Subsea 7 — Earnings Release 2014

Nov 12, 2014

Subsea 7 S.A. Announces Third Quarter 2014 Results

Subsea 7 S.A. Announces Third Quarter 2014 Results

Luxembourg - 12 November 2014 - Subsea 7 S.A. (the

Group) (Oslo Børs: SUBC) announced today results for

the third quarter which ended on 30 September 2014.

Jean Cahuzac, Chief Executive Officer, said:

I am pleased to report that we continued to deliver

strong operational performance in the third quarter

of 2014, which supported the solid financial results.

Global vessel utilisation was strong at 91% and was

five percentage points higher than in the third

quarter of 2013, matching the high level achieved in

the second quarter of this year.

Significant net cash was generated from operating

activities in the third quarter. This supported

continuing payments under our new vessel construction

programme, returns to investors in the form of a

dividend and the repurchase of shares and convertible

bonds.

Order backlog declined in the third quarter, owing to

a low level of order intake caused by the

postponement of a number of potential market awards,

a low level of escalations on existing contracts and

a negative foreign exchange impact of approximately

$300 million.

Operational highlights for the third quarter of 2014

In AFGOM, the Block 31 GES and CLOV projects were

substantially completed while good progress was made

on the Lianzi Topside and Lianzi SURF projects,

offshore Angola. Other major projects with

significant progress in the quarter included OFON 2

and Erha North, offshore Nigeria; TEN, offshore

Ghana; Cardona and Heidelberg in the US Gulf of

Mexico. In Mexico the Line 60 project was completed

and the Line 67 project was close to completion.

The main projects being executed in APME were the

Gorgon Heavy Lift and Tie-ins, Bayu Undan and

Ningaloo projects, offshore Australia, and the G1

project, offshore India, all of which progressed

satisfactorily.

In Brazil, we continued to achieve high levels of

utilisation and operational performance with our PLSV

fleet under their long-term contracts. The Seven

Waves performed well in its first full quarter of

service. Substantial progress was made with the riser

installation campaign on the Guará-Lula NE project.

At the end of the third quarter, 22 of the 27 risers

had been successfully installed and the offshore

phase remains on track to complete by year end. As a

consequence of continued good execution and further

de-risking of the project, the full-life project loss

provision was reduced by approximately $40 million in

the quarter.

In the North Sea and Canada, the Delta S2 project,

offshore Norway, the West Franklin and Caisson repair

projects, offshore UK, and the Suncor Phase 4

project, offshore Canada, were substantially

completed. Good progress was achieved on the Martin

Linge and Knarr projects, offshore Norway, and the

Western Isles, Montrose, Clair Ridge, Enochdhu and

Laggan Tormore projects, offshore UK. Our Life-of-

Field business in the North Sea continued with a high

level of activity throughout the third quarter.

Vessel utilisation across the NSC fleet was high at

93% compared with 92% in the third quarter 2013.

Outlook

The guidance we have previously provided for the full

year 2014 remains unchanged. We expect Group revenue

to increase and Adjusted EBITDA to increase

moderately from the level achieved in 2013 after

adding back the $355 million full-life project loss

provision recognised on the Guará-Lula NE project in

that year.

As we have indicated consistently throughout 2014,

uncertainty remains over the timing of market awards

for most large SURF projects. This trend was

particularly evident in the third quarter when a

number of potential market awards were postponed to

2015 and beyond. The decline in crude oil prices,

which began at the start of the third quarter, is

adding to the uncertainty over our clients' timing to

proceed with offshore field development projects.

Our order backlog and execution plans for projects

underway provide us with a sound basis for 2015

despite the deferral of awards to the market that the

industry is currently experiencing.

Interim Management Report: Financial Review

Third Quarter 2014

Revenue

Revenue for the quarter was $1.9 billion, an increase

of $338 million compared with Q3 2013. The increase

reflected higher activity levels across all

Territories, particularly in APME and NSC.

Adjusted EBITDA

Adjusted EBITDA for the quarter was $426 million, an

increase of $67 million compared to Q3 2013. Adjusted

EBITDA margin was 22.4%, compared with 23.0% in Q3

Net operating income

Net operating income was $324 million, compared with

$269 million in Q3 2013. The year-on-year improvement

was mainly attributable to Brazil due to high

utilisation across the PLSV fleet in addition to

approximately $40 million reduction in the full-life

project loss on the Guará-Lula NE project being

recognised in Q3 2014. The improvements in net

operating income were partially offset by lower net

operating income in AFGOM and Corporate.

Administrative expenses were $86 million, which

included an $11 million provision related to the

rationalisation of office facilities in Norway. This

compared with $74 million in Q3 2013.

Net income

Net income was $206 million, compared to $160 million

in Q3 2013. The increase in net income was primarily

due to:

- the increase in net operating income;

- finance costs of $6 million in Q3 2014

compared to $17 million in Q3 2013. In Q3 2014 there

was a higher amount of capitalised interest due to

the relative stage of completion of the new-build

vessels under construction, whereas Q3 2013 included

finance costs related to the 2013 2.25% convertible

notes which matured in October of that year; and

- foreign currency losses of $35 million in Q3

2014 compared with losses of $38 million in Q3 2013.

This was partially offset by:

- a $23 million increase in taxation charge

compared to Q3 2013 driven by higher income before

taxes.

The effective tax rate for the quarter was 29%,

compared to an effective tax rate of 27% for Q3 2013.

Earnings per share

Diluted earnings per share was $0.57 compared to

$0.42 in Q3 2013, based on a weighted average number

of shares of 373 million and 398 million shares

respectively. The 25 million reduction in the

weighted average number of shares reflected the

maturity of the 2013 2.25% convertible notes and

shares acquired under the Group's share repurchase

programmes.

Nine months ended 30 September 2014

The comparative period ('2013') is the nine month

period from 1 January 2013 to 30 September 2013.

Revenue

Revenue for the nine months ended 30 September 2014

was $5.5 billion (2013: $4.7 billion). The increase

reflected higher activity levels across all

Territories.

Adjusted EBITDA

Adjusted EBITDA was $1.1 billion, an increase of $403

million compared to 2013. Adjusted EBITDA margin was

20.9% compared to 15.7% in 2013.

Net operating income

Net operating income was $840 million (2013: $464

million). The improvement was mainly due to

approximately $75 million reduction in the full-life

project loss on the Guará-Lula NE project being

recognised in the nine months ended 30 September

2014. This compared with a $300 million increase in

the full-life project loss recognised in 2013. This

reduction in the full-life project loss was partially

offset by lower contributions from the Seaway Heavy

Lifting and SapuraAcergy joint ventures.

Administrative expenses were $234 million for the

nine months ended 30 September 2014, which included

an $11 million provision related to the

rationalisation of office facilities in Norway. This

compared with administrative expenses of $215 million

in 2013 which benefited from the reversal of a $16

million provision recognised at the date of the

business combination in 2011.

Net income

Net income was $607 million, an increase of $329

million compared to 2013. The increase in net income

was primarily due to:

- the increase in net operating income;

- foreign currency losses of $17 million in the

nine months ended 30 September 2014 compared with

losses of $41 million in 2013; and

- finance costs of $18 million in the nine

months ended 30 September 2014 compared to $58

million in 2013, this included finance costs

associated with the 2013 2.25% convertible notes

which were redeemed or converted in October 2013. In

the nine months ended 30 September 2014 there was a

higher amount of capitalised interest due to the

relative stage of completion of the new-build vessels

under construction.

partially offset by:

- a $98 million increase in taxation charge

compared to 2013 mainly driven by higher income

before taxes.

The effective tax rate for the nine months ended 30

September 2014 was 26%, compared to an effective tax

rate of 30% for 2013. The 2013 effective tax rate was

adversely impacted by an increase in the full-life

project loss provision recognised on the Guará-Lula

NE project, whereas the 2014 effective tax rate was

favourably impacted by the decrease in the full-life

project loss on the Guará-Lula NE project.

Earnings per share

Diluted earnings per share was $1.72 compared to

$0.77 in 2013, based on a share count of 374 million

shares in both years.

Cash and cash equivalents

Cash and cash equivalents increased to $662 million

at 30 September 2014 from $650 million at 31 December

2013. The cash generated from operating activities of

$1,070 million was offset by:

- $635 million expenditure on property, plant

and equipment primarily comprising payments on new-

build vessels

- $122 million of share repurchases as part of

the Group's share repurchase programmes

- $195 million of dividends paid to

shareholders of Subsea 7 S.A; and

- repurchase of $79 million of the $275 million

3.5% convertible bonds due 13 October 2014.

Borrowings

Borrowings were $844 million at 30 September 2014

compared with $912 million at 31 December 2013.

Territory highlights

Third Quarter 2014

Africa, Gulf of Mexico & Mediterranean (AFGOM)

Revenue was $624 million, an increase of $41 million

compared to Q3 2013. During the quarter the Block 31

GES and Clov projects were substantially completed

and there was progress on the Lianzi Topside and

Lianzi SURF projects, offshore Angola. In addition

there was progress on the OFON 2 and Erha North

projects offshore Nigeria; the T.E.N. project

offshore Ghana; Cardona and Heidelberg projects in

the US sector of the Gulf of Mexico and the Line 60

and Line 67 projects, in the Mexican sector of the

Gulf of Mexico. Net operating income was $83 million

compared to $94 million in Q3 2013. The decrease in

net operating income resulted mainly from the timing

of the Lianzi and Erha projects in West Africa which

were executing the early stages of their offshore

phases during the quarter together with remaining

costs incurred on the Line 67 project due to field

access issues and schedule changes.

Asia Pacific & Middle East (APME)

Revenue was $246 million, an increase of $173 million

compared to Q3 2013. There was significant progress

on the Gorgon Heavy Lift and Tie-ins, Bayu Undan and

Ningaloo projects, offshore Australia and the G1

project, offshore India. Net operating income was $35

million, compared to $30 million in Q3 2013. The

increase in net operating income was mainly due to

higher project activity in the quarter, partially

offset by a lower contribution from the SapuraAcergy

joint venture compared to Q3 2013 which benefitted

from high activity levels on the Gumusut Kakap

project. The Gorgon Heavy Lift and Tie-ins project

continued to contribute significant revenue with

limited margin recognition due to the relative stage

of completion of the offshore campaign.

Brazil (BRAZIL)

Revenue for the quarter was $249 million, which was

an increase of $17 million compared to Q3 2013. The

offshore phase of the Guará-Lula NE project continued

during the quarter and there were high levels of

vessel activity under the long-term PLSV contracts

with Petrobras. Net operating income for the quarter

was $88 million (Q3 2013: $10 million). The increase

in net operating income was due to the high

utilisation of the PLSV fleet, and a further

reduction in the Guará-Lula NE full-life project loss

of approximately $40 million reflecting a further de-

risking of the project due to significant progress in

executing the riser installation campaign.

North Sea & Canada (NSC)

Revenue was $784 million compared to $670 million in

Q3 2013. In Q3 2014 the Delta S2 project offshore

Norway; the West Franklin and Caisson repair

projects, offshore UK; and the Suncor Phase 4 project

offshore Canada, were substantially completed. Work

progressed on the Martin Linge and Knarr projects,

offshore Norway, and the Western Isles, Montrose,

Clair Ridge, Enochdhu and Laggan Tormore projects,

offshore UK. Activity under Life-of-Field frame

agreements was at a high level throughout the quarter

with vessel utilisation across the NSC fleet of 93%

compared with 92% in Q3 2013. Net operating income

was $109 million, a decrease of $2 million compared

to Q3 2013. Net operating income was adversely

impacted by an $11 million provision related to the

rationalisation of office facilities in Norway.

Corporate (CORP)

Net operating income was $10 million (Q3 2013: $24

million). The decrease in net operating income was

mainly due to a reduction in the contribution from

the Seaway Heavy Lifting joint venture due to lower

year-on-year activity in the renewables sector.

Nine months ended 30 September 2014

Africa, Gulf of Mexico & Mediterranean (AFGOM)

Revenue of $2.0 billion was up $173 million compared

with 2013. During the period the CLOV, Block 31 GEL,

Block 31 GES and Block 31 PSVM projects, offshore

Angola, were substantially completed. There was

progress on the Lianzi SURF and Lianzi Topside

projects, offshore Angola. In addition there was

progress on the OFON 2, OCIP Phase 2 and Erha North

projects, offshore Nigeria; the T.E.N project,

offshore Ghana; the Heidelberg, Tubular Bells and

Cardona projects in the US sector of the Gulf of

Mexico and the Line 60 and Line 67 projects, in the

Mexican sector of the Gulf of Mexico. Net operating

income was $245 million compared to $313 million in

2013. The period-on-period decrease in net operating

income was partially due to additional costs incurred

in 2014 on the Line 60 and Line 67 projects mainly

related to third party vessel breakdown and field

access issues which resulted in schedule changes.

(Please see complete Release for all figures.)