North Atlantic Drilling Ltd. (NADL) Second quarter and half year 2012 results

Transcription

1 North Atlantic Drilling Ltd. (NADL) Second quarter and half year 2012 results Highlights from the second quarter North Atlantic Drilling generates second quarter 2012 EBITDA* ) of US$155.8 million, an increase of US$32.4 million from the first quarter North Atlantic Drilling reports second quarter 2012 net income of US$71.0 million and earnings per share of US$0.062 North Atlantic Drilling resolves to maintain the regular cash dividend at US$0.045 per share for the second quarter North Atlantic Drilling confirms the signing of a turn-key construction contract for a new harsh environment semi submersible rig with Jurong Shipyard in Singapore at an estimated total project cost of US$650 million North Atlantic Drilling receives a letter of intent from ExxonMobil for assignment of the harsh environment semi-submersible rig West Alpha from third quarter 2014 to third quarter 2016 with an estimated revenue value of US$410 million West Elara completes its first full operating quarter after having commenced operations under the contract with Statoil in March 2012 *) EBITDA is defined as earnings before interest, depreciation and amortization equal to operating profit plus depreciation and amortization. Condensed consolidated income statements Second quarter and half year 2012 results Consolidated revenues for the second quarter of 2012 were US$267.2 million as compared to US$232.9 million for the first quarter of Operating profit for the quarter was US$114.4 million, an increase of US$28.2 million compared to the first quarter 2012 of US$86.2 million. Net financial items for the quarter amounted to an expense of US$33.3 million and included US$20.4 million in interest expenses, compared to the first quarter 2012 of US$28.4 million and US$21.6 million, respectively. Income taxes for the second quarter were US$10.1 million. Net income for the second quarter was US$71.0 million, and basic earnings per share were US$ For the six months period ending June 30, 2012, consolidated revenues were US$500.0 million, operating profit was US$200.5 million and net income was US$121.8 million Balance sheet as of June 30, 2012 As of June 30, 2012, total assets were US$3,836 million, up from US$3,596 million as of December 31, Page 1

2 Total non-current assets increased from US$3,238 million to US$3,321 million over the six months period. The increase was primarily related to construction cost on our newbuilds. Total current liabilities increased from US$528 million to US$556 million over the course of the six months period ending June 30, Long-term interest bearing debt decreased from US$2,460 million to US$2,327 million. Net interest bearing debt was US$2,386 million as of June 30, 2012, compared to US$2,480 million as of December 31, 2011 Over the course of the six months period ending June 30, 2012 US$83 million was repaid as regular installments on the US$2 billion credit facility. At the end of June 2012, the Company had drawn US$160 million out of the US$200 million revolving credit facility, which was granted by Seadrill Limited in March Total equity increased from US$526 million as of December 31, 2011 to US$850 million as of June 30, The increase was related to proceeds from the private placement of US$297 million, contribution from net income for the six months period of US$122 million offset by payments of dividend amounting to US$95 million. Cash flow As of June 30, 2012, cash and cash equivalents amounted to US$107 million in addition to undrawn amounts on revolving credit facilities totalling US$40 million. For the six months period ending June 30, 2012, net cash from operating activities was US$208 million, whereas net cash used in investing activities amounted to US317 million, primarily related to capital expenditures on the newbuilds and placement of funds on short term deposits. Net cash provided by financing activities was US$69 million primarily as a result of instalments paid on the Company s loans of US$83 million, US$160 million drawn down on the US$200 million revolving credit facility, US$147 million received in the private placement in March 2012 and payments of dividend of US$95 million. Outstanding shares As of June 30, 2012, the total number of common shares issued in North Atlantic Drilling was 1,150,015,000. The Company owns 11,869,119 treasury shares reducing the adjusted number of shares outstanding to 1,138,145,881. Page 2

3 Operations North Atlantic Drilling had during the second quarter five offshore drilling units in operation offshore Norway and one unit operating in the UK sector of the North Sea. The average economical utilization rate for the quarter was 99 percent. The Board wants to thank the drilling crews and onshore management for delivering such a solid operational performance. Table 1.0 Contract status offshore drilling units Unit Current client Area of location Contract start Contract expiry Semi-submersible rigs West Alpha BG Consortium Norway May 2009 Aug 2012 ExxonMobil Norway Sep 2012 Aug 2016 West Phoenix Total UK Jan 2012 Jan 2015 West Venture Statoil Norway Aug 2010 Jul 2015 West Hercules(*) Statoil Norway Nov 2012 Nov 2016 West Rigel(**) Available Norway Available 1Q 2015 Drillships West Navigator Shell Norway Jan 2009 Jun 2014 HE Jack ups West Elara Statoil Norway March 2012 March 2017 West Epsilon Statoil Norway Dec 2010 Dec 2014 West Linus (**) ConocoPhillips Singapore Jurong Shipyard Apr 2014 Mar 2019 * West Hercules is controlled by Seadrill and will be operated in Norway by North Atlantic Drilling ** Newbuilding under construction or in mobilization to its first drilling assignment As of July 1, 2012, the onshore organization of North Atlantic Drilling relocated from the Seadrill offices in Stavanger, and have established their own office in Dusavik. The Comapny is today a fully integrated independent drilling contractor, however significant operating efficiencies are gained by being a part of the global Seadrill organization. West Elara has since it started its drilling operations in March throughout July had an economical utilization of 97%. The Board wants to give a special compliment to the involved crew and onshore personnel for a very solid start up of the drilling operations. Contract extensions In June 2012, we received a letter of intent from ExxonMobil for the assignment of West Alpha from third quarter 2014 to third quarter 2016 with an estimated revenue value of US$410 million. Startup of this contract is scheduled in direct continuation of the former contract with ExxonMobil, however no later than August 2014 Therefore, West Alpha has secured firm contracts that will keep the rig employed to third quarter Newbuilding program Construction of the harsh environment semi submersible drilling rig West Rigel, which was ordered in April 2012, has commenced at Jurong Shipyard in Singapore. Delivery of the rig is scheduled for the first quarter 2015, and total estimated project cost is US$650 million. 20% of the yard price of US$568 million was paid to the yard at signing of the construction contract in April, whereas the remaining 80% will be payable at the time of delivery of the rig. Construction of the harsh environment jack-up rig, West Linus, is ongoing at the Jurong Shipyard in Singapore. Delivery from the yard is expected in the fourth quarter of 2013, after which the rig will mobilize to Norway in order to commence operations under its fiveyear contract with ConocoPhillips. Page 3

4 Corporate strategy, dividend and outlook North Atlantic Drilling is a leading harsh-environment offshore drilling company with a strong operational track record after more than 40 years of experience in the North Sea. Our ambition is to deliver superior service to our customers and competitive returns to our shareholders. We aim to achieve our goals through excellent operations, a strong asset base and targeted growth, which can be either organic or through selective merger & acquisition activities. Based on the positive market and outlook, combined with our solid and profitable order backlog which through the second quarter increased to above US$3.6 billion, the Board has resolved to maintain the dividend at $0.045 per share in regular cash dividend. The ex. dividend date will be September 4, 2012, record date will be September 6, 2012 and payment date will be on or about September 20, The Board sees potential for dividend increases when the two newbuilds West Linus and West Rigel commence operations and start to generate cashflow. The common shares of North Atlantic Drilling are currently listed on the Norwegian N-OTC list. However, the Board remains fully committed to its stated aim of pursuing a US stock exchange listing by the end of Market outlook In August 2012 there were 26 floaters operating in Norway, 20 floaters operating in the UK and 5 floaters in total operating in Canada/Alaska and Russia. For Jack-ups, there were 9 working in Norway, 19 working in the UK, 2 in Alaska and 12 units in total for Denmark and the Netherlands. There are currently 5 floater and 3 jack-up newbuilds under construction being built to meet the Norwegian requirements, and additionally, there are 2 floaters and 2 jack-ups in the process of moving or scheduled to move to Norway from operations elsewhere. Furthermore, there are 5 floater newbuilds being constructed to meet Norwegian Acknowledgement of Compliance (AOC) requirements which have not secured firm contracts. There are currently 16 floater and jack-up rigs in Norway that are 25 years or older, of which 6 floaters are 30 years or older. As the newbuilds enter the Norwegian market, we expect that they will replace existing capacity as some of the oldest units will reach the end of their operating lifecycle in Norway. In addition, the relatively strict Norwegian requirements for (AOC) continue to put restrains on international rigs being able to achieve Norwegian AOCs. Over the last years, the oil companies have increased their level of activity in harsh environment and arctic areas considerably. This has translated into a growth in demand for high specification rigs for operations and a tightening supply demand balance in such areas. Continued strong market fundamentals, including the recent exploration successes in harsh environment areas, create a sound basis for further growth in the North Atlantic region. Recognizing this tightening of the demand/supply balance, oil companies have shown increasing interest in committing early to secure necessary drilling capacity, also for drilling programs planned well into the future. In addition to the high number of contract fixtures in 2011 and 2012, a good example of this development is ExxonMobil s extension of the contract for West Alpha from March 2014 to third quarter The result of this high contracting activity is that all our rigs but one have secured work throughout The only available rig we have in this period is West Navigator that comes off its current Page 4

5 contract with Shell in June There are currently several parties interested in securing this capacity. Our research suggests that the global supply of harsh environment floaters is insufficient to meet the demand for floating harsh environment rigs to planned well programs for both 2013 and It is likely that this undersupply will lead to postponement of some of the well programs to 2015 and later. This is expected to put restrains on rig availability also more longer term than the short-to-medium term restrictions already visible for 2013 to Consequently, we expect that the market for modern and advanced rigs for harsh environments will continue to develop favorably and offer increasingly attractive contracting opportunities. In this context, the Company is carefully considering to exercise the option for the second CS60 harsh environment semi-submersible rig West Mira which Seadrill ordered in May. We are also considering other newbuild alternatives. Near term prospects Over the last months, we have experienced an increasing interest from oil and gas companies in our newbuilds. This has strengthened our view that the fundamentals in the harsh environment offshore drilling market are continuing to develop to our advantage. Based on the combination of our solid revenue order backlog of more than 3.6 billion, the favorable market outlook, and the development in our operational performance, the Board is pleased to see that the Company has established a solid foundation for both its growth strategy and its dividend strategy. We are working actively to improve our earnings and increase our dividend capacity through focusing on operational excellence and through securing new quality contracts that will add to our existing revenue order backlog. The operational performance so far in the third quarter has been at the same high standard as in the second quarter and the Board expects to be able to deliver strong results. Forward Looking Statements This report contains forward-looking statements. These statements are based on various assumptions, many of which are based, in turn, upon further assumptions, including North Atlantic Drilling management s examination of historical operating trends. Including among others, factors that, in North Atlantic Drilling s view, could cause actual results to differ materially from the forward looking statements contained in this report are the following: (i) the competitive nature of the offshore drilling industry; (ii) oil and gas prices; (iii) technological developments; (iv) government regulations; (v) changes in economical conditions or political events; (vi) inability of North Atlantic Drilling to obtain financing for the newbuilds or existing assets on favorable terms or at all; (vii) changes of the spending plan of our customers; (viii) changes in North Atlantic Drilling s operating expenses including crew wages; (ix) insurance; (x) dry-docking; (xi) repairs and maintenance; (xii) failure of shipyards to comply with delivery schedules on a timely basis; (xii) and other important factors mentioned from time to time in our reports. August 27, 2012 The Board of Directors North Atlantic Drilling Ltd. Hamilton, Bermuda Questions should be directed to North Atlantic Management AS represented by: Rune Magnus Lundetræ: Chief Financial Officer Tore Byberg: VP Commercial Finance Page 5

6 North Atlantic Drilling Limited INDEX TO UNAUDITED FINANCIAL STATEMENTS Unaudited Consolidated Statements of Operations Page 2 Unaudited Consolidated Statements of Comprehensive Income Page 3 Unaudited Consolidated Balance Sheets Page 4 Unaudited Consolidated Statement of Cash Flows Page 5 Unaudited Consolidated Statement of Changes in Shareholders` Equity Page 7 Notes to Unaudited Financial Statements Page 8

7 North Atlantic Drilling Limited Unaudited Consolidated Statements of Operations (In millions of US$) Three month period ended June 30, Six month period ended June 30, Operating revenues Contract revenues Reimbursable revenues Other revenues Total operating revenues Operating expenses Vessel and rig operating expenses Reimbursable expenses Depreciation and amortization General and administrative expenses Total operating expenses Net operating income Financial items Interest expense (20.4) (19.1) (42.0) Gain /(Loss) in financial derivatives (21.0) (4.2) (15.1) Currency exchange (loss) / gain 8.4 (10.2) (4.3) Other financial items (0.3) (0.1) (0.3) Total financial items (33.3) (33.5) (61.7) Income before income taxes Income taxes (10.1) (8.9) (17.0) Net income Net income attributable to the shareholders Basic earnings per share (US$) Diluted earnings per share (US$) Declared dividend per share (US$) See accompanying notes that are an integral part of these Consolidated Financial Statements. 2

8 North Atlantic Drilling Limited Unaudited Consolidated Statements of Comprehensive Income (In millions of US$) Three month period ended June 30, Six month period ended June 30, Net income Other comprehensive income / (loss), net of tax: Change in actuarial gain / (loss) relating to pension (0.1) - (0.1) Other comprehensive income / (loss), net of tax (0.1) - (0.1) Total comprehensive income for the period Comprehensive income attributable to the shareholders Accumulated other comprehensive income as per June 30, 2012 and December 31, 2011: June 30, 2012 December 31, 2011 Actuarial gain / (loss) relating to pensions (11.7) (11.6) Accumulated other comprehensive income (11.7) (11.6) Note: All items of other comprehensive income / (loss) are stated net of tax See accompanying notes that are an integral part of these Consolidated Financial Statements. 3

9 North Atlantic Drilling Limited Unaudited Consolidated Balance Sheets (In millions of US$) ASSETS June 30, 2012 December 31, 2011 Current assets Cash and cash equivalents Restricted cash Accounts receivables, net Related party receivables Deferred tax assets Other current assets Total current assets Non-current assets Goodwill Deferred tax assets Newbuildings Drilling units 2, ,006.8 Other non-current assets Total non-current assets 3, ,238.0 Total assets 3, ,595.8 LIABILITIES AND EQUITY Current liabilities Current portion of long term debt Related party liabilities Tax payable Deferred taxes Other current liabilities Total current liabilities Non-current liabilities Long-term interest bearing debt 1, ,750.0 Related party liabilities Deferred taxes Pension liabilities Other non-current liabilities Total non-current liabilities 2, ,541.9 Equity Common shares of par value US$1 per share: 1,138,145,881 outstanding at June 30, 2012 (December 31, 1, : 988,145,881) Additional paid-in capital Contributed deficit (1,226.7) (1,226.7) Accumulated other comprehensive income (11.7) (11.6) Accumulated earnings Total equity Total liabilities and equity 3, ,595.8 See accompanying notes that are an integral part of these Consolidated Financial Statements. 4

10 North Atlantic Drilling Limited Unaudited Consolidated Statement of Cash Flows (In millions of US$) Six month period ended June 30, 2012 Cash flow from operating activities Net income Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 78.6 Amortization of deferred loan charges 2.6 Amortization of mobilization revenue (5.4) Unrealized (gain) / loss related to financial derivatives Gain on disposal of fixed assets 12.8 (0.1) Additons to long term maintenance (33.3) Deferred income tax (27.1) Change in operating assets and liabilities: Trade accounts receivables (18.5) Trade accounts payables (19.8) Change in short term related party receivables and liabilities 51.4 Change in prepaid expenses and accrued revenues 2.8 Change in accrued expenses and prepaid revenues 0.4 Received mobilization revenues 41.3 Net cash from operating activities See accompanying notes that are an integral part of these Consolidated Financial Statements. 5

11 North Atlantic Drilling Limited Unaudited Consolidated Statement of Cash Flows (In millions of US$) Six month period ended June 30, 2012 Cash flow from investing activities Additions to newbuildings (130.7) Additions to rigs and equipment (35.7) Proceeds from sale of other fixed assets 0.1 Settlement of disputes with shipyard 26.5 Short term loan granted to related party (170.0) Changes in restricted cash (6.7) Net cash from investing activities (316.5) Cash flow from financing activities Installment paid on long term interest bearing term debt (83.3) Installment paid on shareholder loan (60.0) Proceeds from new shareholder loan Proceeds from issuance of new equity Costs related to issuance of new equity (2.7) Dividend paid (95.1) Net cash from financing activities 68.9 Effect of exchange rate changes on cash and cash equivalents - Net increase / (decrease) in cash and cash equivalents (40.1) Cash and cash equivalents at the beginning of the period Cash and cash equivalents at the end of the period Supplementary disclosure of cash flow information Interest paid (42.2) Taxes paid (45.5) See accompanying notes that are an integral part of these Consolidated Financial Statements. 6

12 North Atlantic Drilling Limited Unaudited Consolidated Statement of Changes in Shareholders Equity (In millions of US$) Share capital Additional paid-in capital Retained earnings Other comprehensive income Contributed deficit Total equity Balance at December 31, (11.6) (1,226.7) Issuance of common stock in private placement Costs related to capital increase - (2.7) (2.7) Changes in actuarial gains/(losses) related to pension (0.1) (0.1) Dividend paid - - (95.1) - - (95.1) Net income Balance at June 30, , (11.7) (1,226.7) See accompanying notes that are an integral part of these Consolidated Financial Statements. 7

13 Note 1 General information North Atlantic Drilling Limited ( we, the Company, or our ) is an N-OTC (Norwegian Over The Counter) listed company. The Company was incorporated in Bermuda on February 10, 2011 and registered on the N-OTC list on February 24, Assisted by the acquisition of other companies and investment in newbuildings, we have developed into a regional offshore drilling contractor. As of June 30, 2012 we owned and operated 8 offshore drilling units, including 2 units under construction focused on harsh environments. Our fleet consists of a drillship, jack-up rigs and semi-submersible rigs for operations in shallow and deepwater areas, as well as benign and harsh environments. As used herein, and unless otherwise required by the context, the term North Atlantic refers to North Atlantic Drilling Limited and the terms Company, we, Group, our and words of similar import refer to North Atlantic and its consolidated companies. The use herein of such terms as group, organization, we, us, our and its, or references to specific entities, is not intended to be a precise description of corporate relationships. North Atlantic Drilling Limited was formed as a wholly owned subsidiary of Seadrill Limited ("Seadrill") in February, 2011, under the laws of Bermuda. In April, 2011, the Company completed its corporate restructuring and private placement offering, whereby it acquired the 100 percent interests in wholly owned subsidiaries of Seadrill, which owned 100 percent interests in five operating units and one jack-up newbuild. Further detail of the corporate restructuring and private placement offering were as follows: Seadrill transferred the shares in the subsidiaries to the Company on March 31, 2011, pursuant to share purchase agreement signed on February 17, In return, the Company settled the net purchase price to Seadrill of $2.36 billion through an issuance of 750,015,000 common shares, representing a 75.0% interest in the Company at a subscription price of $1.7 per share, forming consideration of US$1.3 billion, a bond loan of $500 million with a coupon rate of 7.75%, a shareholder loan of $210 million with a fixed interest at 6.0% and the remaining consideration of $370 million was paid in cash. The remaining shareholding of 250 million shares (25.0%) was offered to the general public in a private placement during February 2011 and raised $425 million. Basis of presentation The unaudited interim consolidated financial statements are presented in accordance with generally accepted accounting principles in the United States of America (US GAAP) for interim financial information. The unaudited interim consolidated financial statements do not include all of the disclosures required in complete annual financial statements. For the comparative period ending June 30, 2011, no information has been presented, as the Company was incorporated on February 10, As a result of expanded fleet of drilling units, our long term maintenance has increased. We have reviewed our presentation of Statement of cash flows, and additions to long term maintenance are now presented as a separate line item under Operating activities and not as part of the line item Additions to rigs and equipment under Investing activities. This change had effect from January 1, Note 2 Segment information Operating segments We provide offshore drilling services to the oil and gas industry. The Company has not presented segmental information as the Company operates in one reportable segment, mobile units. We offer services encompassing drilling, completion and maintenance of offshore exploration and production wells. The drilling contracts relate to semi-submersible rigs, drill ships and jack-up rigs for harsh and benign environments in mid-, deep and ultradeep waters. 8

14 For the three month periods ended June 30, 2012, revenues from the following customers accounted for more than 10% of the Company s consolidated and combined revenues: Contract revenue split by client: Three months period ended June 30, Six months period ended June Statoil 39% 29% 37% Shell 22% 24% 24% Total 21% 25% 21% BG Consortium 18% 22% 18% Total 100% 100% 100% Note 3 Earnings per share Basic earnings per share ( EPS ) are based on the weighted average number of shares outstanding during the period. Diluted EPS includes the effect of the assumed conversion of potentially dilutive instruments. The components of the numerator for the calculation of basic and diluted EPS are as follows: (In millions of US$) Three months period ended June 30, Six months period ended June Net income available to stockholders Effect of dilution Diluted net income available to stockholders The components of the denominator for the calculation of basic and diluted EPS are as follows: (In millions of US$) Three months period ended June 30, Six months period ended June Basic earnings per share: Weighted average number of common shares outstanding 1, , ,064.8 Diluted earnings per share: Weighted average number of common shares outstanding 1, , ,064.8 Effect of dilution Diluted numbers of shares 1, , ,064.8 Basic earnings per share (US$) Diluted earnings per share (US$) Note 4 Newbuildings (In millions of US$) Book value as of June 30, 2012 Opening balance at December 31, Additions Re-classified as drilling units Closing balance at June 30, Additions to newbuildings are related to yard installments, operation preparation costs, first time mobilization costs and supervision costs, but also include interest expenses and loan-related costs. As of June 30, 2012, US$ 2.9 million was capitalized interests and loan costs related to West Linus and West Rigel. West Elara 9

15 commenced operations on March 22, 2012 and was re-classified to drilling unit as of March 31, First yard installment for the semi-submersible rig, West Rigel, was paid on April 2, Newbuildings as at June 30, 2012, are as follows: Yard Delivery date Book value as of June 30, 2012 (in millions of US$) Estimated total project price (in millions of US$) West Linus (jack-up) Jurong 4Q West Rigel (semi-submersible) Jurong 1Q Total ,180.0 Refer also to note 9 (Commitments and contingencies) for an overview of the maturity schedule for remaining yard installments. Note 5 Drilling units (In millions of US$) June 30, 2012 December 31, 2011 Cost 2, ,112.7 Accumulated depreciation (184.5) (105.9) Closing balance at June 30, , ,006.8 Depreciation and amortization expense was US$78.6 million for the six months period ended June 30, Note 6 Long-term interest bearing debt and long-term related party liabilities (In millions of US$) June 30, 2012 December 31, 2011 Credit facilities: US$2,000 facility 1, ,916.7 Total Bank Loans 1, ,916.7 Bonds and convertible bonds: Bond Loan * Total bonds Shareholder loan from Seadrill Total interest bearing debt 2, ,626.7 Less: current portion (166.7) (166.7) Long-term portion of interest bearing debt and related party liabilities 2, ,460.0 * See note 7 for description of the Bond loan. 10

16 The outstanding debt as of June 30, 2012 is repayable as follows: (In millions of US$) June 30, and thereafter 1,749.9 Total debt 2,493.3 Credit facilities In April 2011, a US$ 2.0 billion senior secured credit facility and a US$ 0.5 billion bond loan was entered into to fund the acquisition of the rigs West Phoenix, West Navigator, West Alpha, West Epsilon, West Venture, West Elara and the new build West Linus. The US$2.0 billion facility has a six year long tenor with a balloon of US$1 billion at maturity. The loan bears interest of Libor plus 2.0 percent margin. The US$500 million bond loan is over seven years and with a coupon of 7.75 percent. The bond is subscribed in full by Seadrill. Seadrill has provided North Atlantic an unsecured revolving shareholder loan of US$200 million. The maturity date is set to January 30, The interest is Libor plus 3.00% p.a. As per June 30, 2012 US$ 160 million of the facility was drawn. Covenants The Company has various covenants relating to its credit facilities. These mainly consist of minimum liquidity requirements, interest coverage ratio, current ratio, equity ratio and leverage ratio. Note 7 Related party transactions There are no significant agreements entered into with related parties, except as listed below: Bond Loan: Seadrill is the holder of all of the bonds issued in the Bond Loan. It is North Atlantic Drilling s view that the terms of the Bond Loan are market compatible. The Bond Loan has a coupon of 7.75% p.a. payable semiannually in arrears. Shareholder Loan: Related to the acquisition as of March 31, 2011, Seadrill provided North Atlantic a shareholder loan of US$210 million. The loan was converted to equity / repaid in relation to the private placement completed on March 27, The interest was fixed at 6.0 percent during the loan period. Seadrill has provided North Atlantic an unsecured revolving shareholder loan of US$200 million. The maturity date is set to January 30, The interest is Libor plus 3.00% p.a. As per June 30, 2012 the Company has drawn US$160 million from the facility. Short- term interest bearing loan to related party North Atlantic has granted Seadrill a short-term loan of US$60 million on May 9, 2012, of which US$10 million was repaid on May 23, In addition, the Company has granted Seadrill a short-term loan of US$120 million in the latter part of June The loans carry interests of LIBOR % and were repaid early July, Management services: North Atlantic Management has contracted in senior management services from Seadrill Management in accordance with the terms of the Service Agreement. The agreement can be terminated by either party at 1 month's notice. The remuneration model is based on a cost plus principle, with the margin being 5%. As of June 11

17 30, 2012 Seadrill Management had charged North Atlantic Management a fee of US$7.0 million for providing the services under the Service Agreement for the period from January 1, 2012 until June 30, The Company and its subsidiaries incorporated in Bermuda receive corporate secretarial and certain other administrative services applicable to the jurisdiction of Bermuda from Frontline Management (Bermuda) Ltd. The terms are market compatible and the fee insignificant. Frontline Management (Bermuda) Ltd. is a wholly owned subsidiary of Frontline Ltd, a company in which Hemen Holding Limited is a large shareholder. The following are the related party balances as at June 30, 2012 and December 31, 2011: (In millions of US$) June 30, December 31, Receivables Seadrill Ltd Short-term interest bearing loan Short-term interest bearing loan to Seadrill Ltd Total receivables and short-term interest bearing loans Payables Seadrill Ltd Seadrill Insurance Ltd Seadrill Offshore AS Seadrill Management AS Seadrill Deepwater Crewing Ltd Seadrill Deepwater Units Ltd Other Seadrill subsidiaries Total payables Long-term shareholder loan to Seadrill Ltd Receivables and payables with related parties arise when the Company pays an invoice on behalf of a related party and vice versa. Receivables and payables are generally settled monthly in arrears. Payables to Seadrill Limited and its subsidiaries under business operations are unsecured, interest-free and intended to be settled in the ordinary course of business. Note 8 Share capital All shares are common shares of US$1.00 par value each June 30, 2012 December 31, 2011 Shares US$ millions Shares US$ millions Authorized share capital 2,000,000,000 2,000 2,000,000,000 2,000 Issued and fully paid share capital 1,150,015,000 1,150 1,000,015,000 1,000 Treasury shares held by the Company (11,869,119) (12) (11,869,119) (12) Shares issued and outstanding 1,138,145,881 1, ,145, Note 9 Commitments and contingencies Purchase Commitments As of June 30, 2012, we had two contractual commitments under newbuilding contracts. The contracts are for the construction of one jack-up rig and one semi-submersible rig which is scheduled to be delivered in Q and Q respectively. 12

18 The maturity schedule for the remaining payments is as follows: (In millions of US$) June 30, Total Note 10 Uncertain tax positions In October 2011, the tax authorities in Norway issued a tax reassessment pertaining to tax filings for the years 2007 through The total remaining claim following the tax reassessment is approximately $263 million and is calculated based on tax reassessments received, reduced by payments related to prior years and ordinary current tax accruals in Seadrill Limited has provided North Atlantic Drilling Limited with an indemnity declaration related to the possible tax claims. According to the declaration, Seadrill will have the exposure of any claim exceeding $63 million related to the move of legal entities to a new tax jurisdiction and the use of US dollar as the functional currency for tax reporting purposes. Note 11 Fair value of financial instruments ASC Topic 820 Fair Value Measurement and Disclosures (formerly FAS 157) emphasizes that fair value is a market-based measurement, not an entity-specific measurement, and should be determined based on the assumptions that market participants would use in pricing the asset or liability. As a basis for considering market participant assumptions in fair value measurements, ASC Topic 820 establishes a fair value hierarchy that distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity (observable inputs that are classified within levels one and two of the hierarchy) and the reporting entity's own assumptions about market participant assumptions (unobservable inputs classified within level three of the hierarchy). Level one input utilizes unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access. Level two inputs are inputs other than quoted prices included in level one that are observable for the asset or liability, either directly or indirectly. Level two inputs may include quoted prices for similar assets and liabilities in active markets, as well as inputs that are observable for the asset or liability, other than quoted prices, such as interest rates, foreign exchange rates and yield curves that are observable at commonly quoted intervals. Level three inputs are unobservable inputs for the asset or liability, which are typically based on an entity's own assumptions, as there is little, if any, related market activity. In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. The Company's assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability. 13

19 The carrying value and estimated fair value of the Company s financial derivatives at June 30, 2012 and December 31, 2011 are as follows: (In millions of US$) June 30, 2012 December 31, 2011 Fair value hierarchy Carrying value Fair value Carrying value Fair value Liabilities Currency forward contracts Level Interest rate swap contracts Level Movements in financial derivatives (In millions of US$) June 30, 2012 Opening balance, December 31, Purchase price - Movements in fair value 12.9 Ending balance 67.0 The fair values of interest rate swaps and forward exchange contracts are calculated using well-established independent valuation techniques applied to contracted cash flows and LIBOR and NIBOR interest rates as at June 30, Interest-rate swaps agreements and forward exchange contracts: Total realized and unrealized gain / loss on interest-rate swap agreements, not qualified for hedge accounting, and forward exchange contracts amounted to a net loss of US$15.1 million for the six months ended June 30,

20 Statement by the Board of Directors and Chief Executive Officer We confirm, to the best of our knowledge, that the condensed financial statements for the period 1 January to 30 June 2012 has been prepared in accordance with US GAAP Interim Financial Reporting, and gives a true and fair view of the Group s assets, liabilities, financial position and profit as a whole. We also confirm, to the best of our knowledge, that the interim report includes a fair review of important events that have occurred during the first six months of the financial year and their impact on the condensed financial statements, a description of the principal risks and uncertainties for the remaining six months of the financial year, and major related transactions. August 27, 2012 The Board of Directors North Atlantic Drilling Limited Hamilton, Bermuda Alf C. Thorkildsen CEO North Atlantic Management AS Stavanger, Norway 15