Highlights
- Seadrill Partners reports net income attributable
to Seadrill Partners LLC Members for the first quarter 2015 of
$38.2 million and operating income of $190.7 million.
- Generated distributable cash flow of $82.0
million with a coverage ratio of 1.48x for the first quarter
2015.
- Declared a $0.5675 per unit distribution for the
first quarter, in line with the fourth quarter distribution.
- Economic utilization for the first quarter of
93%.
- Seadrill Partners swaps the contracts for the
West Capricorn and West Sirius, both contracted with BP Exploration
& Production Inc., and thereby extends the contract term on the
West Capricorn for an additional two years until July 2019 with BP
Exploration & Production Inc.
- Seadrill Partners receives a notice of
termination for the West Sirius from BP Exploration &
Production Inc. In accordance with the cancellation
provisions in the West Sirius contract, Seadrill Partners will
receive payments over the remaining contract term, now expiring in
July 2017.
Subsequent
Events
- The Board is pleased to announce that John T.
Roche will replace Rune Magnus Lundetrae as Chief Financial Officer
of Seadrill Partners with effect from June 1, 2015. Mr. Roche
is currently Vice President of Investor Relations for Seadrill and
will continue with this responsibility on a part time basis.
Prior to joining Seadrill in May 2013 Mr. Roche spent 12 years at
Morgan Stanley most recently as an Executive Director in its
Investment Banking Division.
Financial Results
Overview
Seadrill Partners LLC reports:
Total contract revenues were
$385.9 million for the first quarter 2015 (the "first quarter")
compared to $369.1 million in the fourth quarter of 2014 (the
"fourth quarter"). The increase in revenues is primarily
driven by a full quarter of operations on the West Vela and
improved uptime on the West Aquarius.
Operating income for the quarter
was $190.7 million compared to $168.9 million in the preceding
quarter. The increase is largely as a result of operational
improvements described above and a full quarter of operation of the
West Vela.
Net income for the quarter was
$70.9 million compared to $70.1 million in the previous quarter.
This is after the recognition of the loss on derivative instruments
of $51.9 million in the first quarter as compared to a loss of
$48.4 million for the fourth quarter as a result of a decrease in
long term interest rates in the first quarter. The unrealized
non-cash element of these amounts is a $38.9 million loss in the
first quarter and a $36.6 million loss for the fourth quarter.
As a result, net income
attributable to Seadrill Partners LLC Members was $38.2 million for
the first quarter compared to $33.1 million for the previous
quarter.
Distributable cash flow was $82.0
million for Seadrill Partners' first quarter as compared to $80.1
million for the previous quartergiving a coverage ratio of 1.48x
for the first quarter. The increase in distributable cash
flow is mainly as a result of a full quarter of operations for the
West Vela and improved operational performance offset in part by
higher cash taxes paid. The coverage ratio has also been
positively impacted by the decision to maintain distributions at
the fourth quarter level.
Distribution for the period was
$0.5675 per unit, equivalent to an annual distribution of $2.27,
representing a 46% increase from the Company's minimum quarterly
distribution set at its IPO.
Operations
Overall economic utilization for
the fleet was 93% for the first quarter. With the exception
of downtime on the West Aquarius, the fleet generally performed
well during the first quarter, achieving an economic utilization
rate of 96.3% excluding the West Aquarius.
During the first quarter, Seadrill
Partners received a notice of termination from BP Exploration &
Production Inc. for the contract for the West Sirius which became
effective after completing a well in progress and demobilization on
April 24, 2015.
Prior to the cancellation notice,
the dayrate and term for the West Sirius and West Capricorn
contracts were swapped. The West Sirius dayrate was decreased by
$40,000 per day and the term was decreased by two years to expire
in July 2017 while the dayrate for the West Capricorn was increased
by $40,000 per day and the term was extended by two years to expire
in July 2019. Amortized payments for the West Capricorn such as
mobilization and upgrades will continue on the original schedule
ending in July 2017. In accordance with the cancellation
provisions in the West Sirius contract, Seadrill Partners will
receive payments over the remaining contract term, now expiring in
July 2017.
As a result of the termination,
Seadrill Partners' backlog decreased by approximately $160 million.
After taking into consideration the expected decrease in
operational expense while the unit is cold stacked, and the fact
that termination fee payments will not be impacted by downtime,
Seadrill Partners does not expect a material impact on its cash
flow position over the contract period through July 2017.
The Semi-tender rig West Vencedor
will complete its current contract during the second week of June
and is expected to complete its demobilisation and relocation to
Southeast Asia, for which it receives a fee of $8.5 million, by the
second week in July. The Company expects this fee to cover all
expenses related to the demobilization and relocation. Follow on
employment opportunities continue to be pursued for the West
Vencedor and the Company will focus on reducing costs during its
idle period.
Total operating expenses for the
first quarter were $210.0 million, compared to $211.7 million in
the previous quarter. Despite the inclusion of the West Vela
for a full quarter of operations, operating expenses were
approximately in line with the prior quarter. Significant progress
has been made to drive efficiencies in operating expenditures
across the fleet and in corporate overhead.
Financing and
Liquidity
As of March 31, 2015, the
Company had cash and cash equivalents, on a consolidated basis, of
$242.0 million and two undrawn revolving credit facilities totaling
$200 million. One $100 million facility is provided by Seadrill as
the lender and the second $100 million facility is provided by a
syndicate of banks and secured in connection with the $2.9 billion
term loan B facility. Total debt was $3,617.5 million as of
March 31, 2015; $571.7 million of this debt was originally
incurred by Seadrill, as borrower, in connection with its
acquisition of the drilling rigs.
Net debt as at March 31, 2015
was therefore $3,375.5 million giving a ratio of net debt to
annualized adjusted EBITDA (4) of 3.2:1.
As of March 31, 2015 the
Company had two secured credit facilities, in addition to the term
loan B. These facilities expire in 2017 and 2025. Additionally the
Company has a $109.5 million vendor loan from Seadrill maturing in
2016 relating to the acquisition of the T-15 and a $69.9 million
intercompany loan from Seadrill relating to the West Vencedor
maturing in June 2018.
Seadrill Partners will continue to
explore refinancing alternatives for the remaining related party
debt on the West Vencedor, T-15, T-16, and West Vela.
As of March 31, 2015,
Seadrill Partners had interest rate swaps outstanding on principal
debt of $3,560.7 million. All of the interest rate swap agreements
were entered into subsequent to the IPO Closing Date and represent
approximately 98% of debt obligations as of March 31, 2015.
The average swapped rate, excluding bank margins, is approximately
2.25%. 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
Despite the recovery in the oil
price during the first quarter, oil companies are continuing to
take a cautious approach to capital expenditure and other cost
commitments given the severity of the overall oil price decline. We
anticipate this cautious approach to continue throughout 2015 and
indications are that 2016 is likely to be a challenging year as
well.
During the quarter, the market has
seen very little new fixture activity and the new contracts that
have materialized are at significantly lower dayrates.
Customer conversations have focused on renegotiation of existing
contracts, often in exchange for additional duration.
The downturn in the offshore
drilling market has continued during the first quarter and all
signs point to 2015 demand being significantly lower than in
2014. The outlook for activity beyond 2015 is difficult to
judge but most oil companies are not looking towards adding rig
capacity at this point. It is likely that capacity
utilization will drift lower as the year progresses and a
significant number of ultra-deepwater rigs are likely to be stacked
by the end of 2015.
Although the near term outlook
remains challenging, there is visibility of an expected rebalancing
of market supply in the next few years when considering the
newbuild orderbook and the degree of scrapping that can be
expected. Currently the orderbook stands at approximately 89
units, of which 29 are Sete new builds. At the same time
roughly 70 units are rolling off contracts many of which must
undergo a 15 or 20 year classing between now and the end of 2017.
There is a high likelihood that a number of these units will be
scrapped, potentially leading to little or no fleet growth between
now and 2018. Thus far, the market has seen 14 rigs scrapped in
2014 and 12 already in 2015. This represents the highest
degree of scrapping activity seen since the early 1990's and is
likely to accelerate over the next two years.
On the demand side, it is
difficult to foresee a market that does not require ultra-deepwater
production to satisfy world hydrocarbon demand. In the
meantime, rig owners will continue to face a challenging market
where the decision to stack or scrap is being continually evaluated
against the limited work available.
With a line of sight to a stable
supply picture and the requirement for offshore production to meet
global hydrocarbon demand needs, Seadrill Partners is well
positioned for the eventual recovery. Seadrill Partners
believes it is well positioned with long term contracts, a modern
fleet and high quality customers.
Outlook
Operating earnings moving forward
will be negatively impacted by the unemployment of the West
Vencedor as well as, to a lesser extent, the termination of the
West Sirius contract.
The Semi-tender rig West Vencedor
will complete its current contract, which has not been renewed,
during the second week of June, at which time it will begin
the process of demobilisation and relocation for which it will
receive a fee of approximately $8.5 million. It is expected that
the rig will be relocated to Southeast Asia. Seadrill Partners is
exploring all alternative employment opportunities for the West
Vencedor but the loss of the rig's revenue of $212,000 per day will
negatively impact earnings until alternative employment can be
found. In the event the rig is cold stacked however, operating
costs would be significantly reduced. Seadrill Partners owns a 58%
interest in the West Vencedor.
Following the termination of the
West Sirius contract by BP Exploration & Production Inc. the
rig completed operations on April 24, 2015. After taking into
consideration the expected decrease in operational expense while
the unit is cold stacked, and the fact that termination fee
payments receivable under the contract will not be impacted by
downtime, Seadrill Partners does not expect a material impact on
its cash flow position over the contract period through July
2017.
In light of the current
environment, Seadrill Partners is encountering and may in the
future encounter situations where counterparties request relief to
contracted dayrates or seek early contract termination. In the
event of early termination for the customer's convenience, an early
termination amount is typically payable to Seadrill Partners, in
accordance with the terms of the drilling agreement. While
the Company is confident that its contract terms are enforceable,
it may be willing to engage in discussions to modify such contracts
if there is a commercial agreement that is beneficial to both
parties.
Seadrill Partners has revenue
backlog of $5.0 billion, an average remaining contract term of 3.4
years, net debt to annualized adjusted EBITDA ratio of 3.2:1, cash
and undrawn revolvers totalling $442 million and 91% of its debt
does not mature until 2021 or later.
Although Seadrill Partners' longer
term strategy is to grow distributions, the Company will continue
to evaluate acquisitions, distributions and distribution coverage
to manage through the near term challenges in the offshore drilling
industry. Given the current near term market outlook,
Seadrill Partners will specifically evaluate acquisitions with a
view to supporting the current dividend by building distribution
coverage and mitigating contract rollover risk.
May 28, 2015
The Board of Directors
Seadrill Partners LLC
London, UK.
Questions should be directed
to:
Graham Robjohns: Chief Executive
Officer
John T. Roche: Chief Financial
Officer
FORWARD LOOKING
STATEMENTS
This news release includes forward
looking statements. Such statements are generally not historical in
nature, and specifically include statements about the Company's
plans, strategies, business prospects, changes and trends in its
business and the markets in which it operates. In particular,
statements regarding the Company's ability to make cash
distributions, the expected performance of the drilling units in
the Company's fleet, estimated duration of customer contracts,
contract dayrate amounts and the Company's ability to purchase
drilling rigs from Seadrill Limited in the future are considered
forward-looking statements. These statements are made based upon
management's current plans, expectations, assumptions and beliefs
concerning future events impacting the Company and therefore
involve a number of risks, uncertainties and assumptions that could
cause actual results to differ materially from those expressed or
implied in the forward-looking statements, which speak only as of
the date of this news release. Important factors that could cause
actual results to differ materially from those in the
forward-looking statements include, but are not limited to offshore
drilling market conditions including supply and demand, dayrates,
customer dilling programs and effects new rigs on the market,
contract awards and rig mobilizations, contract backlog, the
performance of the drilling units in the Company's fleet, delay in
payment or disputes with customers, our ability to successfully
employ our drilling units, procure or have access to financing,
ability to comply with loan covenants, liquidity and adequacy of
cash flow from operations, fluctuations in the international price
of oil, changes in governmental regulations that affect the Company
or the operations of the Company's fleet, increased competition in
the offshore drilling industry, and general economic, political and
business conditions globally. Consequently, no
forward-looking statement can be guaranteed. When considering
these forward-looking statements, you should keep in mind the risks
described from time to time in the Company's filings with the
SEC. The Company undertakes no obligation to update any
forward looking statements to reflect events or circumstances after
the date on which such statement is made or to reflect the
occurrence of unanticipated events. New factors emerge from time to
time, and it is not possible for us to predict all of these
factors. Further, the Company cannot assess the impact of each such
factor on its business or the extent to which any factor, or
combination of factors, may cause actual results to be materially
different from those contained in any forward looking
statement.
Seadrill Partners 1Q 2015
Seadrill Partners Fleet Status Q1 2015
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#1924558
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