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Executives

Alf Thorkildsen - CEO and President

Rune Magnus Lundetræ - CFO and SVP

Robert Hingley-Wilson - CAO and SVP

Ragnvald Kavli – IR Manager

Analysts

Lukas Daul - Enskilda Securities ASA

Andreas Stubsrud – Pareto Securities

Robert Jensen - Platou Markets

Ryan Kauppila - Citigroup

Monroe Helm - Barrow Hanley

Julien Laurent - Natixis

Seadrill Limited (SDRL) Q2 2012 Earnings Call August 27, 2012 12:00 PM ET

Operator

Good day and welcome to the second quarter 2012 earnings release conference call. Today’s conference is being recorded and at this time, I would like to turn the call over to your host today Mr. Ragnvald Kavli. Please go ahead sir.

Ragnvald Kavli

Thank you and welcome to our second quarter 2012 earnings conference call. Please note that this conference call also includes comments on the second quarter 2012 accounts for our majority owned OTC listed subsidiary North Atlantic Drilling Limited. The quarterly reports and other supporting materials are available on SEDAR.com and (indiscernible).

Together with me on this call, I have our CEO and President, Mr. Alf Thorkildsen and our CFO and Senior Vice President, Mr. Rune Magnus Lundetræ and Robert Hingley-Wilson, our Senior Vice President and Chief Accounting Officer. But before I give the words to Alf to give us an update and the status of our business, I’d 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 are given within the safe harbor provisions provided by the federal securities regulations. For future and more detailed description of other risks associated with our company and industry, please see our most recent annual reports on Form 20-F and other filings with the SEC.

That concludes the preliminary details. Now I will turn the call over to Alf. Please go ahead.

Alf Thorkildsen

Thank you, Ragnvald. Good morning and good afternoon to all of you and welcome to our second quarter 2012 conference call. I would like to start this presentation by going through the highlights in the second quarter. Thereafter I will proceed to discuss our view of the market outlook for each of our business segment before updating you on the contract status for our fleet, and I would end with some summarizing comments. Rune Magnus, our CFO will afterwards take you through our financial accounts and results in the first quarter which will also include comments to the results posted by North Atlantic Drilling to date. We will thereafter do a combined Q&A session for both the Seadrill and North Atlantic.

Highlights for the second quarter 2012. I am pleased to share with you another solid quarter with an EBITDA of some $634 million and net income of $554 million. The corresponding earnings per share was $1.12, positively impacted by an accounting gain of $169 million reported under all of our financial items related to the merger between SapuraCrest and Kencana Petroleum in Malaysia.

Our operational performance continues to be strong and our floaters achieved a marginally higher utilization of 95% compared to 94% in the preceding quarter. We have so far in the third quarter had approximately 90 days downtime in connection with equipment parts needed to be replaced on subsea BOPs. This issue has been addressed and resolved.

For our jack-ups that were in operation we achieved the economic utilization of 79% in the quarter. Our jack-up utilizations were adversely impacted by several rigs currently mobilizing and the mobilization has taken somewhat longer than anticipated. Our tender rigs continued to perform excellent with an economic utilization of 97% in the second quarter.

We have since our first-quarter report secured contracts and commitments totaling some $7.6 billion bringing our order backlog to a record high level of $20.3 billion. This reflects a very modern drilling fleet, strong operational track record, excellent customer relationship and the strong demand for offshore drilling services.

We’ve resolved to pay a cash dividend of $0.84 per share, up from $0.82 in the last quarter. This increase in dividend reflects our strong operational performance, our record high order backlog, the positive market outlook in the drilling industry and the strong support we received from the financing markets. Based on all the above, we are of the firm belief that the dividend level is sustainable in the long term.

Let me also share some brief comments on the performance of North Atlantic Drilling. North Atlantic delivered an excellent operational performance with an economic utilization of 99% resulting in the quarterly EBITDA of $156 million and earnings per share of $0.06.

The North Atlantic board resolved to maintain a quarterly cash dividend of $0.045 per share. North Atlantic continued to deliver strong operational performance and we’re very encouraged about the future market prospects in the harsh environment area. And we are still fully committed to our aim of listing the company in the U.S. during the end of 2012.

A bit about the global operational footprint. During the quarter and also in the third quarter, several jack-up rigs have been in transit to new locations. The West Triton and West Resolute have been relocated from Asia-Pacific to the Middle East. The West Triton commenced operation last week and we expect the West Resolute to start operation mid-September, both commencing a three-year contract with KJO.

The West Vigilant was in the second quarter in transit from Trinidad and Tobago to Vietnam where we expect the rig to start up on a new contract shortly. Furthermore the West Defender has moved from Brazil to Brunei and during the yard stay underway before commencing a four-year contract with Shell. We will receive a 5% day rate (ph) during the mobilization period which will be capitalized and amortized over the contract period.

In the next quarter, the semi-submersible rigs West Aquarius and West Hercules will mobilize from Southeast Asia to new location in Canada and Norway respectively. They are not expected to commence operation until fourth quarter this year. We will in total receive a mobilization fee of some $85 million for both units. For West Aquarius this will be taken to income during the mobilization period while for the West Hercules, it will be capitalized and amortized over the contract period.

Our new-building program is progressing on time and on budget and we expect it to take delivery of the two jack-ups, one from Dalian and one from Jurong later this year.

Let me then try to give you some views on the market outlook of floaters. The worldwide supply demand balance for ultra-deepwater rigs has tightened further due to the high contracting activity. Contracting and tendering activity for modern ultra-deepwater units has continued at a strong pace with daily rates in 550 to 650 range, depending on location and contract duration.

Improving day rates have been accompanied by an increase in duration. Seadrill estimates that less than five units are available in 2013 and we expect that the market will quickly absorb this availability. Discussions are already underway for drilling rigs available in 2014 and beyond, as customers increase their planning horizons in recognition of the tight supply or are seeking to secure rigs to just previously deferred development and exploration campaigns.

Ultra-deepwater rigs demand continued to be largely driven from the Gulf of Mexico and Africa supplemented by exploration successes in emerging oil and gas regions. In the U.S. Gulf of Mexico, the industry is becoming more comfortable with the new requirements set by the U.S. officials. A number of fixtures that have been entered into for operation in this region, including our agreement to contract three rigs for 19 years.

Across Africa, ongoing development programs and exciting finds in both mature and emerging areas, we’ll at least see it continue to keep this market undersupplied for the next couple of years. Oil companies continue to struggle to achieve their product targets and the backlog of development opportunities that built up after the 2008 financial turmoil is diminishing. Coupled with oil companies’ strong balance sheets, we believe this should result in increased development drilling going forward.

We experienced that our customers continue to focus on quality equipment, HAC (ph) performance and efficient operations and that new entrants that cannot show a track record will face significant challenges in obtaining contract and financing. The North Sea market continues to show strength. The rig capacity for 2013 is sold out and only limited capacity is available for 2014 and ’15.

The market development for jack-ups. The market for premium jack-ups rigs continues to tighten with strong interest on customer, significant tender activity, supporting increased day-rates and contract terms in most markets. The utilization rate for premium jack-up rigs has not been below 90% since May or March 2011 and has trended upwards in each successive quarter since then. With limited available supply and the tightening market in the near term, we expect additional pricing pressure and continued increase in day rates over the next year.

Despite the high numbers of jack-up rigs being retired the last two years, the average age for the fleet remains over 20 years, and the need for fleet renewal continues. The 26 new-build delivered planned for 2012 are in line with the average number added and nearly since 2008 and should easily be absorbed by the market. The recent sale prices of modern jack-up leads us to be cautiously optimistic regarding the 45 jack-ups that ought to be delivered in 2013, particularly since only 17 units have been ordered so far in 2012.

A bit about the tendering market, we continue to see strong interest from oil companies for the tender rig concept. This interest along with excellent performance from our existing fleet continues to translate into new contracts and extension of existing contracts at higher daily rates and longer contract durations. We intend to meet the needs of our customers in this segment by continuing our organic growth strategy about tender rigs and semi-tenders assuming future demand development along with an ongoing high-grading and rationalization of our existing fleet.

A bit about the floater markets and our contract situation. Since our last quarter reporting, we have received contracts and commitments for some $7.1 billion for our deepwater rigs. We received a major commitment 19 aggregated rig years for the new-build ship West Auriga and West Vela, and the unit to be named for operation offshore U.S. Gulf of Mexico. The combined three-rig package has a potential contract value of $4 billion, including mobilization fees for the newbuild units.

Furthermore we have received commitments for the three ultra-deepwater drill ships West Polaris, West Gemini and West Capella. The West Polaris will have a five-year commitment with the client at a daily rate of some $642,000. The West Gemini and West Capella has received an aggregator of seven years commitment for work in West Africa at day rates of $640,000 and $627,500 respectively. These three contracts has an estimated total revenue potential of approximately $2.8 billion.

We are also pleased that we entered into a two-year contract with ExxonMobil for West Alpha at a strong day rate of $548,000. This shows the competition for rigs that is evident in harsh environment areas. They’re now only the ultra-deepwater drill ships that’s available for 2013. In 2014, we have open slots available for three ultra-deepwater newbuild drill ships and we have several requests for these units. We are comfortable with a long term contract that can be secured at attractive terms.

On the jack-up contract side, as I mentioned last quarter, we believe that the jack-up market would improve. This has been evident through several new contracts at both daily rates and duration increasing. Based on the ongoing discussions with clients, regarding the rigs with availability at the end of 2012, including the newbuild, we are confident that we will get new assignments at improved terms and conditions.

On the tender rig contract side we can say as follow. Since our last quarter report, we’ve signed new contracts for West Setia, T11 and T17. The Setia will continue to work for Chevron offshore Angola at the new and improved day rate of minimum $223,000 a day. For the T11 we secured a four-year contract with Chevron at a day rate of $127,500 for operation in Thailand. After contracting over the T17, we have secured employment for all our newbuilds. The T17 will work for five years for PTTEP offshore Thailand.

We are sold out for tender rigs in 2012 but limited availability in 2013. However when the T4 and T7 which are approaching the end of their economic lives come off contracts, we will have to decide whether to upgrade the units or a potential disposal, as you see our customer's preference for modern quality equipment.

Our contract backlog is record high at $20.3 billion. The new contracts signed since our first-quarter reporting has significantly enhanced the visibility of our business. We have a solid customer portfolio with quarter clients. The average contract duration, including our newbuilds, is 38 months for our deepwater fleet compared to 38 months in the previous quarter. For our jackup, the average duration is 18 months as compared to 17 months last quarter, and tender rigs have increased the average duration to 29 months from 25 months last quarter.

To summarize where I am at the moment, we have again announced the quarter with strong operational performance. Our focus on delivering quality operation to our customer is resulting in new contract and an increase in the quarterly dividend. We are over the coming years taking delivery of eight new ultra-deepwater units of an existing fleet of 14 units as well as five jack-ups and five tender rigs.

We have yard instalment of 4.6 billion remaining on these units. We are confident that the combination of ECA financing, secured and unsecured bonds, support from commercial banks and our visible long-term cash flow will provide us with a base more than sufficient to fund remaining commitments.

Since our incorporation, we have including the dividend payable for the second quarter distributed to our shareholders approximately the same amount as we have raised in equity and converted from debt. Based on the fundamentals of the drilling market, combined with seamless strategy of the modern fleet and earnings visibility, we are even more confident of maintaining and enhancing our dividend policy in the years to come.

With that, I will give the word to Rune Magnus to take us through the financial in some more detail.

Rune Magnus Lundetræ

Thank you, Alf and good and good afternoon. I will start with the financial performance highlights of Seadrill. The EBITDA has increased with $39 million from the previous quarter from $595 million to $634 million. I will return to the EBITDA in more detail in the next slide.

The net financial items have increased due to an accounting gain related to the merger of SapuraCrest and Kencana amounting to $169 million. Gain on realization of sold shares in the merged Sapura Kencana amounting to $84 million. Those gains are partly offset by losses on derivative instruments mainly interest rate swap agreement.

The EBITDA contribution. The EBITDA increased by $39 million from the previous quarter and average economic utilization for all our rigs in operation was lower than the previous quarter. The drop in utilization was due mainly to jack-up rigs being mobilized to new contracts and location. For the floaters, there was an increase of $39 million in the EBITDA, for jack-ups a decrease of $4 million and within the tender rig segment, there was an increase of $8 million compared to the first quarter.

Operating income for the floaters. The operating income increased from $318 million in the first quarter to $346 million in the second quarter. Revenue in the second quarter were higher by approximately $63 million mainly due to the commencement of the West Leo in May and higher utilization for some of our units in operation.

We have also experienced higher revenues from one unit, the West Phoenix. The increased revenue is partly offset by operating challenges with some of our units and also units on the move to the next vacation. The economic utilization increased from 94% in the first quarter to 95% in the second quarter.

Operating income jack-ups. Operating profit for the jack-up fleet decreased from $67 million in the first quarter to $59 million in the second quarter. The average utilization in the quarter for our jack-ups was 72%. This was down from 91% in the previous quarter. The reason for the low utilization was due to four units on the mobilization to the new destination. This was partly offset by the West Elara in operation for the whole quarter and one unit under new contract at higher day rate.

Operating income for tender rigs. Operating profit for the tender rig fleet increased from $71 million in the first quarter to $78 million in the second quarter. The increase is primarily related to a unit coming back into operation in the second quarter after a planned yard stay in the first quarter. The average utilization in the quarter for our tender rigs was 97% for the rigs in operation, slightly down from 98% in the previous quarter.

Operating income on the consolidated basis then, and the three segments amounted to $483 million in the second quarter. This is an increase of $27 million compared to the first quarter.

Net income for Seadrill Limited. The company has recorded an accounting gain of $169 million related to the merger of Sapura and Kencana. In addition, we have sold 300 million shares in the merged company and recognized a gain of $84 million. After the merger and sale, we hold an interest of about 6.4% in the combined company. During the quarter, the company recognized a loss on derivative instruments. The loss is mainly related to mark-to-market adjustments of the company’s interest rate swap agreement.

Moving on to the balance sheet, I will start off with the assets. For the current assets, the increase in the marketable securities is related to our holding in Sapura Kencana, which previously was presented as an associated company but due to the reduced holding, it is now classified as the marketable securities.

For the non-current assets, newbuilding has decreased as the West Leo and the West Capricorn have been moved to drilling units during the quarter.

For the liabilities and shareholders’ equity, there was no significant changes during the quarter. However, in July we completed the refinancing of the tender rig facility with net proceeds from the facility amounting to approximately $588 million.

Then I move on to North Atlantic Drilling and I will start off with the non-financial highlights. The West Elara completes its first full quarter of operation under the five-year contract with Statoil at close to 100% economic utilization. The two year contract extension for the West Alpha with ExxonMobil at an estimated revenue value of $410 million. We also have an order backlog of more than $3.6 billion. For newbuild West Rigel, we have several prospects and high interest from clients.

Then I will talk through the financial highlights of North Atlantic. The EBITDA has increased with $33 million from the previous quarter. I will come back to more detail in the following slides.

Operating income. Operating profit increased from $86 million in the previous quarter to $114 million in the second quarter. The increase is mainly related to the West Elara which commenced operation in the end of March 2012. However, the economic utilization was very strong across the fleet with an average of 99%.

Net income. Net financial items in the quarter amounted to an expense of $33 million of which $20 million was related to interest expense and $21 million was related to losses on derivative instruments, primarily lost on interest swap agreement due to long-term decrease in interest rates. Net income amounted to $71 million equivalent to $0.0625 per share.

The balance sheet, and I will start off with the assets. Non-current assets, the new semi-submersible units under construction contributed to the increase in non-current assets. For the liabilities and shareholders’ equity, long-term interest bearing debt amounted to $2.3 billion, an increase of $119 million. During Q2, the company drew $160 million of the $200 million current facility with Seadrill.

Ragnvald Kavli

Operator, we are now ready for question and answer session.

Question-and-Answer Session

Operator

(Operator Instructions) And we’ll move to our first question today from Lukas Daul from Enskilda.

Lukas Daul - Enskilda Securities ASA

I was wondering, Alf, you mentioned in the report your continuous sort of eagerness for more newbuilds, and I wanted to ask, when you look at industry today, the newbuild economics have never been more attractive. So what is your take that on the fact that there has been quite a substantial break in newbuild orders over the past few months? What would you say out of my concerns for people in the industry?

Alf Thorkildsen

I think the key impacting the lack of new orders, rigs being ordered is financing and the global uncertainty when it comes to the macroeconomics. We have for some time been in the forefront than at the front of the wave when it comes to newbuilds. We did that in 2006, we did that a year ago, we did that in previous period as well. We are – we still believe that there is a significant market, there are attractive newbuild prices and good deliveries which makes it interesting for us to look at. And as you know, we have – our growth has mainly gone through organic growth and not so much with M&A. We have had a couple of small M&A activities but that’s all and that’s been our growth story and gives us a very attractive economics if you hit the cycle right.

So we have done so and we are looking at it again so to speak. But it just reflects our view of the market we are, I have been optimistic about this market for 10 years. So it’s kind of hard for me to change but we are still optimistic about that market. So kind of, yes it is cyclical, you have to hit the cycle with the yard and you have to hit the cycle when you enter the market. And that is it. And when we are looking in our crystal ball for 2015, it doesn’t look too bad.

Lukas Daul - Enskilda Securities ASA

That sounds good. And then in your cash flow statement, I wanted to ask it seems like that maintenance CapEx was roughly $100 million in the second quarter, which is almost three times more than in Q1. Was there any particular project that this relates to or is this a one-off or a level that we can expect going forward?

Alf Thorkildsen

I need to come back on the details of that. I don’t have it in front of me here. So I need to come back with some comments to that specifically. We have had some rigs with some yard stays and five year classing. And that is couple of the jack-ups, we have had for five-year classing in some Scorpion rigs which we had to take some when we bought them, I guess they were not in the stages of where we are. We had also five-year classing of Hercules and to some extent Aquarius. But I can’t give you exactly the breakdown here but we are into some five year classing and we are seeing that. The costs are in line with what we have said. They will differ from the rigs.

The only thing I would say with Scorpion rigs, we are getting them up to Seadrill standards. I would say that when we bought them, they were not up to the same standard as we used to have and we are doing that during either between contracts or during the five year classing.

Lukas Daul - Enskilda Securities ASA

And the last one, you say that in terms of funding the new projects, you pretty much rely on raising that amount in new debt. I noticed in the report that for a second-quarter in a row you said you got a shareholder loan from your main shareholder. Now it’s $350 million. So is that sort of additional leg that gives you the extra flexibility to make a quick moves as you need to or –

Alf Thorkildsen

It gives us the flexibility, and don’t forget that since Christmas, we have ordered 60 floater units, and to get the right thrust and the right timing for those deliveries, we cannot look around for funding. We order and then we have that flexibility with one of the shareholders, that gives us tremendous opportunity to enter into deals with no one else can do with the offs (ph).

Operator

And we’ll move to our next question from Andreas Stubsrud from Pareto Securities.

Andreas Stubsrud – Pareto Securities

Thank you. I have two quick jack-up questions first. On page 9 of your report today, you seem very optimistic about the jack-up market. And I was wondering about your options back to October 18, 2010 for those harsh environment jack-ups, not for Norway, but for the rest of the world. Are those options still there and what are you thinking about actually exercising those options?

Alf Thorkildsen

I think by today including our six – five rigs under construction, our jack-ups under construction, we will have some 21 units – 21 jack-ups, we are comfortable with that number. So I think you can assume that we will not exercise our option as such. In addition, we own three Asian offshore drilling units which we have a management of as well. So we have some flexibility to our structure in that respect as well. We are – we have compared to deepwater floaters, we are more keen to develop that sector than the jack-up sector as such.

Andreas Stubsrud – Pareto Securities

And the two rigs you have under construction at Dalian and two at Jurong, where do you expect those to go in the world today? Can you just give us the guidance on that?

Alf Thorkildsen

From the Middle East to Southeast Asia. Somewhere in between those areas.

Andreas Stubsrud – Pareto Securities

And the last question is for the CFO, in terms of North Atlantic Drilling, the $170 million short term loan granted to a related party with Seagal, I assume you’ve not included that in the net interest bearing debt but you received that back in July. Is that correct?

Rune Magnus Lundetræ

Yes, that is correct.

Andreas Stubsrud – Pareto Securities

So the cash has increased with $170 million in the third quarter in addition to the normal operation, I assume that net debt is actually a little bit better than the kind of the reported – how you write in the report –

Rune Magnus Lundetræ

That is correct.

Operator

We’ll move to our next question from Robert Jensen from Platou Markets.

Robert Jensen - Platou Markets

Hey guys. Good afternoon. Just touching a bit upon the cost side, Alf, you've indicated that you believe that you can reduce costs going forward. Can you talk a bit about where you are today in terms of average costs per day for the ultra-deepwater side and sort of what's your target going forward? And just curious are these savings mainly from newbuilds getting through the shakedown period post-delivery, or are there other form of cost savings you're looking at?

Alf Thorkildsen

Where we see significant cost saving is related to operation preparation. We see that when we have eight newbuilds under construction at the same time, we take advantage of size. Take, for example, drill pipe, we order it and we have some up to 40% reduction in costs compared to buying it individually per rig. These are the things we are seeing very, very clearly now and which will, of course, be reduction in our capitalized costs for those units.

When it comes to rigs in operation which have 80% of the costs is personnel, we see a – we have a shift – for two reasons, by the way, we have a shift from experts to locals, mainly because we need the experts on new rigs. So our experts are not being unemployed, it's just that we desperately need them on our newbuilds. And therefore we have a stronger incentive to nationalize our crews where we are in operation. By doing so, we see significant cost savings. These cost savings are at parts, sometimes offset by significant local increases in areas like Brazil, to some extent then Angola and in Nigeria. So, there are offsets in Brazil, we see something of a reduction when you measure the cost in dollars in Brazil mainly because of the Brazilian currency deflation against the dollar. But we see that doesn't matter so much for our current context, because they are partly in Brazilian currency and dollars but it matters when we go in there in the future. So, that's the thing.

In addition, of course, we are getting bigger sites and take advantage of that throughout the fleet. But it's particularly again -- particularly, when we have 8 deepwater units under construction, we see the benefit in operation preparation, and in Singapore where you have 10 jack-ups and tender rigs under construction at the same time as well where we see the benefit of getting them ready to drill which is the key savings in this respect.

Robert Jensen - Platou Markets

And would you care to touch a bit upon sort of the direct operating costs per day and what level you are at?

Alf Thorkildsen

You ask a question which is impossible to answer, because it all depends on the various -- what countries you are in, that’s why I am saying. We have been able – when others have increased this, we’ve been able to be relatively stable on it. But there is -- take for example in Brazil, our 13%, the unit agreement had an increase of 13%, just to give you an example. Then it’s offset a bit by the currency fluctuations. So, I can’t give you because it varies depending on the countries, but we are able to contain it more or less within the offsets we have from our escalation provisions these days.

Robert Jensen - Platou Markets

That sounds good. Then moving on to North Atlantic Drilling, you stated in report that you see a potential for increased dividends as Linus and Rigel commence operations. Should we read into that as you don’t believe there’s scope for higher dividends with the current fleet and sort of the respective contracts that they are on?

Alf Thorkildsen

I think I was not such a bad analysis. So I’ll give you a plus for that. I think that was a fair statement.

Robert Jensen - Platou Markets

All right. And just finally on the tender fleets, you said you’re looking to rationalize the fleet. Can you be a bit more specific on what you are looking to do? Does it only include sort of the T4 and the T7 and then if you may, can you give us some color on the upgrade costs to keep them beyond the current contract?

Alf Thorkildsen

Those two units, I think you know the company well and it was a good remark you made. I think the T4 and T7 are 30 years old, but a bit more than 30 years old and they are getting mature. And what we're seeing is our customer would like to see modern equipment, more challenging drilling, more efficiency out of modern units, then we can get out of the old ones. I think our alternative for T4 and T7 is either just to keep them going maybe for another one, two years after they finish this contract into other areas and then retire them. I think in your analysis you should assume as we retire them.

Operator

We’ll now move to our next question from Ryan Kauppila from Citigroup.

Ryan Kauppila - Citigroup

On the new tender rig facility, I think earlier you had suggested that you were seeing strong interest out of Asian banks. I was just wondering if you did see a geographic diversification with where that funding came from.

Rune Magnus Lundetræ

The funding came mainly from European and Nordic banks.

Ryan Kauppila - Citigroup

And then secondly, in your deepwater outlook, you've mentioned Brazil and then maybe suggesting that incremental supply to meet their production targets will be required. I’m just wondering relative to the two international rigs that Petrobras seems to suggest that they need still to contract, where do you see that market going forward?

Alf Thorkildsen

So Petrobras have indicated couple of more rigs there in the short-term, and I think what we are seeing, we are part of building rigs in Brazil. I guess it's fair to say, we think it's going to take somewhat longer than the most optimistic people in Petrobras.

Operator

We’ll now move to our next question from Monroe Helm from Barrow Hanley.

Monroe Helm - Barrow Hanley

Congratulations on the continued effort. You’ve done a great strategy. Just one question, can you just give us a little bit more color on the issues with the BOPs and who were the builders in the BPOs and were the issues surfaced by you or by the operators of the rigs?

Alf Thorkildsen

I have to draw my breath here because it’s at times somewhat frustrating, some of the things we are experiencing, but we have seen it on – the two issues we have had lately was some SPM valves, some small valves which are in the BOP and the supplier are using the wrong metal in some of the springs in those valves. It’s just very simple thing really when you see it, but it gets us down for 20 to 30 days because of that. And I cannot give you the name of the supplier, but the rigs are Sirius and Capricorn and to some extent Pegasus, but these are the thing, which are simple things.

Should they have been picked up brand new coming out, not been tested with the pressure and the water depth we are having in which they are certified for and of course are getting us extremely frustrated of the quality of that equipment. We are rectifying it. We are getting back some other well tested equipment. And we will be back, I would say, we see it temporarily, and it is solvable and that’s just extremely irritating.

Monroe Helm - Barrow Hanley

A follow-up, if I might. Can you give us a better sense of when you think if you’ve had any comments back from the SEC on MLP and that would you expect to install (indiscernible) launch before the end of the year?

Alf Thorkildsen

I give the word to Rob here.

Robert Hingley-Wilson

Hi, yeah, we -- as everyone knows we announced, we made the first filing. Everything is following what we would all understand to be a regular schedule with the SEC. We are in dialogue and I think our previous announcements about timing certainly hold true.

Operator

We’ll move to our next question from Julien Laurent from Natixis.

Julien Laurent - Natixis

You've mentioned in the past that you would take a very cautious assumption regarding your commercial activity with Petrobras. So could you elaborate a bit regarding what term improvements you get from them?

Alf Thorkildsen

I didn't understand that question. Can you just repeat? I was on the bad line here.

Julien Laurent - Natixis

Yes, so given that you've decided at the end of the day to build a local rig – in the local yard in Brazil, what has been the change in the terms coming from Petrobras, what did decide you?

Alf Thorkildsen

I think what we have been able to do is to share the risk with the yard and with Petrobras when it comes to both delivery and liabilities and the future. Secondly and more importantly, our share this is 30%, there are 80% debt financing in place for those units and our exposure for the three units are approximately $130 million, could maybe go to $150 million. But that's kind of the exposure and we limit that to that exposure. That is the reason, we think it is something we are keen to see developed. We want to be part of it. We want to have a share which we think is acceptable given the uncertainty of building rigs in new yards in Brazil.

Operator

Thank you. As we have no further questions at this time, I'd like to turn the call back over to you gentlemen for any additional or closing remarks. Thank you.

Ragnvald Kavli

Yeah, we're now finished.

Alf Thorkildsen

I think we are then concluding our Q&A session, and we thank all the listeners for listening patient to our story. Thank you so much and see you in the quarter.

Operator

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

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