Shelf Drilling, Ltd. announces results for the third quarter of 2020 ending September 30.
David Mullen, Chief Executive Officer, commented: “The sequential declines in Revenue and EBITDA during the third quarter of 2020 reflect a number of drilling contracts which were suspended, terminated or not extended as a result of the COVID-19 pandemic and the subsequent deterioration in oil price, the effects of which are impacting the entire drilling industry. At the end of the quarter, however, a total of 30 of our rigs remained under contract. The resilient quarterly EBITDA margin of 31% is the result of our sustained operating performance and very aggressive cost saving measures initiated in April 2020 in response to a challenging market outlook caused by the pandemic. As anticipated, rig demand has further deteriorated with additional pressure on utilization and dayrates due to the on-going market uncertainty. While we expect this situation to persist in the near to medium term, I am also convinced that our proactive steps taken to navigate this pandemic, combined with our best-in-class operating platform and established customer relationships will continue to differentiate us as the international jack-up contractor of choice.”
Third Quarter Highlights
• Q3 2020 Revenues of $127.4 million, a 17.8% sequential decrease compared to Q2 2020.
• Q3 2020 Adjusted EBITDA of $39.3 million, representing an Adjusted EBITDA Margin of 31%.
• Q3 2020 Net Loss of $7.7 million.
• Q3 2020 Capital Expenditures and Deferred Costs totaled $26.5 million, including $9.9 million associated with rig acquisitions.
• The Company’s cash and cash equivalents balance at September 30, 2020 was $69.2 million.
• The Company’s total debt at September 30, 2020 was $1.0 billion, including $55.0 million drawn on the Company’s revolving credit facility.
• $1.4 billion in contract backlog at September 30, 2020 across 30 contracted rigs.
• The Company completed the sale of the Trident XIV in Q3 2020 for a $5.5 million gain on sale of assets.
• In September 2020, the Company paid $3.9 million to settle and terminate its obligations under the bareboat charter agreements with China Merchants & Great Wall Ocean Strategy & Technology Fund.
• In September 2020, the Company completed an amendment to the revolving credit facility to provide relief from the total net leverage ratio financial covenant from January 1, 2021 until September 29, 2021.
Third Quarter Results
Revenues were $127.4 million in Q3 2020 compared to $155.0 million in Q2 2020. The $27.6 million (17.8%) sequential decrease in revenues was primarily due to lower effective utilization. Effective utilization decreased to 72% in Q3 2020 from 84% in Q2 2020, mostly due to the suspension of one rig in Saudi Arabia, the suspension and termination of two rigs in Nigeria, the completion of contract and subsequent sale of one rig in Nigeria and planned out of service time for one rig in Saudi Arabia. The average day rate decreased to $56.6 thousand in Q3 2020 from $57.8 thousand in Q2 2020 primarily explained by lower pricing where customers renegotiated dayrates as a result of the COVID-19 pandemic and reduction in oil prices.
Total operating and maintenance expenses decreased by $3.9 million (4.8%) in Q3 2020 to $79.0 million compared to $82.9 million in Q2 2020. The sequential decrease was primarily due to lower expenses on bareboat charter rigs with China Merchants and lower operating costs on rigs which were suspended or terminated during Q3 2020.
General and administrative expenses were $9.4 million in Q3 2020 compared to $12.1 million in Q2 2020. The $2.7 million decrease was primarily the result of a $2.0 million decrease in bad debt expense in Q3 2020 as well as lower expenses due to cost savings and restructuring measures implemented at the Company’s headquarters beginning in April 2020. General and administrative expenses in Q3 2020 and Q2 2020 included $1.1 million of non-cash sharebased compensation expense.
- Adjusted EBITDA for Q3 2020 was $39.3 million compared to $61.5 million for Q2 2020. The Adjusted EBITDA margin of 31% for Q3 2020 decreased from 40% in Q2 2020.
- Capital expenditures and deferred costs were $26.5 million for both Q3 2020 and Q2 2020. Capital expenditures and deferred costs, excluding rig acquisitions, increased across the fleet to $16.6 million in Q3 2020 from $13.2 million in Q2 2020, primarily due to shipyard activity in Saudi Arabia. Rig acquisitions decreased to $9.9 million in Q3 2020 from $13.3 million in Q2 2020. Rig acquisitions in Q3 and Q2 2020 were largely related to the ongoing reactivation of the Shelf Drilling Enterprise, which is expected to be completed by the end of 2020.
- Q3 2020 ending cash balance of $69.2 million decreased by $23.0 million from $92.2 million at the end of Q2 2020, primarily to fund capital expenditures and working capital needs, including the semi-annual cash interest payment on the 8.25% million Senior Unsecured Notes due February 2025.