Highlights
Financial
Results Overview
Seadrill Partners LLC1
reports:
Total contract revenues of
US$260.6 million for the first quarter 2014 (the "first quarter")
compared to US$282.1 million in the fourth quarter of 2013 (the
"fourth quarter"). The decrease is primarily driven by 60 days of
downtime on the West Aquarius and 17 days downtime on the West
Capricorn due to equipment failures. This was partly offset by 11
days contribution from the West Auriga.
Net operating income for the
quarter of US$123.6 million compared to US$134.4 million in the
preceding quarter. The decline is largely as a result of the West
Aquarius and West Capricorn downtime noted above.
Net Income for the quarter of
US$43.8 million compared to US$113.6 million in the previous
quarter. This is after the recognition of the gain/loss on
derivative instruments, which reflected a loss of US$(49.2) million
in the first quarter as compared to a gain of US$16.1 million for
the fourth quarter as a result of a decrease in long term
interest rates in the first quarter as well as a higher level of
interest rate swaps as at the end of the first quarter. The
unrealized non-cash element of these amounts are US$49.9 million
loss in the first quarter 2014 and a US$19.1 million gain for the
fourth quarter 2013.
____________________
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, West Leo and 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,West Sirius and West Auriga. Seadrill Partners
Operating LLC owns 100% of the entities that own and operate the
T-15 and T-16 tender barges.
Net income attributable to
Seadrill Partners LLC Members was US$19.8 million for the first
quarter compared to US$42.0 million for the previous quarter.
Distributable cash flow was US$30.0 million for
Seadrill Partners' first quarter as compared to US23.2 million for
the previous quarter2 giving a
coverage ratio of 0.77x for the first quarter. The increase
is mainly as a result of the contribution from the T-16, West Leo
and West Sirius for the full quarter and from the inclusion of the
West Auriga for 11 days in March.
The coverage ratio has been negatively impacted by
the increase in units outstanding following the March equity
issuance as the first quarter distribution is payable on all
outstanding units at the record date. Were the distribution
to be paid pro-rata on the new units for the 11 days of March that
the Company benefited from the West Auriga cash flow, the coverage
ratio would have been 0.92x.
Distribution for the period of US$0.5075 per unit,
equivalent to an annual distribution of US$2.03, represents an
approximate 31% increase from the Company's minimum quarterly
distribution set at its IPO. Subsequent to the acquisition of
the ultra-deepwater drillship the West Auriga in March, Management
have recommended to the Board an annualized distribution increase
to between $2.16 and $2.18 per unit which would become effective
for the distribution with respect to the quarter ending June 30,
2014 and would represent an approximate 40% increase since IPO. Any
such increase would be conditional 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.
____________________
2) Please
see Appendix A for a reconciliation of DCF to net income, the most
directly comparable GAAP financial measure.
Operations
Seadrill Partners has an interest
in nine rigs in operation. The fleet is comprised of four
semi-submersible rigs, two drillships and three tender rigs
operating in Canada, the US Gulf of Mexico, Ghana, Nigeria, Angola
and Thailand respectively.
During the first quarter, Total
S.A. exercised their option to convert the contract extension for
the West Capella from 5 years to 3 years. The new rate became
effective in April 2014. 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.
Overall economic utilization for
the fleet was 82% for the first quarter. With the exception
of 77 days downtime linked to the West Aquarius and West Capricorn
equipment failures, the Company's remaining fleet performed well
achieving an economic utilization rate of 98%.
Total operating expenses for the
first quarter were US$151.7 million, compared to US$148.0 million
in the fourth quarter. The Company has good cost controls in
place and sees little risk of changes to the operating cost
structure.
Acquisitions
On March 21, 2014 Seadrill
Partners completed the acquisition of the companies that own and
operate the ultra-deepwater drillship the West Auriga for a total
consideration of US$1.24 billion on a 100% basis. The West
Auriga was acquired by Seadrill Capricorn Holdings LLC (51% owned
by SDLP). Debt funding for the acquisition was US$543 million
comprised of a secured debt facility and a US$100 million discount
note from Seadrill. The Company's equity portion, for its
share of the rig acquisitions, of US$355 million was funded with
proceeds from Seadrill Partner's second public follow on equity
offering.
The West Auriga is contracted with
BP in the US Gulf of Mexico at a dayrate of US$565,000 (excluding
approximately $37,500 per day payable by the customer over the term
of the contract relating to mobilization, variation orders and
other special and standby rates) until the third quarter of
2020. The long term contracted cash flows of this acquisition
further enhances Seadrill Partners' cash flow profile and
visibility in distributable cash flows, as well as further
diversifies Seadrill Partners fleet and reduces volatility in
operating results.
As noted above the Company
completed a public offering (the "Offering") of 10,400,000 common
units at a price of $30.60 per common unit on March 17, 2014. In
addition, the underwriters exercised in full their option to
purchase an additional 1,560,000 common units. The total number of
common units sold in the Offering was therefore 11,960,000.
Concurrently with the closing of the Offering, Seadrill Limited
("Seadrill") purchased directly from the Company 1,633,987 common
units at a price of $30.60 per unit.
Financing
and Liquidity
As of March 31, 2014, the
Company had cash and cash equivalents, on a consolidated basis, of
US$130.1 million and two revolving credit facilities totaling
US$200 million. One US$100mm facility is provided by Seadrill as
the lender and the second US$100mm facility is provided by a
syndicate of banks and is secured in connection with the $1.8
billion term loan B. As of March 31, 2014, US$0.0
million was drawn on these facilities. Total debt was
US$3,139.9 million as of March 31, 2014; US$1,134.6 million of
this debt was originally incurred by Seadrill, as borrower, in
connection with its acquisition of the drilling rigs.
As of March 31, 2014 the Company
had four secured credit facilities, in addition to the term loan B.
These facilities expire in 2015, 2016, 2017, and 2025. A
refinancing strategy similar to the term loan B executed in
February should be expected at maturity debt levels or
higher. Additionally the Company has a US$109.5 million
vendor loan from Seadrill maturing in 2016 relating to the
acquisition of the T-15 and a US$100.0 million discount note
maturing in 2015 relating to the acquisition of the West
Auriga.
In February 2014, Seadrill
Partners executed a US$1.8 billion term loan B and US$100.0 million
revolving credit facility. The term loan was upsized from
US$1.7 billion and priced at Libor plus 3%, the low end of the
price range, and subsequently swapped to a fixed rate of
approximately 5.5%. The 1% amortization profile of the new
facility will enable the Company to more efficiently manage its
replacement capital expenditure reserves by investing in new
assets. In conjunction with the term loan B and revolver
Seadrill Partners obtained a credit rating of BB- / Ba3. As a
rated entity Seadrill Partners' access to and cost of funding
should be improved, thus increasing financial flexibility.
The Board is confident that a
similar refinancing can be executed on the remaining back to back
loans and related party debt in order to achieve a capital
structure that is independent from Seadrill Limited and further
facilitate Seadrill Partners' growth.
As of March 31, 2014,
Seadrill Partners had interest rate swaps outstanding on principal
debt of US$2,948.0 million. All of the interest rate swap
agreements were entered into subsequent to the IPO Closing Date and
represent approximately 97% of debt obligations as of
March 31, 2014. The average swapped rate, excluding bank
margins, is approximately 2.02%. The Company has a policy of
hedging the significant majority of its long-term interest rate
exposure in order to reduce the risk of a rising interest rate
environment.
Market
Several new deepwater contracts
have been announced recently indicating a dayrate level between 500
and 550k. There are reasons however to believe that some of our
major competitors will accept rates levels for a sixth generation
vessels in the 425 - 475k level. Currently, the market
suffers from limited exploration drilling and delays in field
developments from the major oil companies. The root cause of
the muted activity level is the fact that many major oil companies
are working to improve their cash generation. The outlook is
further affected by sublets and by lower specification rigs trying
to price themselves into a higher end market. The key
question is when oil majors will resume tendering activity.
To some degree, the decreased level of activity leads to further
delays. Oil companies are trying to determine when dayrates
will trough, thus are not compelled to sign contracts if they feel
dayrates are still declining. Once a leading edge is defined
others tend to be compelled to award contracts. To this
point, in the recent weeks we have seen increased inquiries by both
majors and independent operators following the establishment of a
leading edge dayrate.
In the medium term, once oil
majors begin contracting activity again, rates will be lower than
the high rates experienced in 2013. Most of our major
competitors are facing tough investment decisions due to the fact
that a large percentage of their assets are in excess of 20 years
old and will need significant upgrade investment to keep them
running. Seadrill Partners is in the beneficial position of
not being forced to take many of these types of decisions.
Seadrill Partners' cash flow profile is strong due to a large
contracted backlog with limited exposure to the current dayrate
weakness.
The current uncertainty in the
market has reduced newbuilding activities and only 7 rigs have now
been ordered for 2016 delivery and 5 for 2017. These numbers
exclude the Brazilian built rigs where a large degree of
uncertainty remains as to actual delivery dates. These numbers are
significantly lower than the 30 and 19 deliveries in 2014 and 2015
respectively.
Looking at the market as a whole,
the acute challenges lie with fourth and fifth generation
assets. The oil companies' new requirements after Macondo and
the focus on increased water depth areas have significantly limited
the contractibility of older equipment. The owners will face
the choice of investing significant amounts into twenty or thirty
year old assets in order to try to meet the new demands or simply
just lay up the unit. Some contractors may also attempt asset
swaps with new builds without a contract for older assets on
long-term commitments, in an attempt to secure work for their
premium units while saving cost on large capex upgrades. This
results in the near term potential for more stacking of older
units. According to Fearnley's a total of 51 units older than
25 years are required to undergo their special survey in the next
24 months. It has been shown from the prior cycles that such
upgrades carried out by several of our competitors has had a
materially lower return than Seadrill's focus on building a modern
high specification fleet.
Ultra-deepwater
floaters (>7,500 ft water depth)
Ultra-deepwater activity continues
to be driven by the "Golden Triangle" of the US Gulf of Mexico,
Brazil and West Africa. Since the year 2000 approximately 8
billion boe have been discovered in the ultra-deepwater, the
majority of which have been in the golden triangle. Over the
same time period only 500 million boe have been produced from
ultra-deepwater regions. This represents a reserve to
production ratio of approximately 16 for ultra-deepwater
projects. This bodes quite well for expected future activity
as the addition of reserves is a key strategic objective for major
oil companies. The proving of reserves in these areas will
mitigate declines in the R/P ratio following this period of
inactivity. From an economic standpoint, the average cost of
supply in ultra-deepwater regions is approximately $56 per
barrel. This is very attractive compared to the marginal cost
of supply onshore North America of approximately $65 per
barrel. Over the long term, capital will be focused on more
profitable projects, which are found in the ultra-deepwater.
In addition to the traditional
ultra-deepwater regions, Mexico presents a particularly interesting
opportunity for future work. Legislation is moving forward at
an impressive pace and we expect the opening up of projects to
potentially impact 2015 demand. Seadrill has operated the
West Pegasus in Mexico for the last 2.5 years and has developed a
solid operational track record and good working relationship with
Pemex. The results from the exploration drilling campaign
have been very encouraging. It is expected that the first Mexican
deal with an international oil major will be concluded in the
second half of 2014. As capital from major oil companies
enters the country, demand for rigs is likely to follow.
Customers continue to focus their
bidding activity on units that can provide dual BOP's, increased
deck space and high variable deck load capacity.
Outlook
The first quarter of 2014 has been an active one
for the Company, executing its second follow on equity offering to
finance the acquisition of the West Auriga and successfully
completing its term loan B refinancing. Distributions have grown
14% during the first quarter, and taking into account the
distribution increase recommended by management in connection with
the most recent acquisition, distributions will have grown
approximately 40% since IPO in October 2012. This growth exceeds
the Board's anticipated annual growth rate of 15% at the time of
the Company's initial public offering in October 2012.
The Board believes this demonstrates the Company's
commitment to growth and is fully focused on continuing this
aggressive growth strategy. This growth will be driven primarily by
acquisitions from Seadrill's long term contracted premium
ultra-deepwater rig fleet as well as the acquisition of additional
units in Seadrill Partners' operating companies.
The term loan B refinancing completed in February
is an important step towards rationalizing Seadrill Partners' debt
structure, in particular to lower debt amortization so it can use
replacement capital expenditure cash reserves more efficiently and
to create a capital structure independent of Seadrill. As noted
above the transaction has been successful and the Company
anticipates using this market again in the future to refinance debt
on existing units and future acquisitions.
The term loan B facility, compared to traditional
rig financing, will result in higher interest cost of approximately
US$22 million per annum and at the same time reduce installments by
approximately US$162 million per annum. The net effect will
be an increase in free cash generation after finance of
approximately US$140 million annually for the four rigs supported
by this facility.
The Company now has access to debt capital markets
and strong financial position with a relatively low net debt to
EBITDA ratio. The Board therefore believes the Company has the
flexibility to acquire additional accretive assets even without
using the equity market
Operationally, the Board and management team are
not satisfied with the performance year to date. The
utilization rate of 82% is below the standards set for the
Company. The West Aquarius and West Capricorn have
experienced a collective 77 days of downtime. Although
equipment failures are partly to blame, uptime needs to be
improved. Developments thus far during the second quarter confirms
the Company has returned to solid operational performance with
overall economic utilization rate averaging around 97% to date.
With continued good performance the Company's coverage ratio should
be back up to target levels of 1.1 in the second quarter.
Distributable cash flow for the second quarter of
2014 will be positively impacted by the cash contribution for the
full quarter from the West Auriga and the return to normal
operations on the West Aquarius and West Capricorn.
The acquisition of the West Auriga has increased
revenue backlog to approximately $5.5 billion and average contract
term to 3.74 years. This puts the Company in a strong position with
regards to short-term negative market developments.
The Board remains committed to its
high growth acquisition strategy in order to strengthen the fleet
composition, diversify the customer base, and increase
backlog. The Company's modern best in class fleet and long
term contracts protect the Company from short-term negative market
sentiment and position it to potentially be re-contracting
rigs into a rising dayrate environment in the future.
May 28, 2014
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 1Q 2014 Fleet
Status
Seadrill Partners 1Q 2014
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#1789215
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