Seadrill Partners LLC - Third Quarter 2013 Results
(Thomson Reuters ONE) -
Highlights
* Seadrill Partners reports net income attributable to Seadrill Partners LLC
Members for the third quarter 2013 of US$14.2 million and net operating
income for the third quarter of US$63.4 million.
* Generated distributable cash flow of US$15.9 million after a reduction
of $5.7 million in connection with the West Aquarius settlement for the
third quarter 2013.
* Declared an increased distribution for the third quarter of US$0.4275
per unit.
Subsequent Events
* Completed the acquisition of the company that owns the tender rig T-16 from
Seadrill Limited for US$200 million in October 2013 with management
recommending a quarterly distribution increase as a result to between
$0.4425 and $0.445 per unit
* Announced settlement agreement and 18 month extension for the semi-
submersible West Aquarius with a total estimated revenue potential of US$337
million, subject to partner approval. The necessary partner approvals for
the extension have since been obtained.
* Total S.A. exercised their option to convert the contract extension for the
West Capella from 5 years to 3 years. As a result of this change in
contract terms the dayrate has increased from US$580,000 per day to
US$627,500 per day
* Filed US$800 million mixed shelf registration statement to add flexibility
to financing future rig growth
Financial Results Overview
Seadrill Partners LLC(1) reports:
Total contract revenues of US$161.5 million for the third quarter 2013 (the
"third quarter") compared to US$158.6 million in the second quarter of 2013 (the
"second quarter"). The increase is primarily driven by improvement in operating
performance of the West Capricorn and the commencement of T-15 operations.
Revenue was negatively impacted by 12 days downtime during the quarter for West
Aquarius and the settlement agreement for the West Aquarius which reduced
revenue in the third quarter by approximately $22 million related to the
mobilization in Canada in the first quarter of 2013.
Net operating income for the quarter of US$63.4 million compared to US$71.6
million in the preceding quarter. The reduction is as a result of the West
Aquarius settlement as mentioned above.
Net Income for the quarter of US$44.5 million compared to US$77.2 million in the
previous quarter. This is after the recognition of non-cash loss on derivative
instruments, which reflected a loss of US$5.5 million in the third quarter as
compared to a gain of US$24.5 million for the second quarter as a result of a
decrease in long term interest rates in the third quarter.
Net income attributable to Seadrill Partners LLC Members was US$14.2 million for
the third quarter compared to US$22.1 million for the previous quarter.
Distributable cash flow was US$15.9 million for Seadrill Partners' third quarter
as compared to US$15.8 million for the previous quarter(2 )giving a coverage
ratio of 0.83 for the third quarter. The reduction is as a result of the West
Aquarius settlement, partially offset by increased contribution from the T-15.
Had it not been for the West Aquarius settlement, which did not relate to
operations in the third quarter, distributable cash flow would have been
approximately $21.6 million giving a coverage ratio of 1.13
____________________
(1) )All references to "Seadrill Partners" and "the Company" refer to Seadrill
Partners LLC and its subsidiaries, including the operating companies that
indirectly own interests in the drilling rigs, Seadrill Partners LLC owns: (i)
a 30% limited partner interest in Seadrill Operating LP, as well as the non-
economic general partner interest in Seadrill Operating LP through its 100%
ownership of its general partner, Seadrill Operating GP LLC, (ii) a 51% limited
liability company interest in Seadrill Capricorn Holdings LLC and (iii) a 100%
limited liability company interest in Seadrill Partners Operating LLC. Seadrill
Operating LP owns: (i) a 100% interest in the entities that own the West
Aquarius, the West Vencedor and (ii) an approximate 56% interest in the entity
that owns and operates the West Capella. Seadrill Capricorn Holdings LLC owns
100% of the entities that own and operate the West Capricorn. Seadrill Partners
Operating LLC owns 100% of the entities that own and operate the T-15 tender
barge.
(2) )Please see Appendix A for a reconciliation of DCF to net income, the most
directly comparable GAAP financial measure.
Distribution for the period of US$0.4275 per unit, equivalent to an annual
distribution of US$1.71, representing an approximate 10% increase from the
Company's minimum quarterly distribution set at its IPO. Subsequent to the
acquisition of the T-16 tender rig in October Management have recommended to the
Board an annualized distribution increase to between $1.77 and $1.79 per unit
which would become fully effective for the distribution with respect to the
quarter ending December 31, 2013 and would represent an approximate 15% increase
since IPO. Any such increase would be conditioned upon, among other things, the
approval of such increase by the Board and the absence of any material adverse
developments that would make such an increase inadvisable.
Operations
During the third quarter, Seadrill Partners had an interest in five rigs in
operation. The fleet is comprised of two semi-submersible rigs, one drillship
and two tender rigs operating in Canada, the US Gulf of Mexico, Nigeria, Angola
and Thailand respectively. During the quarter the T-15, which was acquired on
May 17, 2013, commenced operations on full rate.
During the quarter Seadrill Partners reached a settlement agreement with
ExxonMobil in which it agreed to non-payment from ExxonMobil for 37 days during
the mobilization period which ended in first quarter of 2013 as a result of the
time required for the rig to complete modifications and repairs in order to meet
the regulatory requirements for operations in Canadian waters and for the
operator to receive authorization from the Canadian authorities to commence
operation. In conjunction, Hibernia Management and Development Company Ltd,
(HMDC) has agreed to negotiate an 18 month contract for the ultra-deepwater
harsh environment semi-submersible West Aquarius thereby extending the
operations for the rig off the east coast of Canada until April 2017, subject to
partner approval. The necessary partner approvals for the extension have since
been obtained.
Total S.A. have exercised their option to convert the contract extension for the
West Capella from 5 years to 3 years. As a result of this change in contract
terms the dayrate has increased from US$580,000 per day to US$627,500 per day.
The use of the option to convert to a shorter contract with a higher dayrate
reflects a transfer of operatorship for the license and the wish for the new
operator to retain flexibility. The Company is confident however that there will
be additional requirements for the rig in Nigeria post 2017.
The Company's fleet performed very well during the third quarter, achieving an
overall economic utilization rate of 97% on average, excluding the West Aquarius
settlement which was linked to operations in the first quarter. The improvement
from the second quarter utilization of 92% is due to improved operations on the
West Capricorn and continued strong performance on the balance of the fleet.
Operating expenses for the third quarter were US$101.3 million, compared to
US$90.6 million in the second quarter. The increase in operating expenses is
largely explained by the commencement of T-15 operations during the quarter,
costs incurred in Thailand re-billed to Seadrill in revenue and higher
administrative expenses.
Acquisitions
On October 21, 2013 Seadrill Partners completed the acquisition of the company
that owns the tender rig T-16 from Seadrill Limited ("Seadrill") for a total
purchase price of US$200 million. The T-16 is contracted with Chevron in
Thailand at an initial contract dayrate of US$115,500, which is subject to
escalation to cover cost increases. As a result of the acquisition and as noted
above management have recommended a distribution increase of between US$0.025
and US$0.03, or an annualized increase of between US$0.10 and US$0.12.
Financing and Liquidity
As of September 30, 2013, the Company had cash and cash equivalents, on a
consolidated basis, of US$71.8 million and a revolving credit facility of US$300
million provided by Seadrill as the lender. As of September 30, 2013, US$75.9
million was drawn on this facility to finance short-term working capital needs
and to help manage the Company's debt amortization requirements. Total debt
excluding the drawn revolver balance was US$1,216.9 million as of September 30,
2013; US$1,107.4 million of this debt was originally incurred by Seadrill, as
borrower, in connection with its acquisition of the drilling rigs. Subsidiaries
within the Seadrill Partners group that now own the drilling rigs entered into
agreements with Seadrill, pursuant to which each rig owning subsidiary will make
payments of principal and interest directly to Seadrill. These loan agreements
with Seadrill Limited are classified as related party transactions.
The Company has four secured credit facilities, one of which matures in June
2014. The Company expects to refinance this facility ahead of its expiration
either in the secured rig finance market or in the debt capital markets in order
to achieve the most effective capital structure. The remaining three facilities
expire in 2015, 2016, and 2017 respectively and a similar refinancing strategy
should be expected at maturity debt levels or higher. Additionally the Company
has a US$110 million vendor loan from Seadrill Limited maturing in 2016 relating
to the acquisition of the T-15. The Board is confident that the facilities can
be refinanced at attractive terms with improved repayment profiles. The
Company's goal is to achieve a capital structure independent of Seadrill Limited
which will allow it to appropriately manage debt terms and debt amortization.
Seadrill Partners is actively exploring debt structures that are more suited for
its policy of cash distribution. The current back-to-back loans with Seadrill
Limited have an amortization profile that can likely be improved. The Company
is currently reviewing opportunities in a number markets that would serve to
refinance current debt outstanding and provide Seadrill Partners with a more
manageable amortization schedule and maturity profile.
As of September 30, 2013, Seadrill Partners had interest rate swaps with
Seadrill outstanding on principal debt of US$1,126.3 million. All of the
interest rate swap agreements were entered into subsequent to the IPO Closing
Date and represent approximately 92% of debt obligations as of September 30,
2013. The average swapped rate, excluding bank margins, is approximately 1.16%.
The Company has a policy of hedging the significant majority of its long-term
interest rate exposure.
Market
The fundamental outlook for the offshore drilling industry remains firm.
Exploration and production companies continue to view deep and ultra-deepwater
acreage as attractive areas to invest capital. Several oil companies are
however are encountering a period in which cash flows are challenged and budgets
must be re-examined. It is typical during these periods for project
commencements in all regions to slow on the margin before growth capital is
deployed in the most impactful projects that will replace reserves and grow free
cash flow.
Since the middle of 2012, ultra-deepwater drilling rigs have benefited from
stable dayrates. However, bifurcation has led to lower rates for non-premium
deepwater units. E&P companies remain comfortable with rates in the range of
US$550,000-US$650,000 per day for the highest end asset classes due to the
unique efficiency and safety enhancements they provide. We have recently seen
a trend where oil companies are exchanging 4th and 5th generation rigs with new
deliveries. This has particularly been the case in the US Gulf where the need
for dual seven ram BOP's and other high specification features is forcing 4th
and 5th generation assets out of the market. This trend might lead to pressure
on rates for 4th and 5th generation rigs. The Board is comfortable that the
utilization of 6th and 7th generation UDW rigs, such as the units in Seadrill
Partners fleet, will, based on current demand seen, remain close to 100%. The
oil companies are currently reconsidering investment plans and are cutting part
of their exploration programs. However, the fact that the major oil companies
even in a reduced capex environment are still increasing spending in ultra-
deepwater areas illustrates the attractiveness of the Company's positioning. A
positive outcome of the new exploration program coming up in Angola with
between 10-15 exploration wells to be drilled in 2014 can easily be the factor
which creates strong momentum in the ultra-deepwater market.
The number of deep and ultra-deepwater discoveries has increased materially
since 2010 and the Company expects this trend to continue. Importantly, as
these trends migrate from discoveries to development projects average contract
terms are expected to increase as development plans typically have longer
duration than exploration activities. Seadrill Partners' tender rig fleet is
also ideally positioned to take advantage of development spending trends as
these assets are primarily used in development activities.
During the third quarter leading edge dayrates continue to be in-line with first
half 2013 levels with the most recent contracted dayrates ranging from
US$550,000-US$650,000. Seadrill Partner's ultra-deepwater rigs current dayrates
range from US$487,000 per day to US$580,000 per day. As of September 30, 2013
Seadrill Partners' total fleet's average remaining contract term was 3.3 years,
excluding the West Aquarius extension. Given the Company's expectation of
continued strength in dayrates, it is possible that the Company's below market
contracts will be re-contracted at higher rates as their contracts expire. This
may create the potential for increased distribution from existing assets.
Outlook
The Board views Seadrill Partners' first year as a public company as a very
successful one. The Company has succeeded in growing the fleet and increasing
distributions, which will have grown by approximately 15% by the fourth quarter
of 2013 based on management's recommendations. . Going forward Seadrill
Partners' growth strategy has two paths; acquiring additional rigs and acquiring
additional units in its operating companies. The Company believes that in
principle the former should come before the latter in order to achieve fleet
diversification with additional rigs. These additional rigs will reduce
contract rollover risk in any given year and create a smooth cash flow profile
that will support visibility in distributions. Due to the size of the assets
under consideration as acquisition targets, it is likely that the Company will
continue to acquire percentages of drilling units utilizing the current
operating company structure. Seadrill's large fleet of premium ultra-deepwater
assets provides significant opportunities to facilitate this industry leading
growth profile.
Once a diversified fleet is achieved, the acquisition of additional shares of
existing operating companies is likely. The Board believes this will provide
Seadrill Partners with one of the most visible growth paths of all MLP's in the
marketplace.
Seadrill has recently contracted several high specification jack-ups for up to
6 years. The jack-up business, which historically has shown high utilization and
stable operating costs might be an additional attractive growth area for
Seadrill Partners.
Average economic utilization of the Company's rigs at 97% is a significant
achievement and is evidence of the Company's focus on operational excellence.
The West Capella will undergo its 5 year classing during the fourth quarter, the
Board is confident that the cost and downtime suffered will be less than
expected at the time of the IPO. . The fourth quarter will be positively
impacted by the cash contribution of the T-16 tender barge and negatively
impacted by approximately 7 days of downtime for the West Vencedor and 14 days
in respect of the West Aquarius in connection with its 5 year classing. The
Board believes the Company has good control over its cost structure. The fleet
is now operating well and otherwise expected to continue with solid operational
performance leading an expected coverage ratio for the quarter back up above
one, despite the above downtime. Based on similar operational performance in the
first quarter of 2014 the coverage ratio is expected to improve further. The
increased rate for the Capella of an additional $65,380 per day will come into
effect in April 2014 which will further strengthen cash flow. Further
improvement is expected with the increased rate in respect of the West Aquarius
extension from 2015.
The Board is excited by the Company's growth potential and confident about its
ability to grow distributions in the future and is fully focused on the
acquisition of new rigs in order to achieve this.
November 25, 2013
The Board of Directors
Seadrill Partners LLC
London, UK.
Questions should be directed to:
Graham Robjohns: Chief Executive Officer
Rune Magnus Lundetrae: Chief Financial Officer
Seadrill Partners 3Q 2013 Results:
http://hugin.info/155503/R/1745579/587490.pdf
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(ii) they are solely responsible for the content, accuracy and
originality of the information contained therein.
Source: Seadrill Partners LLC via GlobeNewswire
[HUG#1745579]
Datum: 25.11.2013 - 16:21 Uhr
Sprache: Deutsch
News-ID 320133
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