seadrill partners llc conference call – first quarter 2014 ... · 5/28/2014 · conference call...
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Seadrill Partners LLCConference Call – First Quarter 2014 Results
May 28, 2014
This presentation 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 rigs in OPCO’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 the performance of the drilling rigs in the Company’s fleet, delay in payment or disputes with
customers, 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.
Forward Looking Statements
2
Agenda
3
• Highlights 1Q 2014
• Market Outlook
• Growth Opportunities
• Financial Overview
• Q&A session
Highlights:
• Seadrill Partners reports net income attributable to Seadrill Partners Members of US$19.8 million
• Net operating income for the first quarter of US$123.6 million
• Generated distributable cash flow of US$30.0 million
• Declared a distribution for the first quarter of US$0.5075 per unit – a 14% increase from the Company’s
fourth quarter distribution
• Completed US$1.8 billion term loan B and US$100 million revolving facility. Proceeds of the term loan
refinanced existing indebtedness and increased liquidity
• Completed the acquisition of the West Auriga for US$1.24 billion on a 100% basis, financed with debt and
a US$355 million from the recent common unit offering. Management has recommended a quarterly
distribution increase as a result to between US$0.54 and US$0.545
Seadrill Partners – 1Q Highlights
4
Significant Progress Since IPO – More Growth to Come
Major Events to Date
•Tender rig T-15 acquired for US$210 million
•Tender rig T-16 acquired for US$200 million
•Completed 5 year classing on West Aquarius, West Sirius, and West Capella
•West Sirius and West Leo acquired for a total consideration of US$2.3 billion on a 100% basis, management recommendation to increase distribution to between US$2.0 and US$2.05 as a result
•US$1.8 billion term loan B and US$100 million revolver executed, creating a more efficient capital structure
•West Auriga acquired for a US$1.24 billion on a 100% basis, management recommendation to increase annual distributions to between US$2.16 and US$2.18 as a result
31%
since IPO
31% increase since IPO
6-7% increase
West Auriga
6-7% increase recommended for
West Auriga
5
$2.16
$1.55
$1.67
$1.78
$2.03
$2.18
1.50
1.75
2.00
2.25
IPO T-15 T-16 Sirius / Leo Auriga(recommendation)
Annualiz
ed D
istr
ibutio
ns p
er
Unit
($)
Acquired by Seadrill Capricorn Holdings LLC (51% owned by SDLP)
West Auriga
West Auriga Acquisition
Contract details:
• Dayrate: $565,000 (ex daily mobilization of
$37,500)
• Contract End Date: October 2020; 6.5 years
• Order Backlog : $1.3bn (incl. mobilization)
Principal Features:
• Maximum water depth: 12,000 feet
• Built: 2013
• Builder: Samsung Shipyard
• Customer: BP
6
USD millions Total SDLP Share
Purchase Price $1,240 $632
Financed by:
Bank Debt $443 $226
Intercompany Loan to OPCO $100 $51
Equity Portion $697 $355
SDLP Ownership 51%
SDLP Equity Share $355
Recommended Annualized Distribution Increase: $0.13 - $0.15
Distribution per unit on an Annualized basis: $2.16 - $2.18
US$1.8 Billion Term Loan B Refinancing
Term Loan B Refinances existing debt facilities at Seadrill Partners
• Structure creates a more
efficient capital structure at
Seadrill Partners with 1%
annual amortization profile
• Frees additional funds to re-
invest in fleet growth
• Debt maturity profile
staggered against contract
rollovers and extends
maturity profile
• Priced at Libor plus 3% and
swapped to fixed rate of
5.5%
T-15
T-16
Borrower Group
Seadrill Capricorn
Holdings LLC(Guarantor(3))
46.8%53.2%
Seadrill Operating LP
(Borrower)
Seadrill Partners LLC(NYSE: SDLP)
Seadrill Limited(NYSE: SDRL)
Seadrill Partners
Operating LLC
Public Unit Holders
West Aquarius*
West Capella* (56%)
West Vencedor
West Leo*
West Capricorn
West Auriga
West Sirius*
100% 30.0% 51.0%
* Represents pledged collateral vessels
(Guarantor)
(Guarantor)
(Guarantor) (Guarantor)
7
Top-Tier Distribution Growth
Dividend Share price
8
Div
idend p
er
unit
Share
pric
e (U
S$)
Management recommendation based on West Auriga acquisition
0
5
10
15
20
25
30
35
40
0.00
0.10
0.20
0.30
0.40
0.50
0.60
Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014
9Source: Rystad Energy, Morgan Stanley
Offshore is Key to Deliver Required Volumes
• Shale / tight oil /non-conventionals alone cannot meet incremental forecasted demand and offset
production declines
• Deep and Ultradeepwater well positioned on the cost of supply curve
NAm shale and Canadian oil sands represent marginal incremental production
Global change of liquids supply from 2012 to 2020
Million bbl/d
Seadrill Partners Fleet & Potential Dropdowns
10
Seadrill Partners’ Long-Term Contract Coverage
Average remaining contract term: 3.74 yearsOrder backlog: $5.5bn
(1)
11
West Vencedor US$213,931
West Aquarius US$540,000 US$615,000
West Capella US$627,500
West Capricorn US$495,650 US$495,650
T-15 US$122,723
T-16 US$121,268
West Leo US$605,000
West Sirius US$490,173 US$535,000
West Auriga US$565,000 10.2020
Contracted Option Period
2014
2Q2Q1Q 1Q 2Q 3Q 4Q
2018 2019
1Q 2Q 3Q 4Q4Q3Q3Q 4Q 1Q 2Q 4Q
2015 2016 2017
4Q 1Q3Q 1Q 2Q 3Q
Significant Potential Growth Going Forward
Additional New Assets from Seadrill1
US$ 565,000
US$ 565,000
12
Unit Customer
West Vela BP US$565,000 11.2020
West Auriga BP US$565,000 10.2020
West Mira Husky Newbuild Transit US$590,000 06.2020
West Sirius BP US$490,173 US$535,000 07.2019
Sevan Brasil Petrobas US$398,559 07.2018
West Leo Tullow Oil US$605,000 06.2018
West Polaris ExxonMobil US$655,736 03.2018
West Capricorn BP US$495,650 US$495'
West Hercules Statoil US$497,000 US$497,000
West Neptune LLOG Newbuild Transit US$570,000
West Gemini Total US$656,000
West Alpha ExxonMobil US$535,000 US$547,000
West Capella ExxonMobil US$627,500
West Aquarius ExxonMobil US$540,000 US$615,000
Sevan Louisiana LLOG Transit US$505,000
West Eclipse Total US$450,000 US$455,000
West Pegasus PEMEX US$555,000 Market rate
West Orion Petrobras US$624,460
Sevan Driller Petrobas US$419,817
West Phoenix Total US$464,000
West Venture Statoil US$441,000
West Eminence Petrobras US$624,460
West Taurus Petrobras US$656,662
West Navigator Shell / Centrica Energi NUF US$589,000 US$621'
West Tellus Chevron US$635,000
West Dorado - Newbuild
West Aquila - Newbuild
West Libra - Newbuild
West Draco - Newbuild
West Rigel - Newbuild
West Carina - Newbuild
Sevan Developer - Newbuild
West Saturn - Newbuild
West Jupiter - Newbuild
Option Yard plus transit period SDLP Rigs
2017
1Q 3Q
2014 2015 2016
2Q 3Q 4Q 1Q 2Q 2Q 3Q 4Q
Flo
ate
rs
4Q 1Q 2Q 3Q 4Q 1Q
Growth Opportunities
Acquisition of Additional OPCO Ownership Interests from Seadrill Ltd. (1)
Long-Term Contracted Jack-ups
3
2
- 70% of three UDW and one tender rig
- 49% of three UDW rigs
- E.g. 5 Jack-ups with long-term contracts to PEMEX
- Total of 30 rig years
(1) Figures are pro forma for OPCO’s acquisition of the West Leo and West Sirius.13
Financial Performance Highlights
14
Income Statement – Operating income
Unaudited accounts in USD millions 1Q14 4Q13
Contract revenues $260.6 $282.1
Reimbursable revenues 14.7 0.3
Total operating revenues $275.3 $282.4
Vessel and rig operating expenses 84.3 98.8
Reimbursable expenses 14.3 0.3
Depreciation and amortization 39.7 37.5
General and administrative expenses 13.4 11.4
Total operating expenses $151.7 $148.0
Net operating income $123.6 $134.4
15
Income Statement – Net Income
Unaudited accounts in USD millions 1Q14 4Q13
Net operating income $123.6 $134.4
Financial items
Interest income 0.9 2.2
Interest expense (28.6) (28.7)
(Loss) / Gain on derivative financial instruments (49.2) 16.1
Currency exchange Gain / (Loss) 1.1 (1.4)
Total financial items $(75.8) $(11.8)
Income before income taxes 47.8 122.6
Income taxes (4.0) (9.0)
Net income $43.8 $113.6
Net income attributable to non-controlling interests 24.0 42.0
Net income attributable to Seadrill Partners LLC Members $19.8 $71.6
16
Unaudited accounts in USD millions 1Q14 4Q13
Current assets
Cash and cash equivalents $130.1 $89.7
Accounts receivable, net 270.6 175.8
Mobilization revenue – short term 30.0 16.6
Amount due from related party 510.5 248.3
Other current assets 49.1 38.1
Total current assets $990.3 $568.5
Non-current assets
Newbuildings - -
Drilling units 4,491.6 3,448.3
Goodwill 2.9 -
Mobilization revenue receivable – long-term 115.8 43.7
Deferred tax assets 9.8 9.8
Other non-current assets 102.9 2.3
Total non-current assets $4,723.0 $3,504.1
Total assets $5,713.3 $4,072.6
Balance Sheet - Assets
17
Balance Sheet – Liabilities & Members’ Capital / Owners Equity
Unaudited accounts in USD millions 1Q14 4Q13
Current liabilities
Current portion of long-term interest bearing debt 58.3 -
Current portion of long-term related party payable 91.7 108.3
Revolving credit facility - 125.9
Trade accounts payable and accruals 90.2 80.0
Deferred mobilization revenue – short term 14.9 20.3
Related party payable 614.3 292.1
Other current liabilities 50.0 27.5
Total current liabilities $919.4 $654.1
Non-current liabilities
Long-term interest bearing debt 2,180.8 -
Long-term related party payable 709.1 1,826.4
Related party loan notes 100.0 299.9
Deferred mobilization revenue – long-term 34.7 37.6
Total non-current liabilities $3,024.6 $2,163.9
Equity
Total equity $1,769.3 $1,254.6
Total liabilities and equity $5,713.3 $4,072.6
• As of December 31th, 2013 total debt excluding the revolver was US$3,140 million• 97% of debt swapped to an average fixed rate of 2.02%
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Distributable Cash Flow
Unaudited accounts in USD millions 1Q14 4Q13
EBITDA for the quarter 163.3 171.9
Less: Amortization of Mobilization Revenue and Expenses (4.6) (3.2)
Adjusted EBITDA 158.7 168.7
Cash Interest Income 0.9 0.8
Cash Interest Expense (28.2) (23.8)
Cash Tax Paid (10.0) (6.0)
Pre acquisition balances relating to T-16, West Leo and West Sirius prior to drop down
- (54.0)
Estimated maintenance and replacement capital expenditure
(33.6) (23.7)
Cash flow available for distribution 87.8 62.0
Less:
Cash flow attributable to non-controlling interest(57.8) (38.8)
Distributable cash flow for the first quarter 2014 30.0 23.2
Distribution Declared 38.9 27.1
Coverage Ratio 0.77x 0.86x
19
Coverage ratio assuming Q1 distribution only paid pro-rata for 11 days for new units = 0.92x
• Significant progress made since IPO
– More than doubled fleet size with the acquisition of five rigs
– On track to grow distributions 40% since IPO in October 2012
– More efficient capital structure following successful Term Loan B transaction
• Headwinds in the broad offshore drilling market – Seadrill Partners is protected
– No exposure to 2014 dayrates, only West Vencedor available in 2015
– Pause in fundamentals limiting newbuild activity in 2016
– Medium / Long term fundamentals intact
– Potential for re-contracting rigs into a rising market
• Visible growth opportunities via acquisitions from Seadrill provides strong distribution
growth potential
Summary & Outlook
20