Pacific Drilling S.A. (NYSE: PACD) today announced a net loss for second-quarter 2017 of $138.1 million or $6.48 per diluted share, compared to a net loss of $99.8 million or $4.69 per diluted share for first-quarter 2017, and net income of $8.2 million or $0.39 per diluted share for second-quarter 2016.
CEO Paul Reese said, “Despite a very challenging market which has significantly impacted our revenues, we achieved solid operational performance with a second-quarter revenue efficiency of 95.5% and continued strong cost control. Lately, we have received an increase in market inquiries for projects in several deepwater regions of the world starting sometime in 2018, which is promising.”
Mr. Reese continued, “On behalf of the entire Company, I would like to personally thank Chris Beckett, my predecessor as CEO, under whose leadership Pacific Drilling has grown into a highly respected and established offshore drilling contractor.”
Second-Quarter 2017 Operational and Financial Commentary
Contract drilling revenue for second-quarter 2017 was $67.1 million, which included $5.1 million of deferred revenue amortization, compared to first-quarter 2017 contract drilling revenue of $105.5 million, which included $31.1 million of deferred revenue amortization. The decrease in revenues resulted primarily from the Pacific Santa Ana completing its contract in January 2017 compared to being offhire throughout the second-quarter 2017, partially offset by the Pacific Scirocco starting its contract with Hyperdynamics in second-quarter 2017 compared to being offhire throughout the first-quarter 2017. During second-quarter 2017, our operating fleet achieved average revenue efficiency of 95.5%.
Operating expenses for second-quarter 2017 were $65.0 million as compared to $60.4 million for first-quarter 2017. Operating expenses for second-quarter 2017 included $2.6 million in amortization of deferred costs, $1.1 million in reimbursable expenses, and $5.9 million in shore-based and other support costs.
General and administrative expenses for second-quarter 2017 were $20.1 million, compared to $22.5 million for first-quarter 2017. Excluding certain legal and financial advisory fees of $6.4 million in second-quarter 2017 and $6.1 million in first-quarter 2017, our corporate overhead expenses(b) for second-quarter 2017 were $13.7 million, compared to $16.4 million for first-quarter 2017.
EBITDA(c) for second-quarter 2017 was $(17.6) million, compared to EBITDA of $21.9 million in the first-quarter 2017.
For second-quarter 2017, cash flow from operations was $(73.5) million. Cash balances, including $8.5 million in restricted cash, totaled $415.6 million as of June 30, 2017, and total outstanding debt was $3.0 billion.
On July 5, 2017, we announced the launch of a private consent solicitation pursuant to which we solicited the consent of the holders of the 2017 Senior Secured Notes to an extension of the maturity date of the notes to June 1, 2018 in order to give us more time to negotiate a refinancing transaction or undertake a holistic restructuring with all of our creditors. The solicitation expired in accordance with its terms on August 2, 2017 without receiving sufficient consents to approve the maturity extension.
In light of the results of the solicitation and to ensure the Company has sufficient liquidity in light of current market conditions and its debt obligations, the Company is considering various means to increase its available liquidity, including potentially seeking to raise additional debt financing. The Company is also reviewing various ways to further reduce costs.
If the Company is unable to complete a restructuring, or refinance or extend the maturity of the 2017 Senior Secured Notes prior to their maturity in December 2017, the Company may be unable to repay the Notes at maturity, which would trigger cross-default provisions in the Company’s other debt instruments. In addition, as previously disclosed, the Company expects that it will be in violation of the maximum leverage ratio covenant in its 2013 Revolving Credit Facility and its Senior Secured Credit Facility for the fiscal quarter ending on September 30, 2017. If the Company is unable to obtain waivers of such covenants or amendments to the debt agreements, such covenant default would entitle the lenders under such facilities to declare all outstanding amounts under such debt agreements to be immediately due and payable. Such acceleration would also trigger the cross-default provisions in the Company´s other debt instruments. The Company is evaluating various alternatives to address its liquidity and capital structure, which may include a private restructuring or a negotiated restructuring of its debt under the protection of Chapter 11 of the U.S. Bankruptcy Code.
CFO John Boots commented, “We continue to engage in discussions with our shareholders, the bank lenders and the ad hoc group of holders of our public debt on the terms of a restructuring, although there is currently no consensus as to the form or structure of any restructuring.â€
The Company will not be holding an earnings conference call this quarter.
| Â | Â |
| Footnotes | Â |
| Â | Â |
| (a) | 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. |
| Â | Â |
| (b) | Corporate overhead expenses is a non-GAAP financial measure. For a definition of corporate overhead expenses and a reconciliation to general and administrative expenses, please refer to the schedule included in this release. |
| Â | Â |
| (c) | EBITDA is a non-GAAP financial measure. For a definition of EBITDA and a reconciliation to net income, please refer to the schedules included in this release. |
| Â | Â |
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 constitute “forward-looking statements†within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, and are generally identifiable by the use of words such as “believe,†“estimate,†“expect,†“forecast,†“ability to,†“plan,†“potential,†“projected,†“target,†“would,†or other similar words, which are generally not historical in nature.
Forward-looking statements express current expectations or forecasts of possible future results or events, including future financial and operational performance; revenue efficiency levels; market outlook; forecasts of trends; future client contract opportunities; contract dayrates; business strategies and plans and objectives of management; estimated duration of client contracts; backlog; ability to repay indebtedness; expectations regarding potential future covenant defaults on long-term indebtedness; expected capital expenditures and projected costs and savings.
Although the Company believes that the assumptions and expectations reflected in their forward-looking statements are reasonable and made in good faith, these statements are not guarantees and actual future results may differ materially due to a variety of factors. These statements are subject to a number of risks and uncertainties, many of which are beyond the Company’s control.
Important factors that could cause actual results to differ materially from expectations include: the global oil and gas market and its impact on demand for services; the offshore drilling market, including reduced capital expenditures by clients; changes in worldwide oil and gas supply and demand; rig availability and supply and demand for high-specification drillships and other drilling rigs competing with the Company’s fleet; costs related to stacking of rigs; the Company’s ability to enter into and negotiate favorable terms for new drilling contracts or extensions; possible cancellation, renegotiation, termination or suspension of drilling contracts as a result of market changes or other reasons; the Company’s substantial level of indebtedness; the Company’s ability to obtain waivers or amendments to its maximum leverage ratio covenant at the end of the third quarter of 2017 if necessary, or with respect to other potential future debt covenant defaults; the Company’s ability to continue as a going concern and any potential bankruptcy proceeding; the Company’s ability to repay debt and adequacy of and access to sources of liquidity; and the other risk factors described in the Company’s filings with the SEC, including the Company’s 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.
The Company does not undertake any 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.
| Â | Â | Â | Â | Â | Â | Â | Â | Â | Â | Â | Â | Â | Â | Â | Â | Â | Â | Â | Â | Â | Â | |||||
| PACIFIC DRILLING S.A. AND SUBSIDIARIES | ||||||||||||||||||||||||||
| Â | Â | Â | Â | Â | Â | Â | Â | Â | ||||||||||||||||||
| Condensed Consolidated Statements of Operations | ||||||||||||||||||||||||||
| (in thousands, except per share information) (unaudited) | ||||||||||||||||||||||||||
| Three Months Ended | Six Months Ended June 30, | |||||||||||||||||||||||||
| June 30, | March 31, | June 30, | ||||||||||||||||||||||||
| 2017 | 2017 | 2016 | 2017 | 2016 | ||||||||||||||||||||||
| Revenues | ||||||||||||||||||||||||||
| Contract drilling | $ | 67,073 | $ | 105,509 | $ | 203,710 | $ | 172,582 | $ | 409,088 | ||||||||||||||||
| Costs and expenses | ||||||||||||||||||||||||||
| Operating expenses | (64,988 | ) | (60,448 | ) | (75,988 | ) | (125,436 | ) | (154,961 | ) | ||||||||||||||||
| General and administrative expenses | (20,149 | ) | (22,461 | ) | (14,195 | ) | (42,610 | ) | (29,321 | ) | ||||||||||||||||
| Depreciation expense | (69,863 | ) | (69,631 | ) | (68,213 | ) | (139,494 | ) | (136,289 | ) | ||||||||||||||||
| (155,000 | ) | (152,540 | ) | (158,396 | ) | (307,540 | ) | (320,571 | ) | |||||||||||||||||
| Operating income (loss) | (87,927 | ) | (47,031 | ) | 45,314 | (134,958 | ) | 88,517 | ||||||||||||||||||
| Other income (expense) | ||||||||||||||||||||||||||
| Interest expense | (50,388 | ) | (50,011 | ) | (46,116 | ) | (100,399 | ) | (91,609 | ) | ||||||||||||||||
| Gain on debt extinguishment | — | — | 14,231 | — | 14,231 | |||||||||||||||||||||
| Other income (expense) | 496 | (729 | ) | (3,816 | ) | (233 | ) | (2,184 | ) | |||||||||||||||||
| Income (loss) before income taxes | (137,819 | ) | (97,771 | ) | 9,613 | (235,590 | ) | 8,955 | ||||||||||||||||||
| Income tax expense | (247 | ) | (2,076 | ) | (1,379 | ) | (2,323 | ) | (3,232 | ) | ||||||||||||||||
| Net income (loss) | $ | (138,066 | ) | $ | (99,847 | ) | $ | 8,234 | $ | (237,913 | ) | $ | 5,723 | |||||||||||||
| Earnings (loss) per common share, basic | $ | (6.48 | ) | $ | (4.69 | ) | $ | 0.39 | $ | (11.17 | ) | $ | 0.27 | |||||||||||||
| Weighted average number of common shares, basic | 21,317 | 21,273 | 21,178 | 21,295 | 21,150 | |||||||||||||||||||||
| Earnings (loss) per common share, diluted | $ | (6.48 | ) | $ | (4.69 | ) | $ | 0.39 | $ | (11.17 | ) | $ | 0.27 | |||||||||||||
| Weighted average number of common shares, diluted | 21,317 | 21,273 | 21,178 | 21,295 | 21,150 | |||||||||||||||||||||
| PACIFIC DRILLING S.A. AND SUBSIDIARIES | ||||||||||||||||
| Condensed Consolidated Balance Sheets | ||||||||||||||||
| (in thousands, except par value) (unaudited) | ||||||||||||||||
| June 30, | March 31, | December 31, | ||||||||||||||
| 2017 | 2017 | 2016 | ||||||||||||||
| Assets: | ||||||||||||||||
| Cash and cash equivalents | $ | 407,059 | $ | 498,890 | $ | 585,980 | ||||||||||
| Restricted cash | 8,500 | 8,505 | 40,188 | |||||||||||||
| Accounts receivable | 36,138 | 40,411 | 94,622 | |||||||||||||
| Materials and supplies | 92,029 | 94,482 | 95,679 | |||||||||||||
| Deferred costs, current | 10,854 | 10,183 | 10,454 | |||||||||||||
| Prepaid expenses and other current assets | 15,155 | 8,505 | 13,892 | |||||||||||||
| Total current assets | 569,735 | 660,976 | 840,815 | |||||||||||||
| Property and equipment, net | 4,783,814 | 4,848,409 | 4,909,873 | |||||||||||||
| Long-term receivable | 202,575 | 202,575 | 202,575 | |||||||||||||
| Other assets | 51,017 | 46,942 | 44,944 | |||||||||||||
| Total assets | $ | 5,607,141 | $ | 5,758,902 | $ | 5,998,207 | ||||||||||
| Liabilities and shareholders’ equity: | ||||||||||||||||
| Accounts payable | $ | 18,573 | $ | 20,671 | $ | 17,870 | ||||||||||
| Accrued expenses | 46,010 | 37,020 | 45,881 | |||||||||||||
| Long-term debt, current | 1,692,024 | 467,802 | 496,790 | |||||||||||||
| Accrued interest | 12,827 | 33,059 | 14,164 | |||||||||||||
| Deferred revenue, current | 25,964 | 24,327 | 45,755 | |||||||||||||
| Total current liabilities | 1,795,398 | 582,879 | 620,460 | |||||||||||||
| Long-term debt, net of current maturities | 1,322,232 | 2,547,888 | 2,648,659 | |||||||||||||
| Deferred revenue | 22,899 | 27,430 | 32,233 | |||||||||||||
| Other long-term liabilities | 32,801 | 30,473 | 30,655 | |||||||||||||
| Total long-term liabilities | 1,377,932 | 2,605,791 | 2,711,547 | |||||||||||||
| Shareholders’ equity: | ||||||||||||||||
| Common shares, $0.01 par value per share, 5,000,000 shares authorized, 22,551 shares | ||||||||||||||||
| issued and 21,325, 21,284 and 21,184 shares outstanding as of June 30, 2017, | ||||||||||||||||
| March 31, 2017 and December 31, 2016, respectively | 213 | 213 | 212 | |||||||||||||
| Additional paid-in capital | 2,363,659 | 2,362,458 | 2,360,398 | |||||||||||||
| Accumulated other comprehensive loss | (16,931 | ) | (17,375 | ) | (19,193 | ) | ||||||||||
| Retained earnings | 86,870 | 224,936 | 324,783 | |||||||||||||
| Total shareholders’ equity | 2,433,811 | 2,570,232 | 2,666,200 | |||||||||||||
| Total liabilities and shareholders’ equity | $ | 5,607,141 | $ | 5,758,902 | $ | 5,998,207 | ||||||||||
| PACIFIC DRILLING S. A. AND SUBSIDIARIES | ||||||||||||||||||||||||||
| Condensed Consolidated Statements of Cash Flows | ||||||||||||||||||||||||||
| (in thousands) (unaudited) | ||||||||||||||||||||||||||
| Three Months Ended | Six Months Ended | |||||||||||||||||||||||||
| June 30, | March 31, | June 30, | June 30, | June 30, | ||||||||||||||||||||||
| 2017 | 2017 | 2016 | 2017 | 2016 | ||||||||||||||||||||||
| Cash flow from operating activities: | ||||||||||||||||||||||||||
| Net income (loss) | $ | (138,066 | ) | $ | (99,847 | ) | $ | 8,234 | $ | (237,913 | ) | $ | 5,723 | |||||||||||||
| Adjustments to reconcile net income (loss) to net cash provided by | ||||||||||||||||||||||||||
| operating activities: | ||||||||||||||||||||||||||
| Depreciation expense | 69,863 | 69,631 | 68,213 | 139,494 | 136,289 | |||||||||||||||||||||
| Amortization of deferred revenue | (5,118 | ) | (31,079 | ) | (12,658 | ) | (36,197 | ) | (25,316 | ) | ||||||||||||||||
| Amortization of deferred costs | 2,556 | 3,306 | 3,253 | < | ||||||||||||||||||||||