Highlights
Financial Results
Overview
Seadrill Partners LLC[1]
reports:
Total revenues were $417.2 million
for the second quarter of 2015 (the "second quarter"), compared to
$400.7 million in the first quarter of 2015 (the "first quarter").
The increase in revenues is primarily related to improved
operational performance in the second quarter relative to the first
quarter and inclusion of the West Polaris for 12 days in the second
quarter, offset in part by the reduction in revenue from the West
Sirius following its contract termination.
Operating income for the quarter
was $205.5 million compared to $190.7 million in the preceding
quarter. The increase is largely as a result of revenue
improvements described above with a marginal increase in overall
operating expense.
Net income for the quarter was
$192.5 million compared to $70.9 million in the previous quarter.
This is after the recognition of a gain on derivative instruments
of $18.3 million in the second quarter, compared to a loss of $51.9
million for the first quarter as a result of an increase in long
term interest rates in the second quarter. The unrealized non-cash
element of these amounts is a $30.3 million gain in the second
quarter and a $38.9 million loss for the first quarter.
Additionally, a gain on bargain purchase on the acquisition of the
West Polaris of $39.6 million and income tax of $32.9 million were
recognized.
As a result, net income
attributable to Seadrill Partners LLC Members was $101.3 million
for the second quarter compared to $38.2 million for the previous
quarter.
Distributable cash flow[2] was $84.7
million for Seadrill Partners' second quarter as compared to $82.0
million for the previous quartergiving a coverage ratio of 1.53x
for the second quarter.
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[3] for the
fleet was 97% for the second quarter.
The semi-tender rig West Vencedor
completed its current contract during the third week of June and
its demobilization and relocation to Southeast Asia at the end of
July.
The semi-submersible rig West
Sirius completed its de-manning and thruster removal in preparation
for cold stacking during the third quarter. Operating
expenses began to decline during the second quarter, however the
full impact is expected to be realized during the fourth
quarter. Once fully de-manned and idle, the Company expects
the annual cost to cold stack the unit to be approximately $3.5
million.
Total operating expenses for the
second quarter were $211.7 million, compared to $210.0 million in
the previous quarter. Part of the increase is as a result of
operating expenses related to the West Polaris, which was acquired
during the quarter. Significant progress has been made to
drive efficiencies in operating expenditures across the fleet and
in corporate overhead.
Acquisitions
During the second quarter,
Seadrill Operating LP, Seadrill Partners' 58% owned subsidiary,
completed the acquisition of the West Polaris from Seadrill
Limited. The West Polaris is a 6th generation, dynamically
positioned drillship delivered from the Samsung shipyard in 2008.
The West Polaris is expected to carry out operations in Angola
until the end of its contract with ExxonMobil in March 2018.
The consideration for the West
Polaris acquisition was comprised of $204 million in cash and $336
million of debt outstanding under the existing facility financing
the West Polaris. Seadrill Partners funded the balance of the
purchase price with a seller's credit of $50 million due in 2021
that carries an interest rate of 6.5% per annum.
The West Polaris is currently
contracted with ExxonMobil on a daily rate of $653,000. Under the
terms of the acquisition agreement, Seadrill Partners has agreed to
pay Seadrill Limited any dayrate it receives in excess of $450,000
per day, adjusted for daily utilization, for the remainder of the
ExxonMobil contract. By effectively lowering the dayrate Seadrill
Partners receives to $450,000 per day, the Company has reduced the
acquisition cost and its re-contracting risk.
As part of the acquisition
agreement, the Company's obligation to repay the $50 million
seller's credit due to Seadrill Limited will be reduced if the
average contracted dayrate under any replacement contract is below
$450,000 until the seller's credit's maturity in 2021. The
amount of seller's credit due will be reduced until Seadrill
Partners' effective dayrate is $450,000 or until the seller's
credit is reduced to zero. Should the average dayrate of the
replacement contract be above $450,000, the entire $50 million
seller's credit must be paid to Seadrill Limited upon maturity of
the seller's credit in 2021.
Additionally as part of the
acquisition agreement, Seadrill Partners has agreed to pay Seadrill
50% of any dayrate above $450,000 per day, adjusted for daily
utilization, after the conclusion of the existing contract until
2025.
Financing and
Liquidity
As of June 30, 2015, the
Company had cash and cash equivalents, on a consolidated basis, of
$197.7 million and two revolving credit facilities with $150
million in undrawn capacity. 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 $3,904.9
million as of June 30, 2015.
Net debt as at June 30, 2015
was therefore $3,707.2 million giving a ratio of net debt to
annualized adjusted EBITDA[4] of
3.2:1.
As of June 30, 2015, in
addition to the Term Loan B, the Company had three secured credit
facilities totaling $884.4 million relating to the T-15, T-16, West
Vela and West Polaris. 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 $65.8 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, West Vela and West
Polaris.
As of June 30, 2015, Seadrill
Partners had interest rate swaps outstanding on principal debt of
$3,538.3 million, representing approximately 91% of debt
obligations as of June 30, 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
Following the recovery in oil
prices during the first quarter, commodity prices have again moved
lower and are now approaching the lows witnessed at the beginning
of 2015. The low commodity price environment, reductions in oil
company spending plans and an increasing supply / demand imbalance
for drilling units all continue to have a negative impact on
utilization and pricing in all market segments. As expected,
dayrates for new fixture activity remains at, or below, cash flow
breakeven levels.
Seadrill Partners continues to
believe that this challenging market will continue through 2016 and
that visibility for 2017 and beyond is dependent upon commodity
price stability, oil companies realizing the benefits of their
capital spending rationalization programs and continued fleet
attrition.
Pricing for the remainder of 2015
and 2016 is expected to continue to be driven by a high degree of
excess capacity with 91 floaters already idle and 92 additional
floaters ending their current contracts by the end of 2016.
Oil companies continue to prefer
newer and more capable equipment, demonstrated by the utilization
rates of different asset classes. Ultra-deepwater units are
currently experiencing 81% marketed capacity utilization versus 71%
for deep and mid water floaters. During the downcycle older units
are more challenged to remain utilized due to the availability of
better and more efficient equipment.
Based on the level of current
activity seen in the floater market, we expect stacking and
scrapping activity to continue through the second half of 2015 and
well into 2016. Scrapping activity has continued in the second
quarter with an incremental 14 floaters designated for retirement.
A total of 40 floaters have been now been scrapped since the end of
2013, equivalent to 12% of the total fleet, and currently there are
28 cold stacked units. Lower than expected stacking costs and a
commodity price recovery may delay scrapping decisions as rig
owners retain some option value on older units. However, we
continue to believe that the significant cost to perform periodic
classing activity on these older assets will ultimately drive
decisions to cold stack and scrap these less capable units.
Currently the orderbook stands at
approximately 78 units, of which 29 are Sete new builds.
Approximately 145 units, or 51% of the total marketed floater fleet
are rolling off contracts between now and the end of 2017, many of
which must undergo a 15 or 20 year classing. Current indications
are that a significant number of newbuild orders will be delayed
until an improved market justifies taking delivery of the unit. In
light of the likely cold stacking, scrapping activity and newbuild
delays there remains a high likelihood that there will be limited,
or no, growth in the marketed fleet between now and 2018.
Outlook
Third quarter adjusted EBITDA is
expected to be similar to or slightly lower than the second
quarter. The West Vencedor is expected to incur a full quarter of
idle time in the third quarter and West Sirius operating earnings
will be negatively impacted by upfront costs related to its cold
stacking. This will be offset however by a full quarters
contribution from the West Polaris. During the third quarter to
date, operating performance continues to be strong and utilization
is similar to the second quarter.
In addition to achieving excellent
rig utilization performance in the second quarter the Company has,
together with Seadrill, been focused on reducing operating costs
and expects these reductions to continue into the third quarter.
The Company is also focused on discussions with existing customers
with a view to achieving contract extensions where possible. This
is particularly the case for the Company's rigs that roll off
contract in 2017.
As we progress through this
downturn, the Company will continue to evaluate acquisitions, both
from Seadrill Limited and third parties, with an eye towards
building coverage and reducing the 2017 and 2018 contract rollover
risk.
Seadrill Partners' revenue backlog
of $5.1 billion, good utilization level and focus on operating cost
reductions, average remaining contract term of 3.0 years, net debt
to annualized adjusted EBITDA ratio of 3.2x and liquidity position
leaves the Company well positioned to manage through the
downturn.
August 27, 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
1All 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 units Seadrill Partners
LLC owns: (i) a 58% 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, West
Auriga and the West Vela. Seadrill Partners Operating LLC owns
100% of the entities that own and operate the T-15
and T-16 tender barges.
2 Please see
Appendix A for a reconciliation of Distributable Cash Flow to net
income, the most directly comparable US Generally Accepted
Accounting Principles ("US GAAP") financial measure.
3 Economic
utilization is calculated as total contract revenue excluding
bonuses for the period as a proportion of the full operating
dayrate multiplied by the number of days in the period.
4 Annualized
Adjusted EBITDA: Earnings before interest, other financial items,
taxes, non-controlling interest, depreciation and
amortization. Annualized means the figure for the quarter
multiplied by four. This figure has been adjusted to
annualize the impact of the West Polaris which was acquired on June
19, 2015. Annualized Adjusted EBITDA is a non GAAP financial
measure used by investors to measure performance. Please see
Appendix A for a reconciliation to the most directly comparable
GAAP financial measure.
Seadrill Partners 2Q 2015
Results
Seadrill Partners Fleet Status
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#1947972
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