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2014-05-28

Seadrill Partners LLC: SDLP - Seadrill Partners LLC - First Quarter 2014 Results

Highlights

* Seadrill Partners reports net income attributable to Seadrill Partners LLC
Members for the first quarter 2014 of US$19.8 million and net operating
income of US$123.6 million. * Generated distributable cash flow of US$30.0
million for the first quarter 2014. * Declared an increased distribution
for the first quarter of US$0.5075 per unit, an increase of 14% over the
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. * Issued a total of 11.96
million common units to the public and 1.6 million units to Seadrill to
fund the equity portion of the Auriga acquisition. * Completed the
acquisition of the companies that own and operate the West Auriga for
US$1.24 billion on a 100% basis. The acquisition was financed with debt and
US$355 million from a common unit offering for the Company's equity share.
Management has recommended a quarterly distribution increase as a result to
between US$0.54 and US$0.545.

Financial Results Overview

Seadrill Partners LLC1reports:

Total contract revenues of US$260.6 million for the first quarter 2014 (the
"first quarter") compared to US$282.1 million in the fourth quarter of 2013
(the "fourth quarter"). The decrease is primarily driven by 60 days of
downtime on the West Aquarius and 17 days downtime on the West Capricorn due
to equipment failures. This was partly offset by 11 days contribution from
the West Auriga.

Net operating income for the quarter of US$123.6 million compared to US$134.4
million in the preceding quarter. The decline is largely as a result of the
West Aquarius and West Capricorn downtime noted above.

Net Income for the quarter of US$43.8 million compared to US$113.6 million in
the previous quarter. This is after the recognition of the gain/loss on
derivative instruments, which reflected a loss of US$(49.2) million in the
first quarter as compared to a gain of US$16.1 million for the fourth quarter
as a result of a decrease in long term interest rates in the first quarter
as well as a higher level of interest rate swaps as at the end of the first
quarter. The unrealized non-cash element of these amounts are US$49.9 million
loss in the first quarter 2014 and a US$19.1 million gain for the fourth
quarter 2013.

____________________

1)All references to "Seadrill Partners" and "the Company" refer to Seadrill
Partners LLC and its subsidiaries, including the operating companies that
indirectly own interests in the drilling rigs Seadrill Partners LLC owns: (i)
a 30% limited partner interest in Seadrill Operating LP, as well as the
non-economic general partner interest in Seadrill Operating LP through its
100% ownership of its general partner, Seadrill Operating GP LLC, (ii) a 51%
limited liability company interest in Seadrill Capricorn Holdings LLC and
(iii) a 100% limited liability company interest in Seadrill Partners
Operating LLC. Seadrill Operating LP owns: (i) a 100% interest in the
entities that own theWest Aquarius
,West Leo
and theWest Vencedor
and (ii) an approximate 56% interest in the entity that owns and operates
theWest Capella
. Seadrill Capricorn Holdings LLC owns 100% of the entities that own and
operate theWest Capricorn,West Sirius and West Auriga.
Seadrill Partners Operating LLC owns 100% of the entities that own and operate
theT-15 and T-16
tender barges.

Net income attributable to Seadrill Partners LLC Members was US$19.8 million
for the first quarter compared to US$42.0 million for the previous quarter.

Distributable cash flow was US$30.0 million for Seadrill Partners' first
quarter as compared to US23.2 million for the previous quarter2giving a
coverage ratio of 0.77x for the first quarter. The increase is mainly as a
result of the contribution from the T-16, West Leo and West Sirius for the
full quarter and from the inclusion of the West Auriga for 11 days in March.

The coverage ratio has been negatively impacted by the increase in units
outstanding following the March equity issuance as the first quarter
distribution is payable on all outstanding units at the record date. Were
the distribution to be paid pro-rata on the new units for the 11 days of
March that the Company benefited from the West Auriga cash flow, the coverage
ratio would have been 0.92x.

Distribution for the period of US$0.5075 per unit, equivalent to an annual
distribution of US$2.03, represents an approximate 31% increase from the
Company's minimum quarterly distribution set at its IPO. Subsequent to the
acquisition of the ultra-deepwater drillship the West Auriga in March,
Management have recommended to the Board an annualized distribution increase
to between $2.16 and $2.18 per unit which would become effective for the
distribution with respect to the quarter ending June 30, 2014 and would
represent an approximate 40% increase since IPO. Any such increase would be
conditional upon, among other things, the approval of such increase by the
Board and the absence of any material adverse developments that would make
such an increase inadvisable.

____________________

2) Please see Appendix A for a reconciliation of DCF to net income, the most
directly comparable GAAP financial measure.

Operations

Seadrill Partners has an interest in nine rigs in operation. The fleet is
comprised of four semi-submersible rigs, two drillships and three tender rigs
operating in Canada, the US Gulf of Mexico, Ghana, Nigeria, Angola and
Thailand respectively.

During the first quarter, Total S.A. exercised their option to convert the
contract extension for the West Capella from 5 years to 3 years. The new
rate became effective in April 2014. As a result of this change in contract
terms the dayrate has increased from US$580,000 per day to US$627,500 per
day. The use of the option to convert to a shorter contract with a higher
dayrate reflects a transfer of operatorship for the license and the wish for
the new operator to retain flexibility. The Company is confident however that
there will be additional requirements for the rig in Nigeria post 2017.

Overall economic utilization for the fleet was 82% for the first quarter.
With the exception of 77 days downtime linked to the West Aquarius and West
Capricorn equipment failures, the Company's remaining fleet performed well
achieving an economic utilization rate of 98%.

Total operating expenses for the first quarter were US$151.7 million, compared
to US$148.0 million in the fourth quarter. The Company has good cost
controls in place and sees little risk of changes to the operating cost
structure.

Acquisitions

On March 21, 2014 Seadrill Partners completed the acquisition of the companies
that own and operate the ultra-deepwater drillship the West Auriga for a
total consideration of US$1.24 billion on a 100% basis. The West Auriga was
acquired by Seadrill Capricorn Holdings LLC (51% owned by SDLP). Debt
funding for the acquisition was US$543 million comprised of a secured debt
facility and a US$100 million discount note from Seadrill. The Company's
equity portion, for its share of the rig acquisitions, of US$355 million was
funded with proceeds from Seadrill Partner's second public follow on equity
offering.

The West Auriga is contracted with BP in the US Gulf of Mexico at a dayrate of
US$565,000 (excluding approximately $37,500 per day payable by the customer
over the term of the contract relating to mobilization, variation orders and
other special and standby rates) until the third quarter of 2020. The long
term contracted cash flows of this acquisition further enhances Seadrill
Partners' cash flow profile and visibility in distributable cash flows, as
well as further diversifies Seadrill Partners fleet and reduces volatility in
operating results.

As noted above the Company completed a public offering (the "Offering") of
10,400,000 common units at a price of $30.60 per common unit on March 17,
2014. In addition, the underwriters exercised in full their option to
purchase an additional 1,560,000 common units. The total number of common
units sold in the Offering was therefore 11,960,000. Concurrently with the
closing of the Offering, Seadrill Limited ("Seadrill") purchased directly
from the Company 1,633,987 common units at a price of $30.60 per unit.

Financing and Liquidity

As of March 31, 2014, the Company had cash and cash equivalents, on a
consolidated basis, of US$130.1 million and two revolving credit facilities
totaling US$200 million. One US$100mm facility is provided by Seadrill as the
lender and the second US$100mm facility is provided by a syndicate of banks
and is secured in connection with the $1.8 billion term loan B. As of March
31, 2014, US$0.0 million was drawn on these facilities. Total debt was
US$3,139.9 million as of March 31, 2014; US$1,134.6 million of this debt was
originally incurred by Seadrill, as borrower, in connection with its
acquisition of the drilling rigs.

As of March 31, 2014 the Company had four secured credit facilities, in
addition to the term loan B. These facilities expire in 2015, 2016, 2017, and
2025. A refinancing strategy similar to the term loan B executed in February
should be expected at maturity debt levels or higher. Additionally the
Company has a US$109.5 million vendor loan from Seadrill maturing in 2016
relating to the acquisition of the T-15 and a US$100.0 million discount note
maturing in 2015 relating to the acquisition of the West Auriga.

In February 2014, Seadrill Partners executed a US$1.8 billion term loan B and
US$100.0 million revolving credit facility. The term loan was upsized from
US$1.7 billion and priced at Libor plus 3%, the low end of the price range,
and subsequently swapped to a fixed rate of approximately 5.5%. The 1%
amortization profile of the new facility will enable the Company to more
efficiently manage its replacement capital expenditure reserves by investing
in new assets. In conjunction with the term loan B and revolver Seadrill
Partners obtained a credit rating of BB- / Ba3. As a rated entity Seadrill
Partners' access to and cost of funding should be improved, thus increasing
financial flexibility.

The Board is confident that a similar refinancing can be executed on the
remaining back to back loans and related party debt in order to achieve a
capital structure that is independent from Seadrill Limited and further
facilitate Seadrill Partners' growth.

As of March 31, 2014, Seadrill Partners had interest rate swaps outstanding on
principal debt of US$2,948.0 million. All of the interest rate swap
agreements were entered into subsequent to the IPO Closing Date and represent
approximately 97% of debt obligations as of March 31, 2014. The average
swapp...

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