Seadrill Partners LLC - Third Quarter 2013 Results


  • Seadrill Partners reports net income attributable to Seadrill Partners LLC Members for the third quarter 2013 of US$14.2 million and net operating income for the third quarter of US$63.4 million.
    • Generated distributable cash flow of US$15.9 million after a reduction of $5.7 million in connection with the West Aquarius settlement for the third quarter 2013.
    • Declared an increased distribution for the third quarter of US$0.4275 per unit.

Subsequent Events

  • Completed the acquisition of the company that owns the tender rig T-16 from Seadrill Limited for US$200 million in October 2013 with management recommending a quarterly distribution increase as a result to between $0.4425 and $0.445 per unit
  • Announced settlement agreement and 18 month extension for the semi-submersible West Aquarius with a total estimated revenue potential of US$337 million, subject to partner approval.  The necessary partner approvals for the extension have since been obtained.
  • Total S.A. 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
  • Filed US$800 million mixed shelf registration statement to add flexibility to financing future rig growth

Financial Results Overview

Seadrill Partners LLC1 reports:

Total contract revenues of US$161.5 million for the third quarter 2013 (the "third quarter") compared to US$158.6 million in the second quarter of 2013 (the "second quarter"). The increase is primarily driven by improvement in operating performance of the West Capricorn and the commencement of T-15 operations.  Revenue was negatively impacted by 12 days downtime during the quarter for West Aquarius and the settlement agreement for the West Aquarius which reduced revenue in the third quarter by approximately $22 million related to the mobilization in Canada in the first quarter of 2013.

Net operating income for the quarter of US$63.4 million compared to US$71.6 million in the preceding quarter. The reduction is as a result of the West Aquarius settlement as mentioned above.

Net Income for the quarter of US$44.5 million compared to US$77.2 million in the previous quarter. This is after the recognition of non-cash loss on derivative instruments, which reflected a loss of US$5.5 million in the third quarter as compared to a gain of US$24.5 million for the second quarter as a result of a decrease in long term interest rates in the third quarter.

Net income attributable to Seadrill Partners LLC Members was US$14.2 million for the third quarter compared to US$22.1 million for the previous quarter.

Distributable cash flow was US$15.9 million for Seadrill Partners' third quarter as compared to US$15.8 million for the previous quarter2 giving a coverage ratio of 0.83 for the third quarter.  The reduction is as a result of the West Aquarius settlement, partially offset by increased contribution from the T-15.  Had it not been for the West Aquarius settlement, which did not relate to operations in the third quarter, distributable cash flow would have been approximately $21.6 million giving a coverage ratio of 1.13


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, 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. Seadrill Partners Operating LLC owns 100% of the entities that own and operate the T-15 tender barge.

2)  Please see Appendix A for a reconciliation of DCF to net income, the most directly comparable GAAP financial measure.

Distribution for the period of US$0.4275 per unit, equivalent to an annual distribution of US$1.71, representing an approximate 10% increase from the Company's minimum quarterly distribution set at its IPO.  Subsequent to the acquisition of the T-16 tender rig in October Management have recommended to the Board an annualized distribution increase to between $1.77 and $1.79 per unit which would become fully effective for the distribution with respect to the quarter ending December 31, 2013 and would represent an approximate 15% increase since IPO. 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.


During the third quarter, Seadrill Partners had an interest in five rigs in operation.  The fleet is comprised of two semi-submersible rigs, one drillship and two tender rigs operating in Canada, the US Gulf of Mexico, Nigeria, Angola and Thailand respectively.  During the quarter the T-15, which was acquired on May 17, 2013, commenced operations on full rate.

During the quarter Seadrill Partners reached a settlement agreement with ExxonMobil in which it agreed to non-payment from ExxonMobil for 37 days during the mobilization period which ended in first quarter of 2013 as a result of the time required for the rig to complete modifications and repairs in order to meet the regulatory requirements for operations in Canadian waters and for the operator to receive authorization from the Canadian authorities to commence operation. In conjunction, Hibernia Management and Development Company Ltd, (HMDC) has agreed to negotiate an 18 month contract 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, subject to partner approval. The necessary partner approvals for the extension have since been obtained.

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.

The Company's fleet performed very well during the third quarter, achieving an overall economic utilization rate of 97% on average, excluding the West Aquarius settlement which was linked to operations in the first quarter.  The improvement from the second quarter utilization of 92% is due to improved operations on the West Capricorn and continued strong performance on the balance of the fleet.

Operating expenses for the third quarter were US$101.3 million, compared to US$90.6 million in the second quarter.  The increase in operating expenses is largely explained by the commencement of T-15 operations during the quarter, costs incurred in Thailand re-billed to Seadrill in revenue and higher administrative expenses.   


On October 21, 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.  As a result of the acquisition and as noted above management have recommended a distribution increase of between US$0.025 and US$0.03, or an annualized increase of between US$0.10 and US$0.12.

Financing and Liquidity

As of September 30, 2013, the Company had cash and cash equivalents, on a consolidated basis, of US$71.8 million and a revolving credit facility of US$300 million provided by Seadrill as the lender.  As of September 30, 2013, US$75.9 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$1,216.9 million as of September 30, 2013; US$1,107.4 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 Limited are classified as related party transactions.

The Company has four 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 in the debt capital markets in order to achieve the most effective capital structure.  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 Limited maturing in 2016 relating to the acquisition of the T-15.  The Board is confident that the facilities can be refinanced at attractive terms with improved repayment profiles.  The Company's goal is to achieve a capital structure independent of Seadrill Limited which will allow it to appropriately manage debt terms and debt amortization.

Seadrill Partners is actively exploring debt structures that are more suited for its policy of cash distribution.  The current back-to-back loans with Seadrill Limited have an amortization profile that can likely be improved.  The Company is currently reviewing opportunities in a number markets that would serve to refinance current debt outstanding and provide Seadrill Partners with a more manageable amortization schedule and maturity profile.

As of September 30, 2013, Seadrill Partners had interest rate swaps with Seadrill outstanding on principal debt of US$1,126.3 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 September 30, 2013. The average swapped rate, excluding bank margins, is approximately 1.16%. The Company has a policy of hedging the significant majority of its long-term interest rate exposure.


The fundamental outlook for the offshore drilling industry remains firm.  Exploration and production companies continue to view deep and ultra-deepwater acreage as attractive areas to invest capital.  Several oil companies are however are encountering a period in which cash flows are challenged and budgets must be re-examined.  It is typical during these periods for project commencements in all regions to slow on the margin before growth capital is deployed in the most impactful projects that will replace reserves and grow free cash flow.

Since the middle of 2012, ultra-deepwater drilling rigs have benefited from stable dayrates.  However, bifurcation has led to lower rates for non-premium deepwater units.   E&P companies remain comfortable with rates in the range of US$550,000-US$650,000 per day for the highest end asset classes due to the unique efficiency and safety enhancements they provide.   We have recently seen a trend where oil companies are exchanging 4th and 5th generation rigs with new deliveries. This has particularly been the case in the US Gulf where the need for dual seven ram BOP's and other high specification features is forcing 4th and 5th generation assets out of the market. This trend might lead to pressure on rates for 4th and 5th generation rigs. The Board is comfortable that the utilization of 6th and 7th generation UDW rigs, such as the units in Seadrill Partners fleet, will, based on current demand seen, remain close to 100%.  The oil companies are currently reconsidering investment plans and are cutting part of their exploration programs. However, the fact that the major oil companies even in a reduced capex environment are still increasing spending in ultra-deepwater areas illustrates the attractiveness of the Company's positioning. A positive outcome of the  new exploration program coming up in Angola with between 10-15 exploration wells to be drilled in  2014 can easily be the factor which creates strong momentum in the ultra-deepwater market.

The number of deep and ultra-deepwater discoveries has increased materially since 2010 and the Company expects this trend to continue.  Importantly, as these trends migrate from discoveries to development projects average contract terms are expected to increase as development plans typically have longer duration than exploration activities.  Seadrill Partners' tender rig fleet is also ideally positioned to take advantage of development spending trends as these assets are primarily used in development activities.

During the third quarter leading edge dayrates continue to be in-line with first half 2013 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$580,000 per day.  As of September 30, 2013 Seadrill Partners' total fleet's average remaining contract term was 3.3 years, excluding the West Aquarius extension.  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 views Seadrill Partners' first year as a public company as a very successful one.  The Company has succeeded in growing the fleet and increasing distributions, which will have grown by approximately 15% by the fourth quarter of 2013 based on management's recommendations. .  Going forward Seadrill Partners' growth strategy has two paths; acquiring additional rigs and acquiring additional units in its operating companies.  The Company believes that in principle the former should come before the latter in order to achieve fleet diversification with additional rigs.  These additional rigs will reduce contract rollover risk in any given year and create a smooth cash flow profile that will support visibility in distributions.  Due to the size of the assets under consideration as acquisition targets, it is likely that the Company will continue to acquire percentages of drilling units utilizing the current operating company structure. Seadrill's large fleet of premium ultra-deepwater assets provides significant opportunities to facilitate this industry leading growth profile.

Once a diversified fleet is achieved, the acquisition of additional shares of existing operating companies is likely.  The Board believes this will provide Seadrill Partners with one of the most visible growth paths of all MLP's in the marketplace.

Seadrill has recently contracted several high specification jack-ups for up to 6 years. The jack-up business, which historically has shown high utilization and stable operating costs might be an additional attractive growth area for Seadrill Partners.

Average economic utilization of the Company's rigs at 97% is a significant achievement and is evidence of the Company's focus on operational excellence. The West Capella will undergo its 5 year classing during the fourth quarter, the Board is confident that the cost and downtime suffered will be less than expected at the time of the IPO. .  The fourth quarter will be positively impacted by the cash contribution of the T-16 tender barge and negatively impacted by approximately 7 days of downtime for  the West Vencedor and 14 days in respect of the West Aquarius in connection with its 5 year classing.  The Board believes the Company has good control over its cost structure. The fleet is now operating well and otherwise expected to continue with solid operational performance leading an expected coverage ratio for the quarter back up above one, despite the above downtime. Based on similar operational performance in the first quarter of 2014 the coverage ratio is expected to improve further. The increased rate for the Capella of an additional $65,380 per day will come into effect in April 2014 which will further strengthen cash flow. Further improvement is expected with the increased rate in respect of the West Aquarius extension from 2015.

The Board is excited by the Company's growth potential and confident about its ability to grow distributions in the future and is fully focused on the acquisition of new rigs in order to achieve this.

November 25, 2013
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