Seadrill Partners LLC: SDLP - Seadrill Partners LLC - Fourth Quarter 2013
oSeadrill Partners reports net income attributable to Seadrill Partners LLC
Members for the fourth quarter 2013 of US$62.6 million and net operating
income for the fourth quarter of US$134.4 million.
oGenerated distributable cash flow of $23.2 million for the fourth
oDeclared an increased distribution for the fourth quarter of
US$0.4450 per unit, an increase of 4.1% over the third quarter
distribution and an increase of 15% for 2013.
oCompleted the acquisition of the company that owns the tender rig
T-16 from Seadrill Limited for US$200 million.
oAnnounced settlement agreement and 18 month extension for the
semi-submersible West Aquarius with a total estimated revenue
potential of US$337 million.
oTotal S.A. exercised their option to convert the contract extension
for the West Capella from 5 years to 3 years due to transfer of
operatorship. 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
oFiled US$800 million mixed shelf registration statement to add
flexibility to financing future rig growth
oCompleted the acquisition of the companies that own and operate the
West Sirius and West Leo for US$2.3 billion on a 100% basis. The
acquisition was financed with debt and a US$465 million unit offering
for the Company's equity share. Management has recommended a
quarterly distribution increase as a result to between US$0.50 and
oSeadrill Partners completes US$1.8 billion term loan B and US$100 million
revolving facility. Proceeds of the term loan are to be used to refinance
existing indebtedness and increase liquidity
Financial Results Overview
Seadrill Partners LLC^1 reports:
Total contract revenues of US$282.1 million for the fourth quarter 2013 (the
"fourth quarter") compared to US$262.4 million in the third quarter of 2013
(the "third quarter"). The increase is primarily driven by the $22 million
West Aquarius write off in the third quarter and the contribution from the
T-16 for the full quarter after commencement of operations. This was partly
offset by planned downtime on the West Capella for 5 year classing, and in
particular by 34 days downtime during the quarter for the West Aquarius
related to five year classing and anchor chain repairs.
Net operating income for the quarter of US$134.4 million compared to US$118.1
million in the preceding quarter. The improvement is largely as a result of
the improvements in revenues noted above.
^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 and West Sirius. Seadrill Partners Operating LLC owns 100% of the
entities that own and operate the T-15 and T-16 tender barges.
Net Income for the quarter of US$113.6 million compared to US$78.4 million in
the previous quarter. This is after the recognition of the gain/loss on
derivative instruments, which reflected a gain of US$16.1 million in the
fourth quarter as compared to a loss of US$11.8 million for the third quarter
as a result of an increase in long term interest rates in the fourth quarter.
The unrealized non-cash element of these amounts are US$19.1 million gain and
US$9.2 million loss respectively.
Net income attributable to Seadrill Partners LLC Members was US$62.6 million
for the fourth quarter compared to US$14.2 million for the previous quarter.
Distributable cash flow was US$23.2 million for Seadrill Partners' fourth
quarter as compared to US$15.9 million for the previous quarter^2 giving a
coverage ratio of 0.86x for the fourth quarter. The increase is mainly as a
result of the contribution from the T-16 for the full quarter and from the
West Leo and West Sirius for part of December in addition to the West Aquarius
improvement noted above.
The coverage ratio has been negatively impacted by the increase in units
outstanding following the December equity issuance as the fourth 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 19 days of the
December that the Company benefited from the West Leo and West Sirius cash
flow, coverage would have been 1.08x.
Distribution for the period of US$0.4450 per unit, equivalent to an annual
distribution of US$1.78, represents an approximate 15% increase from the
Company's minimum quarterly distribution set at its IPO. Subsequent to the
acquisition of the semi-submersible rigs the West Sirius and West Leo in
December, Management have recommended to the Board an annualized distribution
increase to between $2.00 and $2.05 per unit which would become effective for
the distribution with respect to the quarter ending March 31, 2014 and would
represent an approximate 30% 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.
Seadrill Partners has an interest in eight rigs in operation. The fleet is
comprised of four semi-submersible rigs, one drillship and three tender rigs
operating in Canada, the US Gulf of Mexico, Ghana, Nigeria, Angola and
During the quarter, Hibernia Management and Development Company Ltd, (HMDC)
agreed to an 18 month contract extension 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.
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.
With the exception of 20 days downtime linked to the West Aquarius anchor
chain event, the Company's fleet performed well during the fourth quarter
achieving an overall economic utilization rate of 91%. Average utilization
has been particularly impacted by the 34 days downtime on the West Aquarius,
14 of which were related to 5 year classing and the balance due to faulty
Total operating expenses for the fourth quarter were US$148.0 million,
compared to US$147.9 million in the third quarter. The Company has good cost
controls in place and sees little risk of changes to the operating cost
On October 18, 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 and is currently US$121,268.
On December 13, 2013 Seadrill Partners completed the acquisition of the
companies that own and operate the West Sirius and West Leo for a total
consideration of US$2.3 billion on a 100% basis. The West Sirius was acquired
by Seadrill Capricorn Holdings LLC (51% owned by SDLP) and the West Leo
acquired by Seadrill Operating LP (30% owned by SDLP). Debt funding for the
acquisition was US$936 million comprised of back-to-back bank loans with
Seadrill and a related party loan from Seadrill. The Company's equity
portion, for its share of the rig acquisitions, of US$528 million was funded
with Seadrill Partner's first public equity offering and a $70 million sellers
loan. All the related party debt with Seadrill in connection with the
transaction will be refinanced by funds from the term loan B financing.
The West Sirius is contracted with BP in the US Gulf of Mexico at a dayrate of
US$490,173 until the third quarter of 2014, at which time the rate increases
to US$535,000 per day through the third quarter of 2019. The West Leo is
contracted with Tullow Oil in Ghana at a dayrate of US$605,000 through the
second quarter of 2018. The long term contracted cash flows of these
acquisitions further enhance Seadrill Partners' cash flow profile and
visibility in distributable cash flows, as well as further diversifing
Seadrill Partners fleet and reduces the risk operating result volatility.
Financing and Liquidity
As of December31, 2013, the Company had cash and cash equivalents, on a
consolidated basis, of US$89.7 million and a revolving credit facility of
US$300 million provided by Seadrill as the lender, which has subsequently been
reduced to US$100 million as part of the term loan B refinancing described
below. As of December31, 2013, US$125.9 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$2,234.6 million as of December31, 2013; US$1,825.2 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 are classified as related party transactions.
As of December 31, 2013 the Company had five secured credit facilities. The
two facilities maturing in June 2014 and Dec 2017 have since been refinanced
with the term loan B described below and as a result has been reclassified as
long term as at December 31, 2013. 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 maturing in 2016 relating to the
acquisition of the T-15 and two zero coupon discount notes from Seadrill
(US$70 million and US$230 million) that mature in June 2015 relating to the
West Sirius and West Leo acquisition. Both these zero coupon discount notes
will be refinanced as part of the term loan B refinancing.
In February 2014, Seadrill Partners executed a US$1.8 billion term loan B and
US$100 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 5.5%. In conjunction with the
formation of Seadrill Partners in 2012 and subsequent dropdown of the West
Sirius and West Leo, back-to-back and related party loans were used to finance
the debt portion of the transactions. As well as being overly reliant on
Seadrill Limited, this structure had an steep amortization profile that was
not optimal for Seadrill Partners. 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 December31, 2013, Seadrill Partners had interest rate swaps outstanding
on principal debt of US$2,068.0 million. All of the interest rate swap
agreements were entered into subsequent to the IPO Closing Date and represent
approximately 93% of debt obligations as of December31, 2013. The average
swapped rate, excluding bank margins, is approximately 1.64%. 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.
The short term outlook for floaters is influenced by the low activity level
caused by reduced growth in the capex from the major oil companies. In this
regard, 2014 and 2015 may show slower activity levels than earlier
anticipated. The oil price has remained firm and in recent weeks has shown a
stronger trend. The primary challenge for oil companies is the negative real
cash flow situation they are currently encountering. Due to increasing
depletion rates, more capex needs to be spent in order to maintain production
levels. Combined with a relatively high dividend payout and increasing
development cost to bring new production on stream, oil companies have limited
opportunities to fund exploration activities. We have encountered numerous
instances of oil majors reducing spending, especially in exploration and in
certain high cost areas of production such as onshore North America. As
budgets are re-allocated, the entire spending complex tends to slow down. In
turn, demand for offshore drilling assets is being pushed into 2015-2016.
The Board is of the opinion that this trend will lower oil production in the
years to come. Together with the generally tight supply demand balance and
political uncertainties in several oil producing countries, another upward
movement in oil price may occur. The funding of the approximately 10 million
barrels per day growth in global production level from 2003 to 2013 was to a
large extent financed by an oil price that moved from US$30 to US$110 per
barrel. This created additional cash flow to reach current production
levels. It is likely that the next production increase will be dependent on
another upward movement in oil price. Alternatively, oil companies will have
to accelerate the time between discovery and production, thereby materially
increasing the net present value of development projects and improving their
cash flow situation.
As a result of the pause in upstream spending we have observed a decline in
the overall number of fixtures, lead times and contract duration. We also
expect to see a number of sublets adding to near term available supply.
Importantly, Seadrill Partners has no exposure to re-contracting during 2014
and only the West Vencedor available through 2015.
We are presently seeing a slight increase in inquiries for 2015 availability.
Given the amount of work required to retain licenses that expire in 2015, this
has been expected. A total of 17 uncontracted ultra-deepwater floater units
will be delivered from the yards in 2015 and 2016. This is significantly
lower than 2012 for instance when all together 17 units were delivered. Based
on the current low contracting activity level it should be expected that this
capacity can be absorbed in the market without leading to significant downtime
for any ultra-deepwater capacity. An increase in oil companies' activity
level in 2015 is likely to push rates higher.
Looking at the market as a whole, the acute challenges lie with fourth and
fifth generation assets. The oil companies' new requirements after Macando
and the focus on increased water depth areas has significantly limited the use
of older equipment. The owners will face the choice of investing several
hundred million dollars into twenty or thirty year old assets in order to try
to meet the new demands or simply just lay up the unit. 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. Therefore, expectations for
additional older assets to be stacked remain. Pricing may slip as utilization
declines and operators of these asset classes will face a difficult
environment for the foreseeable future.
Current production in ultra-deepwater regions is a mere 1 million barrels per
day. There are approximately 130 rigs which can serve this market today. It
is expected that by 2020 production in these regions will approach 5 million
barrels. The approximate 20% CAGR represents one of the strongest production
growth profiles globally. Although the current market for ultra-deepwater
floaters is at lower activity levels than 2012, we are confident that
significant new rig capacity will need to be added to explore and develop
Mexico presents a particularly interesting opportunity for future work in
ultra-deepwater. 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
its customer, Pemex. As capital from major oil companies enters the country,
demand for rigs is sure to follow.
Seadrill Partner's ultra-deepwater rigs current dayrates range from US$490,173
per day to US$605,000 per day. As of December 31, 2013 Seadrill Partners'
total fleet's average remaining contract term was 3.7 years and current
backlog is US$4.5 billion. 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.
The year 2013 has been an active one for the Company, doubling the size of the
fleet with the acquisition of four rigs and successfully completing its first
public equity offering post IPO. Distributions have grown 15% during 2013, and
taking into account the distribution increase recommended by management in
connection with the most recent acquisition, distributions will have grown
approximately 30% since IPO 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 recently announced term loan B refinancing is Seadrill Partners first step
towards rationalizing its debt structure, in particular to lower debt
amortization so it can use replacement capital expenditure cash reserves more
efficiently and to create a debt structure independent of Seadrill. As noted
above the transaction has been successful and the Company anticipates using
this market again in the future.
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
Economic utilization in 2013 was affected by 5 year classing on the West
Aquarius and West Capella. Seadrill's next 5 year survey will not be until
2015 when the West Vencedor is due to be classed. The Company therefore does
not expect downtime to be as severe this year and looks forward to returning
to its long term target of 95% uptime.
Distributable cash flow for the first quarter of 2014 will be positively
impacted by the cash contribution for the full quarter from West Sirius and
West Leo but negatively impacted by approximately 60 days of collective
downtime for the West Aquarius, West Capricorn, and West Leo.
The increased rates for the Capella and the Sirius of an additional $65,380
and $44,827 respectively per day will come into effect in April and July 2014
respectively will strengthen cash flow. Further improvement is expected due to
the increased rate of $75,000 in respect of the West Aquarius extension from
The Board is in discussions with Seadrill with regards to acquiring more units
in order to strengthen the fleet composition, diversify the customer base, and
lengthen backlog. Such acquisitions should also provide further distribution
growth. The Company's best in class fleet, high operational performance and
long term contracts protects the Company from any short-term negative market
sentiment. Seadrill Partners is ideally positioned to see through the current
market environment and potentially be re-contracting rigs into a rising
dayrate environment in the future.
February 25, 2014
The Board of Directors
Seadrill Partners LLC
Questions should be directed to:
Graham Robjohns: Chief Executive Officer
Rune Magnus Lundetrae: Chief Financial Officer
Seadrill Partners Fourth Quarter 2013 Results
Seadrill Partners Fourth Quarter 2013 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
Press spacebar to pause and continue. Press esc to stop.