UK: Awilco Drilling Announces 3Q 2010 Results

Awilco Drilling Limited is a UK based offshore drilling company owning and operating two semi submersible drilling rigs. The Company is listed on the Norwegian OTC under the ticker code AWDR.

At the end of September 2010 Awilco Drilling Limited (Awilco Drilling) had one rig in operation and one rig undergoing reactivation and upgrading.

Comprehensive Income Statement

Awilco Drilling reports total comprehensive income for the third quarter 2010 of USD 6.6 million. Total revenue for the quarter was USD 16.6 million and relates to a bareboat contract with Transocean for WilHunter (formerly known as GSF ARCTIC 4).

In the third quarter Awilco Drilling had rig operating expenses of USD 0.7 million relating to operating and lay-up costs, and general and administration expenses of USD 1.2 million. EBITDA for the third quarter was USD 14.7 million while operating profit was USD 11.4 million. Interest expenses amounted to USD 3.3 million, which relates to accrued interest on the Seller’s credit with Transocean and accrued interest on the drawn amount of the Working Capital Loan. Net other financial items show a gain of USD 1.1 million in the quarter of which USD 1.2 million is gain from foreign currency forward contracts related to the WilPhoenix upgrading and reactivation

project.

Profit before tax was USD 9.2 million and net profit was USD 6.6 million. Earnings per share (EPS) for the third quarter were USD 0.60. The number of outstanding shares at the end of third quarter was 11,000,000, unchanged from the second quarter.

Statement on financial position

As of 30 September 2010, total assets amount to USD 218.6 million. At the same date, Awilco Drilling had USD 14.6 million in cash and cash equivalents. Long term interest-bearing debt at the end of the quarter was USD 139.8 million. During the term of the bareboat charter 80% of the revenue is offset against the Seller’s credit as capital payment and interest payment.

Operation

WilHunter (photo) has during the third quarter continued working for Nexen Petroleum under its bareboat charter with Transocean. The rate under the bareboat charter is USD 180,000 per day and the contract has been extended to 15 November. Awilco Drilling continues its marketing activities of both WilPhoenix and WilHunter, and have during the third quarter received a number of market enquiries.

Projects

WilPhoenix

Awilco Drilling’s project team at Remontowa Shipyard in Poland currently counts four persons supported by eight key personnel serving on the rig. The team is to take WilPhoenix through the Special Periodic Survey (SPS) and ensure the delivery of the following main enhancements of the rig:

• Increased variable deckload (VDL) to be in line with other rigs of similar design

• Complete new accommodation for 110 persons

• Four new lifeboats

• New sewage plant

• Complete strip down and renewal of parts as needed for all generator engines

• Renewal of the SCR system with state of the art equipment

• Improved mud pit system giving improved well control and working environment

• Four new shaker and improved lay out for mud handling and working environment

• Installation of new drawwork

• Increase of the main deck with 500 m²

The project cost for WilPhoenix is USD 75 million and the rig is to be operational from the beginning of Q2 2011. The WilPhoenix project is progressing according to plan and budget. WilHunter In third quarter it was decided that WilHunter was to be towed to Remontowa at the end of the contract with Transocean to undergo its planned SPS. Having both rigs at the same yard is considered to be the best cost and time efficient solution for the Company. The estimated project cost for WilHunter is USD 15 million and the rig is planned to be ready for operation at the beginning of Q2 2011.

Capital Requirements and Funding

Preparations for the first part of the Company’s planned two-step equity issue were done during the third quarter and completed in early October. The second part of the equity funding is planned to be raised in relation with the listing on Oslo Stock Exchange (Oslo Axess) in early Q2 2011. The net proceeds from the equity issues will fund the ongoing reactivation of WilPhoenix and the planned SPS for WilHunter. The new equity will, together with the company’s cash balance and the available funds for draw down, be sufficient to fund the projects as described above.

Business Management System and Organisation

The development of Awilco Drilling’s business management system, Safety Cases, and organisation is progressing according to plan and schedule. During the quarter, a new Chief Operating Officer joined the Company, and other recent key appointments include Rig Manager, QHSE Manager, Maintenance Manager and HR Manager. At the end of third quarter, Awilco Drilling employed 28 full-time equivalent positions (permanent and  contractors), of which 8 are offshore crew assigned to the WilPhoenix project. The development of rig/on-site operational procedures was completed during the quarter and will be part of the Company’s crew induction

program.

Market Outlook

Following a period of full utilization of the active UK mid-water fleet during the 2010 summer season we are now predictably starting to see some seasonal availability during Q4 2010 and Q1 2011. Dayrates continue to be around USD 250,000 per day. Recent short term fixtures for work through the winter indicate that a strong 2011 market is indeed likely. Operators have yet to firm up their drilling plans and confirming their associated financing/budget approval for 2011. Additional requirement are continuing to emerge and can still emerge over the next few months. Recent forecast indicates that demand will pick-up from late Q1 2011 and that demand in 2011 is expected to be slightly higher than 2010. The planned reactivation and upgrading work for WilPhoenix and WilHunter are well received in the market and provides the company with a good opportunity to benefit from a strong UK market.

Subsequent Events

• In early October a private placement of 16,000,000 shares was carried out. The gross proceeds from the equity issue were USD 65 million. After the issue, the total share capital of Awilco Driling Limited is GBP 175,500 divided into 27,000,000 shares.

• In early November, the UK Safety Case for WilHunter was accepted by the UK Health and Security Executive (HSE).

• WilHunter finalised its bareboat contract with Transocean on 15 November. On 22 November, WilHunter arrived in Remontowa Shipyard in Gdansk and Awilco Drilling took redelivery of the rig.

• In November, key senior rig crew on WilHunter accepted employment offers from Awilco Drilling.

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Source: Awilco Drilling  ,December  1, 2010;