John Roche - VP, IR Per Wullf - CEO Mark Morris - CFO Anton Dibowitz - CCO

Lukas Daul - ABG

Good afternoon and welcome to the Seadrill Limited First Quarter 2017 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to John Roche, Vice President of Investor Relations. Please go ahead.

Good afternoon and welcome to Seadrill Limited's first quarter earnings call. With us today, we have Per Wullf, our CEO; Mark Morris, our CFO; and Anton Dibowitz, our Chief Commercial Officer. Before we do get started, I'd like to remind everyone that much of the discussion today will not be based on historical facts but rather consist of forward-looking statements and are subject to uncertainty. We articulate some of the key items on Page 2 of the presentation and for additional information and to view our SEC filings, please visit our website at seadrill.com. To begin the discussion today, Per will take us through our first quarter highlights and some updates on progress thus far and key action items as we work through this market. Mark will then address our financial highlights and outlook and Anton will provide some color on the overall market. And with that, I'd like to turn over the call to our CEO, Per Wullf. Per?

Yes. Thank you, John, and good day and evening, everyone. Once again we were able to deliver a strong, safe and efficient performance achieving 98% utilization across our operating fleet to start the year. Another remarkable result and I would like to thank our offshore and onshore crew for their continued excellence in this regard. On the commercial side, our marketing department has been quite active, delivering a net backlog increase for Seadrill Limited of roughly $900 million including quarterly consumption, reflecting increased drilling activity although competitions remain furious. On the cost front, headcount quarter-over-quarter is roughly in-line with 760 onshore and 4,400 offshore employees. Representing a 26% reduction from year-end 2015 levels, highlighting significant reductions on our rigs operating cost. Operating cost for rigs and operation including overhead of our floater fees have been reduced from $200,000 per day in 2014 to $145,000 per day currently, an 28% reduction. Operating cost for rigs and operation including overhead on our jack-up fleet have been reduced from $90,000 per day year-end '14 to $63,000 per day, a 29% reduction. And these two figures actually are both on the floaters and jack-ups that is including overhead. On the newbuilding side, during the first quarter we reached a settlement agreement with Hyundai in relations with the [indiscernible] arbitration. A cash payment of $170 million was received in March as full settlement of the dispute. We remained in constructive discussion with the rest of our shipyards regarding recent agreements to defer our remaining newbuild deliveries further. Now until the first quarter we're raising highlights for Seadrill Limited. Our recent performance has delivered a strong 97% economic utilization of our floater fleet and 98% on our jack-up fleet, another impressive quarter driven by safe and efficient aberrations. As a group we have successfully concluded 14 commercial arrangements since our last call which Anton will provide some more color on later. And then our order backlog currently stands at $3.4 billion for Seadrill Limited and $7.1 billion for the Seadrill Group. And with that, I will now turn -- hand it over to Mark who will cover our financial performance and restructuring updates.

Thank you, Per. Well, good afternoon and good evening, to you all. I'll briefly put out the highlights for the first quarter, then provide an update on where we are with the restructuring plans and then finally provide guidance for the second quarter. So turning to the quarter, our revenues were down 15% due to the West's [ph] becoming idle during the quarter. The West Epsilon and West Vigilant both having a full quarter vital time, and the West Hercules and West Epsilon termination fee recognition in the fourth quarter 2016 not being repeated in Q1. The revenue reductions were partially offset by the West Castor operating for the full quarter and the West Phoenix commencing operations. Out of our fleet of 38 rigs, 21 are currently operating on contract, of which 9 are floaters and 12 are jack-ups. EBITDA for the quarter was $291 million. The 18% decrease reflects lower revenues, partially offset by lower costs mainly due to additional idle units and lower G&A relative to the fourth quarter. Rig and operating cost decreased by $23 million during the first quarter, and G&A decreased by $8 million. We continue to expect G&A excluding restructuring costs to be in the range of $220 million for the full year. Our EBITDA for the quarter was better than guidance, mainly due to improved operation uptime related to forecast and lower sacking [ph] costs. Moving on to our balance sheets, as always there are number of moving parts here and I'm just going to draw out the main ones. So from the top, marketable security decreased $16 million driven by the drop in the SELT share price over the quarter. On the accounts receivable side, the movement here was primarily driven by the West Saturn coming off contracts with a corresponding reduction in billings and settlement of outstanding balances on the West Epsilon and West Elara. Looking at the current portion of related party balances, the reduction reflects trade and loan balance settlements, mainly with Seadrill partners. Other current assets reduced by $210 million, primarily due to the settlement of the West [ph] arbitration as mentioned by Per. Moving on to liability side, during the quarter, our $1.8 billion non-bonds was reclassified from non-current to current liabilities. The other main movements is the $137 million reduction in other current liabilities driven by mark-to-market effects on our derivatives portfolio, a lower accrued interest expense balance reflecting bond interest payments during the quarter and a reduction in tax payable reflecting cash taxes paid during the quarter. Moving on to the restructuring updates; in April we reached an agreement with our bank group to extend the restructuring plan negotiating period until July 31, reflecting significant progress made. We are currently in advanced discussions with third-parties and related party investors and our secured lenders on the terms of comprehensive recapitalization. We received the new money proposal from third-party related party investors which remains subject to further negotiation, final due diligence and documentation. We're also in discussion with certain account holders who have recently become restricted again. I appreciate your warm interest to understand more details on the restructuring, but at this stage, it would be inappropriate for us to comment on specifics. As you are aware, this is a large and complex transaction with multiple parties involved. While discussions with our secured lenders and certain investors have advanced significantly, a number of important terms continues to be negotiated and until such time as an agreement is reached, no assurances can be given. We continue to believe that implementation of a comprehensive restructuring plan will likely involve schemes of arrangement or Chapter 11 proceedings. It is likely that the comprehensive restructuring plan will require substantial impairment or conversion of our bonds, as well as impairment and losses for other stakeholders. As a result, we currently expect that shareholders are likely to receive minimal recovery for their existing shares. Our business operations remain unaffected by these restructuring efforts and we expect to continue to meet our ongoing customer and business counter-party obligations. And now finally turning to our guidance for the second quarter; EBITDA is expected to be lower at around $240 million, primarily reflecting three more units becoming idle during the quarter. With that, I will now hand it over to Anton. Anton?

Thanks, Mark. Good morning and afternoon to everyone. The offshore drilling market remains challenging and we expect this dynamic to continue in the short to medium term. Many oil companies remain focused on conserving cash and are reluctant to commit to significant new capital projects offshore until an increased consistency in upward trend in oil prices is demonstrated. The significant rig supply overhang remains and a faster return to a healthy market will require drilling contractors to remain disciplined in retiring older units. Tendering activity has continued at increased levels, albeit from a little base over the past few months, especially in the North Sea floater in Southeast Asia and Middle East jack-up segments. Market behavior points increasingly to the market having reached its bottom, including an increasing number of recent tenders released by oil companies seeking to contract at current form of cycle day rates for increased duration and/or with multiple fixed period options. Against this challenging backdrop, we've been pleased by ability to continue to secure fixtures. These fixtures are due to the excellent service delivery in terms of safety and efficiency that the team continues to deliver, as well as our ability to use innovative contracting models such as bundled services and market rate indexes to create mutually beneficial and balanced commercial deals, and utilize our demonstrated in-house experience with MPD operations along with selected capital expenditures and MPD equipment to create competitive advantage. We still believe in the long-term fundamentals of the offshore drilling industry. Driven by yields of undue investments in yield fields and the competitiveness of offshore resources on a full cycle basis we will remain committed to keeping our units working in the short-term, but not precluding our most attractive assets from participating in the market upside when it comes. And enjoying focus on our customers safe, efficient operations and disciplined approach to contracts that will ensure that Seadrill is well placed to capitalize when the market recovers. Per?

Yes, thank you, Anton. Once again, the safe and efficient operation continues to be our bread and butter on reflects [ph] to our dedicated and committed employees. This is the last time you'll hear me say bread and butter at a quarter, but having a safe and efficient operation and pleased customers is just so fundamental to our business. As Anton mentioned, churning activity continues to increase, especially in the North Sea, Southeast Asia and the Middle East segments. With our scale, young and marque [ph] fleet and the highly skilled workforce, we are well positioned to capitalize driven market recovers. Our priority now is to implement our restructuring plan with the right structure and terms for our stakeholders. And just finally, we are probably seeing the announcement today that Anton, he will be my successor and he is going to be an excellent CEO going forward. And I look forward to see his [indiscernible] sitting at the bottom [ph]. And with that I will say thank you to all of you and now we'll open up for questions.

Operator, if we could open up for Q&A, it would be appreciated.

Thank you. [Operator Instructions] At this time, we will pause momentarily to assemble our roster. The first question comes from Lukas Daul of ABG. Please go ahead.

Thank you. Good evening, guys. I had a question on the disposal of your jack-up fleet. Can you walk us a little bit through what let you through it? I don't know whether you see opportunities to repeat that final transaction?

I didn't catch the middle part. So let me know if I don't answer it. But we're sold three jack-ups and I think this should be viewed as representative of our strategy to retain the position of the premium operator in the market. The deal represents an opportunity to sell-through units; two of them have been stacked for more than a year. We still see that premium jack-up business as an integral part of our service delivery and we will continue to do that by part of keeping a fleet that way is being disciplined about making sure that we sell it all the way through the cycle and with other attractive opportunities, we'll take them but I wouldn't take that as any sign that we don't see the jack-up business as part of our business.

Okay, thank you. And then on the -- you are seeing your -- you are seeing more tenders out there. When it comes to longer term jobs, is that kind of activity picking up as well?

Absolutely. I think the tenders are across the board. I would say we are talking about from where the base was, so there is definitely an increasing activity, especially on the jack-up side of the market. There are some longer term tenders, there are some developments that are pushing forward that are being on the cards for a while that are coming back and there is also some opportunism or desire at the bottom of the market from oil companies to see if they can fix the current rates for the long-term. I also think it's a little spread.

Okay. Well, thank you and Per, thank you and good luck in the future. Thank you, guys.

Thank you very much.

[Operator Instructions] There are no additional questions at this time. This concludes our question-and-answer session. I would like to turn the conference back over to John Roche for any closing remarks.

Thanks. And thanks everyone for joining us this afternoon. This concludes Seadrill's first quarter conference call. Thank you.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.