SHELF DRILLING, LTD.
Form 10-Q Equivalent for the
three months ended March 31, 2024 and 2023
TABLE OF CONTENTS
Item | Page |
Independent Auditor's Report | 3 |
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations | 24 |
Item 3. Quantitative and Qualitative Disclosures About Market Risk | 37 |
Item 4. Controls and Procedures | 37 |
Part II. Other Information | 38 |
Item 1. Legal Proceedings | 38 |
Item 1A. Risk Factors | 38 |
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds | 38 |
Item 3. Defaults upon Senior Securities | 38 |
Item 4. Mine Safety Disclosures | 38 |
Item 5. Other Information | 38 |
Item 6. Exhibits | 38 |
Page 1 of 38
SHELF DRILLING, LTD.
THREE MONTHS ENDED MARCH 31, 2024 AND 2023
(UNAUDITED)
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Page 2 of 38
SHELF DRILLING, LTD.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions, except per share data)
(Unaudited)
Three months ended March 31, | |||||
2024 | 2023 | ||||
Revenues | |||||
Operating revenues | $ | 247.0 | $ | 168.1 | |
Other revenues | 7.7 | 15.3 | |||
254.7 | 183.4 | ||||
Operating costs and expenses | |||||
Operating and maintenance | 149.5 | 129.2 | |||
Depreciation | 21.3 | 19.0 | |||
Amortization of deferred costs | 19.6 | 12.0 | |||
General and administrative | 18.0 | 15.5 | |||
Loss on disposal of assets | 1.0 | 0.1 | |||
209.4 | 175.8 | ||||
Operating income | |||||
45.3 | 7.6 | ||||
Other expense / (income), net |
Interest income .............................................................................................................................
Interest expense and financing charges ........................................................................................
Other, net ......................................................................................................................................
Income / (loss) before income taxes | |
Income tax expense | |
Net loss | |
Net loss attributable to non-controllinginterest | |
Net income / (loss) attributable to controlling interest | $ |
(0.9) | (0.7) |
36.8 | 34.1 |
4.2 | (0.1) |
40.1 | 33.3 |
5.2(25.7)
9.0 | 8.6 | |
(3.8) | (34.3) | |
(8.2) | (0.9) | |
4.4 | $ | (33.4) |
Net income / (loss) per common share - basic | $ | 0.02 | $ | (0.18) |
Net income / (loss) per common share - diluted | $ | 0.02 | $ | (0.18) |
Weighted average common shares - basic | 213.7 | 187.9 | ||
Weighted average common shares - diluted | 225.3 | 187.9 |
See notes to the condensed consolidated financial statements.
Page 4 of 38
SHELF DRILLING, LTD.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions, except per share data)
(Unaudited)
March 31, | December 31, |
2024 | 2023 |
Assets
Cash and cash equivalents | $ |
Accounts and other receivables | |
Less: allowance for credit losses | |
Accounts and other receivables, net | |
Other current assets | |
Total current assets | |
Property and equipment | |
Less: accumulated depreciation | |
Property and equipment, net | |
Deferred tax assets | |
Other long-termassets | |
Total assets | $ |
Liabilities and equity | |
Accounts payable | $ |
Interest payable | |
Accrued income taxes | |
Current maturities of long-termdebt | |
Other current liabilities | |
Total current liabilities | |
Long-termdebt | |
Deferred tax liabilities | |
Other long-termliabilities | |
Total long-termliabilities | |
Commitments and contingencies (Note 9) | |
Common shares of $0.01 par value; 234.1 shares authorized as of both March 31, 2024 and | |
December 31, 2023, respectively; 213.7 shares issued and outstanding as of March 31, 2024 | |
and December 31, 2023, respectively | |
Additional paid-incapital | |
Accumulated losses | |
Total controlling interest shareholders' equity | |
Non-controllinginterest | |
Total equity | |
Total liabilities and equity | $ |
101.6 | $ | 98.2 |
242.5237.1
6.18.5
236.4228.6
103.292.1
441.2418.9
2,195.12,176.8
709.6689.7
1,485.5 | 1,487.1 |
9.2 | 9.3 |
180.3183.4
2,116.2 | $ | 2,098.7 |
121.9 | $ | 115.7 |
61.3 | 28.0 | |
14.5 | 13.1 | |
74.5 | 82.7 | |
71.1 | 73.7 |
343.3313.2
1,245.4 | 1,242.7 |
8.9 | 8.7 |
119.1131.8
1,373.4 | 1,383.2 |
- | - |
2.1 | 2.1 |
1,161.3 | 1,160.3 |
(826.0) | (830.4) |
337.4332.0
62.170.3
399.5402.3
2,116.2 | $ | 2,098.7 |
See notes to the condensed consolidated financial statements.
Page 5 of 38
SHELF DRILLING, LTD.
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
(In millions) (Unaudited)
Three months ended March 31, | |||||
2024 | 2023 | ||||
Number of common shares | |||||
Balance, beginning of period | 213.7 | 176.4 | |||
Issuance of common shares | - | 17.6 | |||
.......................................................................................................Balance, end of period | 213.7 | 194.0 | |||
Common shares | |||||
Balance, beginning of period | $ | 2.1 | $ | 1.8 | |
Issuance of common shares | - | 0.1 | |||
.......................................................................................................Balance, end of period | 2.1 | 1.9 | |||
Additional paid-in capital | |||||
Balance, beginning of period | 1,160.3 | 1,056.6 | |||
Issuance of common shares | - | 44.0 | |||
Share-basedcompensation expense, net of forfeitures | 1.0 | 0.6 | |||
.......................................................................................................Balance, end of period | 1,161.3 | 1,101.2 | |||
Accumulated losses | |||||
Balance, beginning of period | (830.4) | (822.8) | |||
Net income / (loss) | 4.4 | (33.4) | |||
Balance, end of period | (826.0) | (856.2) | |||
Total controlling interest shareholders' equity | |||||
Balance, beginning of period | 332.0 | 235.6 | |||
Net income / (loss) | 4.4 | (33.4) | |||
Issuance of common shares | - | 44.1 | |||
Share-basedcompensation expense, net of forfeitures | 1.0 | 0.6 | |||
Balance, end of period | 337.4 | 246.9 | |||
Non-controlling interest | |||||
Balance, beginning of period | 70.3 | 79.9 | |||
Net loss | (8.2) | (0.9) | |||
Balance, end of period | 62.1 | 79.0 | |||
Total equity | |||||
$ | 399.5 | $ | 325.9 | ||
See notes to the condensed consolidated financial statements.
Page 6 of 38
SHELF DRILLING, LTD.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions) (Unaudited)
Three months ended March 31,
20242023
Cash flows from operating activities
Net loss | $ |
Adjustments to reconcile net loss to net cash provided by / (used in) operating activities | |
Depreciation | |
Provision for / (reversal of provision) for credit losses, net | |
Amortization of deferred revenue | |
Amortization of intangible liability | |
Share-basedcompensation expense, net of forfeitures | |
Amortization of debt issuance costs, premium and discounts | |
Loss on disposal of assets | |
Deferred tax expense, net | |
Changes in deferred costs, net* | |
Foreign currency transaction losses | |
Changes in operating assets and liabilities* | |
Net cash provided by / (used in) operating activities | |
Cash flows from investing activities |
(3.8) | $ | (34.3) |
21.319.0
1.0 | (0.3) |
(10.6) | (3.1) |
(3.2) | (3.6) |
1.0 | 0.6 |
3.3 | 2.3 |
1.0 | 0.1 |
0.3 | 2.0 |
(7.9) | (26.9) |
4.6 | - |
30.417.7
37.4(26.5)
Additions to property and equipment*...........................................................................................
Advance payment for property and equipment ..............................................................................
Proceeds from disposal of assets ....................................................................................................
Net cash used in investing activities .......................................................................................
Cash flows from financing activities
(20.4) | (19.4) | |
- | (1.1) | |
0.2 | 0.2 | |
(20.2) | (20.3) |
Payment of debt issuance costs | |
Payment of debt extinguishment costs | |
Repayment of term loan | |
Proceeds from issuance of common shares, net of issuance costs | |
Payment of issuance costs for the subsidiary shares issuance to non-controlling interest | |
Net cash provided by / (used in) financing activities | |
Exchange rate change effect on cash, cash equivalents and restricted cash | |
Net increase / (decrease) in cash, cash equivalents and restricted cash | |
Cash, cash equivalents and restricted cash at beginning of period* | |
Cash, cash equivalents and restricted cash at end of period* | $ |
(1.2) | (0.2) |
(0.2) | - |
(8.3) | - |
- 44.4
- (0.1)
(9.7) | 44.1 |
(4.6) | - |
2.9 | (2.7) |
107.0177.3
109.9 | $ | 174.6 |
- See Note 13 - Supplemental Cash Flow Information for a reconciliation of cash payments for additions to property and equipment and changes in deferred costs, net to total capital expenditures and deferred costs and a reconciliation of cash, cash equivalents and restricted cash balances.
See notes to the condensed consolidated financial statements.
Page 7 of 38
SHELF DRILLING, LTD.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1 - Business and Basis of Presentation
Business
Shelf Drilling, Ltd. ("SDL") was incorporated on August 14, 2012 as a private corporation in the Cayman Islands. SDL, with its majority owned subsidiaries (together, the "Company", "we" or "our") is a leading international shallow water offshore contractor providing equipment and services for the drilling, completion, maintenance and decommissioning of oil and natural gas wells. We are solely focused on shallow water operations in depths of up to 500 feet and our fleet consists of 36 independent-leg cantilever ("ILC") jack-up rigs as of March 31, 2024. Since June 25, 2018, SDL shares are listed on the Oslo Stock Exchange ("OSE") under the ticker symbol SHLF.
SDL is a holding company with no significant operations or assets other than interests in its direct and indirect subsidiaries. All operations are conducted through Shelf Drilling Holdings, Ltd. ("SDHL") an indirect wholly owned subsidiary of SDL. Our corporate offices are in Dubai, United Arab Emirates, geographically close to our operations in the Middle East, North Africa and the Mediterranean (together, "MENAM"), Southeast Asia, India, West Africa and North Sea.
Basis of Presentation
The Company has prepared the accompanying condensed consolidated financial statements in accordance with generally accepted accounting principles in the United States of America ("GAAP"). Pursuant to such rules and regulations, these financial statements do not include all disclosures required by GAAP for complete financial statements. The condensed consolidated financial statements reflect all adjustments, which are, in the opinion of management, necessary for a fair statement of financial position, results of operations and cash flows for the interim periods. Such adjustments are of a normal recurring nature unless otherwise noted. Operating results for the three months ended March 31, 2024 are not necessarily indicative of the results that may be expected for the year ending December 31, 2024 or for any future period. The accompanying condensed consolidated financial statements and notes thereto should be read in conjunction with the audited consolidated financial statements and notes thereto in the Company's Form 10- K Equivalent for the year ended December 31, 2023. The amounts are presented in United States ("U.S.") dollar ("$") rounded to the nearest tenth of a million, unless otherwise stated. The Company's significant accounting policies are included in the Company's Form 10-K Equivalent for the year ended December 31, 2023.
Note 2 - Recently Issued Accounting Pronouncements
Recently Issued Accounting Standards
In November 2023, the FASB issued ASU No. 2023-07 Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which requires enhanced disclosures about significant segment expenses, enhanced interim disclosure requirements, new segment disclosure requirements for entities with a single reportable segment, disclosures about the individual or the group or committee identified as the chief operating decision-maker and contains other disclosure requirements. The ASU is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. The Company does not intend to early adopt this standard. The Company is currently reviewing the impact of the adoption on the condensed consolidated financial statements.
In December 2023, the FASB issued ASU No. 2023-09 Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which requires a tabular reconciliation using both percentages and amounts, broken out into specific categories with certain reconciling items at or above 5% of the statutory tax further broken out by nature and/or jurisdiction. This ASU also has disclosure requirements related to income taxes paid (net of refunds received), broken out between federal, state/local and foreign, and amounts paid to an individual jurisdiction when 5% or more of the total income taxes paid. The ASU is effective for fiscal years beginning after December 15, 2024, with early adoption permitted. The Company does not intend to early adopt this standard. The Company is currently reviewing the impact of the adoption on the condensed consolidated financial statements.
Page 8 of 38
SHELF DRILLING, LTD.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 3 - Revenues
As of March 31, 2024, the drilling contract with the longest expected remaining duration, excluding unexercised options, extends through June 2031.
Lease Revenue
On October 5, 2022, a subsidiary of the Company signed a bareboat charter agreement with a subsidiary of Noble Corporation ("Noble") for the Shelf Drilling Barsk rig. The Noble subsidiary leased the rig from the Company for the remaining term of its drilling contract with Equinor ASA until December 2023. The Company received payments of $2.0 million per month, which were trued up at periodic intervals for revenues and expenses per the terms of the agreement. The Company accounted for this operating lease and these variable lease payments under Accounting Standards Codification ("ASC") 842 Leases. The lease payments were recognized as revenue over the lease term as use of the asset occurred.
Amounts recorded for lease revenues were as follows (in millions): | |||||
Three months ended March 31, | |||||
2024 | 2023 | ||||
...........................................................................................................................Lease revenue (1) | $ | - $ | 9.9 | ||
_____________________________________ | |||||
(1) Recorded in the other revenues in the condensed consolidated statements of operations. |
Contract Liabilities and Deferred Contract Costs
Contract Liabilities
The Company recognizes a contract liability when we invoice an amount which is greater than the revenues allocated to the related performance obligations for goods or services transferred to a customer. Contract liabilities include fees for contract preparation, capital upgrades, mobilization and advance payments from customers for future services which are recorded as other current liabilities and other long-term liabilities, as appropriate, in the condensed consolidated balance sheets.
Following are the details of the contract liabilities (in millions): | ||||||||
As of | ||||||||
March 31, | December 31, | |||||||
2024 | 2023 | |||||||
Current contract liabilities | 42.3 | $ | 40.5 | |||||
Non-currentcontract liabilities | 54.9 | 60.0 | ||||||
$ | 97.2 | $ | 100.5 | |||||
Significant changes in contract liabilities were as follows (in millions): | ||||||||
Three months ended March 31, | ||||||||
2024 | 2023 | |||||||
.....................................................................................................Balance, beginning of period | $ | 100.5 | $ | 8.4 | ||||
Increase due to contractual additions | 15.9 | 15.3 | ||||||
Decrease due to amortization of deferred revenue | (10.6) | (3.1) | ||||||
Decrease due to application of customer deposits and other | (8.6) | - | ||||||
................................................................................................................Balance, end of period | $ | 97.2 | $ | 20.6 | ||||
Page 9 of 38
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Shelf Drilling Ltd. published this content on 15 May 2024 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 15 May 2024 15:17:06 UTC.