Board of Directors Report

The Board of Directors of Siem Offshore Inc. (the “Board”) presents its report for the fiscal year ended 31 December 2017, together with the audited consolidated financial statements and parent company financial statements. The financial statements and related notes were authorised for issue by the Board on 18 April 2018 and will be presented to the shareholders for approval at the Annual General Meeting to be held 3 May 2018.

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 are located in Kristiansand, Norway and subsidiary offices are located in Brazil, Germany, the Netherlands, Ghana, United States, Canada, Cayman Islands and Australia. The Company is tax domiciled in Norway.

The Company’s primary activity is the ownership and operation of offshore support vessels (“OSVs”) for the offshore energy service industry. Other significant activities and operations during 2017 included the installation, trenching, termination and testing of inner-array cables for the offshore renewable energy industry. The Company entered into an agreement in March 2018 with Subsea 7 to sell its renewable business and the transaction completed on 10 April 2018. The Company’s sole focus after the sale of its cable- laying activities is on its vessel business.

The Company operated a fleet of 43 vessels at year-end, including partly-owned vessels and five vessels in lay-up. During 2017, the total fleet of OSVs conducted operations in the North Sea, the Arctic Ocean, Northern Pacific Ocean, West Africa, Argentina, Australia, the U.S. Gulf, Canada and Brazil.

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, agreements with finance creditors and bondholders and the market value of its assets.

The Company is exposed to a number of risks, of which the most important is the demand for its services. The Brent crude oil price increased during 2017 and ended at USD 66 per barrel at year end 2017. A stable oil price at current levels would, over time, increase exploration and production spending and related drilling activities. There are positive indications that the activity in the offshore market will increase in the coming years. However, the significant excess capacity in the offshore service vessel fleet has increased the competition amongst owners for any vessel requirements, thus depressing charter rates and vessel utilization. Further, many of our competitors who were in financial distress were able to extract debt forgiveness and other concessions from their banks and other lenders and new competitors have purchased their vessels at today’s distressed vessel prices – this has resulted in many of our competitors having a lower cost base than the Company and, consequently, lower breakeven charter rates.

The imbalance between supply and demand for offshore vessels is expected to remain for several years and will continue to adversely affect charter rates and cash flows from operations.

The Company has continued and expanded its cost control measures in 2017 to reduce the Company’s cost base and to preserve liquidity for ongoing operations.

Following the completion of the rights issue for NOK190 million in June 2017, all conditions were satisfied related to the bond agreements and to the Finance Plan previously agreed by the Company’s lenders in 2016

The agreements included a three-year extension of the final bullet payments of all mortgage debt due before 31 December 2019, deferral of instalments for the fleet of AHTS vessels for 2.5 years with a cash sweep mechanism, and the easing of certain debt covenant requirements from the Company’s banks for the period up to 31 December 2019.

The Company has undertaken a new initiative with its lenders to prepare for a possible slow recovery in charter rates and, therefore, slow growth in net cash from operations as a result of the excess capacity in the offshore supply market and has requested instalment relief and certain other changes to its bank loan facilities. This is to ensure that the Company remains able to service its debt obligations during the extended uncertain duration of this downturn.

The Company has approached the bondholders of its two unsecured bonds, one for NOK600 million (“SIOFF01) and the other for NOK 700 million (“SIOFF02”), with maturities in 2020 and 2021, respectively. As part of the revised Finance Plan, the Company proposed a restructuring of the two bonds. Bondholder meetings were held in mid-March 2018 to consider and vote on the proposed amendments to the bond agreements. The proposals were approved by the bondholders for SIOFF02 but were not approved for SIOFF01. The amendment to the SIOFF02 Bond provides for the exchange of the existing Bond with a convertible bond at 80% of nominal value and an interest rate of 2.75% p.a. The convertible bond has a conversion price at NOK3.00 per share and provides upside potential to the bondholders. Benefits to the Company include reduction of debt by approximately NOK140 million, reduced interest burden and extension of the maturity to 2023.

The Board and Management have taken firm actions to reduce the effect of the market downturn, and to protect the interests of all stakeholders and reduce risk. Good progress has been made and the Company will be in a good position following the implementation of the revised finance plan. Please see liquidity risk on the following page for further information.

Income Statement

The Company had 43 offshore vessels in operation at year-end. The Company finished its comprehensive newbuilding program in 2016 following delivery of the last six vessels. All vessels commenced long-term charters after delivery.

In 2017, the Company recorded operating revenue of USD415.3 million and a net loss attributable to shareholders of USD(164.3) million, or USD(0.18) per share, compared to operating revenue of USD469.1 million and a net loss attributable to shareholders of USD(142.4) million, or USD(0.17) per share, in 2016.

The Company’s operating margin for 2017 was USD152.9 million compared to USD128.3 million in 2016. Net operating margin as a percentage of operating revenue was 37% in 2017 compared to 27% in 2016.

The Company’s operating profit for 2017 was USD(119.3) million compared to USD(49.6) million in 2016 and includes depreciation and amortization of USD122.0 million (2016: USD111.8 million). During 2017, the Company conducted periodic reviews of vessel valuations and recorded impairments of USD150.3 million on certain vessels, receivables and intangibles compared to impairment charges of USD76.6 million in 2016. Net currency exchange (losses) of USD(0.3) million (2016: USD(7.8) million) was recorded on forward contracts, of which USD0.4 million (2016: USD0.9 million) was unrealised. The net gain/(loss) on sale of assets was USD0.05 million (2016: USD(0.4) million).

The Company recorded an additional impairment of USD19.0 million on receivables after the release of the fourth quarter and the preliminary fiscal year 2017 report to shareholders to the market 23 February 2018.The impairment is related to a long term receivable and a convertible bond held against Daya Material Berhad(DMB). DMB entered into a distressed financial situation in March 2018 and there is no certainty that a proposed restructuring plan will receive approval from all stakeholders.

The Company’s net financial items included net expenses of USD(76.3) million (2016: USD(107.0) million) and a revaluation loss of non-USD currency items of USD15.3 million (2016: USD(64.2) million) due to weaker 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 Parent’s net loss of USD(241.2) million for 2017 be allocated to retained earnings and that no dividend be paid for 2017.

Financial Position and Cash-Flows

Total equity for the Company was USD474 million at year-end 2017 (2016: USD648 million), and the book equity ratio was 23% (2016: 27%). Shareholders’ equity was USD426 million (2016: USD549 million), equivalent to USD0.45 per share (2016: USD0.65 per share).

The cash position at year-end was USD64 million (2016: USD101 million).

The Company recorded USD20 million as gross capital expenditures in fixed assets during 2017, related to project-specific investments in vessels and capitalised dry-dockings.

The net interest-bearing debt at year-end was USD1.3 billion (USD1.4 billion at the end of 2016). The Company made total drawings equivalent to USD 31.1 million under credit facilities during the year. The weighted average cost of debt for the Company was approximately 4.0% p.a. at year-end (2016: 3.9% p.a.). The Company paid debt instalments of the equivalent of USD221 million during the year.

The Company’s cash-flows are primarily denominated in USD, NOK, EUR and BRL. During 2017, the USD weakened by 4.81% to the NOK, strengthened 1.5% to the BRL and weakened by 12.11% to EUR. The average recorded exchange rates were NOK/USD 0.1209, EUR/USD 1.1314 and BRL/USD 0.3118 (2016: NOK/USD 0.1186, EUR/USD 1.1022 and BRL/USD 0.2869).

Financial Risks


The Company is exposed to changes in interest rates as approximately 68% 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 1.26% p.a. during 2017 (0.74% p.a. in 2016) and the average 3-month NIBOR was 0.89% p.a. during 2017 (1.07% p.a. in 2016). The Company held USD 140 million in interest rate swap agreements and USD 123 million in cross currency interest rate swaps at year-end.


The Company is exposed to currency risk as revenue and costs are denominated in various currencies. Forward exchange contracts are entered into in order to reduce the currency risk related to future cash flows.


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. The sale of SOC which were made effective on April 10, 2018 will secure that the Company has the required liquidity to fund future obligations for at least a 12 months future period. We refer to the subsequent event Note 26 to the consolidated financial statements for further information.


Fleet, Performance and Employment

The fleet in operation at end of year 2017 totalled 43 vessels (2016: 46 vessels), including partly owned vessels and vessels in lay-up.

The Company had eleven PSVs in operation at end of the year (2016: thirteen). The PSV fleet earned operating revenues of USD57.9 million and had 94% utilisation (2016: USD62.1 million and 77%). The operating margin before administrative expenses was USD26.4 million (2016: USD28.1 million) and the operating margin as a percentage of revenue was 46% (2016: 45%). The contract backlog at 31 December 2017 is 60% for 2018, 41% for 2019 and 29% for 2020 (2016: 51% for 2017, 36% for 2018 and 23% for 2019).

The Company had five OSCVs and two WIVs in operation at end of the year (2016: seven).The OSCV and WIV fleet earned operating revenues of USD118.1 million and had 92% utilisation (2016: USD97.2 million and 92%). The operating margin before administrative expenses was USD72.0 million (2016: USD44.5 million) and the operating margin as a percentage of revenue was 61% (2016: 46%). The contract backlog was 61% for 2018, 43% for 2019 and 30% for 2020 (2016: 55% for 2017, 43% for 2018 and 29% for 2019).

The Company had ten AHTS vessels in operation at end of the year (2016: ten). The AHTS fleet earned operating revenues of USD 46.7 million and had 64% utilisation (2016: USD 48.3 million and 39% utilization). The operating margin before administrative expenses was USD 2.5 million (2016: USD 10.8 million) and the operating margin as a percentage of revenue was 5% (2016: 22%). The contract backlog is 2% for 2018, and 0% for 2019 (2016: 8% for 2017, and 0% for 2018).

Secunda Holding Limited (“Secunda”) is a wholly-owned subsidiary that 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. The Canadian fleet earned operating revenue of USD 29.2 million and had 75% utilization 2016: USD 24.5 million and 73%). The operating margin before administrative expenses was USD13.6 million (2016: USD12.5 million) and the operating margin as a percentage of revenue was 47% (2016: 51%). The results for Secunda were recorded in accordance with the equity method for the first five months in 2016 and were fully consolidated commencing with effect from 1 June 2016, post-acquisition of 100% ownership in Secunda. The contract backlog was 80% for 2018, 77% for 2019 and 20% for 2020 (2016: 48% for 2017, 45% for 2018 and 26% for 2019).

Siem Offshore do Brasil S.A. is the Company’s wholly-owned Brazilian subsidiary which owns and operates a fleet of six OSVs in Brazil.

This fleet earned operating revenue of USD 28.2 million and had 96% utilisation (2016: USD20.1 million and 73%). The operating margin before administrative expenses was USD15.3 million (2016: USD8.6 million) and the operating margin as a percentage of revenue was 54% (2016: 43%). The contract backlog was 73% for 2018, 53% for 2019 and 34% for 2020 (2016: 69% for 2017, 41% for 2018 and 33% for 2019).

Overseas Drilling Limited (“ODL”) is a wholly-owned subsidiary and the owner of the drillship, the “JOIDES Resolution”. The “JOIDES Resolution” is used in scientific research to drill core samples in the ocean floor during expeditions for an international research program.

The research vessel “Joides Resolution” recorded operating revenues of USD27.2 million (2016: USD26.4 million) with an operating margin before administrative expenses of USD 15.5 million (2016: USD 15.1 million) and the operating margin as a percentage of revenue was 57% (2016: 57%). The contract backlog was 100% for 2018, 75% for 2019 and 0% for 2020 (2016: 100% for 2017, 100% for 2018 and 75% for 2019).

Siem Offshore Contractors (SOC) recorded operating revenues of USD108.2 million (2016: USD193.8 million). The projects within SOC are accounted for using the percentage-of-completion method and profit margins are not recorded until the respective project’s offshore operation has reached a minimum of 25% technical completion. This has an impact on the overall percentage of operating margin for Siem Offshore on a consolidated basis. Total project margin before administrative expense of USD23.8 million (2016: USD30.0 million) was recognized on projects.

Siem WIS has designed and developed a pressure control device (“PCD”) which can improve managed-pressure drilling (“MPD”) operations. MPD has the capability to mitigate drilling hazards by improving drilling performance and increasing the performance rate. In offshore application, they solve various complex challenges such as reducing lost circulation, extensive mud cost, stuck pipe and well pressure surges. Siem WIS successfully delivered two PCD operations in 2017 for Statoil on the Gullfaks A field. The operations were delivered without any non-productive time. Siem WIS is facing challenging market conditions and is in a restructuring process.

The total firm contract backlog for all OSV vessels at 31 December 2017 was USD0.8 billion (2016: USD0.9 billion), including the 41%-ownership in the “Big Orange XVIII”. The total vessel contract backlog is allocated with USD 188 million in 2018, USD160 million in 2019 and USD435 million in 2020 and thereafter.

The total firm contract backlog for SOC and the firm contract for the “JOIDES Resolution” at 31 December 2017 was USD190 million (2016: USD293 million). The contract backlog is allocated with USD138 million in 2018 and USD52 million in 2019.


The company targets include zero personnel injuries, no harm to the environment and no damage to or loss of equipment and property.

There were no Lost Time Injuries during 2017. Continuous effort has been made to enhance the safety culture throughout the fleet. This entails several activities such as managerial visits on board with focus on safety behaviour. This is also part of the agenda and discussed during the annual internal audits. The company’s safety culture is an important part of the workshops and interactive safety-sessions held at the officers’ conferences.

urthermore, PEC (Protection & Environment Committee) meetings are conducted with each shift on board all vessels, which covers safety culture with special focus on behavioural aspects in addition to the HSEQ summaries which is distributed on a monthly basis across the fleet.

HSEQ reporting has been steady throughout the year meeting the reporting goals.

The most important HSEQ issues are spread throughout the fleet via lessons learned and experience transfer in order to reinforce the safety culture.

Siem Offshore Contractors


SOC is a well-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 successful in executing the work offshore by utilising primarily the Company’s specialized vessels, Siem Aimery (Cable Layer) and Siem Moxie (Installation Support including Walk-to-Work Services), both supported by our experienced offshore and onshore organisation.

Siem Offshore agreed in March 2018 to sell Siem Offshore Contractors GmbH and the Company’s two specialized vessels to Subsea 7 S.A. The sale of the SOC business and the transfer of the two vessels were completed 10 April 2018.

The consideration agreed was EUR140 million, split between EUR90 million for the vessels and EUR50 million for the shares of SOC subject to usual adjustments for net cash and working capital. In addition, the Company is entitled to contingent consideration based on the volume of work for SOC from the year 2019 to the end of 2024.

Shareholders And Corporate Governance

Shareholder Information

The Company’s authorised share capital is USD12,500,000- divided into 1,250,000,000 ordinary shares of a nominal value of USD0.01 each. The issued share capital at 16 April 2018, based on the 942,021,380 Company shares issued and outstanding, is USD 9,420,213.38 The Company’s shares are listed on the Oslo Stock Exchange with the ticker symbol SIOFF. The Company’s largest shareholder is Siem Europe S.a r.l., a wholly-owned subsidiary of Siem Industries Inc., with an 83% interest at 11 April 2018. During 2017, the closing share price reached a high of NOK 2.49, a low of NOK 1.81, and closed at NOK 1.81 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 0.35% and 3.32% respectively on a global basis.

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.


The continued low activity in the oil-service industry and excess capacity in OSV fleet has kept the charter rates low and in various areas even below operating expenses, which has caused even more vessels to move into lay-up.

A substantial number of the OSVs in lay-up are not expected to return to the market without a significant increase in day-rates which would justify incurring deferred maintenance and other costs to reactivate the vessels.

here has been an increase in the number of second-hand vessel sales in which new market players have bought distressed assets, and several competitors have reduced debt after bankruptcy restructuring. The difference in debt burden distorts the competitive landscape. Activity continued to be disappointing in 2017 but some more contracts and extension awards at the end of the year gives the industry some positive signals for the future.

We do not expect any rate upturn in the short- and medium-term, but expect the demand to slowly increase.

The scrapping or attrition of marginal, less efficient vessels is necessary to make progress towards a balance in the supply and demand of OSV fleet. If appropriate actions are not taken, then the current financial distress experienced by most of the owners will continue and established companies may fail.

18 April 2018


Eystein Eriksrud

John C. Wallace

Kristian Siem

Alexander Monnas

Michael Delouche

Bernt Omdal
Chief Executive Officer

Board Of Directors

Financial Statements