Seadrill Limited Q1 2010 Earnings Call Transcript

Seadrill Limited Q1 2010 Earnings Call Transcript
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Seadrill Limited (SDRL)

Q1 2010 Earnings Call

May 27, 2010 10:00 a.m. ET

Executives

Jim Daatland, VP of IR

Alf Thorkildsen - CEO and Acting CFO

Analysts

Fiona Maclean - Merrill Lynch

Ole Slorer - Morgan Stanley

Lukas Daul - SEB Enskilda

David Phillips - HSBC

Phil Lindsay - RBS

Andreas Stubsrud - Pareto

Kenan Najafov - Citi

Karen Finerman - Metropolitan

Kjetil Garstad - Artic Securities

Geoff Kieburtz - Weeden

Presentation

Operator

Good day and welcome to the Seadrill quarter one 2010 results presentation conference call. (Operator Instructions)

At this time, I would like to turn the conference over to Mr. Jim Daatland, Vice President of Investor Relations.

Jim Daatland

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Thank you and welcome to Seadrill's first quarter 2010 earnings conference call. A copy of the first quarter report is posted on our website, seadrill.com, along with the reporting material for this conference call. Joining me today on the call is Mr. Alf Thorkildsen, Chief Executive Officer and Acting CFO; Mr. (Liva Rolle), Group Controller.

As announced in April, we have hired Esa Ikaheimonen as new Financial Officer in Seadrill Management AS. Mr. Ikaheimonen is not present today, but will join us in August in time for our second quarter earnings release.

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

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 detail description of all the risks associated with our company and 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 and uncertainties materialize or underlying assumptions prove incorrect, actual results should differ materially.

In order to give as many people as possible 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 hand the call over to Alf.

Alf Thorkildsen

Thank you, Jim. Next page please. On the content today, I would start with some overall comments to the results and company developments through the quarter, walk you through the financial results in more detail, talk about our current operations and in particular the performance of our deepwater newbuilds. I will further discuss our contract backlog and market outlook, updated dividend policy, future opportunities and close with some summary remarks.

Next page please. The highlights of first quarter 2010. First of all, it's an honor to host our first earnings conference call as a New York Stock Exchange listed company. The listing has been an ambition since the incorporation of our company, and we were thrilled to have the trading in our common share start on the New York Stock Exchange on April 13.

It was a special day during the opening day on the stock exchange that day. In that respect, I would like to take the opportunity to thank all of our employees that are listening for a job well done in taking Seadrill to where we are today.

I'm here today to share with you the quarter with an EBITDA of $434 million and the net income of $217 million. The corresponding earnings per share were $0.49 compared to $0.95 in previous quarter.

We are somewhat disappointed that we missed the EBITDA consensus estimate. I will try to explain you the delta. First of all, the quarter was characterized by improved performance by our new deepwater units, which average utilization reaching our target of 97%. However, in spite of the strong utilization for our deepwater newbuilds, we had off-hire period related to submersible rigs as well as relatively high operating expenses compared to our target.

We also made some adjustments related to sales tax in Brazil that impact our EBITDA performance. The earnings per share were further impacted by a non-cash mark-to-market loss on interest rate swaps.

We have had strong influx on new term contracts this year. So far, we have been awarded $2.7 billion on new contracts. I will come back to the various fixtures later, but we are extremely proud to have grown our backlog to $12.2 billion in what many would argue it's a tough business climate.

The contract signings have contributed to further strengthening our earnings visibility and the breadth of the dividend distribution. In response to our development, the Board has resolved to increase our regular cash dividend to $0.60 per share, up from $0.55 last quarter.

We continue to be optimistic of the long-term outlook for our industry. As such, we have decided to issue 30 million new shares in April to pursue investment opportunities in our sector.

We subsequently launched a mandatory offer for the outstanding shares in the jack-up company, Scorpion, and also seized the opportunity to acquire a harsh environment unit under construction in Singapore. That is backed with a five-year contract with Statoil in Norway that will repay the investment over the same contract.

So with that, let's walk through the accounts. Next page please. The EBITDA contribution; first, let me start with an overview of our EBITDA development on the quarterly basis. As mentioned, the first quarter number of $434 million is down $52 million from the fourth quarter last year. The decrease was related to the $50 million gain on the sale of assets that was included in the previous quarter. In addition, there are plus and minus for the various business segments that I will walk you through.

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