Northern Offshore Reports First Quarter 2011 Financial Results

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May 18, 2011, 07:23 ET

HOUSTON, May 18, 2011 /PRNewswire/ -- Northern Offshore, Ltd. (Oslo Bors: NOF.OL) today reported net income for the three months ended March 31, 2011 of US$2.4 million, or US$0.02 per diluted share, on revenues of US$40.5 million. This compares to net income of US$23.2 million, or US$0.15 per diluted share, for the first quarter of 2010, on revenues of US$68.1 million.

The company's directors have approved a new US$50 million Revolving Credit and US$10 million Credit Support Facility, to be provided by Metrogas Holdings, Inc., an affiliate of the company's largest shareholder, Geveran Trading Co. Limited. Management believes that the terms of the new facility are more favorable than the terms of the existing Credit Facility or alternative facilities available from third parties. It is anticipated that the new facility will be in place before the end of May 2011. Funding from the new Credit Facility will be available to pay off the existing Credit Facility, meet general working capital needs and pay future dividends. The Credit Support Facility will be used to secure the company's letters of credit and performance bonds in conjunction with routine business.

By the end of May 2011, the company intends to make an initial drawdown of US$32 million from the new Credit Facility in order to retire the existing Credit Facility.

Subsequent and subject to both the execution of the new facility and retirement of the existing facility, and considering the current capital and liquidity requirements of the company, the company's directors intend to declare a dividend of approximately US$5.0 million, or US$0.03 per share, payable to shareholders of record as of May 31, 2011. A separate announcement providing specific details of the proposed dividend will be released upon declaration. The directors anticipate declarations of future dividends as permitted by future cash flow, liquidity, reserve and capital requirements, and any restrictions in the company's new Credit Facility.

Gary W. Casswell, Northern Offshore's president and CEO, commented "Northern Offshore has reached a significant milestone. The company's net debt is below US$2 million, and our solid cash flow, new credit agreement, low net debt and good asset coverage give us the opportunity to commence dividend payments. The initial dividend is primarily supported by cash flow from the Northern Producer. We anticipate that dividends can be increased as the underlying marketplace improves and the company enters into new contracts for the remainder of the fleet, further improving cash flow. Future dividend payments will be tied to free cash flow, subject to company liquidity, reserve and capital requirements, and any restrictions in our credit facility."

First Quarter Highlights

Northern Producer

The floating production facility Northern Producer remains under contract with EnQuest. The unit continues producing in the North Sea with further field development and tie-back ongoing. The tariff from the facility increased from an average of US$166 thousand per day in the fourth quarter of 2010 to US$178 thousand per day in the first quarter of 2011. The company expects production and price levels to remain at, or slightly above, the 2011 tariff target.

Energy Enhancer

On February 25, 2011, the jackup Energy Enhancer commenced its contract with Ithaca Energy (UK) Limited ("Ithaca"), which is estimated to be completed in early June 2011.

On January 18, 2011, the company was awarded a contract with Perenco UK Limited which is scheduled to commence immediately following the completion of the rig's current commitment with Ithaca.

Energy Endeavour

On April 19, 2011, the jackup Energy Endeavour commenced its contract with Maersk Oil and Gas for a one-year term, plus two one-year options.

Energy Searcher

The drillship Energy Searcher recently finished its five-year special periodic survey and dry-docking in a Singapore shipyard. The project was completed within its US$21 million budget in early May 2011. The company is actively marketing the unit in the Asia-Pacific region.

First Quarter Analysis

Revenues for the three months ended March 31, 2011 were US$27.6 million lower as compared to the same period of 2010. This decrease was primarily due to loss of revenue from the drillship Energy Searcher, which was in the shipyard undergoing required inspections, repairs, maintenance and improvements during the first quarter this year, and lower utilization and dayrates of the jackup fleet. Partially offsetting the decrease was higher tariff revenue from the floating production facility Northern Producer.

Drilling and production expenses for the first quarter of 2011 were US$3.7 million higher as compared to the same period of 2010 due primarily to contract start-up costs for the jackup Energy Enhancer and rig move costs for the semisubmersible Energy Driller, partially offset by lower operating expense for the jackup Energy Endeavour which was idle for the full current quarter. Depreciation expense for the first quarter of 2011 was US$6.1 million lower than in the first quarter of 2010 due to the decrease in depreciable basis of the jackup fleet attributable to the asset impairment charge taken at year end 2010. Interest expense was US$1.8 million lower this quarter due to lower loan principal, and income tax expense was US$2.6 million lower due to lower year-to-date pre-tax income.

As of May 17th, 2011, the company had an outstanding Revolving Credit Facility balance of US$32.0 million, a cash balance of US$30.3 million and a net debt position of US$1.7 million.

Conference Call Information

Northern Offshore, Ltd. will conduct a teleconference with security analysts at 10 a.m. CT, May 19, 2011 to discuss the company's quarterly results. Individuals wishing to participate in the teleconference should call (866) 783-2141 (in the U.S.) or (857) 350-1600 (outside the U.S.) about five to ten minutes prior to the scheduled start time and refer to participant passcode 75060436.

The conference call also will be accessible by logging on to the company's website at http://www.northernoffshorelimited.com. After logging on, go to "Investor Relations" and select the conference call webcast.

About the Company

Northern Offshore, Ltd. is a Bermuda holding company which operates offshore oil and gas production and drilling vessels in various markets around the world, including the North Sea, the Indian Ocean, offshore Russia, the Mediterranean Sea and Southeast Asia. The company's fleet consists of one floating production facility and five drilling units (a drillship, a semisubmersible and three jackup drilling rigs). The company also provides rig management services, and is currently operating in this capacity on two semisubmersibles in the Caspian Sea. More information on Northern Offshore, Ltd. may be found by visiting the company's website at http://www.northernoffshorelimited.com.

For further information, please contact:
Brian Hefty at (713) 739-7686,
or via email at [email protected]

NORTHERN OFFSHORE, LTD. and SUBSIDIARIES
Consolidated Statements of Income
(Unaudited)

		Three Months Ended March 31,
*(Thousands of US Dollars, except per share amounts)*	Q4 2010	2011	2010
Revenue	69,020	40,452	68,090
Operating expenses:
Drilling and production	(25,523)	(26,423)	(22,709)
Depreciation	(14,675)	(7,944)	(14,068)
General & administrative	(1,078)	(1,752)	(2,319)
Impairment loss on fixed assets	(205,361)	-	-
Total operating expenses	(246,637)	(36,119)	(39,096)
Operating income / (loss)	(177,617)	4,333	28,994
Interest income	14	6	37
Interest expense	(1,000)	(601)	(2,395)
Amortization of deferred financing fees	(768)	(751)	(351)
Other financial items	(292)	(71)	(24)
Total other income/(expense), net	(2,046)	(1,417)	(2,733)
Income/(loss) before taxes	(179,663)	2,916	26,261
Income taxes - (expense)	(7,261)	(481)	(3,081)
Net income/ (loss)	(186,924)	2,435	23,180

Earnings per share (US$)
Basic	(1.21)	0.02	0.15
Diluted	(1.21)	0.02	0.15
Weighted average common shares (000’s)
Basic	154,474	154,747	154,032
Diluted	154,474	155,258	156,116

NORTHERN OFFSHORE, LTD. and SUBSIDIARIES
Consolidated Balance Sheets
(Unaudited)

*(Thousands of US Dollars)*	March 31, 2011	December 31, 2010
*Current assets*
Cash and cash equivalents	14,324	12,587
Restricted cash	6,445	6,445
Account receivables, net	42,479	55,686
Prepaid expenses	3,574	4,785
Deferred financing fees	1,528	2,279
Deferred mobilization costs	141	281
Other current assets	-	419
Total current assets	68,491	82,482
*Non-current assets*
Property, plant & equipment, net	257,352	252,397
Other noncurrent assets	3,831	1,677
Total non-current Assets	261,183	254,074
Total assets	329,674	336,556

*Current liabilities*
Accounts payable	33,702	17,528
Accrued expenses	12,146	18,616
Income tax payable	1,868	3,429
Current portion of debt	25,000	43,000
Deferred revenue	2,232	2,396
Total current liabilities	74,948	84,969
Total liabilities	74,948	84,969

*Shareholders' equity*
Share capital	39,457	39,176
Additional paid-in capital	167,055	166,632
Accumulated other comprehensive loss	(6,691)	(6,691)
Retained earnings	54,905	52,470
Total shareholders' equity	254,726	251,587
Total liabilities and shareholders' equity	329,674	336,556

NORTHERN OFFSHORE, LTD. and SUBSIDIARIES
Consolidated Statement of Cash Flows - (Unaudited)

	Three months ended March 31,
*(Thousands of US Dollars)*	2011	2010
Cash flows from operating activities
Net income	2,435	23,180
*Adjustments to reconcile net income to net cash*
*provided by operating activities:*
Stock-based compensation	860	775
Depreciation	7,944	14,068
Amortization of deferred financing fees	751	351
Loss on disposal of rig assets	1,176	-
*Changes in operating assets and working capital*
(Increase)/decrease in accounts receivable	13,207	(11,597)
Decrease in prepaid expenses	1,211	1,832
(Increase)/decrease in other current and noncurrent assets	(1,735)	99
Increase in accounts payable	4,029	15,166
Increase /(decrease) in other accrued liabilities	(6,460)	1,409
Increase/(decrease) in deferred revenue	(164)	4,473
Increase/(decrease) in income tax payable	(1,561)	523
Decrease in other long term liabilities	-	(4,701)
Other, net	132	(11)
Net cash provided by operating activities	21,825	45,567

Cash flows from investing activities
Capital expenditures	(1,930)	(707)
Release of restricted cash	-	1,151
Net cash used in investing activities	(1,930)	444

Cash flows from financing activities
Principal payment on revolver	(18,000)	-
Principal payment of bank term loan	-	(67,500)
Debt issuance costs	-	(576)
Payment for taxes on vested shares	(158)	(197)
Net cash used in financing activities	(18,158)	(68,273)

Net increase/(decrease) in cash and cash equivalents	1,737	(22,262)
Cash and cash equivalents at beginning of period	12,587	79,162
Cash and cash equivalents at end of period	14,324	56,900

Supplemental disclosure of cash flow information
Cash paid during the period for:
Income taxes	692	2,514
Interest	424	1,690

NORTHERN OFFSHORE, LTD. and SUBSIDIARIES
Consolidated Statements of Shareholders’ Equity
(Unaudited)

				Accumulated
	Common		Additional	other
	shares	Share	paid-in	comprehensive	Retained
*(Thousands of US Dollars)*	('000)	capital	capital	gain / (loss)	earnings	Total

Balance at January 1, 2010	155,320	38,829	165,750	(6,691)	193,601	391,489

Net (loss)	-	-	-	-	(141,131)	(141,131)
Issuance of restricted stock	1,388	347	(347)	-	-	-
Payments for taxes on vested shares	-	-	(443)	-	-	(443)
Stock-based compensation	-	-	1,672	-	-	1,672

Balance at December 31, 2010	156,708	39,176	166,632	(6,691)	52,470	251,587

Net income	-	-	-	-	2,435	2,435
Issuance of restricted stock	1,122	281	(281)	-	-	-
Payments for taxes on vested shares	-	-	(158)	-	-	(158)
Stock-based compensation	-	-	862	-	-	862

Balance at March 31, 2011	157,830	39,457	167,055	(6,691)	54,905	254,726

NORTHERN OFFSHORE, LTD. and SUBSIDIARIES
Reconciliation of GAAP to Non-GAAP Financial Results
(Unaudited)



		Three Months Ended
		March 31,
*(Thousands of US Dollars)*	Q4 2010	2011	2010

Net income / loss (GAAP)	(186,924)	2,435	23,180

Add Back:
Net interest expense	1,754	1,346	2,709
Income taxes	7,261	481	3,081
Depreciation	14,675	7,944	14,068
Impairment loss	205,361	-	-

Adjusted EBITDA (Non-GAAP)	42,127	12,206	43,038





Adjusted EBITDA is defined as Net Income before Interest, Taxes, Depreciation and Impairment Loss On Fixed Assets.

NORTHERN OFFSHORE, LTD. and SUBSIDIARIES
Operating Statistics
(Unaudited)


		Three Months Ended
		March 31,
	Q4 2010	2011	2010

Jackups (3)

Average rig utilization	21%	13%	33%
Operating days	59	35	90
Average revenue per day	72,300	49,588	86,782


Drillship (1)

Average rig utilization	67%	0%	100%
Operating days	62	0	90
Average revenue per day	400,676	0	334,596


Semisubmersible (1)

Average rig utilization	100%	100%	100%
Operating days	92	90	90
Average revenue per day	225,776	228,809	233,937

Total Drilling Rigs (5)

Average rig utilization	46%	28%	60%
Operating days	213	125	270
Average revenue per day	234,174	178,613	218,441

Floating Production Facility (1)

Days in period	92	90	90
Production days	92	90	90
Average bpd	28,816	29,722	11,224
Average tariff revenue per day	166,374	178,336	58,119
Average other revenue per day	8,099	2,649	8,867
Total average revenue per day	174,473	180,985	66,986

Note 1:	Operating days represent actual days under contract.

Note 2:	Northern Producer commenced first oil on April 28, 2009. Average tariff per day is calculated based on number days in the period from commencement of first oil. From April 1 to April 27 the company received contractual dayrate of US$30,000 per day.

Note 3:	In Q1'11 we earned an average dayrate of US$20,409 per day for the three months ended March 31, 2011 for provision of rig management services for two semisubmersibles in the Caspian Sea which commenced October 1, 2009.

Note 4:	Costs which are reimbursed by the client are included in the average revenue per day calculation.