Edited Transcript of Seadrill Limited (SDRL) Q3 2014 Earnings Conference Call…
Seadrill Limited (NYSE:SDRL)hosted a conference call with investors and analysts to discuss Q3 2014 earnings results on November 26, 2014 at 12:00 p.m. ET. The following are the webcast audio and the associated transcript of the event…
Operator: Good day, ladies and gentlemen. Welcome to the Seadrill Limited Q3 2014 earnings conference call. Today’s conference is being recorded. At this time, I would like to turn the conference over to Mr. John Roche, Director of Investor Relations. Please go ahead, sir.
John Roche – Director, IR
Thank you, Ann. And good afternoon to everyone on the call today. Welcome to Seadrill Limited’s third quarter earnings conference call.
With me today I have Per Wullf, our Chief Executive Officer; and Rune Magnus Lundetrae, our CFO.
Before we do get started, I’d like to remind everyone that much of the discussion today will not be based on historical fact, but rather consist of forward-looking statements and are subject to uncertainty. We articulate some of the new items on Page 2 of the presentation. For additional information, please visit our website at www.seadrill.com.
To begin the discussion today, Per is going to take us through some of the third quarter highlights and some of the more recent developments in the offshore drilling market. Per is also going to discuss a number of Seadrill’s recent contract wins and the overall market outlook. Rune will then address our financial highlights and take us through the rationale behind our dividend suspension and also Seadrill’s funding requirements going forward.
With that, I’d like to turn the call over to our CEO, Mr. Per Wullf.
Per Wullf – CEO
Thank you, John, and good afternoon, everybody.
The Seadrill group has had another strong quarter and has grown EBITDA by 27% year-over-year. I’m pleased with this impressive growth rate and the amount of value we have generated for shareholders by operating a best-in-class fleet with a best-in-class organization. We continue to focus our effort on running a safe and efficient operation by always keeping customer satisfaction on the top of our mind.
Seadrill’s value generation can be attributed to our industry-leading newbuild program and an innovative financing strategy, which has been in place since our inception and remain in place today.
Of course, in a cyclical business, there will be many smaller cycles within a long-term uptrend and that is what we are facing today. Since our last call we reported in August, the oil price has dropped by 23%, $24 per barrel. It remains to be seen how long the current market condition will persist and during this period, short to medium-term visibility will be reduced.
We have also seen day rates falling materially and contract cancellations in addition to further subletting activity. Most of all, however, has been the lack of visibility created by these events. At the management team, our focus has shifted to making responsible decisions in preparations for again making opportunistic ones.
However, the company believes the long-term fundamentals of our industry remain intact driven by the fact that the days of easy, low cost oil are over and reserves required to meet long-term demand growth are still to be found in the deep and ultra-deepwater regions.
As mentioned by a number of major oil companies, these reserves are well positioned on the cost of supply curves and can be expected to be produced even at today’s oil prices. It remains to be seen how long this current market will persist. However, Seadrill is prepared for whatever may transpire having locked up a large portion of its fleet and by making a preemptive dividend cut in order to pay down debt and focus on opportunities that may arise. A little later, Rune will provide more detail in the call on the philosophy behind our dividend and how we intend to utilize the available funds to generate further shareholder value.
Since our last earning report, we have announced a number of new contracts and we now have even fewer rigs exposed to this challenging market.
First off, we have signed a number of contracts and extensions with Petrobras in Brazil. We now have Petrobras Board and partner approval for two rigs, the West Tellus and West Carina to work on the Libra Field. The total revenue potential for these two contracts is approximately $1.1 billion including mobilization for these three-year contracts.
Additionally, we received Petrobras Board approval for three-year extensions for the West Tellus and West Eminence in direct continuation of their existing contracts. The total revenue potential for the extensions is $1.1 billion as well. We have also signed a 145-day extension of West Eclipse in Angola with Total, again in direct continuation of the existent contracts representing a revenue potential of $65 million.
And finally we have signed a number of jack-up contracts – contracts with West Vigilant, West Leda, West Telesto represent a collective $120 million of backlog additions. Overall, I’m very pleased with the contracting activity in the past three months. However, this does not change the challenges that this industry is facing in the near term.
We expect to see 2015 materialize into a more challenging market than 2014 and rig owners with aging fleet that have the available capacity will likely encounter significant difficulties. Following these new fixtures, Seadrill has 9% of its floater fleet and 26% of its jack-up fleet available in 2015 and 26% and 61% available for 2016, respectively.
Seadrill’s success for tenders and extensions in Brazil are of particular importance to the company. Not only do they fix a good portion of available capacity but also demonstrate that Seadrill’s strategy of creating strategic partnership with key customers is paying off. The lead for tenders are an example of Seadrill’s follow-up planning as we were one of the few competitors that were able to deliver high specification units and manage pressure drilling equipment within Petrobras’ desired start-up window.