Pacific Drilling Chapter 11

Not surprising or unexpected news:

Oh, geez. Just declare Chapter 7 and be done. All Chapter 11 does is make a lot of money for the attorneys, give the bondholders a few pennies so they feel better about the bankers selling them crap while saying it was gold as well as preserve the CEO and other top officers pay/bonuses.

2 Likes

Sad that the courts continue to let this happen. Agreed, enough is enough for that company, fire sale the assets off to companies that may make it.

gCaptain has a post as well.

1 Like

Won’t this just mean that Pacific Drilling will just carry on pretty much as normal but get a haircut on their debt.

1 Like

yes, except that PacDrill only has only one of seven ships working at present and one on a standby rate which I think everyone would agree cannot sustain the operation for long. What people need to realize is that after a bankruptcy restructuring someone needs to pony up cash to make up shortfalls however it appears that because a liquidation would not even recover less than a nickel for every dollar invested by those who hold the equity that it would be an almost complete write off and these owners cannot take such a brutal loss so keep pouring in more good money desperately trying to save their bad. This is not the second time this has happened with PacDrill and I simply cannot believe it will save them in a year’s time should the market for their ships not improve (and it won’t).

At some point they will have to die…it is only a question of when the life support plug be pulled?

1 Like

For an in depth look at why bankruptcy in so profitable I’d suggest reading this.

1 Like

what is pretty obvious is that there is nobody in the world who has any belief that deepwater drilling will have even a small recovery in any near term period (by which I mean 5 years) otherwise there would be a market for the owners of these ships to sell them to speculative investors who would put them on ice for that future demand upturn. As it is with nobody anywhere seeing that recovery, the market to sell these ships for anything above scrap simply does not exist. With there being no sales for other than scrap in the past year (I believe the VITORIA 10000 was the last when it was sold for $15M to AllSeas) there is utterly no market to sell whatsoever! These $700+M ships are likely now not even worth $7M if their owners went to sell today…just 1%! A BIGGER AND MORE COMPLETE DEATH OF AN INDUSTRY CANNOT BE FOUND! ALL BROUGHT ABOUT BY GREED AND UNPRECEDENTED OVERBUILDING WITHOUT ANY HEDGE AGAINST THE DOWNTURN IN THE MARKET!

2 Likes

Kinda like the fracking business that never turned a profit. Just a scam to take money from gullible and even professional investors for pension funds. The only winner in the scams are the investment banks that sell the crap. Chase, Citi, Goldman all have some of the slickest salesmen in the world. Hedge against investments they sell and when it all goes to hell in a hand basket? They get bailed out by the taxpayers via the Fed and Treasury. They just got a huge bailout this year. Everyone would call that a handout or welfare but it is unseemly to call it that when the recipients live in mansions, fly on private jets and run the government.

1 Like

increased likelihood that Transocean is going to file Chapter 11 in the near future

Transocean Is Moving Closer To Bankruptcy Quarter After Quarter

Nov. 3, 2020 5:25 PM ET

Vladimir Zernov

Summary

Transocean reported its third quarter results. Another rig is leaving the active fleet.

According to Transocean’s own calculations, the company will have to rely on credit facility by the end of 2022 even if it raises debt secured by newbuild drillship Deepwater Titan.

Transocean will need a robust recovery of the offshore drilling market by 2022 to have a chance to deal with the debt wall in 2023 – 2025.

For now, the market situation is moving in the wrong direction.

Transocean ([RIG) has recently released its third-quarter results and held its conference call providing investors and traders with a chance to take a look at the current situation in the company which many believe will be one of the few survivors in the current crisis of the offshore drilling industry. Without further ado, let’s take a look at the results and Transocean’s comments.

Transocean reported revenue of $773 million and GAAP earnings of $0.58 per share. The GAAP earnings were driven by the $449 million gain on “restructuring and retirement of debt”, which is due to the recent debt tender offer which was completed in the third quarter.

In the fourth quarter, Transocean announced another cash tender offer which is capped at $200 million so it will not bring big changes to the structure of the company’s balance sheet.

Transocean finished the third quarter with $1.38 billion of cash on the balance sheet, $7.79 billion of long-term debt and $640 million of debt due within one year. The company generated $81 million of operating cash flow as it benefited from its long-term legacy contracts. Operating cash flow was mostly in line with the operating cash flow in the second quarter, which will likely provide some hope for the bulls that the worst is already behind the company.

During the conference call, Transocean stated that its revenue will likely decline to $710 million in the fourth quarter due to lower fleet-wide activity. This is not surprising given the fact that the company had to remove several rigs out of the active fleet.

In a recent development, Transocean decided to cold stack the semi-sub Development Driller I, which concluded its contract with Chevron in October 2020. Transocean did not see follow-up opportunities for the rig and decided to avoid warm stacking costs. In my opinion, the cold stacked rigs in general will not find work in the upcoming years due to weak demand and oversupply of active rigs, and many of them will never work again due to high reactivation costs which only get higher as time goes by.

In another fleet development, Transocean decided to move the harsh-environment semi-sub Transocean Barents from Canada to Norway as the activity in Canada was low. While I’m rather optimistic about demand for harsh-environment semi-subs in Norway, Transocean Barents will likely spend months without work.

In the conference call, Transocean stated that it would take delivery of its two newbuild rigs as it had a commitment with the yard and the final payments for the rigs were already delayed several times. Basically, Transocean will be forced to spend significant capex on these rigs regardless of the state of the market. Currently, drillship Deepwater Titan is scheduled to start a long-term contract with Chevron in the first half of 2020, while Deepwater Atlas has no firm commitment.

In this light, Transocean’s liquidity forecast looks bleak. In the earnings call, the company stated that it expected to finish the year 2022 with liquidity of $1.1 billion - $1.3 billion, which included $1.3 billion available under the credit facility and the potential securitization of Deepwater Titan, which, according to Transocean’s estimates, could bring $350 million - $400 million. Put simply, Transocean currently expects that it will run out of money by the end of 2022 even if it raises debt secured by Deepwater Titan. In this situation, Transocean will surely try to securitize the other newbuild, Deepwater Atlas, but the success of this attempt will depend on whether the rig will get a good long-term contract by that time. In addition, Transocean will be adding debt to a pile of debt, which does not bode well for the company’s ability to deal with the debt wall in 2023 - 2025.

Also, Transocean’s CEO Jeremy Thigpen stated that several rigs may leave the active fleet if the company fails to find suitable contracts for them. Transocean does not have “oldtimers” in its benign fleet (with the exception of Deepwater Nautilus (2000), which is on contract with Petronas until January 2021), so we are talking about rigs that would have been viewed as potential cash generators under normal conditions.

As always, Jeremy Thigpen sounded optimistic during the earnings call and stated that activity should pick up in the second quarter of 2021. This view is shared by peers and I would not dispute it. However, it’s hard to believe that the fleet of work-starved rigs will immediately get good cash-generating contracts during the first post-pandemic contracting wave. More, the timing of the end of the pandemic is completely unclear, especially in the light of recent developments. At this point, the outlook for oil is getting worse, not better, and OPEC+ will likely be forced to extend production cuts for the beginning of 2021 just to keep oil prices at current levels. In my opinion, this is a negative catalyst for contracting activity in the offshore drilling space.

Transocean’s shares reacted positively to the third-quarter report. I believe that the fact that the company does not have any immediate bankruptcy threats contributed to this price action. That said, the long-term outlook keeps getting more challenging. Rigs are leaving Transocean’s active fleet - and it will need additional rigs to deal with its debt by the time it gets to the end of 2022. Most of the cash flow is fixed in legacy contracts - they provide great support, but there is a limited number of opportunities to improve this cash flow outside of the two newbuild rigs. In order to push its debt further to the right at the end of 2022, Transocean will have to demonstrate a viable business model to its creditors. Thus, the company is reliant on a major improvement in both the contract activity and dayrates by this time. For now, things are moving in the wrong direction.

In my opinion, the longer-term risk of bankruptcy is increasing quarter after quarter. Speaking about the share price, it may rally on speculation, but the fundamental situation is very challenging. At this point, I do not see how Transocean will ultimately manage to avoid restructuring unless there is a very material improvement in the offshore drilling market. The previous crisis after 2014 has indicated that the offshore drilling market needs a lot of time to heal. While the scrapping and cold stacking of modern units in the drillship space may help, the competition from restructured peers will likely be significant and put pressure on dayrates for the contracts signed in 2021. As the time goes by, rates will improve as utilization of the active fleet increases, but the key question is whether Transocean will be able to survive with the current capital structure until these “better days”. I think that the odds of a disappointing outcome continue to increase, and I’m longer-term bearish on Transocean.

Even though Transocean will not be one to die there MUST be at least one to go. One of those must be PacDrill since they are so very weak. There is NO future for them!

since I follow this subject pretty closely, I maintain a spreadsheet of all the 106 deepwater drillships in the market and this is a picture of that sheet showing all 59 ships not currently working broken down between those cold stacked, warm stacked and still not yet delivered.

of course we know the two BULLY ships are going to scrap but all the rest are now exert a massive pull of gravity downward in the market into a deep, bottomless pit of blackness.

2 Likes

here is the list of all those working or at least earning something for their managers

as it stands today more than 50% are not working and more headed that way

3 Likes

Cold stacked drillships are dead iron. They will never be activated as it is not economically feasible. They are only kept on the books for accounting shenanigans.
The drillships listed as warm stacked are also lost causes. When the few active drillships are taking 50-75% cuts in day rates that tells you the likelihood of any “warm stacked” drillship being activated is 0.
You have to hand it to the drillship PR people. They come up with some interesting terms for ships they list as assets. It’s kinda like calling people in a hospice “warm stacked” and people in a morgue “cold stacked.”

2 Likes

that is pretty much a given but you can see that the average age of those cold stacked is well fewer than 10 years…I doubt very many ever earned their original build costs back

Hahahaha! That hits that the nail on the head. Thank you for making my morning better.

I assume you are not classing the Opus Drillships as Deepwater, instead Mid. Would be curious to see midwater as well.

I have a coworker, a fellow Robinhooder, who invested $10k in PACD 6 weeks ago. The guy is sweating bullets over his investment & he said he found out their only working drill ship the Pacific Kahmsim is in the process of demobbing with no other job lined up. If that’s true then this will be a Chapter 11 company with little to no cash with no revenue soon. PACD or whatever OTC symbol they come up with will be gone soon.

there are very few midwater ships so not worth the effort to track…deepwater semisubmersibles on the otherhand are worth tracking but because so many fewer of those were built in the 2000 to present period, they do not exert that same gravitational pull into the back hole what is today’s offshore floater drilling market. It is very clear that the overbuilding was literally so massive as to have buried every single drilling contractor under a level of debt which could never bear any form of downturn. Did not one single company’s board say, “let’s hold off building new and wait till there is a downturn to build our rig fleet”? Certainly does not appear to have been any that I can see? Even Atwood, Diamond and Rowan who had not been known as drillship operators sold their souls to get in on the boom and now the devil is coming to collect.

2 Likes

There are oil and gas companies that are making huge losses, but they still seem to get massive investment from somewhere to keep going.

It makes me wonder who exactly is still pumping so much money in these companies and when they are seemingly such bad investments why are they still ploughing cash into them?

Maybe there are some ‘asset management firms’ who have invested so much cash in oil and gas companies they can’t afford not to keep giving more, if they stop giving more money all the money they have given so far is gone.

These asset management companies are often spending other peoples money, so they might not take as much care with it as someone would if they were investing their own money. Sometimes you get these multi-billion dollar pension funds investing in oil and gas companies, in the UK at least people’s private pensions are backed by the government, but that might encourage pension funds to make risky investments as they know if it all goes tits-up then the government will pay the pensions anyway.

I believe that this is totally the case with these drilling companies in Chapter 11. With the original bonds now converted to shares, the new shareholders have got to keep the operation alive and pray that there is somehow a turn around within a period that allows profitability to return and then for the shares they hold to be able to be sold. I am very doubtful that any new capital from other outside investors is coming in even at would be very high rates as the entire industry is on its knees and the chances of seeing that investment very likely to disappear like that made by so many before. I guess the key now is that with any of these drillers to keep getting cash infusions from the new shareholders would be to slash expenses to the lowest possible sustainable level but why aren’t the senior managers being made to eat it as well? If they are still getting their big salaries then it is totally the fault of the respective boards of directors.