Annual Report – 2012 Annual Financial Report, Financial Report View

94 Pages·2013·5.45 MB·English

Archer Limited
Annual Report
2012
Archer 2012 Annual Report
We have assembled
a comprehensive
portfolio of technology,
services, products
and processes
alongside people
with exceptional
capabilities.
B
Archer
Contents
Letter to Shareholders 3
Board of Director’s Report 4
Responsibility Statement 32
Auditor’s Report on Archer Limited
Consolidated Financial Statements 35
Consolidated Statements of Operations
for the years ended December 31, 2012 and 2011 36
Consolidated Statements of Comprehensive Loss
for the years ended December 31, 2012 and 2011 37
Consolidated Balance Sheets
as of December 31, 2012 and 2011 38
Consolidated Statements of Cash Flows
for the years ended December 31, 2012 and 2011 39
Consolidated Statements of Changes in Shareholders’ Equity
for the years ended December 31, 2012 and 2011 40
Notes to Consolidated Financial Statements 41
Appendix A — Corporate Governance 70
Appendix B — List of Significant Subsidiaries 74
Appendix C — Supplemental Parent Company Only Information 75
1
In 2012, we installed
Archer’s first
Modular Rig, the
Archer Emerald, on
the Maui A platform
in New Zealand.
Archer
Letter to Shareholders
Archer experienced a challenging and disappointing 2012. In North America, the rapid activity shift from natural
gas to oil and the oversupply of many services had significant negative impact on utilization of our equipment
and the pricing for our products and services. The changing environment was amplified by several operating
challenges in both our Pressure Pumping and Pressure Control Divisions. While we have significantly improved
the operational performance in 2012, we do not expect the underlying market in the United States to improve
short term.

In Latin America, we were impacted by several large-scale strikes in Southern Argentina, which resulted in 19 of
our rigs being on standby during the third quarter, out of which 15 rigs eventually were without a contract in the
fourth quarter. As labor relations normalized and the Argentinian Government took several steps to improve the
economic conditions for E&P companies in the country, we have seen increased demand for our services and,
as a result, all rigs previously idled now are back on contract.

Our North Sea operations were impacted by the loss of a platform drilling contract in Norway and, as a
consequence, we closed the related facility in Bergen, Norway. On a positive note, the market for our services
on the UK Continental Shelf remained strong during the year and we were awarded several new contracts for
plug-and-abandonment and platform drilling services.

During the year, we also installed Archer’s first Modular Rig, the Archer Emerald, on the Maui A platform in New
Zealand. At the start of 2013, we were awarded a second Modular Rig contract for the Heimdal platform in the
North Sea and we are pleased that this rig concept is gaining customer acceptance.

Within our Emerging Markets and Technologies segment, we have seen strong growth for our well integrity
products, such as the LOCK™ series for well suspension and the multistage cementing tool Cflex. We will
continue to make significant investments in both geographic expansion and the development of new
technologies in 2013.

From a financial perspective, revenue grew from $1.9 billion in 2011 to $2.2 billion in 2012, while EBITDA
deteriorated from $258 million to $217 million. The Company reported a net loss of $376 million in 2012, mainly
as a result of a large impairment of goodwill and intangible assets, compared to a net loss of $77 million in 2011.

In hindsight, we clearly underestimated the negative effect of the market changes in the United States and the
timeline to recover from operational challenges.

We have learned important lessons from 2012 and have taken a number of additional steps to adapt the
Company to the volatility of the oilfield services market and to better address our internal challenges. The
recent issue of new additional equity, helping to reduce the debt level of the Company, was one of the steps,
with several others to follow, which will set the foundation of a more focused Company going forward.
Fredrik Halvorsen
Chief Executive Officer & Vice Chairman
3
Archer 2012 Annual Report
Board of Director’s Report
Company overview and history
We are a global oilfield services company helping customers The company conducted operations as Seawell Ltd until May
produce more oil and gas by delivering better wells. In doing so, 16, 2011 when shareholders approved a resolution to change the
we work with our customers to produce oil and gas safely and name to Archer Limited. Archer was incorporated in Bermuda
profitably with no harm to people or the environment for the on August 31, 2007, with registration number 40612, as an
longest possible time frame. exempted, limited company and is organized and exists under
the Laws of Bermuda.
Our experienced drilling teams secure the production of more
than 30 offshore platforms globally and operate over 70 mobile
land rigs in Latin America. Our comprehensive drilling and We are a global oilfield services
workover services include platform drilling, land drilling, directional
company helping customers
drilling, modular rigs, fluids, drill bits, engineering and equipment
produce more oil and gas.
rentals, as well as a select range of well delivery support services
and products.
Our well services capabilities include wireline well intervention, Archer Limited’s registered office is at Par-la-Ville Place, 14 Par-la-
tractors and coiled tubing, pressure control and pressure Ville Road, Hamilton HM 08, Bermuda and the office of Archer
pumping, production monitoring, well imaging and integrity Management Limited (UK) is in 556 Chiswick High Road, Chiswick
management tools and other services aimed at improving well Park, Building 11, 2nd Floor, London W45YA, telephone +44 207
performance and extending well life. 590 1590. Archer Limited is listed on the Oslo Stock Exchange
under the ticker symbol ARCHER.NO and our web site is
Employing over 8,000 people across 118 global locations, we www.archerwell.com.
primarily operate in the North Sea and the major basins in
the United States and in Argentina. We are in the process of
expanding our operations in the Asia Pacific region, Latin America,
the Middle East and in West Africa.
Archer is comprised of several well specialist companies, including
Seawell Ltd, Allis-Chalmers Energy, Inc. (“Allis-Chalmers”), the
operating companies of Great White Energy Services (“Great
White”), Gray Wireline Services Inc. (“Gray Wireline”), TecWel AS
(“TecWel”), Peak Well Solutions AS (changed name to Archer Oil
Tools AS) (“Oil Tools”) and other complementary businesses.
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Archer 2012 Annual Report Archer
We are in the process
of expanding our
operations in
Asia Pacific,
Latin America,
the Middle East and
in West Africa.
5
Archer 2012 Annual Report
Board of Director’s Report
Business overview
Service and product offering Principal markets
We recognize that our customers’ most vital assets are their As part of the growth over the past few years, we now operate in
reservoirs and their wells. Our primary business focus is the well Angola, Argentina, Australia, Bolivia, Brazil, China, Denmark, Egypt,
system itself. Our services, technologies and capabilities each Malaysia, Norway, Qatar, Saudi Arabia, Singapore, Thailand, United
come into play at various phases during the life of a well. Arab Emirates, United Kingdom and the United States.
Our services include platform drilling, where we supply We have facilities and offices in Argentina, Australia, Bolivia, Brazil,
experienced personnel and processes for drilling and other Malaysia, Norway, Singapore, the United Arab Emirates, the United
technical operations on more than 30 offshore platforms in the Kingdom and the United States.
North Sea; land drilling, through our fleet of 77 rigs, including 30
drilling rigs and 47 service rigs; engineering services covering The demand for our products and services is driven by the price
detailed design, construction, commissioning and maintenance of for hydrocarbons in the countries where we operate. As such, we
drilling facilities; directional and underbalanced drilling operations; believe the long-term fundamentals for the services we provide
tubular services; rental equipment for both onshore and offshore are sound and give us a good basis to grow. The immediate
operations; hammer drill bits; a variety of wireline logging and prospects in 2013 continue to remain uncertain mainly due to
intervention services, including supporting customers with our the low price for natural gas and the oversupply of services in the
proprietary technology to complete and maintain their wells; United States.
pressure control products and services, including coiled tubing,
snubbing, and nitrogen services and frac valve products; pressure Strategy
pumping services featuring hydraulic fracturing, a service used We are in the early phase of becoming a mid-sized oilfield service
to enable production of hydrocarbons from unconventional company with a presence around the world. Following the
reservoirs such as shale; and we built our first modular, offshore completion of several acquisitions, our primary objectives in the
drilling unit, the Archer Emerald, which was mobilized to New short term are to consolidate the various businesses, improve our
Zealand in 2012. operational performance and asset utilization and expand our
services throughout a selected list of countries within our existing
footprint. We will continue to invest in our services business with
Our primary objectives in the
specific focus on international expansion, as well as enhancing our
short term are to consolidate technology portfolio.
the various businesses, improve

our operational performance
and asset utilization and expand
our services throughout a selected
list of countries within our
existing footprint.
6
Archer
We will continue to invest
in our services business
with specific focus on
international expansion,
as well as enhancing our
technology portfolio.
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Archer 2012 Annual Report
Board of Director’s Report
Financial review
2012 Operating results Our general and administrative expense for the year ended
Our total operating revenue and reimbursables for the year ended December 31, 2012 amounted to $132.5 million, an increase of
December 31, 2012 amounted to $2,188.7 million, an increase of 43.9% compared to $92.1 million for the year ended December
18.0% compared to $1,854.6 million for the year ended December 31, 2011. The growth in the Company and the diversity in product
31, 2011. The additional revenue primarily is attributable to the offerings resulted in the increase. In addition, general and
acquired activities of Allis-Chalmers, Great White and growth in administrative expenses for the year ended December 31, 2011
our Oil Tools division. included $15.2 million of acquisition costs related primarily to the
acquisitions of Allis-Chalmers and Great White. General
Our total operating expenses for the year ended December 31, and administrative expenses as a percentage of total revenues
2012 amounted to $1,726.3 million, an increase of 25.3% compared was 6.1% for the year ended December 31, 2012 and 5.0% for the
to $1,377.7 million for the year ended December 31, 2011. Operating year ended December 31, 2011.
expenses increased primarily due to acquired operations of Allis-
Chalmers, Great White and growth in our Oil Tools division.
Results were negatively impacted
Our depreciation and amortization expenses for the year ended by the noncash charge for
December 31, 2012 amounted to $205.0 million, an increase of
impairments of $338.7 million.
39.4% compared to $147.1 million for the year ended December 31,
2011. The increase is due to additional fixed assets and intangibles
attributable to the acquisitions of Allis-Chalmers, Great White and
substantial investments in fixed assets over the last two years. Our interest expense for the year ended December 31, 2012
In addition, depreciation and amortization expense for the year amounted to $61.5 million, an increase of 32.5% compared to
ended December 31, 2011 included $4.1 million in impairment on $46.4 million for the year ended December 31, 2011. Interest-
tangible fixed assets. bearing debt was $1.2 billion at December 31, 2012, compared to
$1.1 billion at December 31, 2011. The increase in debt is primarily
Impairments resulted in a noncash charge of $338.7 million in related to cash overdraft borrowings and the financing of the
the year ended December 31, 2012, compared to $126.6 million Archer Emerald modular rig.
in the year ended December 31, 2011. During the third quarter
of 2012, the level of our stock price, the loss of several large Our other financial items for the year ended December 31, 2012
customers in North America, as well as the significant decline in amounted to $17.5 million of gain, compared to $1.0 million of
our 2012 forecasted results compared to forecasts prepared at expenses for the year ended December 31, 2011. Other financial
the time of the 2011 goodwill impairment testing, were considered items consist mainly of foreign exchange gains/(losses) arising on
to be circumstances, which more likely than not, would reduce settlement of transaction loans denominated in currencies other
the fair value of a reporting unit below its carrying amount. As than the functional currency.
a consequence, we prepared a comprehensive impairment test
for long-lived assets, including intangibles and goodwill, which Our total income tax charges for 2012 amounted to $6.3 million,
resulted in the following impairments: An impairment of goodwill mainly related to operations in Europe and Latin America,
of $207.6 million, an impairment of fixed assets of $65.8 million, compared to $14.5 million for 2011.
an impairment of intangibles of $57.5 million, an impairment of
investments in associates of $4.9 million and an impairment Our net loss for the year ended December 31, 2012 amounted to
of inventory of $2.9 million. The annual impairment testing of $375.8 million, compared to a net loss of $77.0 million for the year
goodwill and intangibles in 2011 resulted in impairment of goodwill ended December 31, 2011.
by $99.0 million and an impairment of intangibles of $21.7 million.
In addition, we recorded $6.0 million of impairments on acquired We have proposed no dividends for the year ending December
trade names we decided to discontinue. 31, 2012.
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