SBM Offshore's (SBFFF) CEO Bruno Chabas on Q1 2016 Results - Earnings Call Transcript

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SBM Offshore NV (OTCPK:SBFFF) Q1 2016 Earnings Conference Call May 12, 2016 3:00 AM ET

Executives

Bruno Chabas - CEO

Philippe Barril - COO

Peter van Rossum - CFO

Erik Lagendijk - Chief Governance & Compliance Officer

Nicolas Robert - Head, IR

Analysts

Rob Pulleyn - Morgan Stanley

Dirk Verbiesen - KBC

Peter Testa - One Investments

Luuk Van Beek - Petercam

Wim Gille - ABN AMRO

Guillaume Delaby - Societe Generale

Quirijn Mulder - ING Financial Markets

Martijn Van Der Starre - Bloomberg News

Andre Mulder - Kepler

Michel Aupers - Rabobank

Martijn den Drijver - ESN/SNS Securities

Jacob Confino - Whitebox Advisors

Daniel Butcher - JPMorgan

Operator

Welcome to the SBM Offshore First Quarter 2016 Trading Update Conference Call. [Operator Instructions]. I would now like to hand over to Bruno Chabas, CEO. Mr. Chabas, the floor is yours.

Bruno Chabas

Thank you, operator. Good morning and thank you for taking the time to join our first quarter 2016 trading update conference call. As you would have guessed I am Bruno Chabas, CEO of SBM Offshore. I'm joined today by our CFO, Peter van Rossum; our COO, Philippe Barril; and CGCO, Erik Lagendijk. Deepwater has continued to see headwinds in the first quarter with few final investment decisions among cutbacks in development spending. Despite improving crude oil prices, we do not expect client final investment decisions in the offshore deepwater segment to return to pre-downturn levels. SBM Offshore continued to focus on its project under construction.

During the period, Cidade de Marica achieved first oil; meaning that she's formally on hire contributing to cash flow. Her sister ship, Cidade de Saquarema is nearing completion of its topside commissioning in the joint venture yard outside Rio de Janeiro. Turritella, our vessel for shale stones development in the U.S. Gulf of Mexico, is on location, where work is progressing. Both projects are expected to be hire around mid-2016.

Turning to early project work. We were awarded a FEED study in January 2016 by Premier Oil for an FPSO to be deployed in the Sea Lion development in the North Falkland basin. The Browse project, for which the Company was working on the FEED study for FEED Turret was discontinued during the first quarter. Discussions with Brazilian Authorities and Petrobras are progressing, but the timing and size of a potential settlement remains to be confirmed. Additionally, we continue to cooperate with the U.S. Department of Justice in its enquiry following the re-opening of its case in January 2016.

Now, let me briefly turn to the numbers. Directional revenue for the quarter was in line with management expectations at $442 million, driven by a decrease in turnkey activity on the remaining project under construction and the lack of order intake in 2015 and 2016. Directional backlog, as of March 31, totaled $18.5 billion with about $55 million of order intake in the prior year. The lease and operate backlog is a robust $18 billion, for which we should generate reliable cash flow for years to come. Proportional net debt stood at $3.1 billion at the end of the period, unchanged compared to December 2015. During the period the Company renegotiated some of its covenants on its revolving credit facility to create more headroom. Growth directional capital in expenditure to the end of the period stood at $63 million before the deduction of roughly $78 million of upfront client payments.

Turning to guidance, we're reiterating our 2016 directional revenue of at least $2 billion of revenue, of which $1.3 billion to $1.4 billion is expected in the lease and operate segment and $600 million to $700 million in the turnkey segment. Management also reconfirms 2016 directional EBITDA guidance of around $750 million. As the downturn forward activity persists, SBM Offshore continues to focus on these two remaining project deliveries, FEED operational reliability and cost management. Lease and operate cash flows continue to grow and are expected to increase further, as FPSO Cidade and Saquarema and Turritella are delivered around mid-year. So this concludes the formal portion of the call, thank you for listening.

We're now opening the call for questions.

Question-and-Answer Session

Operator

[Operator Instructions]. We will go ahead with the line of Rob Pulleyn with Morgan Stanley. Please go ahead. Your line is open.

Rob Pulleyn

Just two quick questions about the outlook for FPSO contract awards which I appreciate are difficult at this point in the cycle. But could you give a little bit of an update as to what's happening with Libra and Sepia tenders in Brazil for Petrobras? Also, I saw on the news wires that you'd been prequalified for the Liza FPSO if I'm pronouncing that correctly for Exxon in Guyana. Would that be a possibility for your new standardized design? Just wondering when we could expect maybe some progress on those projects. Thank you.

Bruno Chabas

As usual, we don't comment specifically on any particular projects. What we said at the end of the year for the 2015 full-year review and the forecast for the year, we mentioned that potentially during the year, we're going to see anywhere between one to four awards of FPSO in 2016. We're still sticking to that. The timing of the award is uncertain, so some awards could be done in 2016; some in 2017. But the range of awards should be between one to four during the 2016 period.

Now, regarding fast forward, it's really a project that we launched 2.5 years ago, whereby we look at what is the best way to reduce the cost of the industry, to be able to provide assets which are going to be cost-effective and which is going to help our clients to be able to develop projects in deepwater and to be economical - those projects being economical in the range of $40 to $60 per barrel. I would say that the fast-forward project today is a project - whilst we're still making some progress, it's a project which is attracting a lot of interest by our clients and it's something that we're pushing ahead.

Rob Pulleyn

Okay. Yes, I appreciate the sensitivity around tenders which might be outstanding. Just on a different topic if I may, a slight follow-up. Just on the Deep Panuke which has been shut down for 120 days, I note your press release said that there's no impact on the day rate for that period. Could you maybe just give a little bit of flavor and color as to what happens, God forbid, if that shutdown lasts longer than that 120 days? Would there be some impact on the day rate in future and what's the likelihood timing of fixing the problem? Thank you.

Philippe Barril

I think before answering the question, I think we need to say what happened. We had an element of the burner that had mechanical failure. So why are we communicating on it? Because it's unusual for us to have a shutdown that is longer than two weeks. We would rather be transparent; that you hear that from the media. Now, in terms of what we're doing to fix the issue, we've already engineer procure a replacement flare tip which is on its way to Canada. We're very confident that we're going to be able to replace the flare tip as well within the 120 days' period.

So it's not actually an overall 120 days' period that we're scheduling; it should be shorter than that. Again, we're going to be confident that within weeks, we're going to have fixed the issue. Coming back to your point which is what happens if it's above the 120 days and in terms of there, what impact? In our view, it's such a remote possibility that we will not speculate on it.

Operator

And we will open up the line for Dirk Verbiesen, Petercam. Please go ahead. Your line is open.

Dirk Verbiesen

Dirk Verbiesen from KBC, actually. Still a question on the outlook, if I may and particularly your statement on expecting immaterial order intake in 2016 and 2017. Should we read that in terms of your guidance provided specifically for your turnkey business, so the $150 million EBIT loss? And can you by now be a bit more specific on the split of the EBIT loss in those two years? That's my first question.

The second question I have is can you provide an update on the compliance? I appreciate the comments on Brazil and the U.S. DoJ, but apparently, there's also something on the Unaoil and a wider investigation internally on your side. Can you provide an update there? And is that already completed or by when should we see a completion there? Thanks.

Peter van Rossum

We've said that we do not expect material order intake and really we're focusing there on big turnkey projects, FPSOs, new turrets projects, etc. Obviously, in the background, work continues on brownfields activities, on FEED studies, on terminals business which is not an unimportant part of the business. Given the decline in the big projects, it's becoming a larger part of the turnkey segment. We had $55 million of order intake in the first quarter. If you follow me in the math, at the beginning of the year the contracted turnkey revenue was about $0.5 billion.

We've guided the market on revenue of $600 million to $700 million for the year which meant at the beginning of the year, we had to secure between $100 million and $200 million of additional revenue. $55 million of that has been booked in the first half and we seem to be well on track to generate further orders in the remainder of the year, quarter 2 through to quarter 4. In that sense, we're confident in the outlook that we've defined for the turnkey business. Obviously, the lease and operate part has more visibility.

The delivery of the two remaining vessels, Saquarema and Turritella, around mid-way is going to be an important element in the increased revenue that we're going to enjoy from that segment.

Erik Lagendijk

On the compliance side with regard to Brazil, we have said that we have some progress, but that we have not yet reached the final stage. Again, we will inform the market if and when that has happened. We remain committed, as reflected by the provision; that is not new. There is nothing else that I can say in that regard. With regard to Unaoil, you mentioned that is, indeed, an investigation by the DoJ into Unaoil. It's not an investigation into SBM.

We have received some questions from the DoJ and we're cooperating with them. But, as that regards an investigation into another company, we cannot comment on the timing of that closure, nor of the outcome of that. With regard to the investigation or the reopening of the investigation into SBM, again we have nothing else to report. We will await the outcome. We're cooperating and until that, I'm afraid you have to wait.

Peter van Rossum

Sorry Dirk, Peter; I missed the other part of your question. How we're doing on the - let's say, the potential turnkey investment, that $150 million we're investing in our capacity over 2016/2017. There's no change in that position. We haven't given you a split between 2016 and 2017. We've given EBITDA guidance for 2016. But still very much in place and reconfirmed with this press release. There's little more that we can say. In terms of the reorganization itself, that's in progress. At mid-year, we hope to be able to give you a bit more color on how that is progressing.

Operator

[Operator Instructions]. Our next question comes from the line of Peter Testa, One Investments. Please go ahead. Your line is open.

Peter Testa

I was wondering just on the covenant, if you could give some background in terms of the reasoning for the covenant change and the structuring as it has been set up, please. And then, as a small follow-up, on the fast-forward project, is it mature enough to be used in current tenders in your view?

Bruno Chabas

Let me take the last part of your question first and Peter will expand on the covenant. Fast-forward, again, it's a project which, really, we have been working for more than 2.5 years which is taking the best of what SBM has been able to do over the years, looking at what can be done in order to reduce the cost, to become more standardized and yet to give an answer to the client with projects which are going to be more reliable over time. This project we have been working, again, for 2.5 years. We have standardized a lot of our equipment throughout the years, but in particular over the past 2.5 years. Part of it is being used in current tenders, yes.

Peter van Rossum

Peter, on the covenants, yes, it's an interesting situation, because what we're actually seeing in practice, of course, is the revolving credit facility that is tied to these covenants or the covenants are tied to the RCF, is undrawn today. There's no expectation we will draw it in the near term. Our cash position is increasing. So in terms of liquidity, the Company's balance sheet is getting stronger and stronger by the day. So why on earth do we need to sit down with the banks to renegotiate the covenants? The background to it is actually quite simple.

In 2014, when we signed the RCF with the banks, there was a certain expectation on activity levels. What we see with the downturn which really is persisting, is that the EBITDA generated by the turnkey segment is getting lower. Yes, it means we're spending less CapEx and we're getting more cash. But optically, it means that those covenants that have EBITDA in the calculation, particularly in the coverage ratio and the leverage ratio, are coming under some pressure.

Now, the Company is always working with a, kind of, a safety headroom level around these covenants, to be comfortable. What we could see is that due to the lower EBITDA from turnkey, the forecasted covenants were getting closer to the headroom area. We were not comfortable with that, so we sat down with the banks and said, look, we need to do some decent housekeeping. We want to maintain a decent level of headroom.

Can we, let's say, do a reset on some of these? You see the results in the press release. It means that the Company is very comfortable in the coming periods where the covenants have been reset. It leaves us with sufficient flexibility to take some measures or jump on opportunities where we see fit. I hope that answers your question.

Peter Testa

Yes. Just that last point on flexibility, I presume it's taken in the full guidance, including the aggregate turnkey loss you're projecting. Then what sort of flexibility does it leave you to take on or initiate projects which may have, obviously, debt or cash cost?

Peter van Rossum

It leaves us with sufficient flexibility, as you say. When we signed in 2014, we had expected to sign on some new lease and operate projects on the FPSO side. The fact that we don't have them as a negative impact. So if we were to sign on things, as counterintuitive as it sounds, it actually improves the way the covenants have been calculated.

So we have room. So we can deal with, let's say, prolonged periods of downturn. So, let's say, the fact that we don't have order intake this year/next year will no longer, let's say, be an issue with the covenants. If we sign up new business and, of course, we all hope that that is going to happen, but we need to stay realistic, there's plenty of room in the covenants.

Operator

And moving on to the line of Luuk Van Beek, Petercam. Please go ahead. Your line is open.

Luuk Van Beek

I have one question remaining basically and it's regarding your - you reiterate your guidance for the turnkey loss. In the meantime, the FEED study for Browse has been cancelled. Did that change anything in your view for the coming period? Does it make you more cautious on the risk level regarding meeting the target of $150 million of EBIT loss?

Bruno Chabas

As I mentioned earlier on, is we're monitoring what's happening on the market on a permanent basis and adjusting the structure of the Company accordingly. That we do on a permanent basis like always, not only in the downturn but also in different parts of the cycle. So the guidance that we gave about investing $150 million into other capacity in the turnkey side of the business still remains valid. It means also that we're reviewing the structure of the Company on an ongoing basis.

Luuk Van Beek

Okay. And one quick other question, the change in the covenant for the credit facility, does that change anything to your financing costs?

Peter van Rossum

The cost related to the renegotiation and, of course, there is a bit of a cost involved, but it's actually de minimis. We're talking about a couple of basis points.

Operator

And moving on to the line of Wim Gille, ABN AMRO. Please go ahead. Your line is open.

Wim Gille

I've got a question on the covenant as well. Looking historically, the minimum or the most critical part is the solvency part. If I read in between the lines it is now more the interest cover which is starting to squeeze you a little bit. So can you give us more clarification or more of an indication on where the tightness in the covenant is? And also, a bit more guidance on how big the headroom is that you have in that particular area. And the follow-up question or the other question that I would have is Unaoil. Did you ever do business with this company? And, if so, what kind or relation did you have with that company?

Bruno Chabas

Okay let me first start with Unaoil if you'll allow me. We have done business with them as we have said before. It's years ago, [indiscernible] business and other terminal business in the past. Currently, we do not any business with them.

Peter van Rossum

Wim, on the covenant, you had a particular question on ICR. Well, first of all, we don't give specific guidance or headroom that we have in this space. But just to give you a bit of color on why, let's say, the reset on the ICR from 5 times to 4 times which is our interest costs are increasing and you can imagine that with the coming on stream of the latest vessels we have the Ilhabela. We had Marica; Saquarema; Stones and when those projects go live the interest costs are actually going through the P&L. They're no longer capitalized, that's an increase in costs. But the turnkey side we see the EBITDA coming down which means that the ratio is under pressure from two sides, it's higher costs with lower kind of coverage, that puts some pressure on it.

As I said at the 5 times level, we want to have at least 20% headroom. So we want to stay above 6%. We could see that particularly in 2017 that was going to be very tight. So in that sense we're sitting down with the banks and saying we want to have a reset to 4. Well, it's very clear that the liquidity of the Company is very strong and the RCF is undrawn, didn't turn out to be a very big issue. So what I wanted to stress really is good liquidity situation, but these resets are really part of good housekeeping. The fact that we don't want to, all of a sudden, find out that we have an issue. We manage these things 18 months to 24 months ahead. I think that's what we owe to you guys as well.

Operator

And moving on to the line of Guillaume Delaby, Societe Generale. Please go ahead. Your line is open.

Guillaume Delaby

When you arrived at the helm of the Company a few years ago, your strategic thinking was basically to focus on FPSOs, FPSOs, FPSOs. Basically, it went quite well. My question is basically over the last - previous presentations you mentioned many times that the industry was about to change deeply in the future. Also, what is quite interesting is that at the Q1 calls of most oil services companies, many of them, like Schlumberger or Technip, clearly highlighted what might be the changes in the industry over the next two to three years. Given the environment and given the fact that smaller companies tend to underperform versus the big ones and I think it is one of the key messages from the Q1 session, could you update a little bit about your strategy thinking for the next two to three years? Thank you.

Bruno Chabas

It's really something where we're going to expand more deeply in half-year results. But just to give you the trend of our thinking at this stage. The first aspect that we're saying is that we believe that the market demand for deepwater oil services is going to decrease going forward. We believe that the price of oil, not that we're making any forecast on the price of oil, but that our clients are going to make forecast and investment decision based on the price of oil which is going to fluctuate between $40 to $60 per barrel. As such, a number of projects are not going to be economical.

So the overall demand for services is going to decrease. When something is happening like this in an industry, what you're seeing is a consolidation in the industry with some competitors appearing with the shape of the industry changing. Now, it also means that there is a need to find new solution to the overall project and this new solution can be found in different manners. They can be found in working across the different market segment to find ways with to optimize the field development. You can do this by looking at the way of - looking at the architecture of the field; registering the number of well heads you need to put on the sea bottom; looking at the interface with the FPSO. You need to do this on a combined basis between the hardware supplier, the SURF supplier and the FPSO suppliers.

Now the deeper question, it doesn't make sense to have vertical integration in this market? You can do this under several manners. You can either do it formally through either a merger or acquisition or joint venture, like plenty of the joint venture we have been done or you can do this in an informal manner depending on the needs of the client and depending on which supplier does it prefer for the sub-sea hardware for the surf or for the FPSOs.

Our view today is that SBM Offshore is better off to focus on what we know to do best, really, to reduce the cost of developing our product; to develop fit for purpose solutions at the lower cost, more reliable for the market; and to work with other parties currently in the industry in trying to find solutions. That's really our current thinking. So it's really sticking to our meeting, basically, but working with others in order to find new solutions.

Guillaume Delaby

Does it mean that we could imagine a little bit as it has been done by others, that you may participate to some alliances?

Bruno Chabas

We're participating today within some project working with different suppliers in order to find solutions. Now, if you remember in the last big down cycle we have seen in the industry, at the end of the 1980's beginning of the 1990's, everybody was speaking about alliancing and everybody was getting married with everybody else which, at the end of it didn't yield, to a lot of result. So today we're taking a much more practical approach to this. Some clients would like to see some suppliers to come together, in order to provide solutions. If it's the case, we do that. Other clients would like to do the integration themselves and, actually, we have seen some announcement of some major oil company last week regarding the FEED study that they are going to take in-house. At this stage, they want to rely on specialized contractors, so we want to be flexible enough to answer the needs of our different clients. We're not in a position to impose our will. The clients are the one who see best how to develop their field. We're flexible enough to work either in a different alliancing project specific or to just focus on what we're doing.

Operator

And moving on to the line of Quirijn Mulder, ING. Please go ahead. Your line is open.

Quirijn Mulder

Couple of questions. First of all, about the FEED of Browse has that been concluded, have you been paid for it in the first quarter for the remaining work or is there some cancellation fee or whatsoever? Then with regard to the compliance. Three months' ago at the full-year figures, you said we were in advanced stage and now you are saying we're progressing.

In the light of the - let me say, the decision for Libra and Sepia, as the press suggests for the technology for example, is there any - I'm not going to press you too much, but is there anything to say about the re-progression there, because it seems to me that nothing has happened in the last three months. The final is, of course, with regard to the cash flow, the net debt is the same as at the end of 2015 and you received $100 million from the Japanese partners in America. So maybe you can explain some more about your cash flow development in the first quarter.

Bruno Chabas

Okay. We'll go in turn for the different parts of your questions. Erik will take the compliance part; Peter, the one regarding net debt; and Philippe regarding the Browse. Let's start with compliance.

Erik Lagendijk

Thank you for your question and I understand the question because, indeed, it seems like playing with words, but it's not. In fact, there's a lot of activity. At the end of the day, what we all strive for is a final announcement of a settlement and we're just not there, but, again, in the meantime there's a lot of activity and we're hopeful that we can conclude. But, as I said in my introduction, there is some effect of the political instability at this point in time. Again, we're fully committed to sign as soon as we're able to. With regard to the tenders, we've always said the final award would be subject to a settlement and that is still the case.

Bruno Chabas

Net debt?

Peter van Rossum

Net debt, the cash flow progress is we're doing well, we're spending some money on the CapEx, we're getting money in from the clients. I think an important element to highlight here and to make sure there's no misunderstanding, when Marica was brought on stream in Quarter 1 there was a contractual startup payment from the client. This money was paid in the first two weeks of the second quarter, so it was a - let's say, a post-closing event, but that money has been received. That's pretty good news. For the rest, we see developments as normal, including the movements in working capital at the quarter. It's a quarter, so it's an odd quarter which means we don't publish balance sheets and further details. But what I can say is the cash flow development is very much in line with our expectations.

Philippe Barril

As far as Browse FEED is concerned we signed that fee last year on the back of the delivery of project turret which is now in the hands of the yard. The end of the contract was announced and we've been properly paid and there is no dispute. We can confirm as well there is no impact to the 2016 number as far as disclosure is concerned.

Operator

And moving on to the line of Martijn Van Der Starre, Bloomberg News. Please go ahead. Your line is open.

Martijn Van Der Starre

I'm afraid I also have to ask one final question on the Brazilian case. You just mentioned the political instability in Brazil which makes me wonder are the talks with the Brazilian authorities ongoing at all or are you waiting for the political instability to go away?

Bruno Chabas

One point could be said for Brazil, like any other country, is the institution of a country remains regardless of the political landscape. There is institution like the MPF and those guys who are not going to change if there is a change in government, so there is ongoing discussion.

Martijn Van Der Starre

Okay, so then I guess I don't understand why you refer to the political instability.

Philippe Barril

Let me try to be clear, we're trying to reach a solution not only with Petrobras but also with the various authorities that have or appear to have a say over these kind of agreements. That is a developing landscape in Brazil. They are also - amongst each other they are discussing who has authority over what. As a result of that, that is not something that we steer ourselves, actually we depend on the stability of the country and that's why my remark should be seen.

Operator

And moving on to the line of Andre Mulder, Kepler. Please go ahead. Your line is open.

Andre Mulder

Two questions, firstly on the Marlim Sul. Can you give us a feel about what size does the decommission rate have, is it 10%, 20%, 30% or to your original rate that you received for Marlim Sul?

Bruno Chabas

What are you speaking about? Are you speaking third financial term or physical program?

Andre Mulder

For financials.

Peter van Rossum

The decommissioning rate is around 80% of the normal day rate.

Andre Mulder

Okay. Second question, also for Peter. I assume that production of the Petrobras floaters, the Sepia and Libra, should not be a problem with most competitors having empty order books. However, I think Peter referred to the fact that after the downgrading of the credit rating agencies, it has become very difficult to obtain financing for those floaters which would still make a floater maybe impossible to achieve from a financing perspective. How are you looking at that subject today?

Peter van Rossum

Andre, it's very clear that the appetite of the banks to put money into offshore projects has diminished to some extent. I'm saying this, let's say in a - with an English feeling for understatement. That doesn't mean that there is no funding available. So for the right projects, with the right guarantees or the right offtake and, let's say, the right contact, the funding can be found, but maybe not to the same levels of gearing as we've seen in the past. While the cost levels and the risk premiums, particularly for countries or clients that don't have an investment grade credit rating will be higher than what we've seen in the past. In that sense, it is important that as a Company, we do retain a certain level of flexibility to put in more cash than we may have done in the past in these kinds of projects.

Andre Mulder

So that would be the solution then? Or are we talking about a big lift in, for example, the financing rates that such a contract could take?

Peter van Rossum

I'm not going to go into specifics on tenders or, let's say, the strategy, because that's something we need to play on a case-by-case basis. But working with partners, working with funding and funding alternatives is clearly something that is important. The more flexibility, the more alternatives that we have, the better we'll be in a position to participate in the return of the offshore deepwater developments.

Andre Mulder

But you don't expect that this financing item will be a block to the whole project?

Peter van Rossum

As I said, we're not getting into individual discussions on tenders. Rest assured that in the discussions we're having with the banks and we continue to discussing and say what is the flexibility? How much space is there? There is less appetite for projects than there was in the past, but it doesn't mean there is no appetite at all.

Operator

And moving on to the line of Michel Aupers, Rabobank. Please go ahead. Your line is open.

Michel Aupers

A short question regarding Angola in relation with Senegal. Can you elaborate on your current relationships with Senegal and the development of receivables in Angola?

Bruno Chabas

Yes, no particular comment at this stage. There is, obviously, some issue with the local currencies and things which are happening there. But the relationship with the local players is working fine and we're trying to find solutions for some of those issues with local currencies.

Michel Aupers

And can you provide a little bit more color about how big this issue is?

Bruno Chabas

No, it's not significant.

Philippe Barril

Philippe Barril, if I may jump in here. The relationship with have with Senegal is on buyers' joint ventures. So they are a joint venture partner. They are not actually customers for us. The customers for those joint ventures are the oil companies. So I don't think we see shat see that there are, coming back to your question, any particular issues about receivables in Senegal, again, because Senegal is not a customer.

Michel Aupers

Okay, so basically you have not seen any deterioration after the integrity investigation?

Philippe Barril

The investigation which started in 2012 and which was concluded with the Dutch authority in 2014. Since then, we already have spent a lot of time with all different clients throughout the world, really explaining what we have done as a Company, the progress that we have made. With Senegal, like with many others, they are pleased with the progress that we have made with the level of transparency and the fact that we're a different Company.

Operator

And moving on to the line of Martijn den Drijver, SNS Securities. Please go ahead. Your line is open.

Martijn den Drijver

I have three questions. You've clearly indicated your thoughts about markets with no material order intake in 2016/2017. Assuming that even continues in 2018, would you consider divesting in Monaco which you've actually set apart in 2014 and which is an interesting business from a recurring revenue type of perspective? That's question one.

And then adding on to the question of Mulder, with regards to the feasibility of projects in Brazil, I also understand from discussions at the OTC that there was an issue with the local content breach, at least in terms of the penalties. It seems as though the penalties have increased quite considerably which may also provide an additional hurdle, apart from your risk premium and the financing aspect. Would you comment on that?

And then the final question is with regards to consolidation. At the OTC, there was quite a bit of discussion between the various parties present about the position, the situation of BW Offshore and Bluewater, with especially Bumi being linked to these two parties. Could you comment on how that would change your point of view of the industry, your position, if Bumi were to partner up with either BW Offshore or Bluewater? Thank you.

Bruno Chabas

I think the first part of your question and the last part of your question are really linked and they are linked to the overall market demand in our industry which we say is going to decrease on an ongoing basis. As such, we're going to see some consolidation in the industry. It's a necessity. A lot of competitors cannot remain the way they are. How is the shape of the industry going to be in the coming one or two years? If we were to know, we would not be in this business. We would be in a different type of business like giving forecasts and providing or giving you the image of the future.

So yes, we're going to see things which are going to reshape the industry. We're going to see different things happening. As far as SBM Offshore is concerned, we have a strong liquidity position. We have a strong product and differentiator in the market. We're focusing on what we have to do. We're looking at potential opportunities, if they make sense. And, we're also looking at the portfolio of the assets that we have as a Company. You're mentioning Monaco, but we're looking also at the different FPSO that we have in our Company and seeing how best we can leverage an asset from a financial standpoint.

Today, we don't have any view about doing any particular divestment of asset. But just to give you an example, the MLP which today is on the backburner, because of the level of the money in the market. It's still something which is pretty much in our mind and something that once the market is going to reappear, is going to be reactivated. Now, local content is a different topic. Local content is really linked to the ability for contractors to be able to satisfy, basically, two needs. The needs of the host government, who want to see a transfer of wealth in their country; transfer of wealth linked to employment of people, but also transfer of technology.

But also, there is the dilemma when you do this, at least initially, that the costs are increasing linked to the local content. It's an ongoing discussion with the operator, being the national oil companies or the international operators, in trying to find the optimal point about local content to make the project competitive.

Now, if we were to take the SBM case in Brazil, we have invested in the local content facility in Brazil through the Brasa yard over the past few years. We have delivered three FPSOs on time, on budget, at the level of quality which is to the highest satisfaction of our client. It's something where we demonstrate that we can be competitive and that we can rely on. And it's something that we're going to lean on going forward.

Martijn den Drijver

I appreciate those last comments but the actual question was, have those penalties actually been increased. So has there been a delta relative to the previous situation? I understand that SBM is really well positioned, given its position in Brazil and its local capacity, but the question was, has it been increased, because that's what I understand?

Bruno Chabas

This question is better asked to the company putting the tenders rather than to us, because we don't comment on specific tenders.

Operator

And moving on to the line of Jacob Confino with Whitebox Advisors. Please go ahead. Your line is open.

Jacob Confino

I just have a quick question. Last quarter I asked about the cash flow and some of your analysts were expecting a very high cash flow generation last year. I think you corrected me and said that, actually, it would be in 2017. Taking into account the reduction in new orders and you said, I think, that the cash flow is expected to be strong due to the fact that there is less new orders, can we then expect to see the net debt number fall by the end of this year? And would it be expected that the net debt number would fall by something like your CapEx minus EBITDA?

Peter van Rossum

Not really much has changed since the full-year results in this respect. The outlook for the turnkey part of the revenue is unchanged and that's where CapEx goes into. On the lease and operate side, things are very much on track. The things that we highlighted in the full year that have an impact on cash flow, of course, is good cash generation from the business.

At the same time, we have costs, but we've given a very clear indication to the market that, particularly the working capital element, specifically the accounts payable, where the payments always trail the activities, that that has an impact in 2016 which we're not going to see again in 2017 unless, of course, business picks up dramatically which we don't really expect. So in that sense, the message from the full year is pretty much the same as we have at this point in time.

Jacob Confino

Okay, just to clarify then, can you confirm that the debt will be down by the end of the year and that will be down in the hundreds of millions? Can you give us that type of--?

Peter van Rossum

That is not what we've said with the full year, Jacob. By the way, we've not given specific guidance on that debt. We've given EBITDA guidance. But there is going to be some positive free cash flow which also form the basis of the fact that we declared a dividend in 2016 over 2015. If you go back to our dividend policy, the availability of free cash flow is a clear condition that needs to apply before we go and pay dividends, because we don't want to borrow to do that. So, in that sense, yes, we have a positive free cash flow.

Operator

[Operator Instructions]. And our first question comes from the line of Daniel Butcher with JPMorgan. Please go ahead. Your line is open.

Daniel Butcher

Just a quick question from me and apologies if I missed this, I came late to the call. Just curious, with regard to your guidance to the FPSO orders in the range of one to four for 2016, can you just remind us how many of those will actually be in your scope and, therefore, possible for you to actually bid on? And maybe you could comment as well post the Browse shelving how many turret projects you see out there and, again, how many of those will be within your scope in 2016 and maybe 2017 as well, if you can say that? Thanks.

Bruno Chabas

Okay. So, as for the FPSO market, the guidance we gave at the end of the year was that the FPSO we're seeing on the market are actually within our scope, so anywhere between the one to four, they would be within the scope or the capability of what is the income delivered. Regarding the turret market, we have not provided any particular guidance.

The only thing I can say is that SBM Offshore has been focused lately on the large turret for big units, like Prelude, Ichthys and the like for these projects. However, the portfolio of products of SBM Offshore covers a broad range of products, from the small turret to the large turret and we're looking at all the potential markets there. We have not provided any guidance in terms of demand at this stage. But you can imagine that, given the limited award of FPSOs, usually a turret comes with an FPSO. There is a direct impact on the demand.

Daniel Butcher

Sure. And will you be able to hazard a guess, looking at 2017, how many FPSOs you see going to tender within your scope?

Bruno Chabas

Yes. Actually, the guidance that we gave at the end of the year has not changed. I don't have them in front of me, but there is really no update that we can give you at this stage.

Operator

And moving on to the line of Andre Mulder, Kepler. Please go ahead. Your line is open.

Andre Mulder

Just a small question on the lease sales for this year. You are now quite close to delivering the two last floaters. There's still a bit of a range for lease sales. Are there any variables which would prevent you from giving a pinpointed sales guidance?

Peter van Rossum

Sorry Andre, I'm not sure I understand your question.

Nicolas Robert

Andre, it's Nic. In terms of narrowing down that range of one to four - this is a trading update, so we will provide a more specific market outlook at the half-year, so you can just stay with the guidance that was provided at the full year.

Andre Mulder

Yes, but there are no, let's say, variables in sight that would make you undershoot or overshoot that guidance?

Nicolas Robert

Not at this time.

Operator

There are no further questions in the queue. With that, I would like to hand over to the speaker.

Bruno Chabas

Okay thank you, operator. Thank you for listening to this conference call. You can listen to the replay of the conference call on our website whenever you like. We thank you for taking the time to listen to us. Thank you. Have a good day.

Operator

Ladies and gentlemen, this concludes today's conference. Thank you very much for attending. You may now disconnect your line.

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