North Atlantic Drilling Ltd. First quarter 2014 results May 28, 2014
Forward-Looking Statements The statements described in this presentation that are not historical facts are forwardlooking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements which could be made include, but are not limited to, statements involving prospects for the company, expected revenues, capital expenditures, costs and results of operations and contingencies and other factors. The forward-looking statements contained in this presentation, including assumptions, opinions and views of the company or cited from third party sources are solely opinions and forecasts which are subject to risks and uncertainties. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those indicated. All subsequent written and oral forward-looking statements attributable to the company or to persons acting on our behalf are expressly qualified in their entirety by reference to these risks and uncertainties. You should not place undue reliance on forwardlooking statements. Each forward-looking statement speaks only as of the date of the particular statement, and we undertake no obligation to publicly update or revise any forward-looking statements. 2
First Quarter Call Agenda Company profile Highlights first quarter 2014 Assets & contract backlog Market overview & outlook First quarter 2014 financials Summary Q&A 3
Company profile Setting the Standard in Harsh Environment Drilling Offers investors opportunity to invest in experienced pure-play harsh environment driller NADL is Seadrill s dedicated vehicle for harsh environment and Arctic operations. Advanced fleet of 9 high end harsh environment mobile drilling units, including 1 rig under construction US$2.4 billion backlog from tier one oil companies Visible near term growth with rig deliveries in 2014 and 2015 High growth in the North Atlantic and Arctic regions through strategic partnership agreement with Rosneft Exceptional track record for operational uptime and QHSE 1 Industry-leading dividend yield 1) Quality, Health, Safety and Environment 4
Utilization (%) Operational Excellence Quality of Operations Recognized for providing high quality operations, in the most challenging sectors of offshore drilling Business has approximately 1,600 skilled employees with over 40 years of offshore drilling experience in harsh environment conditions Key focus on procedures to control, measure and improve performance and risk management High Performance Stable and high average economic utilization ~95% for the past two years High reliability in challenging and remote environments - a prerequisite for clients Challenging weather conditions offshore Norway and UK during winter 13/ 14 negatively impacting performance in Q1 2014 Focus on Health & Safety One of the most stringent safety control systems in the drilling industry 100% of fleet certified with the Norwegian AoC 1 certificate (regarded as one of the strictest regimes in the world) Economic Utilization 100 95 90 97 99 96 94 94 92 96 95 90 5 0 Q1-12 Q2-12 Q3-12 Q4-12 Q1-13 Q2-13 Q3-13 Q4-13 Q1-14 1) Acknowledgement of Compliance, certificate to operate in Norway, regarded as one of the most QHSE focused regions in the world 5
Company profile Highlights first quarter 2014 Assets & contract backlog Market overview & outlook First quarter 2014 financials Summary Q&A 6
First quarter 2014 highlights and subsequent events Highlights First quarter 2014 EBITDA* of US$119.3 million First quarter 2014 net income of US$20.2 million and EPS of US$0.08 Regular quarterly cash dividend increased by US$0.01 to $0.24 per share Issued US$600 million senior unsecured notes due 2019 in a private offering in the United States. Completion of the initial public offering in the United States by issuance of US$125 million in new shares and the listing on the New York Stock Exchange Subsequent events West Linus commences drilling contract with ConocoPhilips on May 25, 2014 North Atlantic Drilling and Seadrill announce Investment and Co-operation Agreement with Rosneft to partner in the Russian markets *) EBITDA is defined as earnings before interest, depreciation and amortization equal to operating profit plus depreciation and amortization. 7
Partnership with Rosneft North Atlantic Drilling, Seadrill and Rosneft enter into Investment and Co-operation Agreement for drilling operations offshore and onshore Russia until at least 2022 North Atlantic Drilling will initially enter into long term drilling contracts for up to 9 offshore drilling rigs total commitment of 35 rig years North Atlantic Drilling will acquire an existing land drilling business from Rosneft with modern assets and an employee base with several decades of operating experience Rosneft will take a substantial equity stake in North Atlantic Drilling Seadrill to remain the largest shareholder in North Atlantic Drilling after the initial transaction The current operations of the Company will be run as today, but the agreement with Rosneft is expected to entail opening up new regional offices to support local demand 8
Company profile Highlights first quarter 2014 Assets & contract backlog Market overview & outlook First quarter 2014 financials Summary Q&A 9
Strong Contract Coverage As of Q1 2014 Rig Client Current dayrate (US$k/day) Contract status 2014 2015 2016 2017 2018 2019 2020 West Alpha 535 1 @547 1 West Venture 441 West Phoenix 464 West Hercules 497 @ 497 West Navigator 589 @621 West Epsilon 286 West Elara 360 @ 360 West Linus 375 2 @ 375 To Q2 2021 Transit Firm contract Option Managed on behalf of Seadrill Contract coverage 1% 24% 49% Contracted Uncontracted 2014 2015 2016 99% 76% 51% 1) Excludes potential bonus payments of a maximum of 5% of the daily rate, which are based on certain performance criteria 2) Excludes $12,430 per day which we will receive in addition to the ordinary daily rate as compensation for additional capital expenditures we incur to provide the customer with additional equipment 10
US$m with US$2.4 Bn Backlog to High Quality Customers Strong contract backlog of US$2.4 Bn with A-rated customers Differentiated by premium harsh environment assets and high operational performance High safety track-record prerequisite to secure contracts in one of the most safety focused drilling regions Key client relationships with top-tier oil companies within offshore harsh environment regions Customer Credit Rating Moody's 1 S&P 1 Statoil Aa2 AA- 1,200 1,000 800 600 400 200 0 Strong Contract Backlog 83 816 789 399 478 132 306 166 137 54 2014 2015 2016 2017 2018 Remaining Contract Option Backlog Supported by A-rated Customers 2% ConocoPhillips A1 A ExxonMobil Aaa AAA Total Aa1 AA- Shell 2 Aa1 AA 9% 5% 19% 29% 37% 1) Moody s long-term credit rating and S&P s long term foreign issuer credit rating, source from Bloomberg 2) Centrica Energy will take up the contract for 70 days 11
Company profile Highlights first quarter 2014 Assets & contract backlog Market overview & outlook First quarter 2014 financials Summary Q&A 12
Market Situation for Harsh Environment Rigs Strong Growth in HE Rig Supply and Full Utilization Major Harsh Environment Projects in Pipeline 40 32 24 Strong Growth in Number of Rigs with CAGR of 14.2% from 2008 to 2013 100% 80% 60% Norway Johan Sverdrup, Johan Castberg, Maria, Zidane, Luva, Snøhvit, Bream, Barents Sea exploration Russia/Arctic Rosneft and partners exploration in the Arctic Black Sea requirements 16 40% UK/West of Shetland Laggan/Toremore OMV et. al. plus Nexen requirements 8 20% Canada Bay du Nord, Mizzen Exxon, Husky and Statoil indicate 2-4 more units needed in the region longer term 0 0% Falklands Sealion development, various exploration Total HE Rig Demand Total HE Rig Supply Utilization Alaska Source: Fearnley Offshore, Company information based on industry data 1) Average contract duration for floaters in Norway as a % of average contract duration of international floaters 13
Significant Arctic Opportunity Arctic region estimated at over 400 billion barrels of oil equivalents 85% of resources expected to be offshore More than 50% expected to be in Russia ~30% of global undiscovered natural gas ~13% of global undiscovered oil Arctic Alaska 82 BBOE East Canada 21 BBOE Russian Arctic 214 BBOE Greenland 45 BBOE Norwegian Arctic 49 BBOE Source: USGS, Industry research 14
Game changer in Russia The Russian offshore harsh environment areas contain ~5x the recoverable resources in Norway North Atlantic Drilling in pole position with West Alpha contract and strategic partnership agreement with Rosneft Norway: ~48Bn boe Barents Sea: 47Bn boe Kara Sea: 103Bn boe East Siberian, Chukchi & Laptev Seas: 71Bn boe Black, Azov and Caspian Seas 23 0,3 Oil Gas Okhotsk Sea: 30Bn boe Source: NPD, Rosneft 15
Company profile Highlights first quarter 2014 Assets & contract backlog Market overview & outlook First quarter 2014 financials Summary Q&A 16
Financial reporting highlights This quarter Previous quarter EBITDA US$119 m US$138 m Earnings per share US$0.08 US$0.21 Operating profit US$71 m US$89 m Financial items US$(48) m US$(30) m Cash flow from operating activities US$32 m US$121 m Dividend declared per share US$0.24 US$0.23 17
Operating Income - Total 1Q14 4Q13 3Q13 2Q13 Unaudited accounts in USD millions Contract revenues 226 271 293 280 Reimbursables 32 27 28 95 Related party revenues 16 12 - - Total operating revenues 274 310 321 375 Vessel and rig operating expenses 108 131 134 137 Reimbursable expenses 29 26 26 90 Depreciation and amortisation 48 48 51 45 General and administrative expenses 18 16 17 16 Total operating expenses 203 221 228 288 Net operating income 71 89 93 87 18
Net Income - Total 1Q14 4Q13 3Q13 2Q13 Unaudited accounts in USD millions Net operating income 71 89 93 87 Financial items Interest expense (23) (24) (21) (21) Gain / (loss) on derivatives 5 (16) (3) 9 Other financial items (30) 10 (2) (3) Total financial items (48) (30) (22) (15) Income before income taxes 23 60 71 72 Income taxes (3) (12) (2) (8) Net income / (loss) 20 48 69 64 Earnings per share (US$) 0.08 0.21 0.30 0.28 19
Balance Sheet - Assets March 31, 2014 December 31, 2013 September 30, 2013 June 30, 2013 Current assets Cash and cash equivalents 114 84 116 180 Restricted cash 9 25 19 23 Accounts receivables, net 198 222 256 255 Related party receivables 30 6 30 13 Deferred tax assets 5 3 11 10 Other current assets 45 43 43 35 Total current assets 401 383 475 516 Non-current assets Newbuildings 715 313 277 263 Drilling units 2 367 2 378 2 397 2 412 Goodwill 481 481 481 481 Deferred tax assets 17 16 20 19 Other non-current assets 132 128 133 138 Total non-current assets 3 712 3 316 3 308 3 313 Total assets 4 113 3 699 3 783 3 829 20
Balance Sheet Liabilities and Shareholder s Equity Current liabilities March 31, 2014 December 31, 2013 September 31, 2013 June 30, 2013 Current portion of long-term debt 206 167 167 167 Related party transaction 50 13 7 12 Tax payable 11 18 9 8 Deferred taxes - - 12 12 Other current liabilities 245 233 253 243 Total current liabilities 512 431 448 442 Non-current liabilities Long-term interest bearing debt 2 256 1 581 1 458 1 500 Related party liability 290 700 884 909 Deferred taxes 45 36 35 40 Pension liabilities 41 58 52 37 Other non-current liabilities 33 36 44 44 Total non-current liabilities 2 665 2 410 2 473 2 530 Equity Total shareholder s equity 936 857 862 857 Total liabilities and shareholder s equity 4 113 3 699 3 783 3 829 21
Company profile Highlights first quarter 2014 Assets & contract backlog Market overview & outlook First quarter 2014 financials Summary Q&A 22
Summary High-End Assets with Strong Contract Backlog Existing growth trajectory Market situation for harsh environment rigs Partnership in Russia West Alpha is scheduled to drill the first wells in the Kara Sea for ExxonMobil / Rosneft in the summer of 2014 and 2015 The Russian offshore harsh environment areas contain ~5x the recoverable resources in Norway 23
Company profile Highlights first quarter 2014 Assets & contract backlog Market overview & outlook First quarter 2014 financials Summary Q&A 24
North Atlantic Drilling Ltd. First quarter 2014 results May 28, 2014