NORTHERN OCEAN LTD.
RESULTS FOR THE FIRST QUARTER 2024
KEY INFORMATION
Unless otherwise indicated, the terms "Northern Ocean" and the "Company" refer to Northern Ocean Ltd. and its consolidated subsidiaries.
Unless otherwise indicated, all references to "$" in this annual report are to the lawful currency of the United States of America.
HIGHLIGHTS - FIRST QUARTER 2024
- The Deepsea Mira and Deepsea Bollsta continued to work under their respective contracts with subsidiaries of TotalEnergies SE ("TotalEnergies") and Shell Plc. ("Shell") in Namibia.
RESULTS
In the first quarter, total operating revenues were $85.4 million compared to $80.0 million in the previous quarter. The movement was primarily driven by an increase in contract revenue. Contract revenue was earned from the drilling contracts of the Deepsea Bollsta with Shell (which achieved an economic utilization of 98.1% for the first quarter) and the Deepsea Mira with TotalEnergies (which achieved an economic utilization of 95.3% for the first quarter). Contract revenue increased to $81.7 million from $76.6 million in the previous quarter, the most notable contributor being an increase in average dayrate in the quarter, due to the Deepsea Bollsta commencing its contract extension period with Shell in December 2023 at a higher dayrate than the initial firm contract period.
Total operating expenses were $82.6 million compared to $84.4 million in the previous quarter. The movement was primarily a result of the decrease in the amortization of deferred costs (see note 7 for details regarding the deferred costs).
Administrative expenses were $1.7 million, compared with $1.9 million in the previous quarter.
Interest expense was $12.5 million compared to $13.0 million in the previous quarter. The movement was due to a decrease in underlying interest rates.
Foreign exchange gains were $0.8 million compared to a loss of $0.5 million in the previous quarter.
The net loss from continuing operations before taxes in the first quarter was $9.6 million, compared to a loss of $18.4 million in the previous quarter. The resultant basic and diluted loss per share in the first quarter was $0.05, compared to a loss of $0.10 in the previous quarter.
COMPANY UPDATE
Operations
In the first quarter, the Deepsea Bollsta continued to work under its contract with Shell in Namibia. Following quarter end, Shell elected on May 1 to terminate the drilling contract for convenience and compensate with standby rate until June 10. The rig transited to Walvis Bay, Namibia, for work to be performed in relation to its special periodical survey, where the rig remains as at the date of this report. The Deepsea Bollsta remains available post mid-July 2024.
In the first quarter, the Deepsea Mira continued to operate under its drilling contract with TotalEnergies in Namibia. Following quarter end the rig transited to Congo under its drilling contract where it has commenced drilling operations for TotalEnergies. The current firm term of the drilling contract ends in October 2024.
The Company is in active discussions with potential customers in the West Africa region and harsh environment markets for short and long term contracts with potential commencement in the second half of 2024.
At the date of this report, the Company's total revenue backlog is estimated to be $62 million, excluding performance bonuses, demobilization, and reimbursable revenue. The fleet average technical utilization for 2024 year-to-date is 96.5%.
Financing
As detailed in the stock exchange announcement on March 27, 2024, regarding the amendment and restatement of the Company's credit facilities agreement with related party Sterna Finance Ltd. ("Sterna"), the maturity date of the facility which provides $50.0 million in short-term funding, has been further extended to the end of June 2024.
OUTLOOK
In line with the outlook presented in the previous quarterly report, the market has continued to strengthen in most segments during the first quarter of 2024. A much-predicted slowdown in tender activity for work commencing in the second half 2024 and early 2025 appears to have put a dampener on rate expectations for this period, but this is balanced by strong fixtures in the high specification harsh environment segment, with recent rates exceeding the USD 500,000 dayrate mark.
Recent activity surrounding the few remaining "stranded" assets in the shipyards points to continued expectations of even higher fleet utilization and continued strengthening of rates. There appear to be few signs that contractors are willing to absorb the expected high costs associated with reactivation of long-term stacked floaters.
The Company's operations in Namibia continued throughout the first quarter. The general activity levels in Namibia remained high, with four ultra-deepwater floaters operating simultaneously in the quarter. The exploration successes from previous quarters continued which further heightened the expectations that Namibia is developing into an oil and gas basin of high activity and significant importance. Several operators in Namibia are preparing for new exploration and appraisal wells before the end of the year. While the current operations are focused on exploration and appraisal wells, with resulting short-term programs and potential lulls in demand in the near term, the success of the exploration bodes well for significant future development opportunities in Namibia.
In Norway, Canada and other harsh environment basins, early indications of increasing activity levels are observed. In Norway, any increase in activity, coupled with the recent departure of several drilling units from Norway, will challenge a delicately balanced market and will likely lead to a requirement for incremental supply. The Company continues to actively pursue these opportunities in Norway and elsewhere.
FORWARD LOOKING STATEMENTS
The Company's activities are subject to significant risks and uncertainties that can have an adverse effect on the Company's business, financial condition, results of operations and cash flow. See Note 1 to the unaudited condensed consolidated financial statements.
This report contains certain forward-looking statements relating to the business, financial performance and results of the Company and/or the industry in which it operates, sometimes identified by the words "believes", "expects", "intends", "plans", "estimates" and similar expressions. The forward-looking statements contained in this report, including assumptions, opinions and views of the Company or cited from third-party sources, are solely opinions and forecasts which are subject to risks, uncertainties and other factors that may cause actual events to differ materially from any anticipated development. The Company does not provide any assurance that the assumptions underlying such forward-looking statements are free from errors, nor does the Company accept any responsibility for the future accuracy of the opinions expressed in the presentation or the actual occurrence of the forecasted developments. No obligations are assumed to update any forward-looking statements or to conform these forward-looking statements to actual results.
The Board of Directors
Northern Ocean Ltd.
Hamilton, Bermuda
May 29, 2024
Questions should be directed to:
Jonas Ytreland: Chief Financial Officer +47 994 65 550
NORTHERN OCEAN LTD.
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Jan 1 to | Jan 1 to | CONDENSED CONSOLIDATED STATEMENT | ||
OF OPERATIONS | Note | 2023 | ||
Mar 31, 2023 | Mar 31, 2024 | (in thousands of $) | ||
30,629 | 81,746 | Contract revenue | 3 | 215,261 |
1,474 | 3,448 | Reimbursable revenue | 19,902 | |
379 | 182 | Other income | 1,760 | |
32,482 | 85,376 | Total operating revenues | 236,923 | |
26,549 | 66,067 | Rig operating expenses | 4 | 191,119 |
1,391 | 3,201 | Reimbursable expenses | 18,966 | |
10,142 | 11,647 | Depreciation | 42,889 | |
1,955 | 1,720 | Administrative expenses | 7,534 | |
40,037 | 82,635 | Total operating expenses | 260,508 | |
(7,555) | 2,741 | Net operating gain (loss) | (23,585) | |
507 | 450 | Interest income | 1,837 | |
(9,763) | (12,520) | Interest expense | (45,992) | |
27 | 809 | Foreign exchange gain (loss) | (389) | |
(3) | (39) | Other financial expenses | (7) | |
(16,787) | (8,559) | Net loss from continuing operations before taxes | (68,136) | |
(30) | (1,076) | Tax charge | (2,762) | |
(16,817) | (9,635) | Net loss from continuing operations | (70,898) | |
(0.09) | (0.05) | Basic and diluted loss from continuing operations | 6 | (0.39) |
per share ($) |
Jan 1 to | Jan 1 to | CONDENSED CONSOLIDATED STATEMENT | |
OF COMPREHENSIVE LOSS | 2023 | ||
Mar 31, 2023 | Mar 31, 2024 | (in thousands of $) | |
(16,817) | (9,635) | Net loss | (70,898) |
(64) | 360 | Foreign currency translation (loss) gain | 35 |
(64) | 360 | Other comprehensive (loss) income | 35 |
(16,881) | (9,275) | Comprehensive loss | (70,863) |
See accompanying notes that are an integral part of these unaudited condensed consolidated financial statements.
NORTHERN OCEAN LTD.
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEET | Note | Mar 2024 | Dec 2023 |
(in thousands of $) | |||
ASSETS | |||
Short-term assets | |||
Cash and cash equivalents | 50,413 | 54,350 | |
Restricted cash | 8 | 124 | 142 |
Related party receivables | 16 | 153 | 129 |
Accounts receivable, net | 45,512 | 41,388 | |
Unbilled receivables | 5,514 | 6,520 | |
Short-term portion of deferred costs | 7 | 6,768 | 27,073 |
Other current assets | 10 | 1,856 | 2,455 |
Short-term portion of right-of-use assets under operating leases | 83 | 130 | |
Total short-term assets | 110,423 | 132,187 | |
Long-term assets | |||
Drilling units | 9 | 919,936 | 923,560 |
Fixtures and fittings | 29 | 33 | |
Total long-term assets | 919,965 | 923,593 | |
Total assets | 1,030,388 | 1,055,780 | |
LIABILITIES AND EQUITY | |||
Short-term liabilities | |||
Short-term portion of long-term debt | 12 | 389,773 | 29,977 |
Other current liabilities | 11 | 52,380 | 59,668 |
Short-term portion of deferred revenue | 7 | 3,768 | 14,743 |
Related party payables | 61 | 2 | |
Short-term portion of related party debt | 13, 16 | 54,111 | 53,727 |
Short-term obligations under operating leases | 72 | 106 | |
Total short-term liabilities | 500,165 | 158,223 | |
Long-term liabilities | |||
Long-term debt | 12 | - | 359,725 |
Long-term deferred revenue | 7 | 2,687 | 2,715 |
Long-term related party debt | 13, 16 | 99,916 | 98,222 |
Total long-term liabilities | 102,603 | 460,662 | |
Commitments and contingencies | 17 | ||
Total equity | 427,620 | 436,895 | |
Total liabilities and equity | 1,030,388 | 1,055,780 |
See accompanying notes that are an integral part of these unaudited condensed consolidated financial statements.
NORTHERN OCEAN LTD.
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Jan 1 to | Jan 1 to | CONDENSED CONSOLIDATED STATEMENT | |
OF CASH FLOWS | 2023 | ||
Mar 31, 2023 | Mar 31, 2024 | (in thousands of $) | |
(16,817) | (9,636) | NET LOSS | (70,898) |
Adjustment to reconcile net (loss) income to net | |||
cash used in operating activities; | |||
69 | 71 | Amortization of deferred charges | 283 |
- | 20,305 | Amortization of deferred costs | 65,009 |
- | (11,002) | Amortization of deferred revenue | (30,517) |
10,142 | 11,647 | Depreciation | 42,889 |
(64) | 360 | Unrealized foreign exchange loss (gain) | 35 |
(2,219) | - | Accrued demobilization income | 543 |
Change in operating assets and liabilities; | |||
(23,477) | (4,125) | Receivables | (33,617) |
6,074 | 1,006 | Unbilled receivables | 4,870 |
(34,641) | 598 | Other current assets | 10,706 |
1,270 | - | Other long-term assets | - |
37 | 47 | Right-of-use assets under operating leases | 252 |
- | - | Additions to deferred costs | (62,388) |
14,298 | (7,286) | Other current liabilities | 22,697 |
45 | 35 | Related party balances | 277 |
5,690 | - | Additions to deferred revenue | 19,520 |
(25) | (34) | Obligations under operating leases | (255) |
(39,618) | 1,986 | Net cash provided by (used in) operating activities | (30,594) |
INVESTING ACTIVITIES | |||
(3,002) | (8,019) | Additions to drilling units | (48,966) |
(3,002) | (8,019) | Net cash used in investing activities | (48,966) |
FINANCING ACTIVITIES | |||
959 | - | Net proceeds from share issuances | 959 |
1,583 | 2,078 | Related party debt: Proceeds | 60,171 |
2,542 | 2,078 | Net cash provided by financing activities | 61,130 |
(40,078) | (3,955) | Net change | (18,430) |
72,922 | 54,492 | Cash, cash equivalents and restricted cash at start | 72,922 |
of the period | |||
32,844 | 50,537 | Cash, cash equivalents and restricted cash at end | 54,492 |
of the period |
See accompanying notes that are an integral part of these unaudited condensed consolidated financial statements.
NORTHERN OCEAN LTD.
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED STATEMENT OF CHANGES IN | Jan 1 to Mar | |
EQUITY | 2023 | |
(in thousands of $ except number of shares) | 31, 2024 | |
Number of shares outstanding | ||
Balance at beginning of period | 182,677,107 | 181,618,186 |
Shares issued | - | 1,058,921 |
Balance at end of period | 182,677,107 | 182,677,107 |
Share capital | ||
Balance at beginning of period | 91,339 | 90,809 |
Shares issued | - | 530 |
Balance at end of period | 91,339 | 91,339 |
Additional paid in capital | ||
Balance at beginning of period | 565,613 | 565,184 |
Shares issued | - | 429 |
Balance at end of period | 565,613 | 565,613 |
Accumulated other comprehensive income (loss) | ||
Balance at beginning of period | (110) | (145) |
Other comprehensive income | 360 | 35 |
Balance at end of period | 250 | (110) |
Retained deficit | ||
Balance at beginning of period | (219,947) | (149,049) |
Net loss | (9,635) | (70,898) |
Balance at end of period | (229,582) | (219,947) |
Total equity | 427,620 | 436,895 |
See accompanying notes that are an integral part of these unaudited condensed consolidated financial statements.
NORTHERN OCEAN LTD.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. GENERAL
Northern Ocean was incorporated under the laws of Bermuda on March 3, 2017. The Company was incorporated for the primary purpose of engaging in offshore contract drilling for the oil and gas industry in harsh environments worldwide through the ownership of offshore drilling rigs.
As of the date of this report, the Company owns two semi-submersible rigs, Deepsea Mira and Deepsea Bollsta. The Deepsea Mira is currently operating under a drilling contract with TotalEnergies SE ("TotalEnergies") off the coast of Congo. The Deepsea Bollsta is currently in Walvis Bay, Namibia, with work being performed for its special periodical survey.
2. BASIS OF ACCOUNTING
The unaudited condensed consolidated financial statements are stated in accordance with accounting principles generally accepted in the United States of America. The unaudited condensed consolidated financial statements do not include all of the disclosures required in annual and interim consolidated financial statements and should be read in conjunction with the Company's audited financial statements for the year ended December 31, 2023.
Going concern assumption
These consolidated financial statements are prepared under the going concern assumption.
As at the date of this report, the Company has an estimated firm revenue backlog of $62 million, with the firm drilling contract terms ending in June 2024 and October 2024 for the Deepsea Bollsta and the Deepsea Mira respectively.
Based on the current contract backlog, working capital and the short-term nature of current funding, the Company will be dependent on loan amendments, obtaining new loans and/or equity issuances to finance its loan obligations and working capital in the next twelve months. This potentially raises substantial doubt about the Company's ability to continue as a going concern.
However, the Board remains confident that a solution will be reached and the Company continues to have a positive outlook on Northern Ocean's ability to continue obtaining profitable contracts in the near term, with the Company continuing ongoing dialogues with potential customers in West African region and harsh environment areas.
3. REVENUE FROM CONTRACTS WITH CUSTOMERS
The following table provides information about the composition of contract revenue:
(in thousands of $)
Jan 1 to Mar 31, 2024
Dayrate revenue | 68,131 |
Amortization of deferred revenue | 10,975 |
Other | 2,640 |
Contract revenue | 81,746 |
Dayrate revenue
Dayrate revenue earned from the Deepsea Bollsta and Deepsea Mira drilling contracts is recognized as it is earned.
Amortization of deferred revenue
Mobilization charges to customers are recognized over the initial firm contract term. See note 7 for more detail.
Other
This balance consists of add-on revenue. The costs associated with this revenue are included within rig operating expenses (detailed in note 4).
4. RIG OPERATING EXPENSES
The following table provides information about the composition of rig operating expenses:
(in thousands of $)
Jan 1 to Mar 31, 2024
Daily operating expenses | 41,040 |
Maintenance projects | 811 |
Amortization of deferred costs | 20,305 |
Other | 3,911 |
Rig operating expenses | 66,067 |
Daily operating expenses
This category includes the costs associated with the daily operations of the rigs. The notable constituents of the daily operating expenses are the expenses for offshore personnel, repairs and maintenance (excluding projects with a cost in excess of USD 100,000), onshore support services, catering costs and management fees payable to Odfjell.
Included within daily operating expenses are incremental costs associated with providing our customers with add-on services for which the commercial terms differ from those services provided on a reimbursable basis. The cost and the associated revenue for these services are reported on a gross basis under rig operating expenses and contract revenue respectively.
Maintenance projects
Maintenance projects which are considered non-recurring and with an individual cost in excess of USD 100,000, are not considered to be indicative of the ordinary daily running costs of our operations have been disaggregated from daily operating expenses. These projects are either preventive or corrective in nature.
Amortization of deferred costs
Certain direct and incremental costs incurred for upfront preparation, initial mobilization and modifications of the contracted rigs represent costs of fulfilling a contract as they relate directly to a contract and enhance resources that will be used in satisfying performance obligations. Such costs are deferred and amortized ratably to rig operating expenses as services are rendered over the initial term of the related drilling contract. See note 7 for more detail.
Other
Balance primarily consists of withholding tax expenses payable in Namibia and the cost the Company's operational department.
5. INCOME TAXES
Bermuda
Under current Bermuda law, the Company is not required to pay taxes in Bermuda on either income or capital gains. The Company has received written assurance from the Minister of Finance in Bermuda that, in the event of any such taxes being imposed, the Company will be exempted from taxation until March 31, 2035.
Other jurisdictions
The Company has subsidiaries, which were incorporated in the Marshall Islands and are not subject to income tax. Certain of the Company's subsidiaries and branches in Norway, Ireland, Namibia, Angola and the USA are subject to income tax in their respective jurisdictions.
Deferred tax
Deferred tax assets and liabilities are based on temporary differences that arise between carrying values of assets and liabilities used for financial reporting purposes and amounts used for taxation purposes and the future tax benefits of tax loss carry forwards.
The Company does not have any unrecognized tax benefits, material accrued interest or penalties relating to income taxes.
6. EARNINGS PER SHARE
The computation of basic earnings per share is calculated by dividing the net loss attributable to the Company by the weighted average number of shares outstanding during the period.
Diluted earnings per share amounts are calculated by dividing the net income attributable to the Company by the weighted average number of shares outstanding during the year plus the weighted average number of ordinary shares that would be issued on conversion of all the dilutive potential ordinary shares into ordinary shares. If in the period there is a loss then any dilutive potential ordinary shares have been excluded from the calculation of diluted loss per share, as their effect would be anti-dilutive.
The components of the numerator and the denominator in the calculation are as follows:
Jan 1 to | ||
Mar 31, 2024 | ||
Net loss (in thousands of $) | (9,635) | |
Weighted average number of ordinary shares (in | 182,677 | |
thousands) |
7. DEFERRED REVENUE AND COSTS
The following table provides information about the composition of deferred revenue in the current quarter:
(in thousands of $) | Contract | Other | Total |
revenue | |||
Total deferred revenue at December 31, 2023 | 14,633 | 2,825 | 17,458 |
Amortization of deferred revenue | (10,975) | (28) | (11,003) |
Total deferred revenue at March 31, 2024 | 3,658 | 2,797 | 6,455 |
Short-term deferred revenue | 3,658 | 110 | 3,768 |
Long-term deferred revenue | - | 2,687 | 2,687 |
Contract revenue
We may receive fees (on either a fixed lump-sum or variable rate basis) for the mobilization of our rigs. These activities are not considered to be distinct within the context of the contract and therefore, the associated revenue is allocated to the overall performance obligation and recognized ratably over the expected term of the related drilling contract. We record a contract liability for mobilization fees received, which is amortized ratably to contract drilling revenue as services are rendered over the initial term of the related drilling contract.
At the commencement of the first quarter, the outstanding balance of the deferred contract revenue related solely to the Deepsea Mira, with the Deepsea Bollsta's deferred contract revenue being fully amortized by December 2023, at the end of its initial firm contract period under its drilling contract with Shell. In the current quarter, the Deepsea Mira's deferred revenue continued to be amortized and will be fully amortized by the second quarter of 2024.
Other
The balance primarily consists of funds received from a Norwegian government body as a grant due to the Deepsea Mira being equipped with systems which reduce NOx emissions. The grant is being amortized over the estimated useful life of the Deepsea Mira.
The following table provides information about the composition of deferred contract costs:
(in thousands of $) | Contract |
costs | |
Total deferred costs at December 31, 2023 | 27,073 |
Amortization of deferred costs | (20,305) |
Total deferred costs at March 31, 2024 | 6,768 |
Short-term deferred costs | 6,768 |
Long-term deferred costs | - |
Deferred contract costs
Certain direct and incremental costs incurred for upfront preparation, initial mobilization and modifications of contracted rigs represent costs of fulfilling a contract as they relate directly to a contract and enhance resources that will be used in satisfying performance obligations. Such costs are deferred and amortized ratably to rig operating expenses as services are rendered over the initial firm term of the related drilling contract.
At the commencement of the first quarter, the outstanding balance of the deferred contract costs related solely to the Deepsea Mira, as the Deepsea Bollsta's deferred contract costs were fully amortized by December 2023. In the first quarter, the Deepsea Mira's deferred costs continued to be amortized, and will be fully amortized by the second quarter of 2024.
8. RESTRICTED CASH
The restricted cash as of March 31, 2024, of $0.1 million consists of cash withheld for a guarantee to NIS and payroll taxes.
9. DRILLING UNITS
Movements in the carrying value of drilling units in the year ended March 31, 2024, are summarized as follows:
(in thousands of $) | Cost | Accumulated | Net carrying | ||||||||
depreciation | value | ||||||||||
Balance at December 31, 2023 | 1,066,716 | (143,156) | 923,560 | ||||||||
Additions | 8,019 | - | 8,019 | ||||||||
Retirement of assets | (910) | 910 | - | ||||||||
Depreciation | - | (11,643) | (11,643) | ||||||||
Balance at March 31, 2024 | 1,073,825 | (153,889) | 919,936 | ||||||||
10. OTHER CURRENT ASSETS | |||||||||||
Other current assets as of March 31, 2024, are summarized as follows: | |||||||||||
(in thousands of $) | |||||||||||
Deposit held | 35 | ||||||||||
VAT receivable | 791 | ||||||||||
Other | 1,030 | ||||||||||
1,856 |
Other
This category principally consists of prepayments for insurance and operational costs.
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Northern Ocean Ltd. published this content on 12 June 2024 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 12 June 2024 09:02:04 UTC.