The Board of Directors of Maersk Drilling Holding A/S has approved the annual report for 2018. Despite the challenging market conditions, Maersk Drilling retained strong profitability and cash flow generation.
“Maersk Drilling retained strong profitability and cash flow generation in 2018, driven by high contract coverage and a good operational performance. With our strong revenue backlog and robust balance sheet, we have a high degree of financial visibility and flexibility,” says Jørn Madsen, CEO of Maersk Drilling and continues:
“We are with a modern fleet well positioned in the most attractive market segments of the offshore drilling industry. We are making good progress towards our strategic ambition of entering into even closer collaboration and partnerships with our customers to further improve efficiency and generate value for both our customers and Maersk Drilling.“
Financial performance 2018 (2017 performance in brackets)
Financial and operational development
In 2018, revenue declined by 1% to USD 1,429 million (1,439 million) due to lower average day rates across the fleet, partly offset by an increased number of contracted days. The decline in EBITDA before special items to USD 611 million (USD 683 million) was mainly a result of increased costs due the increased number of contracted days as well as increased costs due to the build-up of the organisation to operate as a stand-alone company.
The operational performance remained high with a financial uptime of 99.1% (98.5%), and the customer satisfaction increased to an all-time high of 6.6 (6.3) on a 1-7 scale.
With an overall utilisation of 69% (66%) of the rig fleet, Maersk Drilling has begun to see the effect of higher activity with an increased number of tenders and projects. During the year Maersk Drilling secured 12 new contracts and 13 contract extensions adding USD 503 million to the contract backlog. By the end of the year the revenue backlog amounted to USD 2.5 billion (USD 3.3 billion). Maersk Drilling has a forward contract coverage of 63% for 2019 providing a relatively high degree of visibility into 2019. The jack-up segment carries the highest forward contract coverage of 75% compared to 39% in the floater segment.
Maersk Drilling continues to see high demand for its ultra harsh environment jack-up rigs in the Norwegian sector in which Maersk Drilling holds a leading position. The market for floaters remains challenged with overcapacity and utilisation at a level not yet able to support material pricing improvements.
During 2018, Maersk Drilling continued the effort to support its customers in reducing inefficiencies and waste by entering into new more integrated business models with deeper collaboration and partnerships. The strategic alliance with Aker BP was further advanced with the signing of two drilling contracts for jack-up operations offshore Norway.
As of 31 December 2018, Maersk Drilling had a net debt of USD 1,097 million and liquidity reserves of USD 772 million.
Separation from A.P. Moller – Maersk
Since the announcement on 17 August 2018 of the intention to separate Maersk Drilling from A.P. Moller – Maersk by way of a demerger and listing in 2019, Maersk Drilling has made the planned organisational progress with all key management positions relevant for the demerger preparation being filled or confirmed. Further, as part of the preparation for the separation, debt financing of USD 1.5 billion and a revolving credit facility of USD 400 million was secured in December 2018, from among others a consortium of international banks.
The process to establish a separate Board of Directors for Maersk Drilling, as well as an independent governance structure, was further progressed in January 2019 with the announcement of Kathleen McAllister, Robert Routs, and Robert M. Uggla as new board members joining Chairman Claus V. Hemmingsen, Martin N. Larsen and Mads Winther.
Guidance for 2019
In 2019, EBITDA before special items is expected to be around USD 400 million. The lower EBITDA before special items compared to 2018 is primarily due to rigs coming off contracts entered during more favourable market conditions with higher day rates than current market level, as well as off-hire days due to rig upgrades and yard stays in connection with the 5-yearly special periodic surveys (SPS) of 7-10 rigs in 2019 versus four rigs in 2018.
Capital expenditures are expected to be in the level of USD 300-350 million, an increase compared to 2018 due to the above-mentioned rig upgrades and yard stays. Final scheduling and scoping of rig upgrades and yard stays are subject to commercial and operational planning.
Details about current and future contract status for the rig fleet are provided in the fleet status report as of 7 February 2019.
Capital Markets Day
On 25 February 2019, Maersk Drilling will host a Capital Markets Day for institutional investors and financial analysts in Copenhagen, Denmark.
Financial calendar 2019
Maersk Drilling will publish the financial calendar for the remaining part of 2019 in due course.