Sevan Drillings' (SDRNF) CEO Scott McReaken on Q3 2016 Results - Earnings Call Transcript

| About: Sevan Drillings (SDRNF)

Sevan Drillings AS (OTCPK:SDRNF) Q3 2016 Earnings Conference Call November 22, 2016 5:00 AM ET

Executives

Scott McReaken - CEO

Analysts

Operator

Welcome to Q3 2016 Sevan Drilling Limited Earnings Conference Call. Today's conference is being recorded. At this time I would like to turn the conference over to Scott McReaken. Please go ahead.

Scott McReaken

Thank you, Julian. Good morning everyone and welcome to Sevan Drilling Limited third quarter 2016 earnings conference call. My name is Scott McReaken and I'm the CEO for the Group and I’ll be hosting the call today. I’ll provide an update on Company’s activities in the quarter, and go through the financial performance and then open up for some questions.

Before we get started, I’d like to remind everyone that much of the discussion will not be based on historical facts or rather consist on forward-looking statements and are subject to uncertainty. We articulate some of these key items on page two of the presentation, and for additional information and visit our other Board’s filings, please visit our website at sevandriling.com.

Sevan fleet technical utilization for the rigs under contract was 98.8%, and economical utilization of 99.4% in the quarter both are commendable for limiting downtime in the quarter and for continuing this churn of high and consistent performance over the last six quarters despite the downturn the cruise and operations management have remained focused on delivering safe, efficient, quality services to our customers. Operating revenues for the quarter at $59.6 million, EBITDA was at 20.2 million. We recognizing impairment under IFRS accounting principles for 37.5 million which results in a net loss of $1.79 per share.

Regarding our refinancing process, good progress has been made on the overall terms and structure of the agreement with our banks and that will reprofile or secured credit facility to mature in a period between 2020 and 2023. Reduce our fixed amortization obligations and amend financial covenants. We have initiated engagement with key stakeholders on other elements of the plan and we expect to have or reach agreement by the end of April 2017.

Looking at the market, our long term view of the market for high specification drilling rigs remains positive. In the near term the offshore drilling sector remains extremely challenging. Oil prices remain in the $40, $50 range in the quarter, a level that’s not sufficient to reverse the declines in oil company upstream spending. As expected that upstream spending will again decline in 2017, albeit at less than previous reductions that we saw in '14 and '15. While the forecasted decline is spending center stage for another challenging year in offshore drilling business it's important to recognize that a resetting of cost across the value change.

This may facilitate increased activity on a year-over-year basis with only a marginal increase in commodity prices [indiscernible] pricing stability. The current downturn in the [indiscernible] market is now the distinguish of being the worst downturn in the history of offshore drilling in terms of duration and absolute demand.

The peak to current demand dropped to 40% is doubled average witness in prior cycles. We now seeing that there is an increasing level or active market for short term work albeit at operating cash flow breakeven days rates even with the small improvement from a very low base utilization for the market will likely get worse before it improves. Sevan driller continue to mobilize to China this quarter after she completed work short term well-service contract [indiscernible] in Brazil in July. The rig is being marketed globally and we’re specifically targeting clients with well programs in challenging drilling environment. The integral [ph] design that Sevan utilizes continues to demonstrate and it can officially operate in stronger [indiscernible] and variable wage directions [ph].

The company devaluating time to install extended builds on the Sevan Driller which brings the rig specification similar to the other rigs and the Sevan fleet and increased marketability. I will tell the Sevan developer delivered deferral was extended by another six months to April 2017. 26.3 million was refunded and the final delivery installment was amended in 95% of the contract price. The company continues to market the Sevan developer for an accessible drilling contract and also in discussion with Costco [ph] related to the final investment balance.

Operating revenues for the quarter were 59.6 million compared to 61.5 last quarter, the decrease is a result of Sevan driller coming off of the short term contract with Shell in Brazil and the other [indiscernible] maintaining performance about 98%. Total operating expenses for the second quarter is 93.6 million compared to 49 million last quarter which is driven mainly from the impairment of 37.5 million across the fleet and past two years we have also booked impairments under the same IFRS guidance and this brings our accumulative balance to 335 million. These impairments are reflective of the market conditions driven by forward-looking assumptions on discounted cash flows compared to our book values.

Other drivers in total expense of the rig operating expense which increased compared to last quarter mainly as a result of utilization cost for the Sevan driller. General and administration cost and depreciation came in at about the same run-rate as the second quarter and the net financial items were 16.9 million which is 1.6 million last resulting from lower interest on outstanding facilities for the period. We had tax expense of 2.2 million and the company recognized a net loss of 53.1 million for the quarter excluding the non-cash impairment the loss is 15.6 million.

In the balance sheet we have 1.5 billion in total non-current assets comprised mainly of our rig fleet including 53 million on the investment of developer which added as I mentioned 26.3 was refunded in October in the fourth quarter. Cash was at 22.4 million on September 30, and this year we have grown net 15 million and have a 185 million outstanding on the revolving credit facility with Seadrill and our bank debt outstanding is right at 968 million after made our regular 35 million on the amortization and we also had 12 million of interest paid for facilities.

This concludes my prepared remarks. Operator, can you open it up for some questions?

Question-and-Answer Session

Operator

Scott McReaken

Okay. Thank you, Julian. I guess this concludes our call. Thank you everyone for joining us today on Sevan Drilling's third quarter earnings call and we appreciate the interest and look forward to speaking to you again soon.

Operator

That will conclude today's conference call. Thank you for your participation ladies and gentlemen, you may now disconnect.

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