Highlights
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 LLC1
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 quarter2 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
This
announcement is distributed by NASDAQ OMX Corporate Solutions on
behalf of NASDAQ OMX Corporate Solutions clients.
The issuer of this announcement warrants that they are solely
responsible for the content, accuracy and originality of the
information contained therein.
Source: Seadrill Partners LLC via Globenewswire
HUG#1745579
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