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Seadrill Limited — Interim / Quarterly Report 2015
Aug 27, 2015
9186_iss_2015-08-27_e3a9ec54-4e38-49a0-95f8-edfcaa98b5b6.pdf
Interim / Quarterly Report
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SEVAN DRILLING LIMITED
INTERIM FINANCIAL REPORT SECOND QUARTER 2015
Highlights Second Quarter 2015
- Operating revenue in Q2 2015 was USD 99.4 million (Q2 2014 USD 88.6 million).
- EBITDA in Q2 2015 was USD 52.1 million (Q2 2014 USD 40.8 million).
- Net profit in Q2 2015 was USD 13.7 million (Q2 2014 USD 9.2 million)
- Sevan Drilling completed the Migration of its parent company from Sevan Drilling ASA to Sevan Drilling Limited, incorporated in Bermuda. The old parent company was delisted from the Oslo Stock Exchange, and the new parent company began trading on 30th June 2015. The group continues to use the ticker "SEVDR".
- Following the Migration the Board of the Bermuda parent company needed to be reconstituted to have majority non-Norwegian residents, and on 26 August, after approval of the Q2 2015 Interim Financial Report, Mr Erling Lind resigned as Chairman and Director. Ms Birgitte Ringstad Vartdal was appointed to replace Mr Lind as Chairman.
- The Board is pleased to announce the appointment of Svend Anton Maier as a Director of the Company to fill the vacancy. Mr Maier is the Senior Vice President, Americas in the Seadrill Group.
| Unaudited figures in USD million, except where noted |
Q2 2015 | Q1 2015 | Q2 2014 | YTD 2015 | YTD 2014 |
|---|---|---|---|---|---|
| Operating revenue | 99.4 | 83.1 | 88.6 | 182.5 | 148.7 |
| (1) EBITDA |
52.1 | 38.3 | 40.8 | 90.4 | 56.5 |
| Operating profit/(loss) | 33.0 | 19.8 | 24.3 | 52.8 | 25.1 |
| Net financial items | (17.3) | (17.4) | (14.4) | (34.7) | (25.9) |
| Net profit/(loss) | 13.7 | 2.2 | 9.2 | 15.9 | (1.2) |
| EPS - basic and diluted (USD) | 0.46 | 0.00 | 0.31 | 0.53 | -0.04 |
| Company performance: | |||||
| Available days (2) | 273 | 270 | 215 | 543 | 395 |
| Technical Utilization (3) | 94.6% | 82.5% | 95.4% | 89.8% | 93.8% |
| Economic Utilization (4) | 95.1% | 81.7% | 95.7% | 88.8% | 91.6% |
| Average daily revenue (USD) (5) | 385,000 | 373,000 | 423,000 | 382,000 | 401,000 |
| Average daily operating expense (USD) (6) |
158,000 | 151,000 | 197,000 | 155,000 | 193,000 |
(1) EBITDA equals net profit/loss adding back net financial items, tax income/expense, depreciation and amortization expense and impairment expense
(2) Available Days are the total number of operating rig calendar days in the period. A rig is operating when accepted by the customer.
- (3) Technical Utilization is the actual number of revenue earning days divided by Available Days. A revenue earning day is defined as a day on which a rig earns its dayrate after commencement of operations.
- (4) Economic Utilization is operating revenue divided by total potential charter revenue for the period.
- (5) The Average Daily Revenue is operating revenue divided by revenue earning days. The Average Daily Revenue will differ from the contract dayrate due to billing adjustments for any non-productive time, bonus and amortized mobilization and demobilization fees.
- (6) Average daily operating expense is total operating expense less general and administrative expenses, restructuring costs, depreciation and foreign exchange (loss)/gain related to operations divided by Available Days in the period.
Financial performance summary
For the three months ended June 30, 2015
Operating revenue
Operating revenue was USD 99.4 million compared to USD 88.6 million in Q2 2014. The revenue increase is explained by a full quarter of operations of the Sevan Louisiana, which commenced operations in May 2014 and operating for the full period in 2015. The Sevan Louisiana achieved a Q2 2015 technical utilization of 93.8% (89.9% in Q2 2014), Sevan Driller technical utilization was 91.0% (94.7% in Q2 2014), and Sevan Brasil technical utilization was 98.9% (98.2% in Q2 2014).
Operating expenses
Total operating expense was USD 66.4 million compared to USD 64.3 million in Q2 2014. The increase is the result of Sevan Louisiana operating in this quarter compared to the prior year, offset by reductions in operating expenses realized across the fleet. Average operating costs per day per rig remained lower compared to historical averages, as the Company continued executing cost savings initiatives that began early this year. General and administrative costs reduced to USD 3.9 million compared to USD 5.6 million in Q2 2014, from conclusion of the integration and restructuring. Depreciation expense increased compared to Q2 2014 as a consequence of Sevan Louisiana in service for the full period in Q2 2015.
Net financial items
Net financial items amounted to USD 17.3 million in Q2 2015 compared to USD 14.4 million in Q2 2014. Interest and commitment fees on the Revolving Credit Facility with Seadrill ("RCF") increased by USD 2.3 million.
Net profit for Q2 2015 was USD 13.7 million compared to a net profit of USD 9.2 million in Q2 2014.
For the six months ended June 30, 2015
Operating revenue
Operating revenue was USD 182.5 million for the six months ended June 30, 2015 compared to USD 148.7 million for the comparative period in 2014. The revenue increase is due to the Sevan Louisiana commencing operations in May 2014 and operating for the full period in 2015.
Operating expenses
Total operating expense was USD 129.7 million for the six months ended June 30, 2015 compared to USD 123.6 million for the comparative period in 2014. In the first half 2015, operating expenses increased with USD 7.7 million mainly explained by Sevan Louisiana operating for the full 2015 period, offset through cost savings initiatives across the fleet. General and administrative costs were USD 3.5 million lower from conclusion of the integration and restructuring. Depreciation expense increased as a consequence of Sevan Louisiana in service in the full period.
Net financial items
Net financial items amounted to USD 34.7 million for the six months ended June 30, 2015 compared to USD 25.9 million for the comparative period in 2014. This is explained by increased interest and commitment fees on the RCF of USD 5.2 million and interest expense increased USD 2.7 million mainly due to no interest being capitalized in 2015 due to the Sevan Louisiana being completed.
The net profit was USD 15.9 million for the six months ended June 30, 2015 compared to a net loss of USD 1.2 million for the comparative period in 2014.
Balance sheet
Cash and cash equivalents amounted to USD 31.5 million as of June 30, 2015 compared to USD 30.2 million as of December 31, 2014. During Q2 2015, interest and principal payments under the debt facility and RCF were USD 11.6 million and USD 35.0 million, respectively. As of June 30, 2015, USD 160.0 million was drawn on the RCF.
Sevan is preparing its accounts on the assumption that the company is a going concern. Liquidity remains sensitive to performance of the rigs under their contracts, the continued availability of the RCF, and other market conditions.
Operations performance summary
In Q2 2015, the Sevan rigs achieved technical utilization of 94.6% and economic utilization of 95.1%. Sevan Driller achieved technical utilization of 91.0%, the Sevan Brasil achieved 98.9%, and the Sevan Louisiana achieved 93.8%. Sevan Developer remains ready for delivery (warm stacked) at the Cosco shipyard in China. The rig continues to be actively marketed for an acceptable drilling contract and, if such is obtained, delivery can occur under the deferral agreement. In October 2015, the initial delivery deferral period will conclude and the contract terminates if the options to defer delivery are not exercised.
At June 30, 2015, the fleet's backlog revenue is USD 0.9 billion, and as of the date of this report, the fleet is operating at satisfactory technical utilizations.
Investigation
During the quarter, Sevan Drilling initiated an internal investigation regarding activities involving an agent under the Company's drilling contracts with Petrobras in Brazil. These contracts were entered into prior to the separation from the Sevan Marine Group and the subsequent listing in May 2011. The Company continues its investigation into the activities dating back to the separation from Sevan Marine. The Company has also voluntarily notified the Brazilian authorities of our willingness to cooperate with any inquiry.
Outlook
The ultra deepwater drilling market continues to remain challenging so far into 2015 and is expected to continue in this manner well into 2016 and possibly longer. While there was a recovery in oil prices in the first quarter, oil markets have subsequently fallen lower and approaching the lows witnessed at the beginning of 2015. Despite this development, there has been some new fixture activity in this period. However, dayrates for these new fixtures are at or below cash flow breakeven levels. Customers continue to renegotiate contract rate reductions in exchange for extended term, which has added to the downward pressure on rates. When rigs become idle, contractors face the decision of whether the rig will remain marketable or scrapped. Older rigs are often seen to be scrapped due to the significant investment needed in classing. In addition to the increase in scrapping, newbuild deliveries continue to be delayed which has changed estimates in the short term to forecast limited, or no growth, in the global fleet.
The market has historically been cyclical and the long term view remains unchanged, that demand for ultra deepwater drilling will continue to be required to meet the world hydrocarbon demand. However, uncertainty remains in the timing of the recovery and to what extent. The focus for the Company is therefore to continue with safe and efficient operation as well as cost reductions on the three rigs in operation. The Company continues to actively market the fleet, the benefits of the unique Sevan design and continue discussions with customers on potential future work. The Sevan Developer initial deferral period will conclude in Q4 and the Company is evaluating the option to extend under the agreement with Cosco.
The parent company Migration was completed on 30 June 2015, and the Group is now listed on the Oslo Stock Exchange under same ticker "SEVDR" through Sevan Drilling Limited. Shareholders in Sevan Drilling ASA received the same ownership and control in Sevan Drilling Limited, as they had prior to the Migration. Sevan
Drilling ASA is now delisted, has no ownership in the Group and limited assets. In the short term, the Board will present a proposal to the company's shareholders for resolution of the ownership in Sevan Drilling ASA.
Further in connection with the Migration, the Board has reconstituted itself to have majority non-Norwegian residents. Mr Erling Lind resigned as Chairman and Director on 26 August 2015 and the Company thanks him for his service. Mr Lind will remain on the Sevan Drilling ASAboard. The Board appointed Ms Birgitte Ringstad Vartdal as Chairman and is pleased to welcome Svend Anton Maier to fill the vacancy on the Board. Mr Maier is the Senior Vice President, Americas in the Seadrill Group and is Norwegian and a resident in the US.
26 August 2015 The Board of Directors Sevan Drilling Limited Hamilton, Bermuda
Questions should be directed to Sevan Drilling Management AS represented by: Scott McReaken, Chief Executive Officer
Interim financial statements
| Consolidated Income Statement | ||||||
|---|---|---|---|---|---|---|
| Three months ended June 30, | Six months ended June 30, | |||||
| Unaudited figures in USD million | Note | 2015 | 2014 | 2015 | 2014 | |
| Operating revenue | 99.4 | 88.6 | 182.5 | 148.7 | ||
| Operating expense | (43.2) | (42.4) | (84.0) | (76.3) | ||
| General & administrative expense | (3.9) | (5.6) | (8.0) | (11.5) | ||
| Restructuring expense | — | (0.1) | — | (2.3) | ||
| Depreciation, amortization and impairment |
4 | (19.1) | (16.5) | (37.6) | (31.4) | |
| Foreign exchange gain/(loss) related to operations |
(0.2) | 0.3 | (0.1) | (2.1) | ||
| Total operating expense | (66.4) | (64.3) | (129.7) | (123.6) | ||
| Operating profit | 33.0 | 24.3 | 52.8 | 25.1 | ||
| Financial expense | 5 | (17.3) | (14.4) | (34.7) | (25.9) | |
| Net financial items | (17.3) | (14.4) | (34.7) | (25.9) | ||
| Profit/(loss) before tax | 15.7 | 9.9 | 18.1 | (0.8) | ||
| Tax expense | (2.0) | (0.7) | (2.2) | (0.4) | ||
| Net profit/(loss) | 13.7 | 9.2 | 15.9 | (1.2) | ||
| Attributable to: | ||||||
| Equity holders of the Company | 13.7 | 9.2 | 15.9 | (1.2) | ||
| Earnings per share for profit/(loss) attributable to the equity holders of the Company during the period (USD per share): |
||||||
| Basic and diluted | 10 | 0.461 | 0.309 | 0.535 | (0.040) |
| Consolidated Statement of Comprehensive Income | ||||||
|---|---|---|---|---|---|---|
| Three months ended June 30, | Six months ended June 30, | |||||
| Unaudited figures in USD million | Note | 2015 | 2014 | 2015 | 2014 | |
| Net profit/(loss) | 13.7 | 9.2 | 15.9 | (1.2) | ||
| Foreign currency translation | — | 0.1 | (0.1) | 0.3 | ||
| Comprehensive income/(loss) | 13.7 | 9.3 | 15.8 | (0.9) | ||
| Attributable to: | ||||||
| Equity holders of the Company | 13.7 | 9.3 | 15.8 | (0.9) |
Interim financial statements (continued)
| Consolidated Balance Sheet | |||||
|---|---|---|---|---|---|
| Unaudited figures in USD million | Note | As at 30 June 2015 |
As at 31 December 2014 |
||
| ASSETS | |||||
| Drilling rigs | 4 | 1,814.4 | 1,833.8 | ||
| Other fixed assets | 4 | 0.8 | 1.1 | ||
| Other non-current assets | 6 | 20.0 | 24.9 | ||
| Total non-current assets | 1,835.2 | 1,859.8 | |||
| Inventories | 51.2 | 46.5 | |||
| Trade and other receivables | 7 | 55.1 | 55.1 | ||
| Cash and cash equivalents | 31.5 | 30.2 | |||
| Total current assets | 137.8 | 131.8 | |||
| Total assets | 1,973.0 | 1,991.6 | |||
| EQUITY | |||||
| Share capital (100,000,000 shares authorized, 31,000,000 issued, and 29,731,457 outstanding as at 30 June 2015 par value USD 0.10 per share; and 594,623,436 authorized, issued and outstanding as at 31 December 2014, par value of NOK 1 per share) |
1, 10 | 3.0 | 108.6 | ||
| Share premium | 713.5 | 666.0 | |||
| Other equity | (143.0) | (216.9) | |||
| Total equity | 573.5 | 557.7 | |||
| LIABILITIES | |||||
| Non-current portion of bank borrowings | 5 | 1,005.3 | 1,073.0 | ||
| Non-current loan from related party | 5 | 160.0 | 115.0 | ||
| Other non-current liabilities | 1.2 | 0.4 | |||
| Total non-current liabilities | 1,166.5 | 1,188.4 | |||
| Trade and other payables | 35.4 | 41.0 | |||
| Current portion of bank borrowings | 5 | 134.2 | 133.0 | ||
| Other current liabilities | 8,9 | 63.4 | 71.5 | ||
| Total current liabilities | 233.0 | 245.5 | |||
| Total liabilities | 1,399.5 | 1,433.9 | |||
| Total equity and liabilities | 1,973.0 | 1,991.6 |
Interim financial statements (continued)
| Consolidated Statement of Changes in Equity | |||||||
|---|---|---|---|---|---|---|---|
| Unaudited figures in USD million |
Share Capital |
Share Premium |
General Reserve |
Equity Settled Employee Benefits Reserve |
Foreign Currency Translation Reserve |
Retained Earnings |
Total Equity |
| Equity as at 1 January 2014 |
108.6 | 666.0 | 280.0 | 2.4 | (2.8) | (370.5) | 683.7 |
| Net profit/(loss) | — | — | — | — | — | (1.2) | (1.2) |
| Translation differences |
— | — | — | — | 0.3 | — | 0.3 |
| Equity as at 30 June 2014 |
108.6 | 666.0 | 280.0 | 2.4 | (2.5) | (371.7) | 682.8 |
| Equity as at 1 January 2015 of Sevan Drilling ASA |
108.6 | 666.0 | 280.0 | 2.4 | (3.8) | (495.5) | 557.7 |
| Net profit/(loss) | — | — | — | — | — | 15.9 | 15.9 |
| Translation differences |
— | — | — | — | (0.1) | — | (0.1) |
| Capital decrease of Sevan Drill ASA |
(108.5) | — | — | — | — | 108.5 | — |
| Parent Migration | 2.9 | 47.5 | (280.0) | — | — | 229.6 | — |
| Equity as at 30 June 2015 of Sevan Drilling Limited |
3.0 | 713.5 | — | 2.4 | (3.9) | (141.5) | 573.5 |
Interim financial statements (continued)
| Consolidated Cash Flow Statement |
|---|
| ---------------------------------- |
| Unaudited figures in USD million | Note | Six months ended June 30, 2015 |
Six months ended June 30, 2014 |
|---|---|---|---|
| Cash flows from operating activities | |||
| Cash from operations | 61.1 | 15.7 | |
| Interest paid | 5 | (22.9) | (30.9) |
| Net cash generated from/(used in) operating activities | 38.2 | (15.2) | |
| Cash flows from investment activities | |||
| Purchases of property, plant and equipment and other non current assets |
(11.9) | (23.3) | |
| Net cash flow used in investment activities | (11.9) | (23.3) | |
| Cash flows from financing activities | |||
| Proceeds from interest-bearing debt | 5 | 45.0 | 45.0 |
| Repayment of interest-bearing debt | 5 | (70.0) | (105.0) |
| Net cash flow generated from/(used in) financing activities | (25.0) | (60.0) | |
| Net cash flow for the period | 1.3 | (98.5) | |
| Cash balance at beginning of period | 30.2 | 128.7 | |
| Cash balance at end of period * | 31.5 | 30.2 |
* Contains restricted cash of nil for employees' tax deduction fund. The cash balance as at June 30, 2014 contained restricted cash of USD 0.9 million for employees' tax deduction fund.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Organization and basis of preparation
General information - Sevan Drilling ASA and Sevan Drilling Limited
Sevan Drilling Limited (the "Company") and its subsidiaries (the Company and the subsidiaries collectively referred to as the "Group") is an international offshore drilling contractor specializing in the ultra-deepwater segment. The Group has three ultra-deepwater drilling rigs (Sevan Driller, Sevan Brasil, and Sevan Louisiana) in operation and a fourth (Sevan Developer) waiting delivery. Sevan Driller and Sevan Brasil are operating under six-year, fixed term contracts with Petrobras in Brazil expiring in June 2016 and July 2018, respectively. Sevan Louisiana is contracted through 2018 with LLOG in the US Gulf of Mexico. The delivery date of Sevan Developer has been deferred until October 2015 following agreements concluded in Q4 2014, and can be extended for four additional periods of six months at the Group's option up to October 2017. Sevan Drilling Limited was incorporated in Bermuda under the Companies Act on 20 December 2013 as an exempted company limited by shares. Its shares of common stock have been listed under the symbol "SEVDR" on the Oslo Stock Exchange (Oslo Børs).
On 15 May 2015 the shareholders of Sevan Drilling ASA, the previous parent company incorporated and domiciled in Norway, resolved to move the holding level of the group from Norway to Bermuda (the "Migration"). Further, the shareholders resolved that the Migration would be completed by means of a capital decrease in Sevan Drilling ASA where the reduction amount would be distributed among the shareholders of the Company in the form of shares in its wholly owned subsidiary Sevan Drilling Limited. The shareholders of Sevan Drilling ASA, as of 29 June 2015, received 1 Share in Sevan Drilling Limited for every 20 shares each shareholder held in Sevan Drilling ASA (rounded up to the nearest whole share). Sevan Drilling Limited's application for listing on Oslo Børs was approved on 26 May 2015. The Company completed the listing and simultaneous Migration on 30 June 2015.
Upon completion of the Migration, Sevan Drilling Limited is the new parent of the Group listed on Oslo Børs. Sevan Drilling ASAhas been delisted. After completion of the Migration, the board of directors will assess Sevan Drilling ASA's future and present a resolution for the shareholders in an extraordinary general meeting which shall be held by the end of 2015.
Basis of preparation
The consolidated financial statements include the assets and liabilities of the Company, its majority owned and controlled subsidiaries. All intercompany balances and transactions have been eliminated on consolidation. Sevan Drilling ASA, the previous parent company of the group, remains consolidated as the Migration is deemed to be transaction under common control and post migration the net assets and operations are a continuation of the existing group.
These consolidated financial statements as at and for the three months ended June 30, 2015 (the "Interim Financial Statements") have been prepared in accordance with International Accounting Standard 34 Interim Financial Reporting. They do not include all disclosures that would be required in a complete set of financial statements and should be read in conjunction with the 2014 annual report.
The Interim Financial Statements have been prepared on a historical cost basis. The Group's financial instruments consist of cash, trade receivables, trade payables, and bank borrowings measured at amortized cost with variable interest rates. Management believes that the carrying value, excluding financing fees, approximates fair value for all the Group's financial instruments.
The accounting policies adopted in the preparation of the Interim Financial Statements are consistent with those followed in the preparation of the 2014 annual report. The Interim Financial Statements are unaudited and were approved by the Board of Directors on 26 August 2015.
Note 2 - Results of the interim period
During the three months ending on June 30, 2015, the Group earned USD 99.4 million of revenue (YTD - USD 182.5 million) from the operation of Sevan Driller and Sevan Brasil in Brazil and Sevan Louisiana in the US.
Total operating expenses for Q2 2015 were USD 66.4 million (YTD - USD 129.7 million) . Operating expense in Q2 2015 amounted to USD 43.2 million (YTD - USD 84.0 million) , which result from rigs operating under contracts and non-capital expenses related to pre-commencement and construction of the rig under construction. General and administrative costs were USD 3.9 million (YTD - USD 8.0 million) and depreciation and amortization were USD 19.1 million (YTD - USD 37.6 million) .
As the Group's revenue and operating expenses are based on contractual day rates, the Group is not exposed to significant fluctuations in revenue and expense as a result of seasonality or cyclicality.
Net financial items in Q2 2015 amounted to USD 17.3 million (YTD - USD 34.7 million) and included amortization of deferred financing costs, interest expense, and commitment and guarantee fees. The Group performed its obligations under its bank facility and the RCF in Q2.
The Group drew USD 20.0 million (YTD - USD 45.0 million) under the RCF in Q2 2015. Sevan repaid USD 35.0 million (YTD - USD 70.0 million) of principal on the current bank facility during the period, bringing cash and cash equivalents to USD 31.5 million at June 30, 2015.
Note 3 - Segment information
Basis of segmentation
The Board of Directors of the Company, which is identified as the chief operating decision maker in the Group ("CODM"), aggregates the rigs into a single reporting unit representing the fleet as a whole.
The CODM evaluates the operating results of each rig but is primarily focused on the results of the overall fleet with a focus on several key metrics at the Group level, including revenue, operating profit, EBITDAand utilization rates.
Note 4 - Property, plant and equipment
The rigs are aggregated for reporting purposes as they all provide the same service, have the same production process, are marketed to the same customer base, are based on the same design/ use the same methods to provide their services and operate in the same regulatory environment. The rigs form a single global fleet and each rig can be redeployed to other locations based on demand.
| Property, Plant and Equipment | |||||
|---|---|---|---|---|---|
| Unaudited figures in USD million | Construction in process (CIP) |
Units in operation (UIO) |
Drilling rigs |
Other fixed assets |
Total fixed assets |
| As at 31 December 2014 | |||||
| Cost | 124.4 | 1,904.7 | 2,029.1 | 9.7 | 2,038.8 |
| Accumulated depreciation | — | (195.3) | (195.3) | (8.6) | (203.9) |
| Net book value | 124.4 | 1,709.4 | 1,833.8 | 1.1 | 1,834.9 |
| As at 30 June 2015 | |||||
| Cost | 124.2 | 1,922.8 | 2,047.0 | 9.7 | 2,056.7 |
| Accumulated depreciation | — | (232.6) | (232.6) | (8.9) | (241.5) |
| Net book value | 124.2 | 1,690.2 | 1,814.4 | 0.8 | 1,815.2 |
| Three months ended June 30, 2015 Beginning net book value Additions |
124.2 — |
1,700.0 9.2 |
1,824.2 9.2 |
0.9 — |
1,825.1 9.2 |
| Disposals | — | — | — | — | — |
| Depreciation charge | — | (19.0) | (19.0) | (0.1) | (19.1) |
| Ending net book value | 124.2 | 1,690.2 | 1,814.4 | 0.8 | 1,815.2 |
| Six months ended June 30, 2015 | |||||
| Beginning net book value | 124.4 | 1,709.4 | 1,833.8 | 1.1 | 1,834.9 |
| Additions | — | 18.1 | 18.1 | — | 18.1 |
| Disposals | (0.2) | — | (0.2) | — | (0.2) |
| Depreciation charge | — | (37.3) | (37.3) | (0.3) | (37.6) |
| Ending net book value | 124.2 | 1,690.2 | 1,814.4 | 0.8 | 1,815.2 |
| Unaudited figures in USD million | As at 30 June 2015 |
As at 31 December 2014 |
|
|---|---|---|---|
| Rig net book value | |||
| Sevan Driller | 575.5 | 583.7 | |
| Sevan Brasil | 559.1 | 568.1 | |
| Sevan Louisiana | 555.6 | 557.6 | |
| Sevan Developer | 124.2 | 124.4 | |
| Total | 1,814.4 | 1,833.8 |
No capitalization of borrowing costs were included in the additions to CIP during Q2 2015. The contract with Cosco for the construction of Sevan Developer is payable in instalments as construction milestones are completed. No payments were made during the Q2 2015.
As at June 30, 2015, our subsidiary, Sevan Drilling Rig VI Pte Ltd, had an estimated commitment of USD 425 million payable upon delivery of Sevan Developer. Following the conclusion of the agreement with Cosco in Q4 2014, the delivery period has been extended to 15 October 2014 with an option, exercisable at six months' intervals to extend the delivery period for a further 24 months. The maximum deferral of the delivery date as per the agreement is thus 36 months.
Sevan Drilling Rig VI Pte Ltd has the option to cancel the construction contract on each of the deferred delivery dates. Cosco will, in such case, refund the instalments paid under the construction contract. Cosco provided Sevan Drilling Rig VI Pte Ltd security through bank refund guarantees, effective for the 36 month potential deferral period.
The Company reviews the carrying amounts of its tangible assets at the end of each reporting period to determine whether there is any indication that those assets may be impaired. The net asset value of the Group exceeded its market capitalization as at June 30, 2015. This is identified as an indicator of a need for impairment of major assets. As a result, each of the Group's rigs was, as of June 30, 2015, identified as a cash-generating unit and tested for impairment.
The key assumptions applied for the purpose of impairment testing of rigs in operation include a discount rate and expected future cash flows. To discount the future cash flows, management used a post-tax weighted average cost of capital (WACC) of 9.5%. Estimated future cash flows are based on the Group's five-year forecast and utilize several assumptions including forecasted operational expense, operational taxes, utilization and day rates. Day rates are based on current contract amounts for the remaining contract term and expected market rates in the rigs' re-contract years for forecasts beyond the contracted periods. The Company has assumed long-term day rates based on cyclical averages, but no growth above these expected market rates has been assumed for the remainder of the rig lives beyond the forecast period. Based on sensitivity analyses performed, the Company believes that reasonable movements in the key assumptions would not result in an impairment loss to be recognized. Neither an increase in the WACC of 100 basis points nor a reduction of 10% of future market rate would result in impairment of a rig.
Note 5 - Financing activities
In October 2013, the Group entered into a USD 1,750 million secured bank loan facility with ING as agent for a syndicate of lenders. The facility was composed of a USD 350 million export credit facility provided by GIEK and a USD 1,400 million commercial facility provided by a syndicate of several commercial banks. The commercial facility had two tranches. Tranche A in the amount of USD 1,400 million (USD 200 million GIEK and USD 1,200 million commercial) and Tranche B in the amount of USD 350 million (USD 150 million GIEK and USD 200 million commercial).
Tranche A was drawn in October 2013 and used to, inter alia, refinance existing debt at the time. Tranche B was intended to be used to finance the delivery instalment for Sevan Developer, and was cancelled in Q4 2014 as a consequence of the agreement made with Cosco to defer delivery of Sevan Developer. Upon delivery, new financing will have to be secured to cover the final instalment. The availability of such financing is expected to depend on a satisfactory drilling contract having been secured for Sevan Developer.
The GIEK tranche matures in September 2023 and incurs interest on the amounts outstanding at a rate of LIBOR + 2.5%, payable quarterly in arrears.
The commercial tranche matures in September 2018 and incurs interest on the amounts outstanding at a rate of LIBOR + 2.9%, payable quarterly in arrears.
The Company's bank facility is guaranteed by Seadrill at a cost of 1.0% per annum on amounts drawn.
Effective 29 December 2014, the Revolving Credit Facility ("RCF") was increased to USD 300 million. The RCF matures in December 2016, is secured with second priority in the Group's assets and incurs interest on drawn amounts at a rate of LIBOR + 6.0% (+5.5% previously), payable quarterly in arrears. There is a commitment fee of 2.4% (2.2% previously) per annum on the undrawn balance of the RCF.
| Financing Activities | ||||||||
|---|---|---|---|---|---|---|---|---|
| Unaudited figures in USD million | GIEK Tranche |
Commercial Tranche |
Total bank facility |
RCF with Seadrill |
Total | |||
| As at 31 December 2014 | ||||||||
| Principal outstanding | 172.9 | 1,052.1 | 1,225.0 | 115.0 | 1,340.0 | |||
| Unamortized deferred financing costs1 | — | — | (19.1) | — | (19.1) | |||
| Total borrowings | 172.9 | 1,052.1 | 1,205.9 | 115.0 | 1,320.9 | |||
| Current portion | 21.7 | 118.3 | 133.0 | — | 133.0 | |||
| Non-current portion | 151.2 | 933.8 | 1,073.0 | 115.0 | 1,188.0 | |||
| Undrawn facility (available for utilization) | — | — | — | 185.0 | 185.0 | |||
| Three months ended June 30, 2015 | ||||||||
| Additional drawdowns | — | — | — | 20.0 | 20.0 | |||
| Amortization of deferred financing costs 1 | 1.1 | 1.1 | ||||||
| Principal repayments | 5.4 | 29.6 | 35.0 | — | 35.0 | |||
| Interest payments | 0.7 | 8.7 | 9.4 | 2.2 | 11.6 | |||
| Six months ended June 30, 2015 | ||||||||
| Additional drawdowns | — | — | — | 45.0 | 45.0 | |||
| Amortization of deferred financing costs1 | 3.5 | — | 3.5 | |||||
| Principal repayments | 10.8 | 59.2 | 70.0 | — | 70.0 | |||
| Interest payments | 1.9 | 17.0 | 18.9 | 4.0 | 22.9 | |||
| As at 30 June 2015 | ||||||||
| Principal outstanding | 162.1 | 992.9 | 1,155.0 | 160.0 | 1,315.0 | |||
| Unamortized deferred financing costs1 | — | — | (15.5) | — | (15.5) | |||
| Total borrowings | 162.1 | 992.9 | 1,139.5 | 160.0 | 1,299.5 | |||
| Current portion | 21.7 | 118.3 | 134.2 | — | 134.2 | |||
| Non-current portion | 140.4 | 874.6 | 1,005.3 | 160.0 | 1,165.3 | |||
| Undrawn facility (available for utilization) | — | — | — | 140.0 | 140.0 |
1Deferred financing costs were recognized on the bank facility as a whole and not allocated to the individual tranches
| Three months ended June 30, | Six months ended June 30, | ||||
|---|---|---|---|---|---|
| Unaudited figures in USD million | 2015 | 2014 | 2015 | 2014 | |
| Financial expense | |||||
| Interest expense | 9.6 | 9.1 | 19.1 | 16.4 | |
| Amortization of finance fees | 1.6 | 1.5 | 3.5 | 2.6 | |
| Interest on RCF, commitment and guarantee fees to Seadrill |
6.1 | 3.8 | 12.1 | 6.9 | |
| Total | 17.3 | 14.4 | 34.7 | 25.9 |
Note 6 - Other non-current assets
| Unaudited figures in USD million | As at 30 June 2015 |
As at 31 December 2014 |
|
|---|---|---|---|
| Net late delivery penalties | 2.3 | 2.7 | |
| Net mobilization expense | 17.0 | 21.7 | |
| Other non-current assets | 0.7 | 0.5 | |
| Total | 20.0 | 24.9 |
Note 7 - Trade and other receivables
| Unaudited figures in USD million | As at 30 June 2015 |
As at 31 December 2014 |
|
|---|---|---|---|
| Trade receivables | 48.8 | 47.8 | |
| Other receivables | 6.3 | 7.3 | |
| Total | 55.1 | 55.1 |
Note 8 - Other current liabilities
| Unaudited figures in USD million | As at 30 June 2015 |
As at 31 December 2014 |
|---|---|---|
| Income and gross revenue tax payable | 5.4 | 6.1 |
| Other taxes payable | 7.6 | 6.3 |
| Related party payable (Note 9) | 39.1 | 47.8 |
| Other current liabilities | 11.3 | 11.3 |
| Total | 63.4 | 71.5 |
Note 9 - Related party activities
Balances and transactions between the entities within the Group have been eliminated on consolidation and are not disclosed in this note. Details of transactions between the Group and other related parties are disclosed below.
Seadrill has guaranteed the bank facility referred to in Note 5. Seadrill is also providing the RCF (in the amount of USD 300 million) of which USD 160 million was outstanding as of June 30, 2015. Seadrill charged the Group interest on the RCF and guarantee and commitment fees in a total amount of USD 6.1 million and USD 12.1 million during the three and six months ended June 30, 2015 respectively.
Seadrill also provides management support and administrative services to the Group for which a fee of USD 2.3 million and USD 3.9 million the three and six months ended June 30, 2015 respectively.
As a consequence of being responsible for the day-to-day operation of the Group's rigs, Seadrill entities incur direct costs on behalf of the Group. The Group had a total current liability (including the commitment, guarantee and management fees mentioned above) of USD 39.1 million to Seadrill as at June 30, 2015 (compared to USD 47.8 million as at December 31, 2014).
Note 10 - Parent Company Migration, Share Capital and Earnings per Share
Parent Company Migration
In May 2015, shareholders of Sevan Drilling ASA resolved the migrating of the parent company in the Sevan Drilling Group from Norway to Bermuda, under a new parent company, Sevan Drilling Limited.
On May 26, 2015, the Board of Directors of Oslo Børs resolved to admit the shares of the new parent Sevan Drilling Limited to listing on Oslo Børs.
The Migration of the parent company of the Sevan Drilling group from Norway to Bermuda was completed through a capital decrease in Sevan Drilling ASA, where the shares of the Sevan Drilling ASA are distributed to the shareholders of Sevan Drilling ASA as repayment of paid in capital, simultaneously with the listing of Sevan Drilling Limited and delisting of Sevan Drilling ASA.
Sevan Drilling ASA's share capital consisted of 594,623,436 shares authorized and issued, of NOK 1.00 per share. As part of the Migration, Sevan Drilling ASA's share capital was reduced from NOK 594,623,436 by NOK 593,623,436 to a share capital of NOK 1,000,000 through a reduction of the nominal value of the Company's shares from NOK 1 to NOK 0.001681737.
Sevan Drilling Limited's authorized share capital consists of 10,000,000,000 common Shares of USD 0.10 each, of which 31,000,000 common shares were issued prior to the Migration.
Effective on the market closing 29 June 2015, shareholders of Sevan Drilling ASA received 1 share in the Sevan Drilling Limited for every 20 shares each shareholder held in Sevan Drilling ASA (rounded up to the nearest whole share).As a result of the repayment of paid in capital, Sevan Drilling ASAowned 1,268,543 shares in Sevan Drilling Limited.
On July 2, 2015, Sevan Drilling Limited completed a buyback acquiring 1,268,543 of its shares from Sevan Drilling ASA at a price of NOK 10.20 per share, and the shares were subsequently cancelled. After completion of these transactions the share capital of Sevan Drilling Limited consists of 29,731,457 shares each having a nominal value of USD 0,10. Sevan Drilling ASA no longer holds any shares in Sevan Drilling Limited.
After the Migration steps above, the shareholders in Sevan Drilling ASAwill still remain as shareholders in Sevan Drilling Limited, with the same ownership percentages prior to the Migration.
The transactions above have been concluded as common control transactions under IFRS reporting standards, as the result of the transactions is a continuation of the existing group.
The share capital of the group reflects the share capital of the new parent, Sevan Drilling Limited, whereas the total equity of the group remains unchanged. The resulting difference is recognised in Retained Earnings.
The table below summarizes the share capital of the Group and the changes resulting from the Migration:
| Sevan Drilling Limited As at 30 June 2015 Common shares of par value USD 0.10 |
Sevan Drilling ASA As at 31 December 2014 Common shares of par value NOK 1.00 |
|||
|---|---|---|---|---|
| Number of shares |
USD millions | Number of shares |
USD millions | |
| Authorised share capital | 100,000,000 | 10.0 | 594,623,436 | 108.6 |
| Issued and fully called | 31,000,000 | 3.1 | 594,623,436 | 108.6 |
| Shares owned by Sevan Drilling ASA | (1,268,543) | (0.1) | — | — |
| Outstanding shares in issue and Share Capital |
29,731,457 | 3.0 | 594,623,436 | 108.6 |
| Share premium | 713.5 | 666.0 | ||
| Other equity | (146.4) | (216.9) | ||
| Total equity | 570.1 | 557.7 |
Earnings per share
As a result of the Migration and the changes in share capital, the earnings per share has been retrospectively adjusted as follows:
| Three months ended June 30, | Six months ended June 30, | |||
|---|---|---|---|---|
| 2015 | 2014 | 2015 | 2014 | |
| (restated) | (restated) | |||
| Net Profit/(loss) attributable to equity holders - USD million |
13.7 | 9.2 | 15.9 | (1.2) |
| Number of shares outstanding | 29,731,457 | 29,731,457 | 29,731,457 | 29,731,457 |
| Basic and diluted earnings per share (USD per share) |
0.46 | 0.31 | 0.53 | (0.04) |
Note 11 - Events after balance sheet date
The Group has evaluated subsequent events after the balance sheet date through the date the accompanying consolidated financial statements became available to be issued.
On July 2, 2015, Sevan Drilling Limited completed a buyback acquiring 1,268,543 of its shares from Sevan Drilling ASA at a price of NOK 10.20 per share, and the shares were subsequently cancelled upon closing the buyback. After completion of these transactions the share capital of Sevan Drilling Limited consists of 29,731,457 shares each having a nominal value of USD 0.10. Sevan Drilling ASAno longer holds any shares in Sevan Drilling Limited.
Following the Migration the Board of the Bermuda parent company needed to be reconstituted to have majority non-Norwegian residents, and on 26 August, after the approval of the Q2 2015 Interim Financial Report, Mr Erling Lind resigned as Chairman and Director. Ms Birgitte Ringstad Vartdal was appointed to replace Mr Lind as Chairman.
The Board is pleased to announce the appointment of Svend Anton Maier as a Director of the Company. Mr Maier is the Senior Vice President, Americas in the Seadrill Group. Mr Maier has previously served as Senior Vice President, Africa-Middle East, Senior Vice President, Africa and Vice President Deepwater Eastern Hemisphere for Seadrill. Mr Maier has a degree in marine engineering from the Maritime Institute of Tønsberg. He is a Norwegian citizen and resides in the US.
Responsibility Statement
We confirm, to the best of our knowledge, that these interim consolidated financial statements for the period 1 January to 30 June 2015, have been prepared in accordance with IAS 34 - Interim Financial Reporting, and give a true and fair view of the Group's assets, liabilities, financial position and profit or loss as a whole. We also confirm, to the best of our knowledge, that the Interim Financial Reporting includes a fair review of important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements, a description of the principal risks and uncertainties for the remaining six months of the financial year, and major related parties transactions
26 August 2015 The Board of Directors Sevan Drilling Limited Hamilton, Bermuda