SOURCE: Stolt Offshore S.A.

October 12, 2005 10:43 ET

Stolt Offshore S.A. Announces Third Quarter Results

LONDON -- (MARKET WIRE) -- October 12, 2005 -- Stolt Offshore S.A. (NASDAQ: SOSA) (Oslo Stock Exchange: STO) announced today unaudited results for the third quarter and nine months which ended on August 31, 2005.

Important Note : In anticipation of the sale of the NAMEX region shallow water assets, the results of this part of the business are now reported as discontinuing operations, as was the case in the second quarter.

                            Third Quarter Ended     Nine Months Ended
                            -------------------     -----------------
in $ millions              Aug.31.05   Aug.31.04   Aug.31.05   Aug.31.04
                           Unaudited   Unaudited   Unaudited   Unaudited
                           ---------   ---------   ---------   ---------
Net operating revenue        $347.8      $272.3    $1,019.9      $775.7
Gross profit                   67.9        62.2       157.9        71.1
Net operating income
 from continuing
 operations                    42.9        42.5       100.2        36.9
Net income from
 continuing operations         30.7        30.9        57.0         6.7
Loss from discontinuing
 operations                    (6.6)      (18.2)      (16.7)      (24.9)
Net income/(loss)              24.1        12.7        40.3       (18.2)


PER SHARE DATA              Third Quarter Ended     Nine Months Ended
                            -------------------     -----------------
in $                       Aug.31.05   Aug.31.04   Aug.31.05   Aug.31.04
                           Unaudited   Unaudited   Unaudited   Unaudited
                           ---------   ---------   ---------   ---------

Earnings per share
 continuing operations       $ 0.16      $ 0.16      $ 0.30      $ 0.05
Loss per share
 discontinuing operations    $(0.03)     $(0.09)     $(0.09)     $(0.17)
Earnings/(loss) per share    $ 0.13      $ 0.07      $ 0.21      $(0.12)

Weighted-average common
 shares and common share
 equivalents issued (Basic)  191.2       190.5       190.9       146.7
Third Quarter Highlights
--  Solid financial performance delivering $24.1 million net income
--  $499 million in contract awards during the quarter
--  AFMED - sustained high levels of activity and profitability on
    multiple contracts
--  NEC - maximised utilisation of assets; strong tendering
--  NAMEX - strong post-hurricane IMR work, offset by Trinidad pipelay
    campaign
--  SAM - dry dockings completed; substantial upturn in tendering
--  AME - presence enhanced with SapuraCrest Petroleum joint venture
    
Post Quarter Highlights
--  CS Pertinacia taken on charter for six year period, with three year
    option
--  $366 million in new contract awards announced since quarter end,
    including $280 million Moho Bilondo contract
    
Tom Ehret, Chief Executive Officer, said, "Stolt Offshore has continued to make good progress throughout the third quarter, with operational performance and earnings very much as planned. The pace of our backlog build has picked up both during the third quarter and since the quarter end. Our continuing businesses now have high quality backlog cover for some eighteen months ahead.

"With the AFMED and NEC regions now both performing impressively, one of Stolt Offshore's core objectives going forward is to develop its other regions to take equal advantage of their market opportunities. During 2005, Stolt Offshore has taken significant steps in this regard with the reorientation of its NAMEX operations to focus on deepwater in the Gulf of Mexico and, in Asia Pacific, the joint venture with SapuraCrest Petroleum should position us ahead of our competitors in this region. In Brazil, we have stepped up tendering in response to recent market growth. To support activity throughout the Group, we have announced significant enhancements to our fleet resources through the charter and planned modification of the Polar Queen and the CS Pertinacia."

Operating Review

Africa and the Mediterranean Region (AFMED) In what continues to be a strong market with high levels of activity, the final part of the construction work on the ChevronTexaco Benguela Belize project was completed during the quarter and the Total Amenam II project saw significant progress with the delivery of the flowline system. Extensive maintenance and upgrading work took place on the Seaway Polaris during the seasonal bad weather months of July and August. Construction activity in the region will remain high during the fourth quarter, mainly on the ExxonMobil Erha and EPC2B East Area projects. Tendering activity for 2008 installation work is now increasing.

Northern Europe and Canada Region (NEC) The North Sea market continued to be very busy with full utilisation of all ships and other key assets, and we expect this activity level to continue through the fourth quarter. Progress on the Langeled project was below our expectations due to unseasonally bad weather, although the complex bypass of the Sleipner platforms went smoothly and ahead of schedule. The level of tendering for new installation work in 2007 is high.

North America and Mexico Region (NAMEX) Inspection, maintenance and repair work following hurricanes Ivan and Katrina has kept assets in this sector fully utilised at strong margins. The Trinidad pipelay projects have continued throughout the quarter, broadly according to plan, despite an operational incident, and they are now scheduled to complete early in 2006. The regulatory review by the US Department of Justice of the sale to Cal Dive of our shallow water assets in this region continues to progress.

South America Region (SAM) The recent substantial increase in Petrobras' E&P budget has presented a range of opportunities, and we are preparing tenders for several projects which would grow our business in Brazil. The losses reported in the second and third quarters are due to an unusually heavy schedule of dry-dockings of the Seaway Condor and the Seaway Harrier, involving a total of 15 weeks in which one or other ship was not generating revenues. The work included re-classification, a statutory requirement, which is undertaken every two and a half years, and a 20-year re-certification of the Seaway Harrier's diving system. Both ships have now returned to full operation under long-term contracts to Petrobras.

Asia and the Middle East Region (AME) In an active quarter in this region, where we are now starting to see an emerging deepwater market, the Seaway Hawk was fully occupied on the Sakhalin project for Nippon Steel. Steady progress was made on the Santos Casino project in Australia on which the Seaway Falcon is to commence pipelaying in the fourth quarter.

On August 30, 2005 Stolt Offshore announced the signing of a Co-operation Agreement to establish a joint venture with SapuraCrest Petroleum, the leading Malaysian oil service company. The joint venture, which is subject to Malaysian government approval, will take over the build and operation of the Sapura 3000, a new-build heavy lift and pipelay vessel designed to be the most advanced deepwater construction ship in the growing Asia Pacific region. We are now bidding the Sapura 3000 for deepwater construction work in 2007 and beyond. The fixed costs in this region have started to increase reflecting the new business model.

Financial Review

The third quarter delivered Adjusted EBITDA(a) of $57.3 million. The Company had gross cash of $99.3 million and debt of $9.5 million at the quarter end, providing a net cash position of $89.8 million. This net cash position is after taking account of the effect of advance billings to customers on projects totaling $249 million, compared to $206 million in the second quarter.

The FAS 133(b) non-cash charge/credit relating to the mark-to-market of foreign exchange forward contracts continues to be reported through the profit and loss account. The credit for the third quarter ending August 31, 2005 is $0.6 million, representing a $17.1 million mark-to-market pre-tax liability, compared to $17.7 million as of and for the period ended May 31, 2005.

The third quarter charge for Selling, General and Administrative expenses incorporates $9.1 million in relation to the Management Incentive Plan, largely reflecting the share price appreciation in the quarter. This figure includes a cash element of $0.6 million and a non-cash provision of $8.5 million in respect of share options.

Asset Development

The Asset Development group concluded the recently announced charter of CS Pertinacia for six years from 2007, plus an additional three year option, providing additional capacity and flexibility for the fleet. As with the Polar Queen charter announced in April 2005, this vessel will undergo modifications in order to provide Stolt Offshore with a versatile asset for flexible pipelay and subsea construction activities.

Current Trading and Outlook

The backlog(1) for continuing operations on August 31, 2005 was $1,866 million, of which $510 million is targeted for execution throughout the remainder of 2005. The Company also held an additional $634 million in pre-backlog(2) at quarter end.

In $ millions as at     Aug.31.05     May.31.05     Aug.31.04
-------------------     ---------     ---------     ---------
Backlog (Contracts)     1,866         1,715         1,585
(1) Restated to exclude amounts related to discontinuing operations in the NAMEX region of $50 million (Aug.31.05), $63 million (May.31.05) and $165 million (Aug.31.04)

(2) Pre-backlog includes the value of letters of intent and the expected value of escalations on frame agreements

With a strong level of activity through the fourth quarter, Stolt Offshore remains confident it will meet expectations for full year financial performance after the one off non-cash adjustments for FAS 133 and the share based Management Incentive Plan.

Now that customers' exploration and production budgets are showing strong and consistent growth through 2007 and beyond, there is a general consensus that the oil services sector faces a secure long term up-cycle. Evidence of this has been provided by the early cycle players, such as seismic services and drill rig contractors who are exceeding previous peaks of activity. As a mid-to-late cycle player Stolt Offshore is now seeing a steady improvement in market conditions which we anticipate will translate into stronger earnings as our more recently bid contracts are executed over the next two years.

As the subsea engineering and construction sector is now looking at a number of years of steady growth, asset utilisation should continue to be close to capacity. Stolt Offshore therefore maintains its strategy to selectively grow its fleet with commercially attractive charter and joint venture relationships where these offer substantial up-side in earnings opportunities in the medium term.

(a) Adjusted EBITDA: The calculation of Adjusted EBITDA equates to net income after adding back taxes $14.8m, deducting interest $0.1m, adding back depreciation and amortisation $17.7m (including dry dock amortisation of $3.2m), adding back impairment $1.0m and deducting gains and losses on sales of investments and fixed assets $0.2m. Management believes that Adjusted EBITDA is a useful measure of operating performance, to help determine the ability to incur capital expenditure or service indebtedness, because it is not affected by non-operating factors such as leverage and the historic cost of assets. However, Adjusted EBITDA does not represent cash flow from operations as defined by US generally accepted accounting principles, is not necessarily indicative of cash available to fund all cash flow needs and should not be considered as an alternative to earnings from operations under US generally accepted accounting principles for purposes of evaluating results of operations.

(b) FAS133 - The Company has a policy of economically hedging its foreign exchange exposure under which forward contracts are used to fix the exchange rate of commitments in currencies other than the US Dollar. As a consequence of the Group's current legal structure, the Company has concluded that these transactions cannot be designated as accounting hedges in accordance with FAS133.

Stolt Offshore is a leading offshore contractor to the oil and gas industry, specialising in technologically sophisticated deepwater engineering, flowline and pipeline lay, construction, inspection and maintenance services. The Company operates in Europe, the Middle East, West Africa, Asia Pacific, and the Americas.

Forward-Looking Statements: Certain statements made in this press release may include "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These statements may be identified by the use of words like "anticipate," "believe," "estimate," "expect," "intend," "may," "plan," "project," "will," "should," "seek," and similar expressions. The forward-looking statements reflect our current views and assumptions and are subject to risks and uncertainties. The following factors, and others which are discussed in our public filings and submissions with the U.S. Securities and Exchange Commission, are among those that may cause actual and future results and trends to differ materially from our forward-looking statements: the general economic conditions and competition in the markets and businesses in which we operate; our relationship with significant customers; the outcome of legal proceedings; uncertainties inherent in operating internationally; the impact of laws and regulations; and operating hazards, including spills and environmental damage. Many of these factors are beyond our ability to control or predict. Given these factors, you should not place undue reliance on the forward-looking statements.

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               STOLT OFFSHORE S.A. AND SUBSIDIARIES
         CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
             (in $ millions, except per share data)

                                 Three Months Ended     Nine Months Ended

                                  Aug.31     Aug.31    Aug.31     Aug.31
                                   2005       2004      2005       2004
                                Unaudited  Unaudited Unaudited   Unaudited
                                 ------------------------------------------


Net operating revenue             347.8      272.3    1,019.9      775.7
Operating expenses               (279.9)    (210.1)    (862.0)    (704.6)
                                -------    -------    -------    -------
Gross profit                       67.9       62.2      157.9       71.1

Share of net income
 of non-consolidated joint          6.8        1.4       14.5       14.2
Ventures
Selling, general and
 administrative expenses          (32.1)     (17.4)     (80.4)     (74.7)
Impairment of long lived
 fixed assets                      (1.0)      (0.8)      (1.0)      (4.3)
Gains/(losses) on disposal
 of subsidiaries and long           0.2       (0.8)       8.1       32.0
 lived assets
Other operating income/
(expense)                           1.1       (2.1)       1.1       (1.4)
                                -------    -------    -------    -------
Net operating income from
 continuing operations             42.9       42.5      100.2       36.9

Interest income/(expense), net      0.1       (3.1)      (0.7)     (11.5)
Foreign exchange gain/(loss)        2.8          -      (10.7)       1.8
                                -------    -------    -------    -------

Income from continuing
 operations before taxes and       45.8       39.4       88.8       27.2
 minority interests
Income tax provision              (14.8)      (6.0)     (25.9)     (17.5)
                                -------    -------    -------    -------
Income from continuing
 operations before minority        31.0       33.4       62.9        9.7
 interests
Minority interests                 (0.3)      (2.5)      (5.9)      (3.0)
                                -------    -------    -------    -------
Net income from
 continuing operations             30.7       30.9       57.0        6.7

Loss from
 discontinuing operations          (6.6)     (18.2)     (16.7)     (24.9)
                                -------    -------    -------    -------
Net income/(loss)                 $24.1      $12.7      $40.3     $(18.2)
                                -------    -------    -------    -------

PER SHARE DATA
   Net earnings/
   (loss) per share
   Basic
   Continuing operations          $0.16      $0.16      $0.30      $0.05
   Discontinuing operations      $(0.03)    $(0.09)    $(0.09)    $(0.17)
                                -------    -------    -------    -------
   Net earnings/(loss)            $0.13      $0.07      $0.21     $(0.12)
                                -------    -------    -------    -------
   Diluted
   Continuing operations          $0.16      $0.16      $0.29      $0.05
   Discontinuing operations      $(0.04)    $(0.09)    $(0.08)    $(0.17)
                                -------    -------    -------    -------
   Net earnings/(loss)            $0.12      $0.07      $0.21     $(0.12)
                                -------    -------    -------    -------
Weighted average number
 of Common Shares and
 Common Share
 equivalents outstanding
   Basic                          191.2      190.5      190.9      146.7
   Diluted                        195.4      192.6      194.8      146.7

SELECTED INFORMATION
Capital expenditures               20.5       12.5       64.9       20.3
Depreciation and
 amortisation                      14.5       14.6       43.6       46.4
Dry-dock amortisation               3.2        2.4        9.4        8.0



                       CONDENSED CONSOLIDATED BALANCE SHEETS
                                 (in $ millions)


                                            As at                 As at
                                           Aug.31      Aug.31  November 30,
                                            2005        2004       2004
                                          Unaudited   Unaudited  Audited(a)
                                        -----------------------------------

ASSETS

   Cash and cash equivalents                 99.3      297.7     135.0

   Other current assets  (b)                484.9      320.9     338.5

   Fixed assets, net of
    accumulated depreciation                458.4      510.3     499.8

   Other non-current assets                  83.3       74.2     106.4

   Assets held for sale                      63.0       21.9      29.3
                                         --------   --------  --------
   Total assets                           1,188.9    1,225.0   1,109.0
                                         ========   ========  ========

LIABILITIES AND SHAREHOLDERS’ EQUITY

   Current portion of
    Long term debt and capital
    lease obligations                         0.8       40.0         -

   Accounts payable and accrued
    liabilities                             753.6      576.8     627.9

   Long term debt and capital lease
    obligations                               8.7      239.8      69.7

   Minority interests                        21.0       31.4      35.3

   Other non-current liabilities             42.8       32.2      45.6

   Liabilities held for sale                    -       21.6      15.9

   Shareholders’ equity

        Common Shares                       385.0      382.8     382.8

        Paid-in-surplus                     462.8      447.6     449.3

        Deficit                            (490.2)    (553.8)   (530.5)

        Accumulated other
         comprehensive income                 5.4        7.6      14.0

        Treasury stock                       (1.0)      (1.0)     (1.0)
                                         --------   --------  --------
            Total shareholders’ equity      362.0      283.2     314.6
                                         --------   --------  --------
            Total liabilities and
             shareholders’
             equity                       1,188.9    1,225.0   1,109.0
                                         ========   ========  ========


    Cash and cash equivalents                99.3      297.7     135.0
     Current portion of long term debt and
     capital lease                           (0.8)     (40.0)        -
     Obligations
    Long term debt and capital lease
     obligations                             (8.7)    (239.8)    (69.7)
                                         --------   --------  --------
   Total cash and cash equivalents
    net of interest-bearing
    debt and capital lease obligations       89.8       17.9      65.3
                                         ========   ========  ========

(a)  These figures have been extracted from the Annual Report
     and Accounts 2004.

(b)  As at August 31, 2005 a total of $29.0 million of claims and
     variation orders not yet formally agreed with customers has
     been included in  other current assets. This compares to $16.3
     million and nil of claims and variation orders included in other
     current assets at  August 31, 2004 and November 30, 2004 respectively.



                    STOLT OFFSHORE S.A. AND SUBSIDIARIES
                             SEGMENTAL ANALYSIS
                               (in $ millions)

The Company has six reportable segments based on the geographic
distribution of its activities as follows: the Africa and the
Mediterranean (AFMED) region covers activities in Africa, the
Mediterranean and Southern Europe; the Northern Europe and Canada (NEC)
region includes all activities in Northern Europe, the Northern
Atlantic Ocean, Scandinavia, the Baltic States and Eastern Canada;
the Central and North America (NAMEX) region includes all activity in
Western Canada, the United States, Central America and Mexico;
the South America (SAM) region incorporates activities in South America
and the islands of the Southern Atlantic Ocean; the Asia and
Middle East (AME) region includes all activities in the Middle East,
the Indian sub-continent, Asia Pacific and Australasia. The
Corporate segment includes items which cannot be allocated to one
particular region.  These include the activities of Paragon
Engineering Services, Inc. up to the date of its disposal, and the SHL
and NKT joint ventures. Also included are assets which have
global mobility including construction support ships, ROVs and other
assets that cannot be attributed to any one region; and
corporate services provided for the benefit of the whole group,
including design engineering, finance and legal departments.


 For the three months ended
 August 31, 2005                AFMED        NEC       NAMEX (c)      SAM

 Net operating revenue
  – external (a)                $128.6       $182.8        $6.2      $12.6
 Net operating revenue
  – internal (b)                 $19.4        $43.1        $0.2       $5.1
 Income/(loss) from operations   $13.8        $25.8       ($0.2)     ($0.3)
     Interest income, net
     Foreign exchange gain

 Income before taxes, minority interests
 and discontinuing operations


 For the three months ended
 August 31, 2005                            AME        Corporate     Total

 Net operating revenue
  – external (a)                           $16.3          $1.3      $347.8
 Net operating revenue
  – internal (b)                            $0.7          $0.6           -
 Income/(loss) from operations             ($0.9)         $4.7       $42.9
     Interest income, net                                             $0.1
     Foreign exchange gain                                            $2.8
                                                                    ------
 Income before taxes, minority interests                             $45.8
 and discontinuing operations



 For the three months ended
 August 31, 2004                AFMED        NEC       NAMEX(c)       SAM

 Net operating revenue
  – external (a)                $120.7       $109.5        $4.6      $12.7
 Net operating revenue
  – internal (b)                 $13.3        $16.1        $2.6       $4.9
 Income/(loss) from operations    $7.4        $27.6       ($2.6)      $2.0
     Interest expense, net
     Foreign exchange gain/(loss)

 Income before taxes, minority interests
 and discontinuing operations


For the three months ended
August 31, 2004                           AME       Corporate       Total

Net operating revenue
 – external (a)                           $5.8         $19.0        $272.3
Net operating revenue
 – internal (b)                           $0.3         ($0.6)            -
Income/(loss) from operations             $0.1          $8.0         $42.5
    Interest expense, net                                            ($3.1)
    Foreign exchange gain/(loss)                                         -
                                                                    ------
Income before taxes, minority interests                              $39.4
and discontinuing operations


 For the nine months ended
 August 31, 2005               AFMED        NEC       NAMEX(c)       SAM

 Net operating revenue
  – external (a)               $481.4       $414.5       $35.5       $37.2
 Net operating revenue
  – internal (b)                $68.6        $76.5       $14.9       $14.5
 Income/(loss) from operations  $55.7        $39.4        $0.6        $2.1
     Interest expense, net
     Foreign exchange loss

 Income before taxes, minority interests
 and discontinuing operations



 For the nine months ended
 August 31, 2005                           AME       Corporate      Total

 Net operating revenue
  – external (a)                          $40.4         $10.9     $1,019.9
 Net operating revenue
  – internal (b)                           $1.5          $1.8            -
 Income/(loss) from operations            ($1.4)         $3.8       $100.2
     Interest expense, net                                           ($0.7)
     Foreign exchange loss                                          ($10.7)
                                                                    ------
 Income before taxes, minority interests                             $88.8
 and discontinuing operations



 For the nine months ended
 August 31, 2004               AFMED         NEC       NAMEX(c)       SAM

 Net operating revenue
  – external (a)               $340.2       $270.4       $19.2       $40.7
 Net operating revenue
  – internal (b)                $50.5        $43.5        $7.5       $13.9
 (Loss)/income from
  operations                   ($41.9)       $51.2       ($4.6)      $12.3
     Interest expense, net
     Foreign exchange gain

 Income before taxes, minority interests
 and discontinuing operations


 For the nine months ended
 August 31, 2004                           AME       Corporate      Total

 Net operating revenue
  – external (a)                          $19.6         $85.6       $775.7
 Net operating revenue
  – internal (b)                           $0.8          $1.2            -
 (Loss)/income from
  operations                              ($0.0)        $19.9        $36.9
     Interest expense, net                                          ($11.5)
     Foreign exchange gain                                            $1.8
                                                                    ------
 Income before taxes, minority interests                             $27.2
 and discontinuing operations



(a)  Four  customers  accounted  for more than 10% of the Company's
     revenue from  continuing  operations  for the quarter ended
     August 31,  2005.  The revenue from these  customers  was
     $235.7  million and was  attributable  to the AFMED,  AME and NEC
     regions.  Four  customers  in the  nine-month  period ended
     August 31, 2005  accounted  for more than 10% of the  Company’s
     revenue from continuing  operations.  The revenue from these
     customers was $629.0 million for the nine-months  ended August
     31, 2005 and was attributable to the AFMED,  AME, NAMEX and NEC
     regions.  One customer and two customers each  individually
     accounted  for more  than  10% of the  Company's  revenue  from
     continuing  operations  for the  quarter  and  nine-months
     respectively,  ended August 31, 2004. The revenue from these
     customers was $30.9 million for the quarter and $194.8 million
     for the nine-months ended August 31, 2004. The revenue from these
     customers was attributable to the AFMED and NEC regions.

(b)  Internal revenues are eliminated on consolidation of the Company's
     results and are therefore shown in the table to equal
     to zero.

(c)  Losses from discontinuing operations are excluded.

Contact Information

  • Contacts:
    Julian Thomson / Deborah Keedy
    Stolt Offshore S.A.
    UK +44 1932 773764 or +44 1932 773767
    US +1 877 603 0267 (toll free)
    Email Contact
    Email Contact

    Patrick Handley (UK) / Ellen Gonda (US)
    Brunswick Group
    UK +44 207 404 5959
    US +1 212 333 3810
    Email Contact
    Email Contact