Shelf Drilling, Ltd. announces results for the first quarter of 2020 ending March 31. The results highlights will be presented by audio conference call on May 13, 2020 at 6:00 pm Dubai time / 4:00 pm Oslo time.
David Mullen, Chief Executive Officer, commented: “Despite the challenges imposed by the escalation of COVID-19 pandemic, the Company delivered outstanding financial and operating results for the first quarter of 2020, at the upper end of the guidance issued in early March. The start-up of seven new contracts towards the end of 2019 drove the 13.5% sequential increase in revenue and EBITDA margin of 37% in Q1 2020.”
Mullen added: “The COVID-19 pandemic has significantly affected global economic activity creating unprecedented uncertainties with near and medium term oil and gas demand. Many operators are considering to either terminate, suspend or renegotiate contracts or delay planned activities, all of which will impact our future activity. In response to this situation, we have taken actions to protect our employees, ensure continuity of our operations, reduce costs and preserve liquidity. This includes significant measures in our headquarters involving headcount reductions, compensation reductions at the executive and board level and targeted savings across all other cost categories. In addition to these actions, our proven track record of delivering best-in-class operating performance and backlog strengthen our resilience in limiting the impact of the current crisis. We believe the quality and commitment of our people, combined with our efficient operating platform, versatile fleet and geographic footprint will differentiate us through this challenging period.”
First Quarter Highlights
• Q1 2020 Revenue of $181.4 million, a 13.5% sequential increase compared to Q4 2019.
• Q1 2020 Adjusted EBITDA of $67.6 million, representing an Adjusted EBITDA Margin of 37%.
• Q1 2020 Net Loss of $184.9 million. In Q1 2020, the Company recorded a non-cash impairment charge of
$188.0 million on long-lived assets.
• Q1 2020 Capital Expenditures and Deferred Coststotaled $72.5 million, including $55.0 million associated with rig acquisitions.
• The Company’s cash and cash equivalents balance at March 31, 2020 was $69.0 million.
• The Company’s total debt at March 31, 2020 was $1.0 billion, including $55.0 million drawn on the Company’s revolving credit facility.
• $1.9 billion in contract backlog at March 31, 2020 across 32 contracted rigs.
• In January 2020, the Company completed the purchase of the Shelf Drilling Enterprise and subsequently
secured a 21-month contract for the rig expected to commence in the third quarter of 2020 for operations in
the Gulf of Thailand.
• In February 2020, the Company completed a private offering of $80.0 million aggregate principal amount of 8.75% senior secured notes due 2024, the proceeds of which are used to finance the acquisition, reactivation and upgrade costs associated with the Shelf Drilling Enterprise.
• In March 2020, the Company secured a one-year contract extension for the Trident 16 jack-up rig in direct
continuation of its current contract for operations in the Gulf of Suez offshore Egypt.
• In March 2020, the Company entered into an agreement with its customer to amend the contract end date
for the Shelf Drilling Tenacious from January 2022 to September 2020.
• In March 2020, the Company received a notification from its customer on early termination of the Trident XIV contract from February 2021 to July 2020.
• In April 2020, the Company entered into an agreement with its customer to amend the contract end date for the Shelf Drilling Mentor from January 2022 to October 2020.
First Quarter Results
Revenue was $181.4 million in Q1 2020 compared to $159.8 million in Q4 2019. The $21.6 million (13.5%) sequential increase in revenue was largely due to the full quarter of operations of seven new contracts which started during Q4 2019 in India, Nigeria, Saudi Arabia and Thailand. Effective utilization increased to 92% in Q1 2020 from 80% in Q4 2019.
Total operating and maintenance expenses increased by $8.9 million (9.6%) in Q1 2020 to $101.0 million compared to $92.1 million in Q4 2019. The sequential increase was essentially due to the contract commencements of the Shelf Drilling Scepter in Thailand and the Shelf Drilling Achiever in Saudi Arabia in December 2019, an increase in contract preparation expenses for one rig in India which started a new contract at end of Q1 2020 and planned out of service expenses on two rigs in Saudi Arabia.
General and administrative expenses were $13.3 million in Q1 2020 compared to $14.4 million in Q4 2019.
Adjusted EBITDA for Q1 2020 was $67.6 million compared to $55.7 million for Q4 2019. The Adjusted EBITDA margin for Q1 2020 was 37% compared to 35% in Q4 2019.
The Company performed impairment testing on all rigs in the Company’s fleet at the end of Q1 2020. As a result, a $188.0 million loss on impairment of long-lived assets was recorded in March 2020. Nineteen of the Company’s rigs were impaired, of which four rigs are stacked and held for sale.
Capital expenditures and deferred costs of $72.5 million in Q1 2020 increased by $26.7 million from $45.8 million in Q4 2019. This included $50.7 million in Q1 2020 for the acquisition and reactivation of the Shelf Drilling Enterprise as well as $4.3 million relating to the reactivation and operations readiness projects on other recently acquired rigs, mainly the Shelf Drilling Journey, compared to $27.7 million associated with rig acquisitions in Q4 2019. Capital expenditures and deferred costs excluding rig acquisitions of $17.5 million in Q1 2020 were largely comparable with $18.1 million in Q4 2019.
Q1 2020 ending cash balance of $69.0 million increased by $42.9 million from $26.1 million at the end of Q4 2019. This included the net cash proceeds of a private offering of $80.0 million 8.75% senior secured notes due 2024 completed in February 2020 and a net drawdown of $20.0 million in Q1 2020 on the Company’s revolving credit facility. The notes issuance was completed to fund the acquisition, reactivation and upgrade of the Shelf Drilling Enterprise, which commenced in Q1 2020 and will continue in Q2 and Q3 2020.