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Seadrill (NYSE:SDRL)

Q1 2013 Earnings call

May 28, 2013 11:00 a.m. ET

Executives

John [Roach] – IR

Fredrik Halvorsen – President and CEO

Rune Magnus Lundetrae – SVP and CFO

Robert Hingley-Wilson - Senior Vice President and Chief Accounting Officer

Alf Ragnar Lovdal - CEO, North Atlantic Drilling

Graham Robjohns – CEO and President, Seadrill Partners

Analysts

Mike Urban - Deutsche Bank

Ryan Kauppila - Citi

Greg Lewis - Credit Suisse

Thijs Berkelder - ABN AMRO

Darren Garcia - Guggenheim Securities

Richard Haydon - Yield Capital

Julien Laurent - Natixis

Operator

Good day and welcome to the Q1 2013 Seadrill Limited earnings conference call. Today’s conference is being recorded. At this time, I would like to turn the conference over to Mr. John [Roach], director of investor relations. Please go ahead, sir.

John Roach

Thanks, operator. Thank you all and welcome to Seadrill’s first quarter 2013 earnings conference call. Please note that this conference call also includes comments on the first quarter of 2013 accounts for majority owned subsidiary, North Atlantic Drilling. The quarterly reports and other supporting materials are available on seadrill.com and nadlcorp.com.

Together with me on this call, I have our Chief Executive Officer, Mr. Fredrik Halvorsen; our CFO and Senior Vice President, Mr. Rune Magnus Lundetrae; Robert Hingley-Wilson, our Senior Vice President and Chief Accounting Officer; and also with me, Mr. Alf Ragnar Lovdal, the CEO of NADL.

Before I give the microphone over to Fredrick, I would like to remind everyone that during the course of this call, we may make certain forward-looking statements regarding matters related to our business and company that are not based on historical facts. Please note that such statements, in addition to other information discussed here, are within the Safe Harbor provisions provided by the Federal Securities regulations.

For further and more detailed description of other risks associated with our company and industry please see our most recent annual Report on Form 20-F and other filings with the SEC.

If we all turn the page to page two, I trust we all read the disclaimer. And with that, I’d like to turn over the microphone to Fredrik.

Fredrik Halvorsen

Good morning, and good afternoon to all of you. And thank you for joining us on the call today. I’ll start by going through the highlights for the first quarter. Thereafter, we’ll go through the market outlook for the business and the contract backlog. I’ll then go through our dividend policy before ending on some summary comments. I’ll then hand the call over to Rune Magnus to take you through the financials for both Seadrill and North Atlantic in some more detail, and then in the usual fashion we’ll finish on a combined Q&A session for both companies.

So let me start with some highlights. I’m very pleased to share a record quarter of $662 million in operational EBITDA. Now, in addition, we executed the sale of the West Janus, which gave a solid gain of $61 million, bringing the overall EBITDA for the quarter to $713 million. The net income for the quarter was $440 million, corresponding to an earnings per share of $0.87.

The quarter was marked by a significant improvement in utilization for our floaters. Economic utilization for the quarter came in at 92%, which is up from 86% in the previous quarter. As discussed in our last conference call, the first half of the quarter in Q1 was affected by the change out of the [connector bolts] in our subsea well control equipment. I’m happy to say that we were able to take care of these issues, both on cost and on time, and since then we’ve seen a sequential pickup in utilization month over month.

On a positive note, technical utilization quarter-to-date - I’m now talking about Q2 - is at 97% for our floaters. So I’d say we’re quite proud to have reverted to our historic norm and we will work very hard to make sure the company now continues its trend in the quarters to come. As such, we resolved to increase our regular cash dividend by $0.03 to $0.88 for the quarter.

In terms of the first quarter highlights, we continue to believe strongly in the jack-up market and we see both rates increasing and terms lengthening. Acting on this, we ordered four high-specification jack-ups at Dalian. The [all in for that] rig is $230 million U.S. dollar with delivery scheduled for 2015.

We also completed the acquisition of the Eclipse for $590 million in January. We’ve been quite satisfied with the rig since the acquisition. The Eclipse has performed very well, with utilizations in the high 90s, and even receiving a bonus from our client.

I’d like to also point out that I think most of the operations team as well as our regional team in the Middle East and Africa have done a terrific job in making the handover of the operation of the rig very smooth.

Furthermore, we did divest of our 1985-built jack-up, the West Janus. This was the last in our fleet from the five original rigs that were in our portfolio from inception, May 2005. After the sale of our benign environment jack-ups, they’re all [height] specification units built after 2006 with an average age of 2.8 years.

We’re also very pleased to conclude the sale of the tendering fleet to our partner SapuraKencana. The proceeds from this transaction give us financial strength for further growth. We’re currently looking at several attractive investment opportunities.

Now, in terms of the short term impact of the transaction, this will result in approximately $100 million of EBITDA per quarter subtraction. However, as we see newbuilds entering operation this year, this EBITDA should be regained.

Now, I’d also like to point out and stress that this story continues and that we remain a shareholder in SapuraKencana and committed to their success and the successful operation of the tender fleet.

Now, a smaller but just as important transaction was the drop down of the T-15 into Seadrill Partners. We expect to gain seasoned issuer status in October this year and have identified several attractive assets that can be dropped down in short order.

On the contracting side, we firmed up a three-year contract for the Neptune, and we will [refer] to the contract status later in the presentation.

So, looking at some of the highlights for our geographies, in the Asia-Pacific region, having now completed SapuraKencana, our presence is, of course, somewhat diminished. We have, however, still our strong newbuilding teams based in the regions, and they have so far taken delivery of three units this year. We’ve taken delivery of two jack-ups, the ALD-1 and ALD-2. The first rig already commenced its contract with Saudi Aramco on May 1, and the second rig is in transit.

A little further north, we’ve also taken delivery of the drillship the West Auriga from Samsung, and that rig is currently en route to the Gulf of Mexico where it’s expected to arrive late August. Now, for this year, we have a further two drill ships that we will take delivery of. And again, I’m happy to say that they’re both proceeding on time and budget.

In terms of the headquarter move, I won’t spend a lot of time on that. We have completed the corporate transition from Stavanger to London, and I must say I’m very happy with how smooth the process has gone, and the [positivism] in the people involved.

Moving on to look at the contract backlog, our floater backlog remains quite strong at $15.4 billion. We recently fixed the West Neptune for three years with LLOG for operations in the U.S. Gulf of Mexico at a rate of $570,000 per day. That means that for 2013, we only have the West Tellus that is currently without a contract. In 2014, we have four rigs that we need to secure contracts for. Now, we had discussions with clients on all these units, and we do expect to announce new contracts for most of these units within the next six months.

Looking at the jack-ups, the order backlog there stands at $3.2 billion. We recently extended the contract for the West Prospero and the West Ariel with VSP to March 2014 at an agreed daily rate of [$163,000] a day. That means we have two uncontracted newbuilds that will be delivered in the third and fourth quarter 2013. However, the market for premium jack-ups remains very strong. The utilization of [our market supply] is above 95% for the past year. With a strong jack-up market, we do expect to have contracts for these units at or above current market rates.

So, in total, as of May 21, our backlog, following the sale of the tendering fleet, stands at $19.1 billion. This is a decrease of $1.9 billion from February, largely related to $1.3 billion of revenue for the quarter recognized as well as the sale of the tendering fleet, which accounted for $1.8 billion of the backlog. Our order backlog provides clarity for future earnings as well as generating good visibility for the lane capacity.

Looking at some of the market strength, I guess it comes as no surprise that we like this market, and also we really like where we are in the cycle. Oil companies keep increasing offer capex, notwithstanding unconventional resources, [offer] deepwater drilling is expected to more than quadruple in terms of barrels per day by 2020. This will drive development drilling and I think it’s safe to say that we do not intend to give up any market share.

For 2015, on delivery, there’s only about 11 newbuilds currently on the order book. So with that in mind, we see day rate holding firm in the [$550,000 to $650,000] range, with Africa and the Gulf of Mexico being the predominant drivers for demand. [Tank] supply here is also helped by operators now moving away from the fourth and fifth generation rigs more aggressively.

[unintelligible] development programs are causing good visibility, and I think this is now augmented by a number of smaller independent players moving quite aggressively on their exploration programs.

So all in, we’re quite comfortable with how our fleet is positioned. On the jack-up side, we’re committed, having ordered another four units in Q1. The market is tight, and combined with an aging fleet, we see rates moving upwards. Lately, the amount has been driven from Asia and the Middle East. We are, however, very positive that we’re seeing both Mexico and West Africa emerging with additional demand.

So, looking at that in terms of dividends, we have increased our quarterly dividend by $0.03 to $0.88, and we believe this is a very sustainable level from which to increase. This, however, far from precludes growth, and we maintain our target of $4 billion of EBITDA in 2015 on an annualized basis. Going forward, you’ll see us realize the earnings potential late in our newbuild program, continued investment into deepwater and jack-up, as well as going after the growth of Seadrill Partners.

Now, all-in, and in summary, we fell that Q1 was a good quarter. The team came together and delivered. We were, I’ll be the first to say, quite disappointed with our operating performance in Q4, and we are now equally proud to be back on track. [unintelligible] SapuraKencana, and this has given us the necessary firepower to reinvest in the market with highly attractive economics. We made one move already, on four jack-ups during the quarter, and looking ahead, we’re very excited about the prospect of growing Seadrill Partners.

Now, we started that process by dropping down the T-15 in May, and I’m sure you’ll hear more about that in Seadrill Partners’ separate call, somewhat later on today. So, with that, I’d like to turn the call over to Seadrill’s CFO. Rune Magnus?

Rune Magnus Lundetrae

Thank you, Fredrik, and good afternoon and good morning, everyone. I’ll start with the financial performance highlights of Seadrill, then move on to some nonfinancial highlights for the North Atlantic Drilling, and then finishing off with a brief review of their financial performance, before we open up for Q&A.

Financial performance highlights for Seadrill, as Fredrik said, we achieved an EBITDA of $713 million, including the West Janus sale. Earnings per share was $0.87, and we declared a dividend of $0.88, which is an increase of $0.03 from the previous quarter.

The EBITDA contribution increased by $48 million from the fourth quarter, excluding the $61 million gain on the sale of the West Janus, so a very solid operation performance compared to last quarter.

For the floater segment, the increase amounted to approximately $21 million, and the main drivers were the acquisition of the West Eclipse that operated for 87 days in the quarter and the West Hercules, that operated for 60 days versus the mobilization and the [unintelligible] that it had in the previous quarter.

For Q1, we experienced operational downtime, mainly due to the connector bolt issue that we had discussed in also other quarterly calls. The jack-up units, the increase of $31 million, was related to units operating in Q1 that were partly in transit in the previous quarter, and increased utilization across the fleet.

The tendering performance was relatively flat for the quarter, which is a very good story. The tendering segment has performed with the same [unintelligible] and [unintelligible] of operation as we have seen last year.

Operating income for the floaters, as mentioned in the EBITDA overview, there was an increase in operating profit in the first quarter compared to the last. The floating segment increase was a net operating profit that amounted to $13 million, and the main driver was the West Eclipse that I mentioned had 87 days in operation. The West Hercules operated for 60 days, and the West Eminence had a full quarter of operation after the BOP issues it incurred in the fourth quarter. For Q1, we experienced some reduced operating performance as a result of our connector bolt [pulls] for some of our rigs and some downtime on West Capella due to BOP issues.

Operating income, jack-ups: The increase in operating profit of $32 million, excluding the $61 million from the West Janus sale is related to units operating in Q1 that were partly in transit in the previous quarter, together with an increased utilization for the fleet.

Operating income for the tenders, the tendering experienced an increase of $5 million during the quarter. The main reason for the increase is the low overall operating expenses including lower depreciation due to a majority of our tendering fleet is now classified as held for sale. In total, then, we had operating revenue of $1.265 billion in the first quarter. Total operating expenses was $774 million, giving us a net operating income of $552 million in the first quarter.

Net income, total financial items, has improved by $267 million, mainly related to the impairment of Archer in the fourth quarter. Our interest expenses have increased due to the new $450 million facility for the West Eclipse, and also the 1.8 billion Norwegian krone bond that we did in March. In addition, we have recorded a noncash gain of $25 million related to our equity investment in Asia Offshore Drilling.

Moving over to the balance sheet, and I’ll start on the asset side, the increase in newbuilds amounted to $772 million compared to the end of the fourth quarter. The increase is mainly related to the consolidation of Asia Offshore Drilling and the three jack-up rigs. Also, we have classified $143 million of our newbuildings as held for sale to reflect the sale to SapuraKencana.

Drilling units have increased by $643 million throughout the quarter, mainly related to the acquisition of the West Eclipse. The decrease in the drilling units line in the balance sheet is related to the fact that we have classified all tenderings that are not part of the sale to Sapura as held for sale and classified these in a separate line.

On the liability and equity side, the current portion of the long term debt increased by [$532] million compared to the previous quarter, mainly due to the new short term West Eclipse facility of $450 million and the current portion of the 1.8 billion Norwegian krone bond.

The noncurrent portion of the long term interest-bearing debt decreased by $812 million compared to the fourth quarter. This is mainly due to us classifying $699 million as noncurrent liabilities associated with the sale to SapuraKencana.

Then, some nonfinancial highlights for North Atlantic Drilling in the first quarter. For the nonfinancial highlight for the first quarter and subsequent periods for North Atlantic Drilling, you may have noticed that we have disclosed ours and Seadrill’s ongoing discussions with potential partners. Our main objective with this process is to better position NADL for growth in new harsh environment areas. We should announce further details before the end of the second quarter.

Also, because of the ongoing discussion, we have not been in a position to file our third version registration document to the SEC. The company is, however, fully committed to resuming the listing process in the third quarter, whatever the outcome of the ongoing partnership discussions may be.

On the operational side, we had a good quarter, with stable operations. We also see that market activity remains high in the region, with several oil companies in search for recapacity through active tenders. We see this in the harsh environment jack-up market in particular, where clients look for high specification modern rigs. Also, we expect that floater capacity will be in demand through new tenders around summer this year as well. We feel the company is well-positioned with the fleet.

Then, moving over to the financials for North Atlantic Drilling, the company recognized an EBITDA of $135 million in the first quarter. This is a decrease of $5 million compared to the fourth quarter, mainly due to a [unintelligible] for the West Alpha. This is somewhat offset by increased EBITDA from the West Hercules that commenced operation on January 31.

Dividend is maintained at the same level as previous quarters, and has been at the same level since the fourth quarter of 2011. Total operating revenue for the quarter amounted to $318 million. This is an increase of $35 million compared to the previous quarter, and is mainly impacted by the 60 days of operation from the West Hercules.

Net income. Net loss from financial items amounted to $30 million compared to $19 million in the previous quarter. This is mainly related to loss on derivatives in Q1 compared to gains in Q4.

Tax expenses for the quarter amount to $7 million. This compares to $84 million in the fourth quarter. The company has revised its financials as of December 31, 2012 compared to previously released Q4 reports due to updated estimates on the potential [claim] from Norwegian tax authorities. This affects both the balance sheet and the income tax expense, but has no cash effect.

On the balance sheet, the assets, other than the mentioned tax effect, there is no significant movement in the balance sheet items during the first quarter of 2013, neither on the asset or the liability side.

With that, I give the word back to John, and we can start the Q&A session.

Question-and-Answer Session

John Roach

Sure. Thanks, Rune, and thanks, Fredrik, for your comments. With that, I will turn it back over to the operator to poll the audience for questions.

Operator

[Operator instructions.] We will now take the first question from Mike Urban of Deutsche Bank. Please go ahead.

Mike Urban - Deutsche Bank

You’ve expressed, obviously, a pretty confident view in the jack-up market, which you’ve signaled with ordering some additional newbuilds. I would agree that it’s been a very strong market here in the near term, but what gives you the long term confidence to make those types of investments. I think deepwater, I think everybody agrees it make sense. Clear tailwind there from all the discoveries that have been made. Just would be interested on your thought process on the longevity and the sustainability of the jack-up market.

Fredrik Halvorsen

I think first of all, we are looking at the overall aging profile of the fleet, with more than 60% of the premium units being 25 years or older. So we do see now a move toward a lot of new units, and I think that’s where a lot of this confidence is coming from. Now, of course we are also in active discussions, and so with our market intelligence, we do see that a lot of operators are moving quite aggressively to newer types of units for operating concerns and for safety concerns. So taking those two together, we remain quite bullish on this segment.

Mike Urban - Deutsche Bank

And in the near term, you’d mentioned Mexico as a potential emerging source of strength in the jack-up market. I think that’s been the case for a while. They’ve expressed a need for additional rigs in the particular newer units, but haven’t really been willing to pay for high spec assets. Is there anything you’re seeing that might be changing there or a potential change in their attitude? Or is it more just the discussions that you’ve had with them in terms of their expressing a need for additional units?

Fredrik Halvorsen

We think it’s changing. Both West Africa and Mexico we see as strong drivers going forward, and that is on top of the demand we’re seeing out of Saudi and Asia.

Operator

We will now take our next question from Ryan Kauppila of Citi. Please go ahead.

Ryan Kauppila - Citi

You mentioned in your press release that you anticipate increasing diversity of contract terms in the ultradeep market. Just wondering what you think is driving that. Are the majors now being patient for lower rates on longer term? And as far as your strategy, do you see an opportunity or an environment where you may shift more towards shorter term, higher rate, over the near term?

Fredrik Halvorsen

I think we have fairly good visibility at this point, and we are very confident that there are some good long term drilling opportunities out there, and we’re going after several of them. So I think the first comment is, I don’t think a lot has changed. I wouldn’t preclude us doing some short term work for some of the units, but if I were to summarize it, I would say - and being probably a little bit on the aggressive side - as we get to the other side of the summer, we’d probably have only a couple of rigs open for ’14.

Ryan Kauppila - Citi

Okay, and just I guess with regard to all the newbuilds coming online in ’14, as you’re hiring out for your vessels, have you noticed an uptick in attrition at Seadrill? And generally, how are you finding your ability to source labor?

Fredrik Halvorsen

So the question is just around being able to attract the best people to run all the newbuilds, yes?

Ryan Kauppila - Citi

Well yeah. Have you noticed, over the last six months, an increase in your attrition rate?

Fredrik Halvorsen

No, we have not seen an increase in attrition. We have, however, I think very proactively, got in and installed a lot of extra incentives to make sure that we can train people very effectively out on the rigs using simulators and so forth so we can utilize some people that are already [unintelligible] and couple that with some of the new people we have coming in.

I think one of the benefits here is having a big fleet with quite a few units, and with some operations in all geographies. So we have that scale from which to recruit and train people as we take delivery of new rigs.

Operator

We will now take the next question from Greg Lewis of Credit Suisse. Please go ahead.

Greg Lewis - Credit Suisse

In the press release, you pointed to, you know, beyond the Sevan transaction, there are other alternatives for growth and/or expansion at Seadrill. What do we think about those types of alternatives? Is that primarily newbuilds of offshore floaters and jack-ups? Or is that potential additional opportunity to maybe acquire rigs from companies and/or companies? And if so, could you maybe provide a little bit of color around that?

Fredrik Halvorsen

We’re not against acquiring single assets or even companies. I think what we’ve found, though, is that the yard prices have been coming down, and are at very attractive levels. So the economics in a newbuild has just been superior. We did, of course, buy the Eclipse, which was also a single asset, and that is working out very well. So I would not rule out us buying single assets, both in the jack-up and the deepwater space.

At the same time, I think the yard rates are probably not going to run away from you either in the next six months. And in that sense, there’s no rush. So over the next six months, we’ll figure out probably a combination of newbuilds and single asset purchases.

Greg Lewis - Credit Suisse

And then just real quick, clearly you have the jack-up rigs on the construction that you’re on and at Dalian. Has there been any delay? Is everything running smoothly on all those rigs? Clearly there’s multiple rigs at both yards. If you could just maybe provide an update on the performance of both of those yards?

Fredrik Halvorsen

One of the things that the industry went through was an issue with the pinion gears for the jack-ups built both at [unintelligible] and at Dalian. I think it’s just been discussed quite a bit before. I think in connection with our last quarter said it was probably a six-month delay related to this pinion gear failure. We are now on track, and we’re on that schedule, to get them delivered, and I think the fortunate thing is that we’ve also had our AOD jack-ups and have successfully been able to discuss and agree with the clients to substitute units. So this does not cost anything, except of course a later delivery.

I think we also took a very conscious choice not to go for the hybrid model of having to have the rigs delivered and then try to modify them once in the field, [unintelligible] load and so forth. So a decision was made, you know, let’s keep them there until they are done and [unintelligible] from the yard and rather fulfill the contract obligations with the [unintelligible] offshore drilling units.

Operator

We will now take our next question from Thijs Berkelder from ABN AMRO. Please go ahead.

Thijs Berkelder - ABN AMRO

Three basic questions. When looking at the opex in the floater segment, can you explain why the vessel opex is so large compared to previous quarters? Of course, partly it’s the Eclipse, but what explains the rest? Secondly, were there, in Q1, any movement cost for moving from Stavanger to London? And how large were they? And thirdly, maybe can we still expect to book profit on the sale of tenderings to SapuraKencana and what size can we expect there?

Fredrik Halvorsen

Could you just repeat the first question?

Thijs Berkelder - ABN AMRO

The vessel opex for the floaters.

Fredrik Halvorsen

Right. I’ll rely a little bit on my, we have both the chief accountant and the CFO in the room as well. The main event during Q1 that would have driven up cost to not see the margin on the incremental revenue you would expect was the connector bolt issue. We had to pull the BOP on three units and get that rectified.

Rune Magnus Lundetrae

We don’t comment specifically on our opex, generally, but I think it’s, like Fredrik says, mostly related to the connector bolt issue and also the Eclipse. And of course we’re getting close to some newbuilds coming into operation.

Thijs Berkelder - ABN AMRO

But underlying opex should be then something like 260, 270 a quarter?

Rune Magnus Lundetrae

You know, we also have some costs related to the preparation for [five-year] classes, and that’s also being expensed. But I think the expectation is margins between 55% and 60% EBITDA margin on our floaters.

And then accounting, then, on the Sapura, without being too specific, I think it was somewhere between $1 billion and $1.3 billion is the accounting gain that one can expect. But of course we haven’t finalized the books yet for the second quarter. But that’s the range that you can expect. And that would be on a separate line of other financial items.

Robert Hingley-Wilson

On the question about the G&A and the moving costs, yes, there were some costs associated with the move, but equally there were some costs associated with the move in Q4, when we announced the transition. I think what we can say is there’s been a fair degree of focus from the management team on control of G&A and I think the benefits of that are being seen a little sooner than maybe we would have expected and I think the number that’s in there this quarter is probably the right indicative level certainly for the rest of ’13.

Operator

[Operator instructions.] We will now take the next question from Darren Garcia from Guggenheim. Please go ahead.

Darren Garcia - Guggenheim Securities

I was curious, with the drop down of the T-15, it seems to me that Seadrill Partners will be doing most of that in raising debt and [units] out of the gate, but the tender was dropped down for 210 and it was originally paid for at the end of last year for I think 112. How does the mechanics of that work? Is it basically the mark-to-market of what that asset is worth and then Seadrill Partners will acquire, is that kind of how we are looking at dropping down in the future, where you pretty much get kind of the yield base rerate on the sale, kind of going towards the Seadrill parent versus [unintelligible] structure?

Fredrik Halvorsen

You’re lucky. We have Graham Robjohns here, of course, the CEO of Seadrill Partners. So he will take that question. Of course, we have a separate call after this on Seadrill Partners. But Graham?

Graham Robjohns

I think basically what you have to remember is the rigs are sold down to Seadrill Partners at a point in time that they are built, delivered, derisked, and ready to go. So there’s obviously a big premium. I think the 112 number is probably a bit low from the actual total all-in cost. So the way that we would arrive at that valuation is relatively simply looking at a discounted cash flow for the contract term and putting sort of a risk to value on the residual value after the initial contract term and working that out on Seadrill Partners’ weighted average cost of capital to come up with the 210 purchase price, which is around about 9 times EBITDA multiple. Which I think is, for a rig that’s about to commence operations, is reasonable.

Darren Garcia - Guggenheim Securities

Sure, because it’s obviously very good and accretive for Seadrill to kind of work that as a financing vehicle, but I’m imagining that at a certain point, in terms of doing things on an all-debt basis, you’ll eventually do this on a unit basis, obviously [using] units to finance that growth. How are we looking to balance where the premium that the Seadrill Partners trades to NAV against acquisitions and prices? And what’s kind of the logic of how we should be thinking about drop downs coming from Seadrill in the future? Should we be looking at kind of similar premiums in line with the premium that Seadrill Partners probably trades to its [breakup] value? Or is it, again, maybe just more like thinking about things on a DCF basis as we’ve spoken?

Graham Robjohns

You’re quite right that we won’t be able to continue Seadrill Partners financing acquisitions on an all-debt basis, so new equity will come. And as was mentioned in the presentation, Seadrill Partners will have its seasoned issuer status in October, so that will all become a lot easier at that time. Obviously we are still going to prudently use debt to fund our acquisition growth as we can moving forward. In terms of the premiums or the valuations if you like, it will be done in a similar way moving forward. We expect Seadrill Partners to trade extremely well given the growth profile that we have, which will allow us to continue to acquire rigs at value, that are fair to Seadrill and fair to Seadrill Partners, and are win-wins. It would be done on a DCF basis, which will be dependent upon the contract terms, largely, in terms of where the multiple is.

Darren Garcia - Guggenheim Securities

So the last question, and maybe kind of an ignorant one. The seasoned status, what does that status change and help out with? Just because maybe I’m not familiar. How do I want to think about that?

Robert Hingley-Wilson

That’s where Seadrill Partners flips from being a first-year issuer on the stock exchange. On kind of day 365, assuming all the filings are current, and our market capital holds up, you switch to what’s known as well-known seasoned issuer status, which means you don’t have to go through the drawn-out process of filing in advance with the SEC, waiting for comments, and then ultimately having things in the public domain for quite a while before you can actually pull the trigger on an equity transaction. Think of it as us becoming akin to any other domestic U.S. company where we can go to the equity market overnight if we’re arranged in a decent fashion.

Operator

[Operator instructions.] We will now take the next question from Richard Haydon of Yield Capital. Please go ahead.

Richard Haydon - Yield Capital

Is it possible that you could expand upon the potential benefits to North Atlantic from a strategic relationship?

Fredrik Halvorsen

I’m happy to take a first stab. We also have, of course, the CEO of North Atlantic here, Mr. Alf Ragnar Lovdal. I’ll let him answer the second part of the question. I think one of the things that Seadrill has traditionally created a lot of value from is to have quite standardized assets that can be traded in quite broad markets across multiple customers. We feel very strongly that the harsh environment units could be such an asset class, but for that to be true, it can’t be traded only in the North Sea towards, well, frankly speaking, one client.

So in creating a good growth story, I think you need to expand the area of operations, get more harsh environment areas under your wings. And as part of that, we’ve always had a multitude of initiatives going around North Atlantic drilling, and we’re happy to say that, you know, we’ve had some discussions now around JVs or partial buy-ins from parties that could help us gain credibility and gain access to more growth in a broader area of operations.

Operator

We will now take the next question from Julien Laurent of Natixis. Please go ahead.

Julien Laurent - Natixis

I was wondering, why do you consider that jack-ups are more pro-business than tender rigs. And do you believe that in terms of capital location it would make sense to keep [unintelligible] more capital on deep offshore vessels than jack-ups?

Fredrik Halvorsen

First, there are more people with opinions in the room. What we feel is that we have a very strong and longstanding relationship with SapuraKencana [or Malaysia]. That market was predominantly a Southeast Asia market, mainly in Thailand, Malaysia, and so forth, with a few international units. And we especially had a partner that was very capable, especially after the merger between Sapura and Kencana of running those assets.

In just as good fashion as us, we remain shareholders in that business, and that has allowed us to allocate more capital into what we now see as our [core], which is the deepwater and the jack-up units. I think this is partly a decision to concentrate on fewer asset classes as the company also grows bigger. Again, one of the things I think that has traditionally proven very fruitful for shareholders of the company is we build very similar units in very similar markets, make it very standardized, allowing for scale within asset classes, and that’s going to grow both jack-ups and deepwater units. We hope to replicate that. So if you’re going to grow some segments, something’s got to give, and the decision was to therefore exit the tender class.

Operator

There are no further questions.

Fredrik Halvorsen

Thanks for all the questions, and for everyone listening in. We’ll go ahead and close the call, please.

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