until the startup of a new project anticipated to begin in Q3 2020.

Polarcus' fleet is 40% booked for the remainder of 2020.

Rest of the year bleak, 2021 might be better

Eley said the outlook for the second half of 2020 remained challenging, but that the next year could offer some improvement.

He said:"...the recent marine seismic industry restructuring alongside current oil price developments provide favorable foundations for activity levels to build during 2021."

Oslo-lised Polarcus said that the reshaping of the seismic industry that has occurred, resulting in an increased number of multi-client companies without vessels, has led to an improved industry structure.

"However, continued supply-side discipline observed during Q2 2020 with three vessels removed from the global vessel count of 22 vessels is critical for the future market balance. Further reductions in active vessels are expected during H2 2020," Polarcus said.

According to Polarcus' presentation, Polarcus' fleet makes up 21% of 3D high-end seismic active global fleet. As of July, Polarcus had six active vessels including the Ivan Gubkin and Vyacheslav Tikhonov, both chartered out to Sovcomflot.

The seismic company says that the tender activity significantly reduced during Q2 2020 due to the combined effects of a sharp decline in oil price and the global slow-down related to the COVID-19 pandemic. 

"Discussions with many E&P companies confirm that exploration and production investment portfolios are currently being reviewed and revised. As a result, many tender processes and decisions have been deferred. This indicates a challenging market in the second half of 2020," the company said.

However, Polarcus added, clients also indicate that 2021 activity is expected to rebuild with a number of projects and tenders rescheduled to next year. 

E&P companies will finalize their budgets for 2021 exploration and production investments during the second half of 2020. Sentiment during this period, related to oil price and COVID-19 restrictions, will be an important factor determining 2021 demand levels. Polarcus expects the tendering activity to pick up in the third quarter, for work to be conducted next year.

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