SEADRILL PARTNERS LLC (SDLP) - FIRST QUARTER 2013 RESULTS
Seadrill Partners reports net income attributable to Seadrill Partners Members for the first quarter 2013 of US$20.6 million and net operating income for the first quarter of US$75.5 million.
Generated distributable cash flow of US$18.0 million for the first quarter 2013, which represents the first full quarter since the Company's IPO in October 2012, with a coverage ratio of 1.13x.
Declared distribution for the first quarter of US$0.3875 per unit.
On May 7, 2013, Seadrill Partners announced the acquisition of the T-15 tender rig from Seadrill for a purchase price of US$210 million. The transaction closed on May 17, 2013.
Management recommendation to increase the quarterly distribution by between US$0.0275 and US$0.0325, an approximate 8% increase.
On May 15, 2013 the Company paid a distribution for the first quarter of US$0.3875 per unit.
Financial Results Overview
Seadrill Partners LLC reports:
Total contract revenues of US$161.5 million for the first quarter 2013 (the "first quarter") compared to US$157.6 million in the fourth quarter of 2012 (the "fourth quarter").
Net operating income for the quarter of US$75.5 million compared to US$72.2 million in the preceding quarter.
Net Income of US$62.1 million compared to US$50.8 million in the fourth quarter. This is after the recognition of non-cash market valuations of derivatives instruments. Financial items reflect a gain of US$6.2 million for such items in the first quarter as compared to a loss of US$5.1 million for the fourth quarter.
Net income attributable to Seadrill Partners Members was US$20.6 million for the first quarter compared to $20.9 million for the fourth quarter.
Distributable cash flow was US$18.0 million for Seadrill Partners' first full quarter since its initial public offering. This represents a coverage ratio of 1.13 times the minimum quarterly distribution.
Distribution for the period of US$0.3875 per unit, equivalent to an annual distribution of US$1.55, which is the minimum quarterly distribution as set forth in the Company's IPO prospectus.
During the first quarter, Seadrill Partners had an interest in four rigs in operation. The fleet is comprised of two semi-submersible rigs, one drillship, and one tender rig operating in Canada, the US Gulf of Mexico, Nigeria, and Angola respectively. During the quarter the West Aquarius commenced drilling operations following its transit to Eastern Canada. Subsequent to the close of the first quarter the T-15 Tender Rig was added to the fleet as discussed further below.
The Company's rigs performed well during the first full quarter following the IPO, achieving economic utilization rates of 96% on average. Additionally, as of March 31, 2013, all rigs were operating at full dayrate. The additional contract revenues in the first quarter compared to the prior quarter is partly due to the West Aquarius rig commencing operations, as it was mobilizing to Eastern Canada during the fourth quarter.
Operating expenses for the first quarter were US$95.3 million, compared to US$108.9 million in the fourth quarter. The decline in operating expenses can be attributed to a decrease in reimbursable mobilization expenses relating to the West Aquarius rig.
On May 17, 2013 Seadrill Partners completed the acquisition of the companies that own and operate the tender rig T-15 from Seadrill Limited ("Seadrill") for a total purchase price of US$210 million.
The T-15 is contracted for a five-year period with Chevron in Thailand at an initial contract dayrate of US$115,000, which is subject to escalation to cover cost increases. The rig is currently undergoing acceptance testing in Singapore prior to mobilizing to its drilling location, which is expected to occur by mid-June. The rig is currently earning a standby dayrate until it arrives in Thailand and commences operations.
Seadrill Partners management believes that the acquisition is accretive to unitholders and has recommended that the Board consider an increase in the quarterly cash distribution of between US$0.0275 and US$0.0325, an approximate 8% increase (annualized increase of between $0.11 and $0.13 from the current annualized distribution rate of $1.55 per common unit), which would become effective for the distribution with respect to the quarter ending June 30, 2013. 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.
Financing and Liquidity
As of March 31, 2013, the Company had cash and cash equivalents, on a consolidated basis, of US$20.0 million and a revolving credit facility of US$300 million provided by Seadrill as the lender. As of March 31, 2013, US$90.3 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$1,102.2 million as of March 31, 2013. This debt was originally incurred by Seadrill, as borrower, in connection with its acquisition of the drilling rigs. In connection with the Company's IPO, subsidiaries within the Seadrill Partners group that 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.
Prior to the acquisition of the T-15, the Company had three 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 with a bond issuance in order to achieve the most effective capital structure. The remaining two facilities expire in 2015 and 2016 respectively and a similar refinancing strategy should be expected. The Board is confident that the facilities can be refinanced at attractive terms with improved repayment profiles.
In conjunction with the acquisition of the T-15, the Company assumed US$210 million in additional debt. US$110 million of which is a vendor loan from Seadrill Limited with a three year term at an interest rate of Libor plus 5%. The Company expects to refinance this loan prior to maturity. The remaining US$100 million of debt was assumed by the Company under a secured credit facility expiring in 2017, this facility is also provided by Seadrill in connection with a loan agreement originally entered into by Seadrill with a syndicate of banks, and will be classified as a related party balance.
As of March 31, 2013, Seadrill Partners had interest rate swaps outstanding on principal debt of US$1,095.1 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 March 31, 2013. The average swapped rate, excluding bank margins, is approximately 1.16%. Subsequent to the quarter end Seadrill Partners entered into a further US$100 million interest rate swap in connection with the acquisition of T-15.
The fundamental outlook for the oil and gas industry remains positive. Continued exploration successes and a backlog of development drilling programs continue to provide a line of sight to continued strength in the contract drilling industry for the foreseeable future.
On the demand side, customers continue to have active drilling plans in a constructive commodity price environment. Most newbuild floaters with 2013 delivery dates have been contracted. Dayrates have stabilized at fourth quarter 2012 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$552,000 per day. As of March 31, 2013 Seadrill Partners total fleet's average remaining contract term was 3.7 years and as of the end of May, having acquired the T-15, the average term is 3.8 years. 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 Board is pleased to have completed Seadrill Partners first acquisition, the tender barge T-15.
This is one of the two rigs that the Company had an option to acquire under the terms of the omnibus agreement entered into with Seadrill at the IPO. The second rig is also a tender barge (T-16) contracted to Chevron for a five year period. The T-16 is expected to be delivered from the yard in June 2013 and to complete its acceptance testing by the end of July 2013.
Pursuant to the omnibus agreement with Seadrill, Seadrill Partners has the right to acquire from Seadrill Limited any drilling rig that enters into a contract with a firm term of five years or more. Following the closing of the IPO, Seadrill has entered into two contracts with a firm term of five years or more for the West Mira and the West Leo. Seadrill also has a significant fleet of existing ultra-deepwater rigs, some of them on long-term contracts, as well as a new build program with four ultra-deepwater rigs on order that have yet to secure a contract. There is therefore a unique opportunity for high growth via further asset dropdowns. The Board is confident about Seadrill Partners ability to be able to grow its future earnings and distributions and be one of the fastest growing MLP's in the years to come.
Seadrill Partners' rigs operated well during the first quarter with an average economic utilization of 96%. The second quarter will be positively impacted by the cash contribution of T-15. However, the West Capricorn is expected to have a total of 20 days downtime during the quarter which will reduce consolidated operating result by approximately US$9.7 million, of which US$4.8 million is attributable to non-controlling interests. Results for the second quarter are otherwise expected to confirm good operational performance, supporting distributable cash flow. The orderbacklog for the Company is currently US$2.5 billion which may grow further as a function of specific discussions relating to the extension of existing contracts.
May 28, 2013
The Board of Directors
Seadrill Partners LLC
Questions should be directed to:
Graham Robjohns: Chief Executive Officer
Rune Magnus Lundetrae: Chief Financial Officer