Pacific Drilling files for Chapter 11 protection

January 2018 | DEALFRONT | BANKRUPTCY & CORPORATE RESTRUCTURING

Financier Worldwide Magazine

January 2018 Issue

Another victim of the offshore drilling slump, ultra-deepwater drilling company Pacific Drilling, along with certain of its domestic and international subsidiaries, has filed a voluntary petition for reorganisation under Chapter 11 of the US Bankruptcy Code.

The latest offshore oil drilling and service company to be severely impacted by the energy industry’s preference for lower-cost shale rather than deepwater projects, Pacific Drilling is reported to owe $3.2bn to creditors.

The company intends to use the Chapter 11 process, filed in the US Bankruptcy Court for the Southern District of New York, to pursue a comprehensive restructuring of its approximate $3bn of outstanding funded debt. The filing followed discussions with key constituencies, including substantial holders of its indebtedness, and is intended to work toward a consensual reorganisation of its balance sheet.

After a review of the alternatives for addressing its debts in the long term under US and non-US laws, Pacific Drilling decided that Chapter 11 was the best available forum for its restructuring pending recovery. In addition, the company intends that Chapter 11 will provide a respite from creditor claims in order to explore alternatives to reorganise in a manner that maximises the enterprise value of the company and is fair to all stakeholders.

“We enter Chapter 11 with a strong cash position and the dedicated team necessary to continue to deliver the highest quality service to our customers in the safest and most efficient manner,” said chief executive Paul Reese. “Throughout the Chapter 11 process, we anticipate using our strong cash position to meet all ongoing obligations to our employees, customers, vendors, suppliers and others. We look forward to continuing discussions with our stakeholders during the Chapter 11 proceedings and thank all those involved for their efforts so far.”

With a seven-strong fleet of the most advanced high-specification drillships in the world and a highly experienced team, Pacific Drilling operations are among the most technologically advanced in the world. During the Chapter 11 process, the company has reiterated its commitment to becoming the industry’s preferred high-specification, floating-rig drilling contractor.

Coinciding with the announcement of its Chapter 11 filing was the publication of Pacific Drilling’s Q3 operational and financial commentary. The report reveals a net loss for Q3 2017 of $157.5m or $7.38 per diluted share, compared to a net loss of $138.1m or $6.48 per diluted share for Q2 2017, and net income of $0.2m or $0.01 per diluted share for Q3 2016. In addition, operating expenses for Q3 2017 were $58.9m as compared to $65m for Q2 2017. Operating expenses for Q3 2017 included $2.7m in amortisation of deferred costs, $0.9m in reimbursable expenses and $6.8m in shore-based and other support costs.

Pacific Drilling has also announced that the bankruptcy court has granted the relief it requested in certain first day motions related to ordinary course business activities, subject to certain modifications at the request of the court, the US trustee and stakeholders.

The approved motions give the company the authority to continue to pay employee wages and benefits without interruption, utilise its current cash management system, and pay certain foreign and critical vendors for goods and services provided prior to the Chapter 11 petition date. All vendors will be paid in full and in cash on normal payment terms for all goods and services provided on or after the petition date.

Mr Reece concluded: “With these approvals, Pacific Drilling will continue normal operations as we implement a comprehensive financial restructuring under the protection of Chapter 11. Importantly, I would like to thank our employees, customers and vendors for working constructively with us during this important period for the company.”

Fraser Tennant