Northern Offshore Reports First Quarter 2014 Results

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May 14, 2014, 06:43 ET

HOUSTON, May 14, 2014 /PRNewswire/ --

Highlights
(All $ in USD)

Northern Offshore, Ltd. (Oslo Bors: NOF.OL) today reported net income for the three months ended March 31, 2014 of $10.0 million, or $0.06 per diluted share, on revenues of $49.4 million.
The company generated $20.3 million of first quarter adjusted EBITDA.
Second of three one-year options exercised for the Energy Enhancer.
100% of the fleet contracted.
Steel cutting commenced in April for the first new build jackup.
The company's directors have declared a dividend of $0.05 per share, or approximately $8.2 million.
The directors are evaluating a plan to spin off a portion of ownership in the Northern Producer.

First Quarter Analysis

Net income for the three months ended March 31, 2014 of $10.0 million, or $0.06 per diluted share, on revenues of $49.4 million compares to net income of $1.1 million, or $0.01 per diluted share, for the first quarter of 2013, on revenues of $41.4 million.

Revenues for the three months ended March 31, 2014 were $8.0 million higher than the same period in 2013, primarily due to higher operating efficiencies of the semisubmersible Energy Driller, and higher dayrates for the jackups Energy Endeavour and Energy Enhancer. Slightly offsetting these increases was a decrease in tariff revenues for the floating production facility Northern Producer due to lower production during the quarter as compared to the same period last year.

Tariff revenues from the floating production facility Northern Producer averaged approximately $96,000 per day in the first quarter of 2014. The company expects pricing levels to remain stable and production to decline slightly before completion of an additional well in the Don SW field later this year.

Drilling and production expenses for the three months ended March 31, 2014 were $3.1 million lower as compared to the same period in 2013, primarily due to a decrease in operating expenses for the drillship Energy Searcher. Partially offsetting this decrease was an increase in operating expenses for the jackup Energy Endeavour primarily due to higher labor costs. First quarter 2014 depreciation, general and administrative expenses, interest expense, amortization of deferred financing fees and other financial items were comparable to those of the same period in 2013.

As of today, the company has an outstanding credit facility balance of $47 million and an unrestricted cash balance of approximately $37 million.

The company's directors have declared a dividend of $0.05 per share, or approximately $8.2 million. Shareholders of record with the VPS on May 30, 2014 will be entitled to receive the dividend, which will be paid on or around June 16, 2014. The shares of the company will be trading ex-dividend from May 28, 2014.

Management Comment

Gary W. Casswell, Northern Offshore's president and CEO, commented, "We are pleased with our first quarter results. Our operations personnel did their part in managing our rigs which contributed to our higher profit margin for the quarter. We expect to see continuous improvement in EBTIDA throughout the year as the Energy Searcher will commence drilling operations soon, resulting in all five of our units earning revenue.

With respect to the Northern Producer, our client EnQuest has plans to drill another development well this year in the Don SW field, and is producing a Field Development Plan ("FDP") for the Don NE field. Should the FDP result in additional development drilling in Don NE, earnings from the Northern Producer could increase substantially. As such, our board of directors recently requested that management investigate the possibility of spinning off the Northern Producer and its life-of-field contract. The board believes that a spinoff of the Northern Producer could unlock value for the shareholders and allow the remaining company to focus exclusively on growing its contract drilling business.

The intent would be to establish a publicly traded company to own and operate the Northern Producer, with a focus on cash distributions to the shareholders. Initially the plan is to consider distributing approximately 20% of this new company to the shareholders of Northern Offshore. This company would also consider the acquisition of similar assets with long-dated contracts to enhance dividends.

Last year, Northern Offshore ordered two new jackup rigs and will continue to focus on growing the offshore drilling business by providing customers with modern equipment operated by a best in class organization. In April, we cut steel on the first new jackup, the Energy Engager, a major milestone for the company."

Conference Call Information

Northern Offshore, Ltd. will conduct a teleconference with security analysts at 9 a.m. CT, May 15, 2014 to discuss the company's quarterly results. Individuals wishing to listen to the teleconference should call (866) 700-5192 (in the U.S.) or (617) 213-8833 (outside the U.S.) about five to ten minutes prior to the scheduled start time and refer to participant password 39106125.

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 drilling units and one production vessel in various markets around the world, including the North Sea, the Indian Ocean, Southeast Asia and West Africa. The company's fleet consists of four drilling units (a drillship, a semisubmersible and two jackup drilling rigs) and one floating production facility. Additionally, the company has under construction two 350' high specification jackup drilling rigs, with delivery expected in the first and third quarters of 2016. 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]

This announcement contains statements that reflect the company's expectations or predictions of the future. These statements are forward-looking statements. These forward-looking statements may include statements regarding earnings guidance, capital allocation strategy, the impact of activity levels, business performance, and other market and industry conditions. The company's actual results could differ materially from those reflected in such forward-looking statements. Additional information concerning factors that could cause actual results to differ materially from those in the forward-looking statements is contained from time to time in the company's regulatory filings. The company disclaims any intention or obligation to revise any forward-looking statements, including financial estimates, whether as a result of new information, future events or otherwise.

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

		Three Months Ended March 31,
*(Thousands of US Dollars, except per share amounts)*	Q4 2013	2014	2013
Revenues	46,778	49,432	41,413
Operating expenses:
Drilling and production	(27,929)	(26,949)	(30,079)
Depreciation	(8,094)	(8,297)	(7,937)
General & administrative	(2,135)	(2,142)	(2,011)
Total operating expenses	(38,158)	(37,388)	(40,027)
Operating income	8,620	12,044	1,386
Interest expense	(365)	(426)	(395)
Amortization of deferred financing fees	(116)	(121)	(121)
Other financial items	(300)	(45)	469
Total other expense	(781)	(592)	(47)
Income before taxes	7,839	11,452	1,339
Income taxes (expense)/benefit	(1,934)	(1,449)	(275)
Net income	5,905	10,003	1,064

Earnings per share (US$)
Basic	0.04	0.06	0.01
Diluted	0.04	0.06	0.01

Weighted average common shares (000's)
Basic	157,625	159,091	157,060
Diluted	157,625	159,093	157,217

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

*(Thousands of US Dollars)*	March 31, 2014	December 31, 2013
*Current assets*
Cash and cash equivalents	24,925	19,537
Restricted cash	1,000	1,000
Accounts receivable, net	29,031	24,158
Prepaid expenses	3,255	3,508
Deferred mobilization costs	16,338	2,202
Deferred insurance premium	1,624	1,627
Other current assets	1,261	1,382
Total current assets	77,434	53,414
*Noncurrent assets*
Property, plant & equipment, net	211,216	198,158
Restricted cash, net of current portion	5,436	5,436
Noncurrent deposit/escrow account	10,404	9,222
Deferred mobilization costs, net of current portion	61	368
Drydock costs, net of current portion	2,300	2,859
Other noncurrent assets	1,360	1,665
Total noncurrent assets	230,777	217,708
Total assets	308,211	271,122
*Current liabilities*
Accounts payable	13,356	9,275
Accrued expenses	19,796	20,196
Income taxes payable	1,732	1,282
Affiliated debt	47,000	22,000
Deferred revenue	5,785	-
Total current liabilities	87,669	52,753
*Shareholders' equity*
Share capital	40,850	40,933
Additional paid-in capital	175,875	175,462
Accumulated other comprehensive loss	(6,691)	(6,691)
Retained earnings	10,508	8,665
Total shareholders' equity	220,542	218,369
Total liabilities and shareholders' equity	308,211	271,122

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

	Three months ended March 31,
*(Thousands of US Dollars)*	2014	2013
Cash flows from operating activities
Net income	10,003	1,064
*Adjustments to reconcile net income to net cash provided by operating activities:*
Stock-based compensation	1,174	1,470
Depreciation	8,297	7,937
Amortization of deferred financing fees	121	121
Gain on disposal of assets	(325)	(29)

*Changes in operating assets and working capital*
Accounts receivable	(4,548)	3,866
Prepaid expenses	253	647
Deferred mobilization costs	(13,829)	797
Other current and noncurrent assets	718	932
Accounts payable	1,380	(6,839)
Other accrued liabilities	(604)	(568)
Deferred revenue	5,785	(1,031)
Income taxes payable	450	(338)
Other, net	21	-
Net cash provided by operating activities	8,896	8,029

Cash flows from investing activities
Capital expenditures - existing fleet	(529)	(2,189)
Capital expenditures - newbuild jackups	(17,997)	-
Changes in restricted cash	-	(150)
Changes in noncurrent deposit/escrow account	(1,182)	(1,900)
Net cash used in investing activities	(19,708)	(4,239)

Cash flows from financing activities
Proceeds from drawdown of revolver facility	25,000	-
Payment for taxes on vested shares	(844)	(274)
Dividends paid	(7,956)	(7,986)
Net cash provided by/(used in) financing activities	16,200	(8,260)

Net changes in cash and cash equivalents	5,388	(4,470)
Cash and cash equivalents at beginning of period	19,537	26,504
Cash and cash equivalents at end of period	24,925	22,034

Supplemental disclosure of cash flow information
Cash paid during the period for:
Income taxes	250	87

Significant non-cash transactions during the period for:
Accrued capital expenditures	2,850	1,968
Accrued dividends	204	188

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	loss	earnings	Total

Balance at December 31, 2012	160,488	40,122	170,985	(6,691)	30,007	234,423

Net income	-	-	-	-	1,064	1,064
Issuance of restricted stock	3,064	766	(766)	-	-	-
Payments for taxes on vested shares	-	-	(274)	-	-	(274)
Stock-based compensation	-	-	1,470	-	-	1,470
Common shares dividends	-	-	-	-	(8,174)	(8,174)
Balance at March 31, 2013	163,552	40,888	171,415	(6,691)	22,897	228,509

Balance at December 31, 2013	163,732	40,933	175,462	(6,691)	8,665	218,369

Net income	-	-	-	-	10,003	10,003
Issuance of restricted stock	(333)	(83)	83	-	-	-
Payments for taxes on vested shares	-	-	(844)	-	-	(844)
Stock-based compensation	-	-	1,174	-	-	1,174
Common shares dividends	-	-	-	-	(8,160)	(8,160)
Balance at March 31, 2014	163,399	40,850	175,875	(6,691)	10,508	220,542

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



		Three Months Ended
		March 31,
*(Thousands of US Dollars)*	Q4 2013	2014	2013

Net income (GAAP)	5,905	10,003	1,064

Add Back:
Net interest expense	481	547	516
Income taxes	1,934	1,449	275
Depreciation	8,094	8,297	7,937
Other financial items	300	45	(469)

Adjusted EBITDA (Non-GAAP)	16,714	20,341	9,323


Adjusted EBITDA is defined as Net Income before Interest, Taxes, Depreciation and Other Financial Items

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

		Three Months Ended
		March 31,
	Q4 2013	2014	2013

Jackups (2)

Average rig utilization	91%	100%	100%
Operating days	167	180	180
Average revenue per day	132,046	139,435	105,545

Drillship (1)

Average rig utilization	0%	0%	0%
Operating days	0	0	0
Average revenue per day	0	0	0

Semisubmersible (1)

Average rig utilization	100%	100%	100%
Operating days	92	90	90
Average revenue per day	169,071	172,416	138,013

Total Drilling Rigs (4)

Average rig utilization	70%	75%	75%
Operating days	259	270	270
Average revenue per day	145,198	150,536	116,368

Floating Production Facility (1)

Days in period	92	90	90
Production days	92	90	90
Average bpd	16,369	16,009	18,273
Average tariff revenue per day	98,217	96,057	109,636
Average other revenue per day	1,474	1,579	1,406
Total average revenue per day	99,691	97,636	111,042