Northern Offshore Reports Third Quarter and Nine Month 2014 Financial Results

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Nov 05, 2014, 06:41 ET

HOUSTON, Nov. 5, 2014 /PRNewswire/ --

Highlights
(All $ in USD)

Northern Offshore, Ltd. (Oslo Bors: NOF.OL) today reported net income for the three months ended September 30, 2014, of $5.2 million, or $0.03 per diluted share, on revenues of $63.6 million.
The Company generated $15.0 million of third quarter adjusted EBITDA.
The current client for the jackup Energy Endeavour exercised its second and final contract extension option which is expected to keep the rig employed through March 2015.
The Company paid down $8.0 million of its current revolver debt.
The Company's directors have declared a dividend of $0.05 per share, or approximately $8.0 million.

Management Comment

Gary W. Casswell, Northern Offshore's President and CEO, commented;

"While the Company's third quarter results were somewhat negatively impacted by the previously announced unplanned downtime for the Energy Searcher, we were pleased that our operations personnel were able to expedite the successful replacement of the blowout preventer control system hoses allowing the rig to return to normal operations ahead of schedule. Going forward, we expect fourth quarter results to improve based upon the strength of the fleet's increased operating performance."

Mr. Casswell further commented that, "I am pleased to announce that following a review of our financial results for the third quarter, our Board of Directors have approved payment of $0.05 per share to shareholders of record. "

With respect to the previously announced plans for a strategic disposal of the Northern Producer, Mr. Casswell said; "Over the course of the last few months, we have reviewed specific opportunities to increase shareholder value with respect to an outright sale or other special purpose option for monetizing the unit, however, as of this time, we have not found the appropriate solution to unlock what we believe is the full value of the Northern Producer. Nevertheless, our continuing initiative to find the right opportunity will remain a strategic focus."

Third Quarter Analysis

For the nine months ended September 30, 2014, net income was $24.5 million, or $0.15 per diluted share. For the same period in the prior year, net income was $5.4 million, or $0.03 per diluted share. Revenues for the first nine months of 2014 were $168.5 million, compared to $128.1 million for the same period in 2013.

Net income for the three months ended September 30, 2014, was $5.2 million, or $0.03 per diluted share. This compares to net income of $2.7 million, or $0.01 per diluted share for the third quarter of 2013. Revenues for the third quarter of 2014 were $63.6 million, compared to $42.6 million for the third quarter of 2013.

Revenues for the three months ended September 30, 2014, were higher compared to the same period of 2013, primarily due to the increase in dayrate revenues from the drillship Energy Searcher as the unit commenced its contract with CAMAC last quarter coupled with higher utilization and dayrate increases for the jackup fleet.

The tariff revenues from the Northern Producer averaged approximately $86,000 per day in the third quarter of 2014. The Company expects pricing levels to decline slightly in the near term as the price of N. Sea Brent has fallen below $90 per barrel with production decreasing in line with forecast decline rates.

Drilling and production expenses for the third quarter of 2014 were $18.1 million higher when compared with the same period in 2013, primarily due to the increase in operating costs for the drillship Energy Searcher and the jackup fleet resulting from higher utilization and higher labor costs associated with change in operating locations.

Third quarter 2014 depreciation, general and administrative expenses, interest expense and amortization of deferred financing fees were comparable to those of the same period in 2013. Other financial items were $1.1 million lower than the same period last year due to favorable foreign currency exchange rates fluctuations.

As of November 1, 2014, the Company had an outstanding revolver balance of $29.0 million and a cash balance of $15.0 million.

The Company's directors have declared a dividend of $0.05 per share, or approximately $8.0 million. Shareholders of record with the VPS on November 28, 2014 will be entitled to receive the dividend, which will be paid on or around December 15, 2014. The shares of the Company will be trading ex-dividend from November 26, 2014.

Conference Call Information

Northern Offshore, Ltd. will conduct a teleconference with security analysts at 9 a.m. CT, November 6, 2014, to discuss the Company's quarterly results. Individuals wishing to participate in the teleconference should call (877) 474-9504 (in the U.S.) or (857) 244-7557 (outside the U.S.) about five to ten minutes prior to the scheduled start time and refer to participant password 96027212.

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:
Paul Ravesies 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 September 30,		Nine Months Ended September 30,
*(Thousands of US Dollars, except per share amounts)*	Q2 2014	2014	2013	2014	2013
Revenues	55,531	63,555	42,556	168,518	128,086
Operating expenses:
Drilling and production	(33,526)	(46,764)	(28,703)	(107,240)	(88,152)
Depreciation	(8,296)	(8,429)	(8,036)	(25,022)	(23,801)
General & administrative	(1,910)	(1,771)	(2,083)	(5,822)	(6,127)
Total operating expenses	(43,732)	(56,964)	(38,822)	(138,084)	(118,080)
Operating income	11,799	6,591	3,734	30,434	10,006
Interest expense	(543)	(556)	(369)	(1,526)	(1,147)
Amortization of deferred financing fees	(40)	-	(123)	(161)	(366)
Other financial items	(467)	295	(795)	(218)	(1,380)
Total other expense	(1,050)	(261)	(1,287)	(1,905)	(2,893)
Income before taxes	10,749	6,330	2,447	28,529	7,113
Income taxes (expense)/benefit	(1,467)	(1,141)	230	(4,057)	(1,713)
Net income	9,282	5,189	2,677	24,472	5,400

Earnings per share (US$)
Basic	0.06	0.03	0.01	0.15	0.03
Diluted	0.06	0.03	0.01	0.15	0.03

Weighted average common shares (000's)
Basic	159,270	159,595	157,556	159,319	157,294
Diluted	159,361	160,483	157,556	159,646	157,351

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

*(Thousands of US Dollars)*	September 30, 2014	December 31, 2013
*Current assets*
Cash and cash equivalents	15,527	19,537
Restricted cash	6,436	1,000
Accounts receivable, net	34,210	24,158
Prepaid expenses	3,694	3,508
Deferred mobilization costs	16,211	2,202
Deferred insurance premium	3,036	1,627
Other current assets	671	1,382
Total current assets	79,785	53,414
*Noncurrent assets*
Property, plant & equipment - existing fleet, net	162,991	180,329
Property, plant & equipment - newbuild jackups	52,942	17,829
Restricted cash, net of current portion	-	5,436
Noncurrent deposit/escrow account	12,029	9,222
Deferred mobilization costs, net of current portion	-	368
Drydock costs, net of current portion	1,367	2,859
Other noncurrent assets	1,482	1,665
Total noncurrent assets	230,811	217,708
Total assets	310,596	271,122
*Current liabilities*
Accounts payable	11,921	9,275
Accrued expenses	15,816	20,196
Income taxes payable	2,295	1,282
Affiliated debt	37,000	22,000
Deferred revenue	6,120	-
Total current liabilities	73,152	52,753
*Non-current liabilities*
Other long-term liabilities	16,465	-
Total liabilities	89,617	52,753

*Shareholders' equity*
Share capital	41,211	40,933
Additional paid-in capital	177,904	175,462
Accumulated other comprehensive loss	(6,691)	(6,691)
Retained earnings	8,555	8,665
Total shareholders' equity	220,979	218,369
Total liabilities and shareholders' equity	310,596	271,122

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

	Nine months ended September 30,
*(Thousands of US Dollars)*	2014	2013
Cash flows from operating activities
Net income	24,472	5,400
*Adjustments to reconcile net income to net cash*
*provided by operating activities:*
Stock-based compensation	3,699	4,392
Depreciation	25,022	23,801
Amortization of deferred financing fees	161	366
Gain on disposal of assets	(267)	(155)

*Changes in operating assets and working capital*
Accounts receivable	(10,052)	5,617
Prepaid expenses	(186)	208
Deferred mobilization costs	(13,641)	1,903
Other current and noncurrent assets	2,019	2,663
Accounts payable	307	(4,468)
Other accrued liabilities	(4,365)	2,672
Deferred revenue	6,120	(2,062)
Income taxes payable	1,013	(685)
Net cash provided by operating activities	34,302	39,652

Cash flows from investing activities
Capital expenditures - existing fleet	(6,566)	(5,014)
Capital expenditures - newbuild jackups	(18,646)	-
Changes in restricted cash	-	(1,000)
Changes in noncurrent deposit/escrow account	(2,807)	(3,060)
Proceeds from disposal of assets, net	267	155
Net cash used in investing activities	(27,752)	(8,919)

Cash flows from financing activities
Proceeds from drawdown of revolver facility	25,000	-
Principal payments on revolver facility	(10,000)	-
Payment for taxes on vested shares	(979)	(380)
Dividends paid	(24,581)	(23,861)
Net cash used in financing activities	(10,560)	(24,241)

Net changes in cash and cash equivalents	(4,010)	6,492
Cash and cash equivalents at beginning of period	19,537	26,504
Cash and cash equivalents at end of period	15,527	32,996

Supplemental disclosure of cash flow information
Cash paid during the period for:
Income taxes	689	407
Interest	698	450

Significant non-cash transactions during the period for:
Accrued capital expenditures	17,601	2,286
Accrued dividends	-	639

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	-	-	-	-	5,400	5,400
Issuance of restricted stock	3,389	847	(847)	-	-	-
Payments for taxes on vested shares	-	-	(380)	-	-	(380)
Stock-based compensation	-	-	4,392	-	-	4,392
Common shares dividends	-	-	-	-	(24,501)	(24,501)
Balance at September 30, 2013	163,877	40,969	174,150	(6,691)	10,906	219,334

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

Net income	-	-	-	-	24,472	24,472
Issuance of restricted stock	1,114	278	(278)	-	-	-
Payments for taxes on vested shares	-	-	(979)	-	-	(979)
Stock-based compensation	-	-	3,699	-	-	3,699
Common shares dividends	-	-	-	-	(24,582)	(24,582)
Balance at September 30, 2014	164,846	41,211	177,904	(6,691)	8,555	220,979

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



		Three Months Ended		Nine Months Ended
		September 30,		September 30,
*(Thousands of US Dollars)*	Q2 2014	2014	2013	2014	2013

Net income (GAAP)	9,282	5,189	2,677	24,472	5,400

Add Back:
Net interest expense	583	556	492	1,687	1,513
Income taxes	1,467	1,141	(230)	4,057	1,713
Depreciation	8,296	8,429	8,036	25,022	23,801
Other financial items	467	(295)	795	218	1,380

Adjusted EBITDA (Non-GAAP)	20,095	15,020	11,770	55,456	33,807





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		Nine Months Ended
		September 30,		September 30,
	Q2 2014	2014	2013	2014	2013

Jackups (2)

Average rig utilization	100%	100%	67%	100%	86%
Operating days	182	184	123	546	470
Average revenue per day	137,202	147,504	133,480	141,410	116,513

Drillship (1)

Average rig utilization	23%	100%	0%	41%	0%
Operating days	21	92	0	113	0
Average revenue per day	285,034	147,626	0	173,162	0

Semisubmersible (1)

Average rig utilization	100%	100%	100%	100%	100%
Operating days	91	92	92	273	273
Average revenue per day	172,958	160,294	170,841	168,512	155,128

Total Drilling Rigs (4)

Average rig utilization	81%	100%	58%	85%	68%
Operating days	294	368	215	932	743
Average revenue per day	158,730	150,732	149,467	153,198	130,701

Floating Production Facility (1)

Days in period	91	92	92	273	273
Production days	91	92	92	273	273
Average bpd	15,973	14,392	18,643	15,452	18,676
Average tariff revenue per day	95,836	86,353	111,855	92,713	112,057
Average other revenue per day	1,580	1,535	1,415	1,565	1,404
Total average revenue per day	97,416	87,888	113,270	94,278	113,461


Note 1: Operating days represent actual days under contract.

Note 2: Costs which are reimbursed by the client are included in the average revenue per day calculation.