Seadrill Limited (SDRLF.PK)

Q2 2010 Earnings Call

August 31, 2010 9:00 am ET

Executives

Jim Daatland - VP, IR

Alf Thorkildsen - CEO

Esa Ikäheimonen - CFO

Livar Voll - Group Controller

Analysts

Rafi Khouri - Raymond James

Lukas Daul - SEB Enskilda

Fiona Maclean - Merrill Lynch

Matt Conlan - Wells Fargo

Phil Lindsay - RBS

Ole Slorer - Morgan Stanley

Kenan Najafov - Citigroup

A. J. Strasser - Cooper Creek Partners

Truls Olsen - Fearnleys

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the Seadrill quarter two 2010 results conference call. (Operator Instructions)

At this time, I would now like to hand over the conference to your host today, Mr. Jim Daatland, Vice President of Investor Relations.

Jim Daatland

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Thank you and welcome to our second quarter 2010 earnings call. A copy of the quarterly report has been posted on our website, seadrill.com, along with all the supporting material for this call. Joining me today, we have our CEO, Mr. Alf Thorkildsen; our new CFO, Esa Ikäheimonen; and our Group Controller, Mr. Livar Voll.

Before I turn the call over to Alf, I would like to remind everyone that during the course of this call, we may make certain forward-looking statements regarding various matters related to our business and company that are not based on historical facts and could include future financial performance, operating results and the prospects of the contract and drilling business.

Please note that any such statements in addition to other information discussed in this call are given within the Safe Harbor provisions provided by the federal securities regulation. For further and more detailed description of all the risks associated with our company and our industry, please see our most recent Form-20F and other filings with the U.S. Securities and Exchange Commission. Should one or more of these risks or uncertainties materialize or underlying assumptions prove incorrect, actual results should differ materially from that indicated.

In order to give as many people an opportunity to ask questions, please limit your questions to one initial question and one follow-up. Thank you.

That concludes the preliminary details, and I'll now turn the call over to Alf.

Alf Thorkildsen

Thank you, Jim. I would start with some overall comments to the results and company developments through the quarter, including subsequent events. Esa, our new CFO, will then take us through the final details of our financial accounts before I revert to talk about our current operations, including the performance of our deepwater newbuilds, our contract backlog and market outlook, dividend policy, and close with some summary remarks.

Next page please. Before I start, I would like to take this opportunity to thank all the employees in Seadrill who are listening for all the hard work during this reporting period.

First of all, we are pleased to deliver an EBITDA of US$493 million. If we adjust for gain on asset sales in previous quarters, the second EBITDA is actually the highest in our company's history. The second quarter was characterized by higher predictability in our operations, resulting in strong contribution from our rigs in operation.

We have long talked about reducing cost in our deepwater operations. We have this quarter delivered meaningful reductions on a rig-by-rig basis. Some is due to improved regularity in our operations as we have become more seasoned in deepwater in the various regions we operate, and some is due to better planning. The result is a decrease in daily OpEx for our new deepwater rigs to the extent of US$10,000 to US$15,000 per rig per day.

Our net income for the quarter was US$329 million corresponding to earnings per share of $0.77, up from $0.49 in the previous quarter. We continue our payout of quarterly cash dividends and have decided to increase the payout to $0.61 per share, up from $0.60 in the first quarter.

We have in effect from June 1 consolidated Scorpion Offshore into our accounts. As most of you know, we have completed the takeover of the seven jack-up rig company in mid-July and now own 99.5% of the shares. We have since then included the Scorpion operation into the Seadrill operations, and as such increased our fleet to 48 units, making us the third largest operator of offshore drilling rig, the second measured in enterprise value.

The economics of the transaction will be paid some $175 million per rig, which we think is a fair price in today's market. As the Scorpion rig fleet comes to $600 million in our backlog, some contract significantly above today's market. We are convinced that this will prove itself as a good investment over the next years.

On the marketing and contracting side, we have lately secured several contracts for our jack-ups and tender rigs. I will come back to these later when I walk you through our contract status. But in general, we're continuing to see healthy outlook in demand for premium jack-up rigs and improving market fundamentals for tender rigs.

For the floaters, we had a huge inflow of term contracts early in the second quarter when we signed contracts worth $2.7 billion. In hindsight, that seemed to have been a very good timing.

There is no doubt that the oil spill from the Macondo well has had a significant adverse impact on the demand side of ultra-deepwater market. We have luckily not been adversely impacted as we only had one rig in the U.S. Gulf that subsequent to the incident was assigned to BP. Nevertheless, the uncertainty following the drilling permit moratorium in the U.S. has made life more uncertain for owners of old assets and players with limited deepwater drilling history.

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