Board of Directors Report

The Board of Directors of Siem Offshore Inc. (the “Board”) presents its report for the fiscal year ended 31 December 2015 together with the audited consolidated financial statements and the audited financial statements for the parent company. The financial statements and related notes were authorised for issue by the Board on 11 April 2016 and will be presented to the shareholders for approval at the Annual General Meeting to be held 6 May 2016.

The Company

All references to “Siem Offshore” and the “Company” shall mean Siem Offshore Inc. and its subsidiaries and associates unless the context indicates otherwise. All references to “Parent” shall mean Siem Offshore Inc. as the Parent Company only.

Siem Offshore is registered in the Cayman Islands and is listed on the Oslo Stock Exchange (OSE Symbol: SIOFF). The Company’s headquarters is located in Kristiansand, Norway and additional subsidiary offices are located in Brazil, Germany, the Netherlands, Poland, Ghana, USA, Canada, Cayman Islands and Australia. The Company is tax resident in Norway.

The Company’s primary activity is to own and operate offshore support vessels (“OSVs”) for the offshore energy service industry. The Company is also engaged as a contractor within the European offshore wind farm market through its subsidiary, Siem Offshore Contractors with a primary focus on installation, post-lay trenching, termination and testing of submarine composite cables.

The OSV fleet comprises platform supply vessels (“PSVs”), anchor-handling, tug, supply vessels (“AHTS vessels”), offshore subsea construction vessels (“OSCVs”) and a variety of other offshore service vessels. The Company operated a fleet of 43 vessels at year end, including partly-owned vessels, seven vessels in lay-up and two AHTS vessels operated on behalf of a pool member. These two AHTS vessels are sister vessels to eight vessels owned by the Company, and all ten vessels are operated in a pool. During 2015, the total fleet of OSVs conducted operations in the North Sea, West Africa, Middle East, Australia, the U.S. Gulf, Canada and Brazil.

The Company holds 50% ownership in Secunda Holdings Limited (“Secunda”). Secunda owns and operates a harsh-weather fleet of five offshore support vessels and is a leader in support services for platform supply, anchor handling, rescue standby and towage in its primary area of operation offshore Eastern Canada. Secunda had, for its own account, one AHTS under construction at year-end.

The Company holds a 60% ownership in the subsidiary Siem WIS AS. Siem WIS develops applications for managed pressure drilling (“MPD”) based on a patented sealing technology.

The Company holds 100% ownership in Overseas Drilling Limited (“ODL”), which owns the scientific ocean drillship JOIDES Resolution. The JOIDES Resolution is one of the primary research vessels used to drill core samples in the ocean floor for an international research program.

In addition to the ownership and operations of OSVs, the Company’s wholly-owned Brazilian subsidiary, Siem Offshore do Brasil S.A., provides specialized engineering to develop and implement combat management systems for vessels in the Brazilian navy. These activities were part of Siem Offshore do Brasil when it was initially acquired by the Company.

Financial results, position and risks

The financial statements for the Company and the Parent are prepared in accordance with the International Financial Reporting Standards (“IFRS”) as adopted by the European Union.

The financial statements have been prepared under the assumption that the Company and the Parent are going-concerns. This assumption is based on the Company’s level of cash and cash equivalents at year-end, forecasted cash-flows, available credit facilities and the market value of its assets.

Income Statement
The Company had 43 offshore vessels in operation at year-end, including two AHTS vessels owned by the Company’s pool partner and 5 vessels operated by the associated company Secunda. The Company had 8 vessels (including one vessel for the 50%-owned Secunda) under construction at the end of 2015, of which five vessels were under construction in Poland, two in Germany and one in Brazil. These eight vessels include one oil spill recovery vessel (“OSRV”) scheduled for delivery in 2016, three dual-fuel PSVs for delivery in 2016, one Cable-Lay Vessel (“CLV”) for delivery in 2016, one AHTS vessel for delivery in 2016 and two Well-Intervention Vessels (“WIVs”) for delivery in 2016. The Company sold one OSCV during 2015 and took delivery of one PSV which has commenced a long-term contract.

In 2015, the Company recorded operating revenue of USD 422.4 million and a net profit attributable to shareholders of USD (186.7) million, or USD (0.36) per share, compared to operating revenue of USD 491.3 million and a net profit attributable to shareholders of USD 58.1 million, or USD 0.15 per share, in 2014.

The Company’s operating margin for 2015 was USD 118.5 million compared to USD 194.1 million in 2014. Net operating margin as a percentage of operating revenue was 28% in 2015 compared to 40% in 2014.

The Company’s operating profit for 2015 was USD (168.7) million compared to USD 84.3 million in 2014 and includes depreciation and amortisation of USD 107.0 million (2014: USD 96.9 million). The Company has conducted a review of vessel valuations and has recorded impairments of USD 166.2 million on certain vessels and intangibles. Net currency exchange (losses) of USD (30.8) million (2014: USD (3.0) million) was recorded on forward contracts, of which USD 32.8 million was unrealised. The net gain on sale of assets was USD 16.3 million (2014: USD 18.7 million).

The Company’s net financial items included net expenses of USD (21.4) million (2014: USD (12.7) million) and a revaluation gain of non-USD currency items of USD 22.1 million (2014: USD 34.1 million) due to stronger USD during the period. Non-USD currency items are held to match short- and long-term liabilities, including off-balance sheet liabilities, in similar currency.

The Parent company is primarily a holding company owning shares in operating subsidiaries.

The Board proposes that the net loss of the Parent of USD (16.2) million for 2015 be allocated to retained earnings and that no dividend to be paid for 2015. As of 31 December 2015 retained earnings were USD 115.4 million (2014: 304.2 million).

Financial Position and Cash-Flows
Total equity for the Company was USD 666 million at year-end 2015 (2014: USD 824 million), and the equity ratio was 33% (2014: 36%). Shareholders’ equity was USD 632 million (2014:USD 785 million), equivalent to USD 0.75 per share (2014: USD 2.03 per share).

The cash position at year-end was USD 149 million (2014: USD 118 million).

The Company recorded USD 151 million as gross capital expenditures in fixed assets during 2015, of which USD 123 million relates to new vessels delivered from yards or vessels under construction, and USD 28 million relates to project specific investments in vessels and capitalised dry-dockings.

The net interest-bearing debt at year-end were equivalent to USD 1.0 billion (USD 1.1 billion in 2014). The Company made total drawings of the equivalent of USD 110 million under credit facilities during the year. The weighted average cost of debt for the Company was approximately 4.3% p.a. at year-end (2014: 4.5% p.a.).

The Company paid debt instalments of the equivalent of USD 183 million during the year, of which USD 71 million represents extraordinary repayments due to the sale of one vessel. The gross project cost for the remaining newbuilding program was USD 396 million at year-end 2015. Debt-financing has been secured for the remaining commitments. The total of such future yard instalments are scheduled for payment during 2016.

The Company’s cash-flows are primarily denominated in USD, NOK, EUR and BRL. During 2015, the USD strengthened by 18.5% to the NOK, 47.0% to the BRL and 10.2% to EUR. The average recorded exchange rates were NOK/USD 0.1236, EUR/USD 1.1134 and BRL/USD 0.3002 (2014: NOK/USD 0.1575, EUR/USD 1.3256 and BRL/USD 0.4240).

The Company is exposed to changes in interest rates as approximately 34% of the interest-bearing debt is based on floating interest rates and primarily denominated in USD and NOK.  The average 3-month USD LIBOR was 0.31583% p.a. during 2015 (0.2337% p.a. in 2014) and the average 3-month NIBOR was 1.29% p.a. during 2015 (1.70% p.a. in 2014). The Company held USD 270 million in interest rate swap agreements at year-end.

Financial Risks
Interest risk
The Company is exposed to changes in interest rates as approximately 34% of the long-term interest bearing debt was subject to floating interest rates at year-end 2015. The remaining part of the debt is subject to fixed interest rates.

Currency risk
The Company is exposed to currency risk as revenue and costs are denominated in various currencies. The Company is also exposed to currency risk due to future yard instalments in relation to shipbuilding contracts and long-term debt in various currencies. Forward exchange contracts are entered into in order to reduce the currency risk related to future cash flows.

Liquidity risk
The Company is financed by a combination of debt and equity. If the Company fails to repay or refinance its credit facilities, additional equity financing may be required. There can be no assurance that the Company will be able to repay its debts or extend the debt repayment schedule through re-financing of credit facilities. There is no assurance that the Company will not experience cash flow shortfalls exceeding the Company’s available funding sources or to remain in compliance with minimum cash requirements or other covenants. Further, there is no assurance that the Company will be able to raise new equity or arrange new credit facilities on favourable terms and in amounts necessary to conduct its ongoing and future operations should this be required.

Yard risk
The process for construction of new vessels is associated with numerous risks. Among the most critical risk factors in relation to such construction is the risk of not receiving the vessels on time, at budget and with agreed specifications. In addition, there is the risk of yards experiencing financial or operational difficulties resulting in bankruptcy or otherwise adversely affecting the construction process. The Company has obtained certain guarantees of financial compensation including refund guarantees for vessel under construction in Poland in case of delays and non-delivery. Further, the Company has the right to cancel contracts if delivery of vessels is significantly delayed. However, no assurance can be given that all risks have been fully covered.


Fleet, Performance and Employment
The fleet in operation included thirteen PSVs, five OSCVs, ten AHTS vessels of which two are owned by a pool-partner, a fleet of seven crew/supply vessels operated in Brazil, one well-stimulation vessel, one installation support vessel, one scientific core drilling vessel and five offshore support vessels in Canada in Secunda the 50% owned company.

The PSV fleet earned operating revenues of USD 76.5 million and had 75% utilisation (2014: USD 104.4 million and 94%). The operating margin before administrative expenses was USD 38.7 million (2014: USD 58.9 million) and the operating margin as a percentage of revenue was 51% (2014: 56%). The contract backlog at 31 December 2015 was 60% for 2016, 31% for 2017 and 24% for 2018 (2014: 58% for 2015, 42% for 2016 and 25% for 2017).

The OSCV fleet earned operating revenues of USD 111.3 million and had 94% utilisation (2014: USD 104.8 million and 98%). The operating margin before administrative expenses was USD 69.6 million (2014: USD 71.2 million) and the operating margin as a percentage of revenue was 63% (2014: 68%). The contract backlog was 80% for 2016, 71% for 2017 and 40% for 2018 (2014: 88% for 2015, 83% for 2016 and 77% for 2017).

The ten AHTS vessels operated by the Company earned operating revenues of USD 53.6 million and had 55% utilisation (2014: USD 142.5 and 84% utilization). The operating margin before administrative expenses was USD (1.4) million (2014: USD 77.5 million) and the operating margin as a percentage of revenue was (3) % (2014: 54%). The contract backlog was 11% for 2016, 0% for 2017 (2014: 15% for 2015, 5% for 2016 and 0% for 2017).

The fleet of smaller Brazilian-flagged vessels earned operating revenue of USD 21.3 million and had 86% utilisation (2014: USD 19.4 million and 91%). The operating margin before administrative expenses was USD 7.1 million (2014: USD (3.5) million) and the operating margin as a percentage of revenue was 33 % (2014: (18) %). The contract backlog was 57% for 2016, 57% for 2017 and 49% for 2018 (2014: 91% for 2015, 89% for 2016 and 89% for 2017).

The “Joides Resolution” recorded operating revenues of USD 26.2 million (2014: USD 25.9 million) with an operating margin before administrative expenses of USD 14.5 million (2014: USD 12.9 million) and the operating margin as a percentage of revenue was 55% (2014: 50%).

Siem Offshore Contractors recorded operating revenues of USD 132.3 million (2014: 101.5 million). The projects within SOC are accounted for using the percentage-of-completion method. Total project margin before administrative expense of USD 17.5 million (2014: USD 17.1 million) was recognized on projects. Subject to a forecasted positive margin, project revenues are recorded at a similar figure to project costs until the project has reached minimum 25% completion. This has an impact on the overall percentage of operating margin for Siem Offshore on a consolidated basis.

The total contract backlog of firm contracts for all vessels at 31 December 2015 was USD 1.2 billion (2014: USD 1.55 billion), including the firm contract for the “JOIDES Resolution”, the 41%-ownership in the “Big Orange XVIII”, the 50% ownership in Secunda and vessels under construction. 

The total vessel contract backlog is allocated  with USD 241 million in 2016, USD 228 million in 2017 and USD 736 million in 2018 and thereafter.

The total contract backlog of firm contracts for Siem Offshore Contractors at 31 December 2015 was USD 198 million (2014: USD 118 million). The contract backlog is allocated with USD 149 million in 2016 and USD 49 million in 2017.


The Company’s target includes zero personal injuries, no harm to the environment and no damage to or loss of equipment and property.

Following a slight setback at the beginning of the year, the HSEQ performance improved during 2015 with no Lost Time Injuries throughout the fleet. Considerable efforts are made on various levels to ensure this positive trend continues in 2016.

The number of safety reports is steady, and it is believed that a planned training in RCA will ensure more frequent and better experience transfer to the fleet.  On board and ashore we believe that the transfer of experience is an important factor to create a professional HSEQ culture and continuously improve our HSEQ performance.

By nature, anchor-handling is one of the most demanding operations in the offshore sector. Siem Offshore puts great emphasis on a safe work environment and appropriate time for adequate preparations for every job operation.

Siem Offshore Contractors

SOC is now an established prime contractor for the installation, post-lay trenching, termination and testing of submarine composite cables for the inner array grid of offshore wind farms (“OWF”) and for export to shore. SOC has been technically successful in executing the works scope by utilising the Company’s fleet of large and high quality DP-2 installation vessels, in combination with its experienced offshore and onshore organisations.

Safety & Environment
High safety and environmental standards have been a first priority within SOC. Risk and opportunity management processes and personnel training ensures that internal personnel and subcontractors have a common safety first mentality, which has delivered zero loss time injuries this year. Environmental impact is a key area of importance in a market focussed on renewable energy. SOC has developed standards to report and analyse the impact of cable installation activities on the environment. Positive feedback from clients on safety planning and execution demonstrates strength in this area. An effective lessons learned process contributes to continual improvement.

The Amrumbank West OWF project for E.ON Kraftwerke GmbH involved the installation, post-lay trenching, termination and testing of 86 inner array grid submarine composite cables within the German Bight sector of the North Sea. SOC received the final taking over certificate in the second quarter of 2015. The project produced a positive margin.

The Baltic 2 OWF project for EnBW Baltic 2 GmbH involved the installation, post-lay trenching, termination and testing of 86 inner array grid submarine composite cables within the German sector of the Baltic Sea. In the second quarter of 2015 all cables were successfully installed. By year-end, the taking over for the six clusters (6) was achieved and the first full load trial successfully completed. The completion of the project is scheduled within the second quarter 2016. A positive margin was recorded on the project in 2015, and a positive margin is scheduled to be recorded in 2016.

The Nordsee One OWF project for Nordsee One GmbH is an EPIC-contract for the supply and installation of 59 submarine composite cables forming the inner array grid of the Nordsee One OWF. The project, which started in March 2015, involves the supply of submarine composite cables and related accessories as well as cable installation, post-lay trenching, termination and testing works and remains on track for mechanical completion by fourth quarter 2016.

The Nordsee One OWF export cable project for TenneT Offshore GmbH is a contract for the Nordsee One export cable installation in partnership with J-Power Systems. Commencement of the offshore installation works is expected to start in the third quarter 2016, with completion scheduled in fourth quarter 2016. 

In April 2015, SOC was awarded the contract by Veja Mate Offshore Project GmbH for the EPIC-supply and installation of 73 submarine composite cables with a total length of up to 97 km forming the inner array grid of the 400 MW Veja Mate OWF. The Veja Mate OWF is located approximately 115 km off the German coast within the German Bight sector of the North Sea. The project involves the supply of submarine composite cables and related accessories as well as cable installation, post-lay trenching, termination and testing works. The offshore installation is scheduled to commence in third quarter 2016 with mechanical completion being scheduled for second quarter 2017.

Market Outlook
The tendering activities increased during the first quarter of 2016 and further tenders are expected during 2016. SOC has established itself as a reliable turnkey contractor within the offshore renewable energy industry and further contract awards are expected. Overall, the financial year 2015 was a successful year for SOC and this trend is expected to continue in 2016 and beyond.

Siem WIS

Siem WIS has designed and developed a pressure control device (“PCD”) which can improve managed pressure drilling (“MPD”) operations. Global energy demand growth, combined with the need for increased oil recovery and increased number of deep sea and high pressure high temperature (“HPHT”) reservoirs, with emphasis on safety management is expected to lead to increased demand for MPD services.

The Managed Pressure Drilling (“MPD”) operation on Gullfaks A commenced in September 2015 and was successfully completed in November 2015.  Siem WIS entered into an agreement with Statoil in December 2015 for the delivery of PCD services to its “Gullfaks” field. The first call-off was issued early 2016 and the operation has started on “Gullfaks”.

Shareholders and Corporate Governance

Shareholder Information
The Company’s authorised share capital is USD 10,000,000 divided into 1,000,000,000 ordinary shares of a nominal value of USD 0.01 each. The issued share capital at 11 April 2016, based on the 842,021,380 Company shares issued and outstanding, is USD 8,420,213.80 The Company’s shares are listed on the Oslo Stock Exchange with the ticker symbol SIOFF. The largest shareholder of the Company is Siem Europe S.a r.l., a wholly-owned subsidiary of Siem Industries Inc., with 83% of the shares at 11 April 2016. During 2015, the closing share price reached a high of NOK 2.85, a low of NOK 1.35, and closed at NOK 1.40 at year-end.

Corporate Governance
The Company has implemented guidelines for corporate governance based on the recommendations and guidelines given by the Oslo Stock Exchange. The purpose of these guidelines is to clarify the division of roles between shareholders, the General Meeting, Board of Directors and day-to-day Management beyond what follows from the legislation. A detailed summary of our corporate governance principles may be found in a separate section of the annual report.

The Working Environment and the Employees

The Company provides a workplace with equal opportunities. We treat current and prospective employees fairly with respect to salaries, promotions and recruitment. The Company offers its employees a sound working environment. We also give possibilities for professional development where men and women are treated equally and where there is no discrimination.

The sick leave for the onshore and offshore employees was 1.9% and 5.4%, respectively.

The development of the onshore and offshore organizations continues in order to prepare for increased future activities. The knowledge of the crew is vital for a safe and secure operation of any vessel. Such knowledge includes good seamanship and understanding of the demanding assignments to be executed.


There is a high focus on cost cutting among oil companies following the significant decline in the oil price. The number of vessels trading the North Sea spot market has increased while the activity level has decreased. The negative impact on activity is expected to last for some time. The financial pressure on the industry is likely to lead to fallouts and consolidation of a fragmented section of the oil service industry.

11 April 2016

Eystein Eriksrud

Kristian Siem

Michael Delouche

John C. Wallace

David Mullen

Idar Hillersøy
Chief Executive Officer