Awilco Drilling PLC

Quarterly Report • Aug 18, 2021

SECOND QUARTER 2021

Awilco Drilling PLC is a North Sea Drilling Contractor owning and operating two refurbished and enhanced UK compliant 3rd generation mid-water semi-submersible drilling rigs. The Company is listed at the Oslo Stock Exchange under the ticker code AWDR.

Q2 Report – Highlights

• Awilco Drilling PLC reports contract revenue of USD 12.0 million (USD 12.6 million Q1), EBITDA of USD 3.0 million (USD 3.7 million in Q1) and a net profit of USD 1.6 million, (USD 1.3 million in Q1).
• Revenue efficiency was 96.7% during the quarter (87.5% in Q1)
• Operational uptime was 94.2% during the quarter (95.9% in Q1)
• Contract backlog at the end of Q2 was approximately USD 7.1 million (USD 8.0 million Q1)

Key financial figures:

In USD million, except EPS

USD million	Q2 2021	Q1 2021	Q4 2020	2020
Contract revenue	12.0	12.6	8.6	25.6
Operating expenses	6.3	5.2	6.0	21.5
EBITDA	3.0	3.7	(6.4)	(21.1)
Net profit/(loss)	1.6	1.3	(152.9)	(167.9)
EPS	0.03	0.02	(2.80)	(3.08)
Total assets	91.8	91.3	92.1	92.1
Total equity	86.0	84.4	83.1	83.1

Financial Results – Quarter 2, 2021

Comprehensive Income Statement

Awilco Drilling ('the Company') reports total comprehensive profit for the second quarter 2021 of USD 1.6 million.

Revenue earned in the second quarter was USD 12.0 million.

In the second quarter Awilco Drilling had rig operating expenses of USD 6.3 million. General and administration expenses were USD 2.7 million.

EBITDA for the second quarter was USD 3.0 million while the operating profit was USD 1.5 million.

Profit before tax was USD 1.6 million. The tax expense for the quarter was less than USD 0.1 million resulting in a net profit of USD 1.6 million. Earnings per share (EPS) for the second quarter were USD 0.03.

Statement on financial position

As of 30 June 2021, total assets amounted to USD 91.8 million. At the same date, Awilco Drilling had USD 15.4 million in cash and cash equivalents.

Operations and Contract Status

WilPhoenix

In Q2 2021 the WilPhoenix concluded operations for Serica at the Rhum location after which the rig demobilised to Invergordon where it commenced work to maintain Class and Flag status.

Revenue efficiency was 96.7% and contract utilisation was 100%.

At the end of June, WilPhoenix had a total remaining contract backlog of approximately USD 7.1 million.

WilHunter

During Q2 2021 the WilHunter was cold stacked in Invergordon.

Funding Requirements

The Company has a cash balance at the end of the second quarter of USD 15.4 million.

Additional funding is expected to be required to support the ongoing arbitration process, SPS for the WilPhoenix and other working capital requirements.

Dividend

Dividend payments have been suspended in recent years but will resume when the Company again reaches an appropriate free cash flow situation.

Organisation

At the end of Q2 2021, Awilco Drilling's Aberdeen based employees numbered 21. Awilco Drilling Pte. Ltd. offshore personnel numbered 98. The Awilhelmsen Group continues to supply some support personnel via a management agreement.

Market Outlook

Additional UK demand both in the P & A and conventional E & P segments came to the market in Q2. These programs now join the large number of tenders for work commencing in 2022 currently under evaluation and pending imminent award.

Further significant term contracts for P & A activity in the UK are expected to commence in 2023 and 2024 and this coupled with increasing floater demand in Norway and the impact of attrition on the marketed fleet, gives a positive indication as to both longer term utilisation and day rates.

Contingent Liability

Awilco Drilling's subsidiary company, WilHunter (UK) Ltd, has been in regular contact with HMRC over the classification of an element of income booked in 2015. This company has maintained its position that the income was such that accumulated losses could be utilised against the income resulting in a reduction in its tax liability for the year. HMRC have disagreed with this position and issued a notice of amendment in October 2019 indicating additional tax of GBP 6.8 million plus accrued interest. A review of the HMRC decision was requested, and HMRC confirmed their view in March 2020. This company are of the opinion that HMRC were incorrect in their assessment of the facts and an appeal was submitted to the First Tier Tribunal (tax) in April 2020. In June 2021, the First Tier Tribunal heard the Company's appeal against this assessment. As explained in the subsequent events note below, the appeal to the First Tier Tribunal was unsuccessful and an application to the Tribunal for the decision to be set aside and re-made has been submitted. This is considered as a contingent liability only of the subsidiary and not the parent company. No provision has been made.

It is recognised that Keppel FELS has submitted claims in respect of amounts it considers recoverable due to termination provisions in the contracts for both Nordic Winter and Nordic Spring. Statement of claims have been received from Keppel FELS in the amount of Singapore Dollars 562.75 million (US\$ 424.9 million) for Awilco Rig 1 Pte. Ltd. and Singapore Dollars 356.18 million (US\$ 268.9 million) for Awilco Rig 2 Pte. Ltd. but these claims are strongly denied. Due to the nonrecourse nature of the contracts, this is considered as a contingent liability only of the subsidiaries and not the parent company. No provision has been made. It is expected that the final arbitration outcome for Awilco Rig 1 Pte Ltd, including any appeal process, will be no earlier than Q4 2022. The arbitration process for Awilco Rig 2 Pte Ltd, was started six months later and also expected no earlier than Q4 2022.

Contingent Asset

Following the termination of Nordic Winter and Nordic Spring, the subsidiary companies, Awilco Rig 1 Pte. Ltd and Awilco Rig 2 Pte. Ltd. have entered arbitration with KFELS in respect of deposit and variation order payments. A total amount of USD 97.7 million is considered to be recoverable and is therefore disclosed as a contingent asset.

Statement of Responsibility

We confirm that, to the best of our knowledge, the condensed set of financial statements for the first quarter of 2021, which has been prepared in accordance with IAS 34 Interim Financial Statements, gives a true and fair view of the Company's consolidated assets, liabilities, financial position and results of operations, and that the interim management report includes a fair review of the information required under the Norwegian Securities Trading Act section 5-6 fourth paragraph.

Subsequent Events

During July 2021, the subsidiary company WilHunter (UK) Ltd received notification that it was unsuccessful in its appeal against an assessment to UK corporation tax of approximately GBP 6.8 million in connection with the tax treatment of a fee arising in 2015 on the termination of a drilling contract for the WilHunter rig. This company believes that there are procedural and substantive grounds for challenging the decision made by the First Tier Tribunal, and has submitted an application to the Tribunal for the decision to be set aside and re-made.

Aberdeen, 17 August 2021

The Board of Directors of Awilco Drilling PLC

Interim CEO: Eric Jacobs Phone: + 44 1224 737900

Investor Relations: Cathrine Haavind Mobile: +47 93 42 84 64 E-mail: ch@awilcodrilling.com

Company background

Awilco Drilling was incorporated in December 2009. Awilco Drilling owns two semi-submersible drilling rigs; WilPhoenix built in 1982 and upgraded in 2011 and WilHunter built in 1983 and upgraded in 1999 and 2011.

Awilco Drilling was listed on the Oslo Stock Exchange (Oslo Axess) in June 2011 under ticker code AWDR and transferred to the Oslo Stock Exchange main list early September 2018. Awilco Drilling's headquarters are located in Aberdeen, UK.

The total number of outstanding shares of Awilco Drilling at the date of this report is 54,581,500.

www.awilcodrilling.com

Forward Looking Statements

This Operating and Financial Review contains certain forward-looking statements that involve risks and uncertainties. Forward-looking statements are sometimes, but not always, identified by such phrases as "will", "expects", "is expected to", "should", "may", "is likely to", "intends" and "believes". These forward-looking statements reflect current views with respect to future events and are, by their nature, subject to significant risks and uncertainties because they relate to events and depend on circumstances that will occur in the future. These statements are based on various assumptions, many of which are based, in turn, upon further assumptions, including Awilco Drilling's examination of historical operating trends. There are a number of factors that could cause actual results and developments to differ materially from those expressed or implied by these forward-looking statements, including the competitive nature of the offshore drilling industry, oil and gas prices, technological developments, government regulations, changes in economical conditions or political events, inability of the Company to obtain financing on favourable terms, changes of the spending plan of our customers, changes in the Company's operating expenses including crew wages, insurance, dry-docking, repairs and maintenance, failure of shipyards to comply with delivery schedules on a timely basis and other important factors mentioned from time to time in our report.

Condensed statement of comprehensive income

in USD thousands, except earnings per share		YTD		YTD
	Q2 2021	30.06.21	Q2 2020	30.06.20
	(unaudited)	(unaudited)	(unaudited)	(unaudited)
Contract revenue	11,633	24,099	6,118	6,118
Reimbursables	308	463	-	-
Other revenue	17	36	306	308
	11,958	24,598	6,424	6,426
Rig operating expenses	6,280	11,442	4,774	9,630
Reimbursables	41	65	-	-
General and administrative expenses	2,675	6,437	3,138	5,713
Depreciation	1,417	3,901	2,518	5,036
	10,413	21,845	10,430	20,379
Operating profit/(loss)	1,545	2,752	(4,006)	(13,953)
Interest income	-	-	14	386
Interest expense	(16)	(32)	(7)	(14)
Other financial items	40	128	(620)	(363)
Net financial items	24	96	(613)	9
Profit before tax	1,569	2,848	(4,619)	(13,944)
Tax expense	(1)	(2)	(8)	(86)
Net profit/(loss)	1,568	2,846	(4,627)	(14,030)
Total comprehensive profit/(loss)	1,568	2,846	(4,627)	(14,030)
Attributable to shareholders of the parent	1,568	2,846	(4,627)	(14,030)
Basic and diluted earnings /(loss) per share	0.03	0.05	(0.08)	(0.26)

Condensed statement of financial position

in USD thousands

	30.06.2021	30.06.2020
	(unaudited)	(unaudited)
Rigs, machinery and equipment	63,146	157,914
Right-of-use asset	936	1,257
Deferred tax asset	12	22
	64,094	159,193
Trade and other receivables	4,533	56,638
Prepayments and accrued revenue	4,522	5,406
Inventory	3,267	4,648
Cash and cash equivalents	15,373	16,651
	27,695	83,343
Total assets	91,789	242,536
Paid in capital	218,905	218,905
Retained earnings	(132,932)	18,050
	85,973	236,955
Trade and other creditors	1,456	2,903
Accruals and provisions	4,360	2,607
Current tax payable	0	71
	5,816	5,581
Total equity and liabilities	91,789	242,536

Condensed statement of changes in equity for the period from

1st January 2020 to 30 June 2021

in USD thousands

	Other equity (retained
	Paid-in-equity	earnings)	Total equity
Equity at 1 January 2020	218,905	32,079	250,984
Total comprehensive loss to 31 December 2020	-	(167,857)	(167,857)
Balance as at 31 December 2020	218,905	(135,778)	83,127
Total comprehensive profit to 30 June 2021	-	2,846	2,846
Balance as at 30 June 2021	218,905	(132,932)	85,973

Condensed statement of cash flow for the period

	Q2 2021	Q1 2020
	(unaudited)	(unaudited)
Cash flow from operating activities
Profit/(Loss) before tax	2,848	(9,325)
Depreciation	3,901	2,518
Interest cost	32	(364)
Sharebased payment	(29)	(464)
Decrease in trade and other receivables	(53)	8,650
Decrease/(Increase) in stock	(240)	251
Decrease in prepayments and accrued revenue	(1,722)	(294)
Decrease/(increase) in trade and other payables	(3,610)	(1,880)
Interest paid	(32)	(7)
Interest received	(65)	371
Net cash flow from operating activities	1,030	(544)
Cash flow from investing activities
Purchase of property, plant and equipment	(87)	(12,902)
Net cash flow from investing activities	(87)	(12,902)
Cash flow from financing activities
Payment of principal portion of lease liabilites	(308)	(85)
Net cash flow from financing activities	(308)	(85)
Net increase/(decrease) in cash and cash equivalents	635	(13,531)
Cash and cash equivalents at beginning of the period	14,738	41,249
Cash and cash equivalents at the end of the period	15,373	27,718

SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES

Basis of preparation

These unaudited interim condensed financial statements have been prepared in accordance with IAS 34 "Interim financial reporting".

Significant accounting policies

The accounting policies used in the preparation of the interim financial statements are consistent with those used in the annual audited financial statements for the year ended December 31, 2020. This interim report should be read in conjunction with the audited 2020 financial statements, which include a full description of the Group's significant accounting policies.

Notes

Note 1 - Rigs, machinery and equipment

in USD thousands

	Semi submersible	Assets Under	Other fixtures and
	drilling rigs/SPS	Construction	equipment	Total
Cost
Opening balance 1 January 2021	307,960	111,280	2,016	421,256
Additions	87	-	-	87
Closing balance	308,047	111,280	2,016	421,343
Depreciation
Opening balance 1 January 2021	(241,649)	(111,280)	(1,527)	(354,456)
Depreciation charge	(3,706)	-	(35)	(3,741)
Impairment	-	-	-	0
Accumulated depreciation per ending balance	(245,355)	(111,280)	(1,562)	(358,197)
Net carrying amount at end of period	62,692	0	454	63,146
Expected useful life	5-20 years		3-10 years
Depreciation rates	5% - 20%		10% - 33%
Depreciation method	Straight line		Straight line
Residual value per rig is USD 15 million.

Note 2 - Related party transactions

in USD thousands

Transactions with Awilhelmsen are specified as follows:

	YTD Q2 2021
Purchases	(494)
Payables	(313)

Note 3 - Segment information

The company owns the semi submersible rigs WilHunter and WilPhoenix. Currently, the company is only operating in the mid water segment in the UK sector of the North Sea. The potential market for the rigs will be the international drilling market. As the rigs are managed as one business segment, the Company has only one reportable segment.

Note 4 - Corporation taxes

Corporation tax provision is based on the tax laws and rates in the countries the rigs are operated and where the rigs are owned. During Q2 the average tax rates have been applied consistent with the prevailing average tax rate for the year.

Note 5 - Capital commitments

There were Capital Commitments of USD 0.9 million as at the end of Quarter 2.

Note 6 - Share capital

As of 30 June 2021 total outstanding shares in the Company was 54,581,500 with a nominal value per share of GBP 0.0065. The share capital and share premium reserve below are expressed in USD at the exchange rate at time of conversion from USD to GBP. The total project cost for the WilPhoenix reactivation project is USD 70M. Awilco Drilling Limited and the wholly owned subsidiaries, Awilco Arctic II Ltd and Awilco Arctic IV Ltd, were incorporated late December

		Par value	Share	Share premium
	Shares	per share	capital	reserve
Share capital per 30 June 2021	54,581,500	£0.0065	524,699	218,380,597
Basic/diluted average number of shares,
1 January - 30 June	54,581,500
Basic/diluted average number of shares, YTD	54,581,500
Ranking	Shares	Ownership
AWILHELMSEN OFFSHORE AS	20,240,814	37.1%
PERSHING LLC	10,874,059	19.9%
AKASTOR AS	3,049,673	5.6%
Euroclear Bank S.A./N.V.	2,146,866	3.9%
Skandinaviska Enskilda Banken AB	2,000,000	3.7%
Citibank, N.A.	1,961,183	3.6%
State Street Bank and Trust Comp	1,433,102	2.6%
Bank of America, N.A.	1,028,251	1.9%
Avanza Bank AB	852,650	1.6%
Northern Trust Global Services SE	849,319	1.6%
Nordnet Bank AB	626,117	1.1%
TVENGE	500,000	0.9%
CLEARSTREAM BANKING S.A.	476,136	0.9%
Merrill Lynch Prof. Clearing Corp.	453,091	0.8%
Citibank, N.A.	367,358	0.7%
Danske Bank A/S	288,097	0.5%
EIDE	248,809	0.5%
DZ PRIVATBANK S.A.	209,272	0.4%
Swedbank AS	191,891	0.4%
Borgarøy Invest AS	189,500	0.3%
Other	6,595,312	12.1%
	54,581,500	100.00%

Note 7 - Subsequent events

During July 2021, the subsidiary company WilHunter (UK) Ltd received notification that it was unsuccessful in its appeal against an assessment to UK corporation tax of approximately GBP 6.8 million in connection with the tax treatment of a fee arising in 2015 on the termination of a drilling contract for the WilHunter rig.

This company believes that there are procedural and substantive grounds for challenging the decision made by the First Tier Tribunal, and has submitted an application to the Tribunal for the decision to be set aside and re-made.