NORTH ATLANTIC DRILLING - US LISTING North Atlantic Drilling generated third quarter 2015 EBITDA* of $113.1 million
North Atlantic Drilling reports third quarter 2015 net income of $1.4 million and a net loss attributable to shareholders of $2.6 million. The loss per share was $0.01.
North Atlantic Drilling secured a contract extension for the semi-submersible rig West Phoenix with Total E&P UK Limited, commencing mid-March 2016 and securing work for the unit through the end of August 2016. The total revenue potential for the contract extension is approximately $62 million.
* EBITDA is defined as 'Earnings Before Interest, Tax, Depreciation and Amortization' and has been calculated by taking operating income plus depreciation and amortization.
Third quarter 2015 results
Consolidated revenues for the third quarter 2015 were $194.6 million compared to $210.7 million for the second quarter. The primary reasons for the decrease are the West Phoenix winter period dayrate reduction and the West Venture contract completion.
Operating income for the third quarter was $57.2 million, a decrease of $7.3 million compared to the second quarter operating income of $64.5 million. The decrease is primarily due to the West Phoenix and West Venture as stated above, combined with continued focus on cost savings initiatives.
Net financial items for the third quarter of 2015 amounted to a loss of $47.9 million. The loss included $24.1 million in interest expenses, loss on financial derivatives of $32.6 million, and foreign exchange gain of $8.7 million mainly related to the NOK1,500 million bond loan. The second quarter of 2015 incurred a net financial loss of $20.5 million, including interest expenses of $25.1 million, gain on financial derivatives of $8.8 million, and loss on foreign exchange of $3.4 million mainly related to the NOK1,500 million bond loan.
Income taxes for the third quarter was a $7.9 million expense, compared to a $0.2 million benefit in the second quarter. The change was primarily due to a net tax benefit recognized during the second quarter in respect of return-to-provision ('RTP') adjustments, whereas there was no such adjustment made in the third quarter.
Net income for the third quarter was $1.4 million and the net loss attributable to shareholders was $2.6 million, resulting in a basic loss per share of $0.01. This is compared to net income of $44.2 million and a net income attributable to shareholders of $40.1 million for the second quarter.
The Company reports operating revenues of $597.3 million, operating income of $158.6 million and a net income of $34.3 million for the nine months ended September 30, 2015. This compares to operating revenues of $972.5 million, operating income of $286.8 million and a net income of $154.2 million for the nine months ended September 30, 2014.
Balance sheet as at September 30, 2015
As at September 30, 2015, total assets decreased to $3,440.6 million from $3,484.8 million compared to the previous quarter.
Total non-current assets decreased to $3,102.8 million from $3,145.2 million compared to the previous quarter. The decrease was mainly due to depreciation on drilling units.
Total current liabilities increased to $514.1 million from $491.6 million compared to the previous quarter. The increase is largely due to the increase in related party payables. For further information please see Note 17 to our consolidated financial statements.
Long-term interest bearing debt, including related party debt, decreased to $2,282.9 million from $2,347.7 million during the quarter. Net interest bearing debt decreased to $2,333.1 million from $2,415.1 million during the quarter. During the third quarter the Company repaid net $42 million on the $2 billion credit facility and repaid net $12 million on the $475 million credit facility. As at September 30, 2015, the Company had undrawn amounts of $50 million available on its credit facilities.
Total equity increased to $519.7 million from $515.7 million compared to the previous quarter. The increase is primarily due to the net income for the quarter.
Cash flow
As at September 30, 2015, cash and cash equivalents increased to $155.4 million from $134.5 million compared to the previous quarter.
For the nine-month period ending September 30, 2015, net cash provided by operating activities was $281.1 million, net cash used in investing activities amounted to $29.9 million, and net cash used in financing activities was $210.6 million.
Outstanding shares
As at September 30, 2015, the total number of common shares issued by North Atlantic Drilling was 243,516,514. The Company held 2,373,863 treasury shares reducing the adjusted number of shares outstanding to 241,142,651.
OperationsDuring the third quarter, North Atlantic Drilling had four offshore drilling rigs in operation offshore Norway, one rig operating in the UK sector of the North Sea and two idle rigs: the West Navigator and West Venture. Economic utilization* for the third quarter was 100 percent, compared to 95 percent in the second quarter.
* Economic utilization is calculated as total revenue, excluding bonuses, for the period as a proportion of the full operating dayrate multiplied by the number of days in the period for the rigs that are on contract.
North Atlantic Drilling secured a contract extension for the semi-submersible rig West Phoenix with Total E&P UK Limited, commencing mid-March 2016 and securing work for the unit through the end of August 2016. The total revenue potential for the contract extension is approximately $62 million. A portion of the $62 million is being paid during the current idle period from October 18, 2015 to the middle of March 2016. The Company has the ability to market the rig for alternate work during this period.
West Venture completed its drilling contract with Statoil on August 21, 2015 and remains idle in Norway with a reduced crew. The rig has completed the five year class and is actively being marketed for employment in the region.
Currently, the Company's revenue backlog is $0.8 billion. Average remaining contract length is approximately 17 months excluding clients' options for extensions.
The construction of the harsh environment semi-submersible drilling rig West Rigel is ongoing at Jurong Shipyard in Singapore. The yard is estimating the rig will be ready for delivery in the fourth quarter of 2015. The Company has had ongoing discussions with the yard regarding alternatives. The final yard installment due upon delivery is approximately $455 million.
The challenging market for oilfield service companies continued in the third quarter as oil prices remained compressed in the $40 to $50 range. The impact of persistent low prices is highlighted in oil companies' budgeting and spending activities. The year on year decline experienced in 2015 is expected to continue in 2016. North Atlantic drilling continues to believe the offshore drilling market will remain challenging through 2016 with limited visibility for 2017 as the timing and extent of a potential market recovery remain uncertain.
Utilization and pricing across all market segments remain low and in many cases has drifted lower during the third quarter. The Harsh Environment sector has seen limited contracting activity as oil companies remain focused on cost reduction. For the most part, customer conversations continue to remain focused on extending existing contracted assets or trade-offs between existing assets and newer assets rather than contracting new units for work. The few new tenders that are active have commencement dates into 2016 or beyond and are being offered at break-even rates or below. Overall marketed utilization in Norway and the UK is currently at approximately 70%. It is likely that this will trend downwards for the remainder of the year and through 2016 as more units roll off contract and become stacked.
The total marketed supply of floaters in UK and Norway currently stands at approximately 44 units and 23 idle by the end of 2016. We continue to expect further units to become idle or scrapped over the next year. A significant number of units rolling off contract are 25 years or older, and although stacking costs are proving to be lower than expected, many of these rigs need to complete an SPS and/or repair and upgrades in order to re-enter operation. There is a high likelihood that a number of these units will exit the North Sea market or either be scrapped or cold-stacked with limited reactivation incentive, leading to limited fleet growth. The potential reductions to active supply combined with significant barriers to entry in the harsh environment regions could lead to increased supply constraints in the eventual recovery.
North Atlantic is actively marketing its fleet and continues to focus on safe and efficient operations, cost management and being proactive with all counterparties in this challenging market. Operating performance has improved in the quarter and we continue to realize benefits from our cost savings initiatives. We have driven additional efficiencies on idle units by planning early and executing with best in class form to achieve low stacking costs and maintaining the quality of the units and crews.
Technical utilization for the fourth quarter to date was 99%.
On August 17, 2015 the Company announced the appointment of Mr. Scott McReaken as Chief Financial Officer. In the fourth quarter, the Company announced Mr. Jo Lunder stepped down as a Director of the Board.
On August 20, 2015, the Company received notice from the New York Stock Exchange ('NYSE') that the Company is no longer in compliance with NYSE's continued listing standards because the average closing share price of the Company's common stock for the consecutive 30 trading-day period ending on August 17, 2015 has fallen below the requirement to be at least $1.00 per share. This notice does not have an immediate effect on the NYSE listing of the Company's common shares.
Subject to the NYSE's rules, the Company has until February 20, 2016 to regain compliance with the minimum share price rule. The Company can regain compliance at any time during the six-month cure period ending on February 20, 2016 if on the last trading day of any calendar month during the cure period the Company's common shares have a closing share price of at least $1.00 and an average closing share price of at least $1.00 over the 30 trading-day period ending on the last trading day of such month.
To comply with the NYSE listing rules and regulations, the Board has approved a capital reorganization that effects a 1-for-10 reverse stock split of its issued and outstanding common shares and concurrently reduces par value from $5.00 to $0.10 and reduces total authorized share capital from $2.0 billion to $10.0 million. The capital reorganization will result $10.0 million of authorized share capital consisting of 100,000,000 shares of par value
$0.10 each. The record date is set for December 3, 2015 and the Company anticipates holding a Special General Meeting on December 28, 2015 to seek approval of shareholders. The Special General Meeting notice will be distributed to shareholders of record date in due course.
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