Shelf Drilling, Ltd. (“Shelf Drilling” and, together with its subsidiaries, the “Company”, OSE: SHLF) announces results for the second quarter of 2020 ending June 30. 

David Mullen, Chief Executive Officer, commented: 
“Despite an extremely challenging backdrop, Shelf Drilling delivered strong financial and operating performance for the second quarter of 2020 with an Adjusted EBITDA margin of 40% and solid operating cash flows. In response to the challenges imposed by the COVID-19 pandemic, we took immediate actions to protect the health of our employees, ensure continuity of our operations, reduce costs and preserve liquidity. I would especially like to recognize the extraordinary contribution of our people in achieving these results with their efforts and resilience throughout this challenging period.”

Mullen added: 
“The offshore jack-up rig market outlook has substantially deteriorated since the beginning of the year, with a number of contract terminations and suspensions with limited new fixture activity since the onset of the COVID-19 pandemic. I expect to see continued pressure on dayrates and lower rig utilization for the near to medium term. However, I remain confident that our customer relationships, our efficient operating platform and the quality and dedication of our people will continue to make Shelf Drilling the international jack-up contractor of choice.”

Second Quarter Highlights

• Revenues of $155.0 million, a 14.5% sequential decrease compared to Q1 2020.
• Adjusted EBITDA of $61.5 million, representing an Adjusted EBITDA Margin of 40%.
• Net Income of $8.1 million.
• Capital Expenditures and Deferred Costs totaled $26.5 million, including $13.3 million associated with rig acquisitions.
• The Company’s cash and cash equivalents balance at June 30, 2020 was $92.2 million, up from $69.0 million at March 31, 2020.
• The Company’s total debt at June 30, 2020 was $1.0 billion, including $55.0 million drawn on the Company’s revolving credit facility.
• $1.6 billion in contract backlog at June 30, 2020 across 30 contracted rigs.

Second Quarter Results

Revenue was $155.0 million in Q2 2020 compared to $181.4 million in Q1 2020. The $26.4 million (14.5%) sequential decrease in revenue was due to a combination of lower dayrates and effective utilization. The average dayrate decreased to $57.8 thousand in Q2 2020 from $64.2 thousand in Q1 2020 primarily explained by lower pricing where customers renegotiated dayrates as a result of the COVID-19 pandemic. Effective utilization decreased to 84% in Q2 2020 from 92% in Q1 2020, mostly due to the completion of two contracts in early Q2 2020 in Nigeria and India.

Total operating and maintenance expenses decreased by $18.1 million (17.9%) in Q2 2020 to $82.9 million compared to $101.0 million in Q1 2020. The sequential decrease was due to lower operating and personnel costs related to rigs which were not operating or whose operations were suspended or terminated during Q2 2020, reduced maintenance and shipyard expenses and reduced costs from actions taken to offset reductions in dayrates and activity.

General and administrative expenses were $12.1 million in Q2 2020 compared to $13.3 million in Q1 2020. General and administrative expenses in Q2 2020 included $1.5 million of one-time restructuring costs and $2.3 million of bad debt expense. The significant reduction in recurring general and administrative expenses was the result of cost savings and restructuring measures implemented at the Company’s headquarters in April 2020.

Adjusted EBITDA for Q2 2020 was $61.5 million compared to $67.6 million for Q1 2020. The Adjusted EBITDA margin of 40% for Q2 2020 increased from 37% in Q1 2020 despite the significant reduction in revenue.

Capital expenditures and deferred costs of $26.5 million in Q2 2020 decreased by $46.0 million from $72.5 million in Q1 2020. This included $10.4 million in Q2 2020 for the reactivation of the Shelf Drilling Enterprise as well as $2.9 million relating to the reactivation and operations readiness projects on other recently acquired rigs, compared to $55.0 million associated with rig acquisitions in Q1 2020, $50.7 million of which related to the Shelf Drilling Enterprise. Capital expenditures and deferred costs, excluding rig acquisitions, decreased across the fleet to $13.2 million in Q2 2020 from $17.5 million in Q1 2020.

Q2 2020 ending cash balance of $92.2 million increased by $23.2 million from $69.0 million at the end of Q1 2020, primarily due to lower operating costs and capital expenditures and deferred costs.

KeyFacts Energy Industry Directory: Shelf Drilling