Northern Offshore Reports Fourth Quarter and Preliminary Full Year 2010 Results

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Feb 23, 2011, 05:45 ET

HOUSTON, Feb. 23, 2011 /PRNewswire/ -- Northern Offshore, Ltd. (Oslo Bors: NOF.OL) today reported that the financial results for the current quarter included an after-tax, non-cash charge of US$205.4 million, or US$1.32 per diluted share, due to a valuation impairment of the jackup fleet. As a result, the company reported a net loss for the three months ended December 31, 2010 of US$186.9 million, or US$1.21 per diluted share, on revenues of US$69.0 million. Excluding the impairment charge, fourth quarter 2010 net income would have been US$18.4 million, or US$0.12 per diluted share. This compares to net income of US$17.4 million, or US$0.11 per diluted share, for the fourth quarter of 2009, on revenues of US$69.2 million.

The valuation impairment was calculated in accordance with US generally accepted accounting principles, which required that the carrying value of the company's assets be adjusted to reflect their fair market value. The fair market value of the fleet was evaluated based on the most recent valuations performed on the company's assets in December 2010.

For the full year ended December 31, 2010, the net loss was US$141.1 million or US$0.91 per diluted share. Excluding the above impairment charge and a US$4.4 million maintenance charge for the floating production facility Northern Producer taken in the third quarter, the company would have reported net income of US$68.6 million, or US$0.44 per diluted share, for the full year of 2010. This compares to net income of US$78.8 million or US$0.51 per diluted share for 2009, excluding a US$3.7 million bad debt expense taken in the prior year. Revenues in 2010 were US$257.5 million, as compared to US$279.2 million reported in 2009.

Gary W. Casswell, Northern Offshore's president and CEO, commented "We are pleased with our year-end operating results and the strengthening of our balance sheet throughout the year. Our financial performance in the first quarter of 2011 should be supported by solid cash flow from the floating production facility Northern Producer and semisubmersible Energy Driller, but negatively affected by the shipyard stay for the drillship Energy Searcher. We see improvement in the Southern North Sea market and expect the financial contributions from our jackup fleet to improve as we reduce idle costs and execute new contracts."

As of February 22, 2011, the company has a strong balance sheet, with an outstanding Revolving Credit Facility balance of US$34.0 million, a cash balance of US$23.2 million and a net debt position of US$10.8 million. The Revolving Credit Facility balance at year-end 2010 was US$43.0 million, down US$32.0 million from the third quarter of 2010. Cash at year-end 2010 was US$19.0 million, of which US$12.6 million was unrestricted, leaving the company in a net debt position of US$24.0 million as of December 31, 2010.

The tariff from the floating production facility Northern Producer increased from an average of US$123,000 per day in third quarter to US$166,000 per day in the fourth quarter of 2010, reflecting increases in production volumes and higher oil prices. The company expects production and price levels to remain strong in the near term.

The drillship Energy Searcher is currently undergoing a required five-year special periodic survey and dry-docking in Singapore. The present budget for the dry-docking, which is expected to be completed in April 2011, is approximately US$21.0 million. The company is actively marketing the Energy Searcher and has several interesting leads for both short- and long-term opportunities.

Mr. Casswell concluded "Although the Northern Offshore fleet is not of the latest generation, we are optimistic that the company will be able to deliver solid results by generating operational cash flow from existing and new contracts while minimizing expenditures."

Fourth Quarter Analysis

Revenues for the three months ended December 31, 2010 were comparable to the same period of 2009. Decreases in revenue this quarter attributable to lower utilization of the jackup Energy Endeavour and drillship Energy Searcher were offset by higher utilization of the jackup Energy Enhancer and higher tariff revenue from the floating production facility Northern Producer.

Drilling and production expenses for the fourth quarter of 2010 were US$3.7 million lower compared to the same period of 2009 due to lower utilization of the fleet in the 2010 quarter. General & administrative expenses were US$1.5 million lower this quarter as compared to the prior year fourth quarter due primarily to an executive separation charge in the 2009 fourth quarter.

The information contained in this press release is preliminary and is subject to change until the release of the 2010 audited accounts as approved by the Board of Directors.

Conference Call Information

Northern Offshore, Ltd. will conduct a teleconference with security analysts at 9 a.m. CT, February 24, 2011 to discuss the company's quarterly results. Individuals wishing to participate in the teleconference should call (866) 788-0546 (in the U.S.) or (857) 350-1684 (outside the U.S.) about five to ten minutes prior to the scheduled start time and refer to participant password 30155989.

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 December 31,		Twelve Months Ended December 31,

*(Thousands of US Dollars, except per share amounts)*	Q3 2010	2010	2009	2010	2009

Revenue	71,524	69,020	69,178	257,488	279,169
Operating expenses:
Drilling and production	(27,258)	(25,523)	(29,177)	(104,680)	(117,804)
Depreciation	(14,698)	(14,675)	(15,520)	(58,110)	(62,033)
General & administrative	(1,445)	(1,078)	(2,571)	(7,213)	(8,588)
Impairment loss on fixed assets	-	(205,361)	-	(205,361)	-
Bad debt	-	-	-	-	(3,840)
Total operating expenses	(43,401)	(246,637)	(47,268)	(375,364)	(192,265)
Operating income / (loss)	28,123	(177,617)	21,910	(117,876)	86,904
Interest income	11	14	60	90	310
Interest expense	(1,187)	(1,000)	(1,949)	(6,326)	(10,197)
Amortization of drilling contract intangibles	-	-	-	-	5,887
Amortization of deferred financing fees	(777)	(768)	(397)	(2,573)	(1,587)
Other financial items	69	(292)	(1,248)	(560)	(398)
Total other income/(expense), net	(1,884)	(2,046)	(3,534)	(9,369)	(5,985)
Income/(loss) before taxes	26,239	(179,663)	18,376	(127,245)	80,919
Income taxes - (expense)	(3,101)	(7,261)	(973)	(13,886)	(5,860)
Net income/ (loss)	23,138	(186,924)	17,403	(141,131)	75,059

Earnings per share (US$)
Basic	0.15	(1.21)	0.11	(0.91)	0.49
Diluted	0.15	(1.21)	0.11	(0.91)	0.49
Weighted average common shares (000’s)
Basic	154,437	154,474	153,327	154,358	153,161
Diluted	155,332	155,657	154,845	155,848	153,797

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

*(Thousands of US Dollars)*	December 31, 2010	December 31, 2009
*Current assets*
Cash and cash equivalents	12,587	79,162
Restricted cash	6,445	9,371
Account receivables, net	55,686	35,423
Prepaid expenses	4,785	6,097
Deferred financing fees	2,279	561
Deferred mobilization costs	281	601
Other current assets	419	-
Total current assets	82,482	131,215
*Non-current assets*
Property, plant & equipment, net	252,397	499,594
Restricted cash, net of current portion	-	6,438
Deferred mobilization cost, net of current portion	-	382
Other noncurrent assets	1,677	-
Total non-current Assets	254,074	506,414
Total assets	336,556	637,629
*Current liabilities*
Accounts payable	17,528	12,917
Accrued expenses	18,616	21,467
Income tax payable	3,429	3,762
Current portion of debt	43,000	197,500
Deferred revenue	2,396	2,076
Total current liabilities	84,969	237,722
*Non-current liabilities*
Deferred revenue, net of current portion	-	2,396
Other long-term liabilities	-	6,022
Total non-current liabilities	-	8,418
Total liabilities	84,969	246,140

*Shareholders' equity*
Share capital	39,176	38,829
Additional paid-in capital	166,632	165,750
Accumulated other comprehensive loss	(6,691)	(6,691)
Retained earnings	52,470	193,601
Total shareholders' equity	251,587	391,489
Total liabilities and shareholders' equity	336,556	637,629

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

	Twelve months ended December 31,
*(Thousands of US Dollars)*	2010	2009
Cash flows from operating activities
Net (loss) / income	(141,131)	75,059
*Adjustments to reconcile net income to net cash*
*provided by operating activities:*
Bad debt expense	-	3,840
Stock-based compensation	1,672	1,438
Depreciation	58,110	62,033
Impairment loss on fixed assets	205,361	-
Amortization of drilling contract intangibles	-	(5,887)
Amortization of deferred financing fees	2,573	1,586
Interest, net	(234)	(375)
*Changes in operating assets and working capital*
(Increase)/decrease in accounts receivable	(6,492)	11,042
Decrease in prepaid expenses	1,312	11,358
Increase in other current assets	(319)	(100)
Decrease in accounts payable	(9,160)	(3,244)
Decrease in other accrued liabilities	(11,668)	(2,292)
Decrease in deferred revenue	(2,076)	(20,809)
Decrease in income tax payable	(333)	(5,367)
Other, net	(1,069)	(733)
Net cash provided by operating activities	96,546	127,549

Cash flows from investing activities
Capital expenditures	(13,246)	(16,371)
Release of restricted cash	9,394	-
Funding of restricted cash	-	(1,250)
Proceeds from sale of equipment	-	475
Net cash used in investing activities	(3,852)	(17,146)

Cash flows from financing activities
Proceeds from drawdown of revolver	100,000	-
Principal payment on revolver	(57,000)	-
Payoff of bond loan	(100,000)	-
Principal payment of bank term loan	(97,500)	(90,000)
Deferred financing fees	(4,326)	-
Payment for taxes on vested shares	(443)	-

Net cash used in financing activities	(159,269)	(90,000)

Net decrease / increase in cash and cash equivalents	(66,575)	20,403
Cash and cash equivalents at beginning of period	79,162	58,759
Cash and cash equivalents at end of period	12,587	79,162

Supplemental disclosure of cash flow information
Cash paid during the period for:
Income taxes	14,296	4,638
Interest	4,987	10,163

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, 2009	153,124	38,281	164,860	(6,691)	118,542	314,992

Net income	-	-	-	-	75,059	75,059
Issuance of restricted stock	2,196	548	(548)	-	-	-
Stock-based compensation	-	-	1,438	-	-	1,438

Balance at December 31, 2009	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

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



		Three Months Ended		Twelve Months Ended
		December 31,		December 31,
*(Thousands of US Dollars)*	Q3 2010	2010	2009	2010	2009

Net income / loss (GAAP)	23,138	(186,924)	17,403	(141,131)	75,059

Add Back:
Net interest expense	1,953	1,754	2,286	8,809	11,474
Income taxes	3,101	7,261	973	13,886	5,860
Depreciation	14,698	14,675	15,520	58,110	62,033
Amortization	-	-	-	-	(5,887)
Impairment loss	-	205,361	-	205,361	-

Adjusted EBITDA (Non-GAAP)	42,890	42,127	36,182	145,035	148,539



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

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


			Three Months Ended		Twelve Months Ended
			December 31,		December 31,
		Q3 2010	2010	2009	2010	2009

	Jackups (3)

	Average rig utilization	33%	21%	33%	25%	71%
	Operating days	92	59	92	272	781
	Average revenue per day	69,564	72,300	93,979	75,730	133,930


	Drillship (1)

	Average rig utilization	100%	67%	100%	92%	62%
	Operating days	92	62	92	335	227
	Average revenue per day	309,964	400,676	327,038	283,193	317,148


	Semisubmersible (1)

	Average rig utilization	100%	100%	100%	100%	100%
	Operating days	92	92	92	365	365
	Average revenue per day	232,004	225,776	227,922	226,371	219,993

	Total Drilling Rigs (5)

	Average rig utilization	60%	46%	60%	53%	75%
	Operating days	276	213	276	972	1,373
	Average revenue per day	203,844	234,174	216,313	203,800	187,146

	Floating Production Facility (1)

	Days in period	92	92	92	365	365
	Production days from April 28, 2009	92	92	92	365	248
	Average bpd (from April 28th)	24,024	28,816	12,389	22,361	12,389
	Average tariff revenue per day	123,203	166,374	61,111	120,100	57,808
	Average other revenue per day	8,109	8,099	8,775	8,461	13,140
	Total average revenue per day	131,305	174,473	69,886	128,561	52,415



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 Q4'10 we earned an average dayrate of US$33,578 per day for the three months ended December 31, 2010 and US$34,163 per day for the twelve months ended December 31, 2010 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.