Message from the CEO
The oil and gas business sector has been extensively affected by low oil prices, resulting from the world recession and consequential reduction in energy demand. This has caused an almost complete halt in investment by oil and gas companies in new projects, which had already started in the last months of 2008 and continued during a large part of 2009. For SBM Offshore this has meant that we had to endure a long period without securing any significant new orders, but because the Company has the long term lease business providing a highly reliable source of income, as well as a record order backlog at the start of the year we have come through 2009 relatively unscathed and produced an end result which is marginally above the prior year.
The Company has been very busy with the execution of eleven major projects of which two were delivered during the year and the others will continue into 2010 for completion. The Company’s order backlog comprises a few older projects still to be delivered which have incurred further cost overruns during the year, as well as several newer projects which are producing good results well in line with the Company’s objectives. One benefit from the recession has been the slight easing of manpower capacity in the subcontractor yards that the Company uses for its construction activities and the flattening off in the increase of prices for materials and equipment that the Company buys for incorporation into its products. Our lease fleet operations and our services business have again produced very good results.
We have implemented several initiatives during the year aimed at improving and strengthening the Company’s project execution performance. This has covered the bidding phase of new projects as well as the control of project execution from the cost and schedule standpoint. A more decentralized management structure has also been introduced in order to increase the responsibility of local management for individual unit operating performance at each of the Company’s four project execution centres.
We were pleased to obtain two important new lease orders during the second half of the year, the effect of which has increased our year end order backlog to a new record. We have also obtained our first significant order related to our floating LNG production business with the award of a front end engineering study for such a system offshore Brazil.
The Company has a very robust balance sheet with the successful share issue in November, which raised € 180.7 million. The last share offering of this type was in 2001 and since then the Company has grown its lease fleet and significantly increased its project execution capabilities. The new equity will enable and facilitate the Company to further increase its investment in new leased production facilities.
Despite the recent recovery in the award of new orders for our products, we expect there to be a slow recovery of business in the near term but that the level of activity will gradually pick-up in the mid term. We will continue to strive for improved project execution performance, whilst expanding our business model to provide attractive returns to you our shareholder. We thank our employees for their dedicated effort which is essential to the Company’s success.