2008 Annual Report - SBM Offshore

SBM Offshore Annual Report 2008 / Report of the Board of Management35due to late equipment deliveries and sub-constructionactivities. The costs of these acceleration programmes weredifficult to forecast due to the uncertainty in predicting theeffectiveness/efficiency of the actual work.Apart from these two projects, the Company was alsoengaged in the execution of a further nine major projects,which kept the Group companies working at a high levelof activity. This has enabled the Company to continue itsprogression into the big league with respect to the executionof large billion dollar projects, which is expected to be thecase in the future as offshore oil production moves intodeeper water and ever more complex production schemes.The recent projects obtained are expected to containsufficient cost budgets and have suitable delivery schedulesso that expected margins should be obtained.The two other major activities in which the Company isengaged, the operation of the lease fleet and servicesactivities have obtained financial results above budget.The lease operation of FPSOs and FSOs attains verygood performance and has obtained almost maximumbonuses where these are available within the individuallease contracts. The services activities comprising aftersales services, offshore installation/construction using theCompany’s two vessels, mooring terminal projects etchas also performed above expectation producing goodfinancial results.Although the lease and turnkey segments are reportedseparately, it should be noted that the Company operatesas an integrated organisation, using the same projectteams for execution of the projects, be they a turnkeysupply to a third party client or a leased unit that will jointhe Company’s fleet. Operational experience from the leasefleet units is continually used to update the Company’s setof internal standards and operational procedures which arethe basis of the design and operation of the new leasedunits and have been fully endorsed by our major clients.These standards are now frequently used on turnkeysupply contracts on units for sale. The integrated nature ofthe Company’s activities and the related positive synergyrepresents an important strength of the Company.A major external event which has dominated 2008 hasbeen the rapid development of a world recession followingthe banking and credit crisis and the ensuing decline inthe oil price. The Company has a robust financial structurewhich will enable it to operate satisfactorily through 2009and is confident that the Company’s relationship bankswill be available to support the financing needs for theCompany’s ongoing projects during the year. The lower oilprice has caused some Oil & Gas Companies to reducetheir exploration and production budgets, but most ofthe oil majors have sustained their budgets at prior years'level. The effect on the Company’s new business couldbe that the sanction of new oil/gas field developments arein some cases either postponed or cancelled while thelower oil price regime remains. The general consensusamongst analysts and industry experts is that the oil pricemay remain at a lower level during 12 to 18 months, butwill then gradually increase thereafter as demand startsto exceed supply. The Company still has a large orderbacklog which will keep it well employed during 2009 butwill continue to seek new business opportunities, whilstalso making use of the expected slow down to consolidateand enhance its execution performance and efficiency,which was stretched during the last couple of years.Despite the fact that the Company has a predictable andsolid income stream from the lease business, the expectedslow down in new business makes it difficult to predict thebusiness outcome for 2009. As such the Company hasnot issued bottom-line guidance.From left to right: M.A.S. Miles, CFO (1964, British), D.J. van der Zee, Director (1948, Dutch),F. Blanchelande, Director (1949, French), A.J. Mace, CEO (1951, British)