SDLP - Seadrill Partners LLC fourth quarter 2012 results

EARNINGS RELEASE - FOURTH QUARTER RESULTS FOR THE PERIOD ENDED DECEMBER 31, 2012

Highlights

·        Seadrill Partners LLC ("Seadrill Partners" or the "Company") reports results for its first quarter after completing its initial public offering ("IPO") on October 24, 2012 (the "IPO Closing Date").
·        Generated distributable cash flow of $14.1 million for the period from the IPO Closing Date through December 31, 2012.
·        Net income attributable to Seadrill Partners LLC Members for the fourth quarter of $20.9 million and net operating income for the fourth quarter of $72.2 million, which is consistent with the forecast set forth in the Company's IPO prospectus (the "IPO forecast").
·        Declared distribution for the period from IPO Closing Date through December 31, 2012 of $0.2906 per unit ($0.3875 per unit on a pro-rata basis for the fourth quarter 2012), which was paid on February 14, 2013.
·        Significant potential future growth outlook through various dropdown opportunities from Seadrill Limited ("Seadrill"), attractive long-term contracts with global oil majors and strong relationship with Seadrill Limited.

Financial Results Overview

Seadrill Partners reports net income attributable to members of $20.9 million and net operating income of $72.2 million for the fourth quarter of 2012 (the "fourth quarter"), as compared to net income attributable to members of $22.9 million and net operating income of $59.0 million for the same period in the prior year. Operating results for the fourth quarter improved significantly from the same period last year, principally due to the West Capricorn not having commenced operations in 2011. The Company's rigs have performed well following the IPO Closing Date achieving utilization rates of 97% on average.

Total revenues of $181.1 million were consistent with the IPO forecast representing strong performance from the IPO Closing Date, particularly the West Capella and the West Vencedor operating at 100% utilization for the period after the IPO Closing Date. Operating expenses of $108.9 million were slightly higher than the IPO forecast due to one-time expenses relating to the West Aquarius mobilizing to Canada.

For accounting purposes, in accordance with U.S. GAAP, Seadrill Partners is required to recognize in the income statement market valuations of certain financial items. These include the change in the fair value of certain of its derivative instruments, principally interest rate swap derivatives. These are unrealized gains or losses included in the income statement and will only become realized if a derivative is terminated. These non-cash gains or losses are recorded in the income statement within Other financial Items, and do not affect cash flow or the calculation of distributable cash flow ("DCF") as described below. Other financial items for the fourth quarter reflect such losses. In respect of interest rate swaps, the mark-to-market fair value loss was $5.1 million in the fourth quarter.

Seadrill Partners generated distributable cash flow of $14.1 million for the period from the IPO Closing Date through December 31, 2012.  On January 24, 2013 the Company declared a distribution for the period from the IPO Closing Date through December 31, 2012 of $0.2906 per unit ($0.3875 per unit on a pro-rata basis for the fourth quarter 2012), which is the minimum quarterly distribution set forth in the Company's IPO prospectus dated October 18, 2012.

Distributable cash flow is a non-GAAP financial measure used by investors to measure the performance of the Company and its ability to pay its minimum quarterly distribution. Please see Appendix A for a reconciliation of DCF to net income, the most directly comparable GAAP financial measure.

Financing and Liquidity

On October 24, 2012 the Company completed its IPO of 10,062,500 common units representing limited liability company interests in the Company (including 1,312,500 common units issued in connection with the exercise of the over-allotment option). The Company is listed on the New York stock exchange ("NYSE") under the symbol "SDLP". Upon completion of the offering, Seadrill Limited owned approximately 75.7% of the limited liability company interests in Seadrill Partners. Seadrill Partners' only cash generating assets are its ownership interest in Seadrill Operating LP and Seadrill Capricorn Holdings LLC (collectively, "OPCO"). OPCO's fleet consists of two ultra-deepwater semi-submersible rigs (the West Aquarius and the West Capricorn), one ultra-deepwater drillship (the West Capella), and one semi-tender rig. (the West Vencedor), all of which operate under long-term contracts.

As of December 31, 2012, the Company had cash and cash equivalents of $19.4 million and an undrawn revolving credit facility of $300 million provided by Seadrill as the lender. Total debt obligations were $1,192 million as of December 31, 2012. This debt was incurred by Seadrill Limited, as borrower, in connection with its acquisition of the drilling rigs in OPCO's fleet.  In connection with the IPO, OPCO's subsidiaries 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 the lenders.  These intercompany loan agreements with Seadrill Limited are classified as related party transactions.

As of December 31, 2012, Seadrill Partners had interest rate swaps outstanding on principal debt of $1,127 million. All of the interest rate swap agreements were entered into subsequent to the IPO Closing Date and represent approximately 95% of debt obligations as of December 31, 2012. The average fixed interest rate of these swaps is 1.16%. Average margins paid on outstanding debt in addition to the interest charge are approximately 2.37%. The margin payable on the $300 million revolving credit facility with Seadrill is 5%. Whilst undrawn the commitment fee on this facility is 2%.

 

 

 

Table 1.0 Contract status as December 31, 2012 for OPCO's fleet (Table excludes options)

Drilling Rig

Current client

Area of location

Contract start

Contract expiry

Day rate

Semi-submersible rigs:
West Aquarius.......................... ExxonMobil Canada Jan 2013 Jun 2015 US$530,000
West Capricorn.......................... BP USA Jul 2012 Aug 2017 US$487,000
Drillships:
West Capella............................. Total Nigeria Apr 2009 Apr 2014 US$552,000
Total Nigeria Apr 2014 Apr 2017 US$627,500
Tender rigs:
West Vencedor.......................... Chevron Angola Mar 2010 Mar 2015 US$206,500

Outlook

The Board is pleased with the performance of Seadrill Partners in the fourth quarter. OPCO's drilling rigs achieved an average economic utilization of 97% for the period from the IPO Closing Date through December 31, 2012. During the first quarter of 2013, operations for the rigs have also met expectations. OPCO's fleet is not impacted by the GE Vetco H4 connector issue that has been subject of a safety notice that caused operational downtime for some drilling rigs. The ultra-deepwater market remains competitive, but the pace of contracting experienced during the last year has slowed down and dayrates are stabilizing at 2012 levels with the most recent contracted dayrates ranging from US$580,000-$620,000. OPCO's ultra-deepwater rigs current dayrates range from $487,000 per day to $544,000 per day. OPCO's drilling rigs have an average remaining contract length of approximately 3.7 years.

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 IPO Closing Date, Seadrill has entered into two contracts with a firm term of five years or more for the West Mira and the West Leo. The West Mira is not due for delivery until first quarter 2015. The West Leo is currently operating and Seadrill have agreed to extend the time period that the Partnership has to accept an offer to acquire this rig for four months to allow Seadrill Partners time to access its financing options.

In addition, pursuant to the omnibus agreement, Seadrill Partners has the option to acquire the T-15 and the T-16 tender barges from Seadrill within 24 months of acceptance by their customers. Seadrill also has a significant fleet of existing ultra-deepwater rigs, as well as a new build program with six ultra-deepwater rigs on order that have yet to secure a contract. There is therefore, significant potential for dropdown candidates and hence, the Board is confident about Seadrill Partners ability to be able to grow its distributions.

February 28, 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

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