Pacific Drilling Announces Fourth-Quarter and Full-Year 2015 Results

Pacific Drilling S.A. (NYSE:PACD) today announced a net loss for fourth-quarter 2015 of $13.6 million or $0.06 per diluted share, compared to net income for third-quarter 2015 of $41.0 million or $0.19 per diluted share. Net income for fourth-quarter 2014 was $68.0 million or $0.32 per diluted share.

Net income for full-year 2015 was $126.2 million or $0.60 per diluted share, compared to net income for full-year 2014 of $188.3 million or $0.87 per diluted share.

On Oct. 29, 2015, we exercised our right to rescind the construction contract for the Pacific Zonda due to the shipyard’s failure to timely deliver the vessel in accordance with the specifications of the construction contract, and in connection with the rescission, the 2014 revolving credit facility was terminated on Oct. 30, 2015. Our fourth-quarter and full-year 2015 net income included a non-recurring loss of $40.2 million from the construction contract rescission and a $6.0 million write-off of deferred financing charges from termination of the 2014 revolving credit facility. A reconciliation of net income excluding charges^(d) to reported net income is included in an accompanying schedule to this release.

CEO Chris Beckett said, “Pacific Drilling delivered another financially robust quarter capping a year with a strong revenue efficiency, and the most cost efficient operations since the company began operating, delivering record adjusted EBITDA for the year. In the face of a very challenging market environment, the Pacific team has demonstrated tremendous dedication and professionalism enabling us to achieve our cost cutting goals, generate additional liquidity, and achieve new performance records.”

Mr. Beckett continued, “Going forward, our efforts will continue to be focused on providing our clients with the highest quality service and safe and efficient operations, in combination with innovative technical and creative commercial solutions, which will continue to be differentiating factors for us. With the shipyard’s failure to deliver our final drillship by the required date, we have completed our current newbuild program and have no further new construction expenditures. Pacific Drilling has the newest and highest-quality fleet in the industry and is well positioned for an extended downturn.”

Fourth-Quarter and Full-Year 2015 Operational and Financial Commentary

Contract drilling revenue for fourth-quarter 2015 was $267.6 million, which included $20.4 million of deferred revenue amortization, compared to contract drilling revenue of $260.2 million for third-quarter 2015, which included $21.7 million of deferred revenue amortization. Revenue benefited from an overall improved revenue efficiency performance during the quarter, offset by the Pacific Khamsin completing its drilling operations on Dec. 17, 2015. Contract drilling revenue for the year ended Dec. 31, 2015, was $1,085.1 million, including $86.3 million of deferred revenue amortization, as compared to contract drilling revenue of $1,085.8 million, including $109.2 million of deferred revenue amortization, for the year ended Dec. 31, 2014.

Operating expenses for fourth-quarter 2015 were $104.9 million as compared to $98.3 million for third-quarter 2015. Operating expenses for fourth-quarter 2015 included $5.8 million in amortization of deferred costs, $7.0 million in reimbursable expenses, and $7.6 million in shore-based and other support costs. Direct rig-related daily operating expenses for operating rigs, excluding reimbursable costs and non-recurring personnel charges related to our Nigerian operations, averaged $150,300 in fourth-quarter 2015, as compared to $154,800 for third-quarter 2015. Operating expenses for full-year 2015 were $431.3 million as compared to our initial 2015 guidance of $500-$525 million and $459.6 million for full-year 2014. The decrease in operating expenses was primarily the result of fleet-wide cost savings measures. In 2015, operating expenses included $26.0 million in amortization of deferred costs, $27.3 million in reimbursable expenses, and $32.5 million in shore-based and other support costs.

General and administrative expenses for fourth-quarter 2015 were $12.6 million as compared to $13.2 million for third-quarter 2015. General and administrative expenses for full-year 2015 were $55.5 million as compared to our initial 2015 guidance of $63-$66 million and $57.7 million for the prior year. The decrease in general and administrative expenses was primarily related to Company-wide cost savings measures.

Adjusted EBITDA for fourth-quarter 2015 was $149.8 million, compared to EBITDA of $148.2 million in the prior quarter. Adjusted EBITDA for the year ended Dec. 31, 2015, was $595.1 million, compared to adjusted EBITDA of $563.3 million for the year ended Dec. 31, 2014. Adjusted EBITDA margin for full-year 2015 was 54.8 percent, as compared to adjusted EBITDA margin of 51.9 percent for full-year 2014. A reconciliation of EBITDA and adjusted EBITDA to net income is included in the accompanying schedules to this release.

Interest expense for fourth-quarter 2015 was $50.1 million, as compared to $36.4 million for third-quarter 2015, primarily due to a reduction in capitalized interest resulting from placing the Pacific Meltem into service in late August 2015. Interest expense for full-year 2015 was $156.4 million.

Liquidity and Capital Expenditures

For full-year 2015, cash flow from operations was $422.1 million. Cash balances totaled $116.0 million as of Dec. 31, 2015, and total outstanding debt was $2.89 billion. As of Dec. 31, 2015, we had approximately $566.0 million of available liquidity, including $450.0 million of undrawn capacity under our 2013 revolving credit facility.

CFO Paul Reese commented, “2015 was a year of significant cost savings, which, coupled with the fourth quarter amendments of our credit facilities, generated substantial additional liquidity. In the fourth quarter, we exceeded our goals bringing daily rig related operating expenses to $150,000 and daily idle costs below $40,000. With no further new-build construction capex and no debt maturities until Dec. 2017, the cash that is generated from our existing backlog should reduce our net debt balance significantly. This positions us well during these challenging times in our industry.”

Investor Toolkit

Updated schedules of expected amortization of deferred revenue, depreciation and interest expense for our existing financing are available in the “Quarterly and Annual Results” subsection of the “Investor Relations” section of our website, www.pacificdrilling.com.

Footnotes

^(a) EBITDA and adjusted EBITDA are non-GAAP financial measures. For a definition of EBITDA and adjusted EBITDA and a reconciliation to net income, please refer to the schedules included in this release.

^(b) EBITDA margin is defined as EBITDA divided by contract drilling revenue. Adjusted EBITDA margin is defined as adjusted EBITDA divided by contract drilling revenue. Management uses this operational metric to track company results and believes that this measure provides additional information that highlights the impact of our operating efficiency as well as the operating and support costs incurred in achieving the revenue performance.

^(c) Revenue efficiency is defined as actual contractual dayrate revenue (excluding mobilization fees, upgrade reimbursements and other revenue sources) divided by the maximum amount of contractual dayrate revenue that could have been earned during such period.

^(d) Net income excluding charges is a non-GAAP financial measure. For a definition of net income excluding charges and a reconciliation to net income, please refer to the schedules included in this release.

Conference Call

Pacific Drilling will conduct a conference call at 9 a.m. Central time on Tuesday, March 1, to discuss fourth-quarter and full-year 2015 results. To participate, please dial +1 913-312-0823 or 1-888-204-4368 and refer to confirmation code 1396374 five to 10 minutes prior to the scheduled start time. The call also will be webcast on www.pacificdrilling.com and can be accessed by a link posted in the “Events & Presentations” subsection of the “Investor Relations” section.

An audio replay of the call may be accessed after noon Central time on Tuesday, March 1, 2016, by dialing +1 719-457-0820 or 1-888-203-1112, and using access code 1396374. A replay of the call also will be available on the company’s website.

About Pacific Drilling

With its best-in-class drillships and highly experienced team, Pacific Drilling is committed to becoming the industry’s preferred high-specification, floating-rig drilling contractor. Pacific Drilling’s fleet of seven drillships represents one of the youngest and most technologically advanced fleets in the world. For more information about Pacific Drilling, including our current Fleet Status, please visit our website at www.pacificdrilling.com.

Forward-Looking Statements

Certain statements and information contained in this press release, and oral statements made regarding the subjects of this press release, including the conference call announced herein, constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, and are generally identifiable by the use of words such as“anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “our ability to,” “plan,” “potential,” “project,” “should,” “will,” “would,” or other similar words, which are generally not historical in nature. Our forward-looking statements express our current expectations or forecasts of possible future results or events, including future client contract opportunities, availability of vessels, revenues and operating results and revenue efficiency. Although we believe that these forward-looking statements are reasonable as and when made, these statements are not guarantees, and actual future results may differ materially due to a variety of factors. These statements involve significant risks and uncertainties (many of which are beyond our control) and assumptions that could cause actual results to differ materially from our historical experience and our present expectations or projections. Important factors that could cause actual results to differ materially from projections include: future levels of offshore drilling activity; our ability to secure new and maintain existing drilling contracts, including possible cancellation or suspension of drilling contracts as a result of mechanical difficulties, performance, market changes or other reasons; changes in worldwide rig supply and demand, competition and technology; actual contract commencement dates; downtime and other risks associated with offshore rig operations, including unscheduled repairs or maintenance, relocations, severe weather or hurricanes; and our ability to repay debt and adequacy of and access to sources of liquidity. For additional information regarding factors that could cause our actual results to differ from our projected results, please see our filings with the Securities and Exchange Commission (SEC), including our Annual Report on Form 20-F and Current Reports on Form 6-K. These documents are available through our website at www.pacificdrilling.com or through the SEC’s Electronic Data and Analysis Retrieval System at www.sec.gov.

Readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date hereof. We undertake no obligation to publicly update or revise any forward-looking statements after the date they are made, whether as a result of new information, future events or otherwise.