SDLP - Seadrill Partners LLC Announces Second Quarter 2015 Results


  • Seadrill Partners reports net income attributable to Seadrill Partners LLC Members for the second quarter 2015 of $101.3 million and operating income of $205.5 million.
    • Generated distributable cash flow of $84.7 million with a coverage ratio of 1.53 for the second quarter 2015.
    • Declared a $0.5675 per unit distribution for the second quarter, in line with the first quarter distribution.
    • Economic utilization for the second quarter of 97%.
    • Seadrill Operating LP, Seadrill Partners' 58% owned subsidiary, completed the acquisition of the West Polaris from Seadrill Limited. The total consideration for the West Polaris acquisition was comprised of $204 million in cash, $336 million of debt, a $50 million seller's credit and an earn-out dependent upon future day rates.

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.


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.


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.


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.


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.