Seadrill Partners LLC : Announces Fourth Quarter 2014 Results


  • Seadrill Partners reports net income attributable to Seadrill Partners LLC Members for the fourth quarter 2014 of $33.1 million and operating income of $168.9 million.
  • Generated distributable cash flow of $80.1 million with a coverage ratio of 1.45 for the fourth quarter 2014.
  • Declared an increased distribution for the fourth quarter of $0.5675 per unit, an increase of 3% over the third quarter distribution.
  • Completed the acquisition of a 51% share of the entities that own and operate the West Vela for $900 million on a 100% basis.  The acquisition was financed with debt and $238 million in cash for the Company's 51% equity share.
  • Economic utilization for the fourth quarter of 90

Subsequent Events

  • Rune Magnus Lundetræ will step down as Chief Financial Officer of Seadrill Partners with effect from 30 June 2015. Mr Lundetræ has been the Chief Financial Officer of Seadrill Partners since June 2012 and has been instrumental to its development. The Board wishes to thank Mr Lundetrae for his contribution to the development of Seadrill Partners since its inception and wishes him well in his future activities

Financial Results Overview

Seadrill Partners LLC[1] reports:

Total contract revenues were $369.1 million for the fourth quarter 2014 (the "fourth quarter") compared to $333.4 million in the third quarter of 2014 (the "third quarter").  The increase in revenues is primarily driven by improved uptime and the acquisition of the West Vela.

Operating income for the quarter was $168.9 million compared to $153.6 million in the preceding quarter. The increase is largely as a result of operational improvements described above and the acquisition of the West Vela on November 4, 2014.

Net income for the quarter was $70.1 million compared to $106.3 million in the previous quarter. This is after the recognition of the loss on derivative instruments of $48.4 million in the fourth quarter as compared to a total net gain of $0.5 million for the third quarter as a result of a decrease in long term interest rates in the fourth quarter. The unrealized non-cash element of these amounts is a $36.4 million loss in the fourth quarter 2014 and a $11.4 million gain for the third quarter 2014.

As a result, net income attributable to Seadrill Partners LLC Members was $33.1 million for the fourth quarter compared to $54.0 million for the previous quarter.


Seadrill Partners currently has an interest in ten rigs in operation.  The fleet is comprised of four semi-submersible rigs, three drillships and three tender rigs operating in Canada, the US Gulf of Mexico, Ghana, Nigeria, Angola and Thailand.

Overall economic utilization[1] for the fleet was 90% for the fourth quarter.  With the exception of downtime on the West Aquarius, as guided in last quarter's report, the fleet performed well during the fourth quarter, achieving an economic utilization rate of 97% excluding the West Aquarius.

Total operating expenses for the fourth quarter were $211.7 million, compared to  $186.8 million in the previous quarter. The increase in operating expenses in primarily driven by the inclusion of the West Vela in the fourth quarter results.


On November 4, 2014, Seadrill Partners completed the acquisition of the entities that own and operate the ultra-deepwater drillship, the West Vela for $900 million on a 100% basis.  The West Vela was acquired by Seadrill Capricorn Holdings LLC (51% owned by the Company).  Debt funding for the acquisition was $433 million comprised of a secured debt facility originally entered into by Seadrill Limited ("Seadrill").  The Company's equity portion for its share of the rig acquisition was therefore $238 million funded by the proceeds of the 8 million units September equity offering.

The West Vela is a 6th generation, dynamically positioned drillship delivered from the Samsung shipyard to its current customer, BP, in November 2013.  The West Vela is expected to carry out operations in the U.S. Gulf of Mexico until the end of its contract in November 2020.

Under the terms of the West Vela contract BP is paying a daily rate of $565,000 plus approximately $44,000 per day as a mobilization fee paid over the term of the contract.  Under the terms of the acquisition agreement Capricorn Holdings will pay Seadrill $40,000 per day of dayrate revenue actually received as well as the $44,000 per day mobilization fee.  These payments to Seadrill will cease at the end of the current contract.  By effectively lowering the dayrate it receives to $525,000 per day the Company has reduced its risk of having to re-contract at a lower dayrate when the contract expires in 6 years time.

Financing and Liquidity

As of December 31, 2014, the Company had cash and cash equivalents, on a consolidated basis, of $242.7 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 $3,650.4 million as of December 31, 2014; $581.5 million of this debt was originally incurred by Seadrill, as borrower, in connection with its acquisition of the drilling rigs. 

Net debt as at December 31, 2014 was therefore  $3,407.7 million giving a ratio of net debt to annualized adjusted EBITDA[1] of 3.5:1

As of December 31, 2014 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 $78.2 million intercompany loan from Seadrill relating to the West Vencedor maturing in June 2015.

Seadrill has agreed to extended the maturity for the West Vencedor loan by three years.  The new intercompany loan will be secured by the unit, matures in 2018, has a 10 year amortization profile and will be priced at libor plus 2.5%.

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 December 31, 2014, Seadrill Partners had interest rate swaps outstanding on principal debt of $3,571 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 December 31, 2014. 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.


Since the Company's last quarterly report in November, Brent spot price has dropped by 23%, or US$17.6 per barrel.  The market, which was initially challenged by the pace of supply additions and reduced capital expenditure by oil companies, is now also dealing with a more significant reduction in demand.  To compound these issues, during the fourth quarter OPEC made clear its intention to focus on market share rather than price.  A desire by oil companies to reduce capital expenditures amidst the significant price decline has severely curtailed drilling budgets for at least 2015. Consequently significant additional spare capacity for offshore drilling units is likely to materialize as 2015 progresses.

The offshore drilling market is entering its second year of a downturn, which is shaping up to be more challenging than the first and worse than had previously been expected by the industry.  Approximately a quarter of ultra-deepwater floaters will become available in 2015, a third of which are newbuilds that are yet to be delivered.  Based on this available capacity, significant delays or cancellation of newbuild projects can be expected.  New tendering activity remains subdued as oil companies set their budgets at materially lower levels than seen in recent years. Rig owners are bidding for available work extremely competitively with a focus on utilization over returns, which will likely drive rates down to or below cash breakeven levels.

Seadrill Partners believes it is well positioned with long term contracts, a modern fleet, strong operations and high quality customers. The Company has no ultra-deepwater rigs up for re-contracting before 2017 and only one semi-tender rig, the West Vencedor up for re-contracting in 2015.

The severity of this downturn is forcing the contract drilling industry to make prudent decisions regarding cold stacking and scrapping of older units. This activity is expected to accelerate, likely to levels which have not been seen in two decades.  Owners of older, inefficient units face difficult decisions as these units approach periodic classing activities and most seem to be opting not to invest the significant expenditures required, instead choosing to stack or scrap the unit.  From a long term perspective, these decisions should ultimately create a more healthy industry as weaker players leave the business and old rigs are retired, leaving Seadrill Partners' available capacity in 2017 positioned to take advantage of a possible firming of the rig market.


2014 was a busy year for Seadrill Partners having completed three acquisitions, three equity offerings, a $2.9 billion term loan financing, and grown distributions by 27.5%.  The fleet has now reached ten units with a more staggered contract maturity and stable cash flow profile.  The Board is pleased with the progress in 2014 and since IPO, having grown from a four rig company and increased distributions by 46% since 2012.

On November 4, 2014, the Company completed the acquisition of a 51% interest in the drillship West Vela, which has a long-term contract with BP expiring in the fourth quarter of 2020. The Vela acquisition contributed positively to the Company's operating income and also to a solid distributable cash flow coverage ratio of 1.45x for the fourth quarter.  The unit was acquired based on a dayrate of $525,000 although the contracted dayrate is $565,000 in order to reduce the risk of re-pricing the unit at a lower rate in 2020 when the current contract ends.  Seadrill Partners will likely explore similar structures when considering further acquisitions from Seadrill Limited.

Average economic utilization for the fourth quarter was 90%. The largest negative impact on this being downtime on the West Aquarius. Taking into account the number of days of down time across the fleet of 10 rigs thus far in the first quarter of 2015 and anticipated downtime for the remainder of the quarter, utilization for the first quarter is currently expected to be similar to average utilization for the fourth quarter.

The Semi-tender rig West Vencedor is now expected to complete its current contract early in the second quarter of 2015. It will then go through the process of demobilisation for which it will receive a fee of approximately $8.5 million. 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. 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.

Whilst the offshore drilling industry is clearly facing some challenging times, Seadrill Partners, apart from the West Vencedor, has no contract maturities until the second quarter of 2017. It has a contract backlog of $5.6 billion and an average remaining contract term of 3.3 years. Following the agreement to extend the West Vencedor credit facility with Seadrill Limited, the Company has no debt maturities until 2016 and has a net debt to EBITDA ratio, as at December 31, 2014, of 3.5:1. The Company also has a good liquidity position with $243 million in cash as at December 31, 2014 together with $200 million in undrawn revolvers.

Seadrill Partners will continue to evaluate acquisitions, distributions and distribution coverage to manage through the near term challenges in the offshore drilling industry.  While Seadrill Partners' strategy is to grow distributions via accretive acquisitions, given the current near term market outlook acquisitions will also be evaluated with the goals of building distribution coverage and mitigating contract rollover risk.


February 26, 2015

The Board of Directors

Seadrill Partners LLC

London, UK.


Questions should be directed to:

Graham Robjohns: Chief Executive Officer

Rune Magnus Lundetrae: Chief Financial Officer


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.