SBM Offshore N.V.

Bert-Jaap Dijkstra - Director, IR Bruno Chabas - CEO Philippe Barril - COO Erik Lagendijk - Chief Governance & Compliance Officer Douglas Wood - CFO

Lillian Starke - Morgan Stanley Luuk Van Beek - Banque Degroof Petercam S.A. Cédric Duinslaeger - KBC Securities Van der Starre - Bloomberg Andre Mulder - Kepler Cheuvreux Quirijn Mulder - ING Groep N.V.

Guillaume Delaby - Societe Generale Peter Testa - One Investment Eoin O'Cinneide - Upstream

Thank you, Operator. Thank you all for joining us today.

Today's call is being recorded and will be available for replay on the company's website. Today's prepared remarks will be delivered by Mr.

Bruno Chabas followed by a Q&A session. Before we begin, I would like to point out the disclaimer at the bottom of our press release and remind participants that some of our comments today may include forward-looking statements reflecting SBM Offshore's view of future events.

These matters involve risks and uncertainties that could cause our results to materially differ from our forward-looking statements. The risks are discussed in detail in SBM Offshore's 2016 Annual Report, which can be found on the company's website.

Once again, we'll welcome your questions after the conclusion of the prepared remarks. I'll now turn over the call to Bruno.

Thank you. Good morning, all, and thank you for taking the time to join SBM Offshore third quarter 2017 trading update call.

I'm Bruno Chabas, CEO of SBM Offshore, and the full management board is joining me today, our COO, Philippe Barril; our CGCO, Erik Lagendijk; and our CFO, Douglas Wood. I would like to start the call with highlighting the solid work done by the SBM Offshore professionals.

Despite the past few years, which have proven to be challenging, SBM Offshore and its employees have continued to deliver quality work to the satisfaction of our clients. This has led to solid year-to-date operational performance in both Lease and Operate as well as in Turnkey.

The company is demonstrating performance improvement in its safety record to date. As a reminder, we discussed on Monday an update on our legacy issues.

We have made a provision of $238 million based on advanced discussions with the U.S. Department of Justice.

Regarding the market, there are several signs that our offshore market is restarting. We won the first major award in the industry this year in Liza located in a new emerging basin in Guyana, which I'm happy to report is progressing according to plan.

Then today there are a number of tenders available in the market in a variety of countries. SBM is well positioned to be successful in this gradually improving market.

By leveraging our unique experience, we have an objective to transform the industry by bringing our clients' breakeven prices for deepwater development down through standardization. As such, we are pleased with the commitment and progress made on our Fast4Ward initiative to date.

We believe through standardization, along with our unique experience, we will bring a unique competitive offering to our clients. In line with our strategy, we will remain disciplined, selective, and only bid on tenders matching our strategic criteria.

Over to the year-to-date financials, year-to-date Directional revenue was in line with management expectation and landed at $1.254 billion. Lease and Operate generated most revenues at $1.127 billion with Turnkey revenues at $127 million.

Directional net debt at the end of the third quarter further decreased compared to the full year 2016 position to approximately $2.6 billion, which was mainly caused by operating cash flows from Lease and Operate and settlement monies received related to Yme claims. As a result of our regular planning process, we're making some non-cash impairments.

These relate to the SBM Installer of Diving Support and Construction Vessel as well as our minority stake in our constriction joint venture deal Paenal in Angola. Turning to guidance, we are reiterating our 2017 Directional revenue of around $1.7 billion of which around $1.5 billion is expected in the Lease and Operate segment and around $200 million in the Turnkey segment.

Management also reiterates its 2017 underlying Directional EBITDA guidance at above $750 million. In conclusion, SBM Offshore continues to deliver and to be well positioned to benefit from the gradual recovery.

Based on the company's industry-leading experience, balance sheet, backlog, and investment in the future, we're looking at strengthening our leading strategic position. This concludes the prepared remark portion of today's call.

Thank you for listening. And now, operator, could you please open the call for questions.

Thank you.

I was wondering if you could provide a bit more detail into the $200 million EBITDA impact that you expect from the one-off items, specifically how much of that is -- what's the amount considered for the compensation for the partner related to Turritella. From what we recall in the first quarter conference call, you estimated around $120 million gain on a directional basis.

However, this was different from the IFRS, which was around $130 million loss. So if you could provide a bit more detail of how much is the cost in this quarter versus the gain going into 2018.

And my second question is regarding the non-cash nature of the impairments and provisions. If you could provide a bit more detail onto why are these expected to be booked above the line rather than below the line.

Okay. Douglas is going to take those 2 questions in turns.

Yes. So if we start with the $200 million, so we've given you some of the numbers that are in there.

So there are 4 elements, the fine for the DOJ, the impairment to the onerous for the SBM Installer and then we have the Yme cash and the provision for partner settlement in Turritella. We've given you the numbers for DOJ and the SBM Installer, but then regarding Yme and Turritella, there are still commercial discussions ongoing with partners.

So we're not giving separate disclosures for those, although what I would say is you'll recall at the first half we indicated that Yme would be above $100 million impact, which is still the same. And then on Turritella, yes, we expect a gain in line with our previous forecast.

We booked the gain under Directional in the first -- expecting in the first quarter, which is when the risks and the reward of the assets will be transferred. However, we do know that we have a liability principally in respect of the payment we need to make to partners.

So we make that provision this year as well as a provision for some of the unwinding of the financing costs. And as I mentioned before, there's a difference between the IFRS and the Directional numbers and that's because under Directional we're booking the profit in line with the cash flows, whereas under IFRS we booked all of the profits for the contract upfront of the lease.

So that's why you get those differences. And then the Paenal impairment that'll be booked through a share of profit and equity accounted investments.

The onerous contract provision that goes through gross margin in Turnkey.

And just to confirm, the $100 million impact, that's a negative impact?

No, it's a positive.

It's a positive.

That's cash in, cash in profit for SBM. So just on that one, so we have the overall settlement monies which we've received.

We now need to sort out the final details with our partner Repsol. And then after deduction of legal costs, we split the balance.

Yes. I was wondering if you can give an update on the number of FPSO of what you expect for the coming years and especially to what extent you are comfortable with your pipeline outside of Brazil?

Maybe I would give you some of the flavor on the position in Brazil and Philippe would follow up in the number of award we're expecting in the market going forward. I mean as you know, SBM is operating in the market, which is a market where we deliver products which are not a commodity product.

In 5 years the experience of the industry has been such that the cost of deepwater development has been negatively impacted by the late delivery of FPSO in the past. And SBM has been rather unique in delivering FPSO of high complexity on time and on budget to our clients.

So today what we're saying is that there is another opportunity existing in the markets, and those opportunities are not only on the FPSO, they're also on gas FPSO. They are also on LNG.

A number of opportunity such that today we're in a position to be selective and that we're already targeting only a few number of opportunity to go after. So based on this, we're seeing an increased number of prospect coming to the market.

How many are going to awarded that remains to be seen, and Philippe would go more in the detail on this, but that's the situation where we are. Now what we meant the situation in Brazil and what I can say there is that we remain committed to solve the situation Brazil and that things will evolve in Brazil.

Now more specifically regarding the number of award in 2018 and 2019, Philippe?

We've seen in the last quarter more engagement from customers, whether it's in prequalification [indiscernible] and that's true in most of our product line, including the FPSO 1. In particular I would like to stress that we've seen keen interest in the Fast4Ward program and in this solution, not only just in the Fast4Ward well but as well in what we've been developing which is a catalog of module, which now is expanded to also multiple combination.

Now coming to your question, we have communicated on the size of the markets in '18 to be an overall market to be in the region of 6 to 7 FPSO to be awarded. This is still something we see.

Coming to the 2019 and 2020 number and in view of what we just said, we're going to provide a further review I guess in our next communication when we close quarter 4.

One follow-up question on the previous one with regards to the FPSOs. How many of them do you see coming from Petrobras?

Then secondly, Mr. Chabas mentioned that SBM will only bid on tenders within our strategic criteria.

Can you just elaborate on what these criteria are? And thirdly, in terms of the net debt going from $3.1 billion to $2.6 billion, this is because of Yme settlement I presume as well.

And when these settlement fees will be redistributed, net debt will go back up or do I see this wrong?

So the financial question would be taken by Douglas and I will address the 2 questions with regard to the criteria -- of tendering criteria in the number of tender for Petrobras. As Philippe highlighted, we're in a process of reviewing the market potential for 2019, 2020.

So I'm not going to give any guidance what we expect on [indiscernible] coming from Petrobras. What we see for 2018 is that potentially 1 or 2 tenders would be awarded by Petrobras.

That's what we see as part of the market expectation of 6 to 7 FPSO being awarded in 2018. Now how do we select tenders and which tenders we decide to go after?

And there there's number of criteria which come into play. First of all the risk profile on the project we're going to be looking at, the terms and condition associated to this, the added value we can bring.

You have some projects which are high in complexity, bigger in size will bring you a huge added value there, and we need to bring this value to our clients and obviously if we are eligible to win those tenders. So those are the criteria we're using in order to select the project for which we're going to be tendering and do any activities.

Douglas?

Okay. So to answer the question on Yme.

Yes, once we settle the arrangement with our partner, you would expect to see the impact from that have an increase on net cash.

Two questions from my part. So one is I know that you do not provide updates on backlog and order intake at quarterly trading updates, but I was wondering if you could give me some size and scope of where we are right now?

And then the other thing relates to the Angola construction yards where you cite that activity outlook has continued to deteriorate. You earlier took a $95 million impairment.

Now there is an additional $30 million. I'm sort of wondering what [indiscernible] that was and how far does your visibility reach and what value is there still for you in the project?

Okay. So in Angola on our joint venture yard Philippe would take the question.

With regard to the backlog number, we don't provide this update on the sub-quarter, so that's the position that we have. So I'm afraid I'm going to remain in this position.

Philippe, in Angola joint venture yard?

Yes. So we have to take that provision in view of what we could foresee in the coming few years, which means a low level of activity, but you've got to remember that somehow the yard activity is linked to both the exploration and the sanction of projects.

So those are the things that are already in the pipeline. Having said that, Angola and the operators are reviewing what is the potential beyond the spectrum of the few years we have in front of us.

Okay. Are you --?

Yes, sorry, maybe one more, like the few years -- how many years are you talking about? You might have said, but I must have missed it then?

Yes. Today we're in a market we're there is a lot of uncertainty and a lot of fluctuation.

And so the visibility we can have is really the visibility at around 2, 3 years ahead of us. That's where we are.

Question on the SBM Installer. Last year you already took a provision of $31 million.

If you look at the installing capacity, looking at the landscape I would say that that landscape is already visible for quite some years. You know what's coming to the market.

And in fact, if you look at the market climate for new FPSOs to market may have improved a bit. So I'm puzzled why you took another $30 million provision for the SBM Installer.

Andre, Douglas here. So what we've done is we've had a look at the outlook for the vessel.

There is some activity, although it's at slightly lower levels than we previously anticipated. It's quite a competitive market, and we've also looked at the rate that people are winning bids at, taken that into account and reached the conclusion that we need to make the further impairment of the contract.

And the second question is it seems that Mr. Bruno has taken a supervisory board seat at McDermott and I think that company used to be a competitor of SBM in a way.

They were also involved in semi-subs and TLPs. Can you make some comments on that?

Yes, first of all, is Mr. Barril who has been appointed as Non-Executive Director of McDermott.

And as you know, for governance process either supervisory board member or management board members need go through a vetting process to make sure that if we take non-executive position there is no conflict of interest whatsoever. So we have gone through these vetting process and confirmed that there is no conflict of interest or no competitive overlap between McDermott SBM Offshore, and therefore that Philippe could take this non-executive director position.

And we are quite pleased that he had this opportunity.

And do you see any possible form of cooperation with that company?

It doesn't mean anything with regard to cooperation. Like I'm on the non-executive director into a drilling company in the mining industry, doesn't mean that we're planning to go into the drilling -- in the drilling industry.

Well, I can see that, but this company is of course much closer than this drilling company?

Again, the process under which go is a vetting process to make sure that there is no conflict of interest, there is no overlapping between the things and that's where we are.

Yes, Quirijn from ING. Couple of questions with regard to the development of the debt and results.

It looks like that the third quarter results were maybe at least stable but probably better than a last year if I look at the cash flow development there. Is that a correct conclusion or is that not -- is that somewhat premature compared to what you have written down?

So your question is linked with the evolution of the debt. Douglas, do you want to go a bit through more detail on this or more color on this subject?

Yes, so we're not giving detailed update on the evolution, but I think we've mentioned what are the factors at play there. It's obviously performance of Lease and Operate and then as we discussed already, the main driver there was the fact that we have cash in for Yme.

Okay. And can you say something about third quarter with regard to contingency fees free fall, like in the first half year?

As you know, the way we refer the information is half year and full year we provide full disclosure. Quarterly it's only an information on top items.

So we will provide more information and more color on all of these for the full year disclosure.

Okay and, if I may, my third question is you're selective with regard to FPSOs now. Is that also the case with turrets because I think that you also have capacity to build turrets?

For sure, we have capacity to build turrets. And being selective on tender, applies to all the type of products we are doing.

And it goes from FPSO to turret to the gas facility to renewable market, all the activity that we're doing.

Okay. My final question is about Sea Lion.

Is there any progress there because 2016 you got the FEED contract and we haven't heard anything from that?

We have been working on FEED. It has been progressing.

Today the client is reviewing his overall plan. So really the question is better asked to Premier Oil.

Very simple question. The last sentence of the first page of your press release is that you mention increasing turnkey activity.

Could you just maybe elaborate a little bit what you mean by that?

Yes, and [indiscernible] answered by Philippe, but what we're seeing today is we're in a position where we see much more inquiries from our clients on the number of potential tenders of projects to be awarded and those inquiries are [indiscernible]. Maybe Philippe, you want to go in some more detail on this.

Yes. Maybe I'd like to add one point on what was previously said.

We see an increased market for us outside Brazil. I think we've covered somehow the Brazilian market.

So there's an increased interest on FPSO. I think you mentioned turret as well, but this is globally true across all our segments.

Within that comment more selective, are you referring to older projects you've been talking to the partner for a while or are you also referring to new projects which are coming up on the radar screen? And within the definition of selective, does that mean that you are more focusing on projects either by client counterparties, field development, fit with Fast4Ward?

I mean can you just help us understand what selective means?

All the above. And what we're saying is basically we have seen a number of -- an increased level of activity by our clients at this stage looking at opportunities to develop field, which is something we have expected for some time.

Now we don't expect that we're going see an increased number of awards, which will materialize significantly before 2019 or 2020, but they're getting ready for that. Now what we want to do and what is the specificity of SBM Offshore is really the ability to deliver a premium product on time, on budget, to satisfaction of our clients.

And based on this, we don't want to over-extend ourselves and we're making the right selection of clients based on our risk profile, based on the terms and conditions, based on the added value we can bring. And therefore, we are being selective because this is where we are into the market that we are and I think we want to keep -- to remain being the premium company in the FPSO industry.

Okay. And can you give any understanding as how Fast4Ward is fitting into this discussions now?

Yes. I mean one of the main issue we have seen in the industry in the past is the fact that basically 70% of the FPSO have been delivered late or extremely late.

At the end of the day this has caused the industry somewhere in the range north of $30 billion. It has negatively impacted the economics of deepwater development and this is making deepwater development a question mark in the mind of a number of people.

Now if you deliver your project on time, on budget in a way that we have done and if you are able to standardize, we're going to be able to basically increase the output of our clients at a lower cost and make deepwater development feasible again. Fast4Ward is really along those lines is building on the experience we have had as a company with more than 300 years of operating experience building more than 35 FPSO.

So taking this experience, to standardize on it, and making sure that we can develop product which is going to create a huge amount of value to our clients.

Okay. But does the point on being more selective that's a two-way exercise.

So you're more selective because the customers are responding to Fast4Ward and therefore they're engaging with you differently, or is it more selective based upon you're looking at opportunity set and you say, okay, there are better overlaps with SBM or maybe both?

It's a combination of both, but I can tell you we have a number of clients who are extremely interested and we are looking at seeing what they can do with Fast4Ward and see a huge amount of value for them on this.

Okay. And last question on this is do you see this change in sort of comment on selectivity and increase in projects under discussion is something which affects the FEED pipeline for 2018 and therefore contracts in '19 or more of a different calendar?

I would say it would impact '19 and '20, but more the end of -- more toward the end of the '19 and somewhere in 2020. It's really a long [indiscernible].

I mean it's not something when you do FEED in this industry, it takes a long time. I mean a typical FEED that's a cost of $10 million to $20 million.

It's a lot of detail, it's a lot of experience, which is often underestimated and in fact given the track record of the industry, it has been underestimated by lot of people. But that's something where we [indiscernible] the strength of SBM Offshore and that's where we build on the strength of SBM Offshore.

And one just last question going over to the call of the other day on settlements and so on. Just to make sure I understand clearly related to Brazil.

Outside of any whatever may come out of the actual settlement cost [indiscernible], have you changed your view as to whether there'd would be any negative financial impact of all this outside the actual settlement?

Erik Lagendijk. I don't think that we have changed our view.

We have given you the provision for the United States. And other than that we are unaware of any other countries investigating the company.

So there is no further update than what we have given you earlier this week.

So no change of financial risk related to other countries to preserve itself?

We have not provisioned for anything other than what we have done. And again I reiterate that we are not investigated to the extent anywhere else.

So that's the picture we have today.

Okay. Good.

Hopefully, we can talk more about business outside of Brazil going forward.

Yes. That's what we expect.

Just on Brazil again. Could you confirm in the absence of any settlement on the leniency agreements issues which is still tender for any non Petrobras-operated tenders and also in the absence of any leniency agreement settlement, would you still tender for Petrobras-operated tenders if Petrobras changed their current tender rules?

The question is really about [indiscernible] and that applies not only to Petrobras but that applies to all the different clients. And again it's based on the criteria that we're using to select a tender is the risk profile that we're going to tender in line with our expectation.

Do we have terms and conditions that we can apply with? Are we eligible to win the tender if we are the lowest bidder there?

Can we add value to the clients? All of those points are being reviewed for any tender at any stage in point.

The point that we made on the call on Monday is that at the beginning of the year, Petrobras issued two tenders for which we were allowed to tender, but until we signed the leniency agreement we were not allowed to be awarded this contract. Now at the time, just to put more light on the subject, at the time our expectation was that you would be fairly quick to close the leniency agreement for us here.

Now it has taken longer than our expectation, but we remain committed to close those. So based on this, today if there is a new tender which is coming out from Petrobras with the same clause, we will not tender the project at this stage.

So just to clarify, I mean you said the company will await resolution before participating in Petrobras-operated tenders. And in that case the word resolution really refers more so to Petrobras's tender rules rather than a resolution of the leniency agreement issue.

Let me try to bring some clarity here. The issue is that indeed in the tender that Bruno was referring to, there was a specific clause in the tender rules and that would certainly not be helpful if that clause was also in future tenders and there we have drawn the line and said then it makes no sense for us to participate.

Likewise, if that is not the case going forward, then we will just look at it in its entirety going forward. So we are not blacklisted, generally speaking, in Brazil.

We work with Petrobras on a daily basis. So there is no sort of black and white other than that we have said.

With tender rules as they were at the beginning of this year, it makes no sense for us to spend money on it.

Good morning. Another one on the short-term expiries.

Next year you will see the expiries of N'kossa and Yetagun I think you already said that the Yetagun contract will be in it. Any news on N'kossa.

Douglas here. So yes correct on Yetagun, still under discussion on N'kossa.

So no further news on that at the moment.

Quirijn Mulder. Let me say this DOJ settlement now, which was in the blockade for MLP discussions.

Is the MLP back on the table now or is that still a backburner?

I mean MLP, the overall capital structure is a subject that we are reviewing on an ongoing basis. Obviously depends on the situation in the financial market, the situation of the company, and so on.

But that's a topic which is being reviewed on a regular basis inside the company.

Okay. So in this case, thank you very much for attending this call.

We wish you a good day, and we hope to see you at the next conference call. Thank you very much.

Have a good day. Bye-bye.