Image: Pacific Meltem
Pacific Drilling (PACD)
This article is an update of my previous article on Pacific Drilling from June 5, 2015. Here's a look at the company's fleet status as of July 22, 2015, page 6 of the presentation:
| N | Name | Year Built | Specification UDW | Contract End | Day Rate K $ | Client Location |
| 1 | Pacific Bora | 2011 | Samsung 10,000 design | 8/16 | 586/602 | [Chevron] Nigeria |
| 2 | Pacific Mistral | 2012 | Samsung 10,000 design | Available | (Rolled off 2/5/15) | Curaçao |
| 3 | Pacific Scirocco | 2011 | Samsung 10,000 design | 12/16 | 499 | [Total] Nigeria |
| 4 | Pacific Santa Ana | 2012 | Samsung 10,000 design | 4/17 | 490 | [Chevron] US Gulf of Mexico |
| 5 | Pacific Khamsin | 2013 | Samsung 12,000 design | 12/15 | 660 | [Chevron] Nigeria |
| 6 | Pacific Sharav | 2014 | Samsung 12,000 design | 8/19 | 558 | [Chevron] US Gulf of Mexico |
| 7 | Pacific Meltem | 2014 | Samsung 12,000 design | Available | Starting 3/15 | US GoM |
| 8 | Pacific Zonda | (To active fleet by 1Q'17) | Samsung 12,000 design | Available | Delay of Pacific Zonda delivery currently under discussion with shipyard | - |
Note1: Contract backlog as of July 2015 was approximately $1.9 billion, with 78% utilization in 2015 and 52% in 2016.
Note2: Existing contract provisions provide that any contract terminations are at least EBITDA neutral
Commentary:
Pacific Drilling released its July fleet status on July 22, 2015, in a form of a global presentation, that I found interesting and quite unconventional.
First, a quick look at the fleet status:
Looking at the UDW fleet already delivered, and ready to be deployed, nothing has changed and the company has still the Pacific Mistral and the Pacific Meltem classified as available (ready stacked).
The important new item is about the Pacific Zonda, and its possible delivery pushed to 1Q'17 currently under discussion with the shipyard.
I have commented several times about this delay in my preceding article, and even criticized management for procrastinating on this issue. As many can remember, the Pacific Zonda was initially scheduled to be delivered for 1Q'15.
However, the shipyard was late and re-scheduled delivery for 3Q'15 and even paid late fees to PACD.
PACD maintained the delivery date to 3Q'15, whereas the company had not secured a firm contract for the rig. It was an evident mistake, in my opinion, and the company should have negotiated a late delivery much earlier with the shipyard. This mistake may result in an extra-cost now.
Second, a quick look at the last presentation:
This presentation is all about preservation of capital, and expense reduction. It is an important element, and basically the only one that can be positively changed by the company. As we all know, the offshore drilling industry is now facing the worst bear cycle that it experienced in its entire history, due to a depressed oil price environment, pushing big oil operators to cut drastically offshore drilling CapEx to a bare minimum.
How PACD intends to save cash?
- PACD intends to reduce significantly the cost of maintaining idle rigs from about $75k/d to $40k/d called smart stacking, by saving on personal, on non-critical maintenance and miscellaneous. This cost savings will allow the rig to be ready to work in less than 90 days.
- PACD intends to reduce General and Administrative expenses by approximately 12.5%.
- PACD will lower by up to 0.5% the income tax expense as percent of the total drilling revenue.
The cost saving indicated above prompt PACD to deliver a new guidance including a contract drilling expenses in a range of $425 to $450 million.
Projected positive EBITDA through 2017.
| 2014 | 2015 | 2016 | 2017 | |
| Revenue in $ million | 1,086 | 1,090 | 1,050(715) | 1,140(280) |
| Costs in $ million | 518 | 494 | 485(370) | 555(275) |
| EBITDA in $ million | 563 | 596 | 565(345) | 585(5) |
2016, 2017: including current expectation for additional backlog.
Finally, the company indicated that its operating cash flow and existing facilities expected to cover 2017 debt maturity.
Furthermore, PACD has initiated discussions with agent banks for post-2015 debt covenants revisions.
Yahoo finance contributor, Jamie Mason, commented in June, on the debt situation.
Pacific Drilling SA could be facing a covenant breach on a $1 billion senior secured credit facility in the first quarter of next year, warns a ratings agency analyst. The Luxembourg-based global offshore drilling contractor, which provides its services to the oil and natural gas industry, needs to get covenant relief by the end of the year in order to avoid breaching its net debt-to-Ebitda covenant on its $1 billion senior secured credit facility in the first quarter of 2016, said Moody's Investors Service Inc. analyst Sreedhar Kona in a phone interview.
YTD chart:
PACD data by YCharts
PACD has been cut by half since January 2015.
Conclusion:
This new presentation was a surprise, I must admit. Nothing really urgent obligated the company to issue such in-depth study. It led me to conclude that this presentation was an excellent introduction to a potential "sale", as I have commented in my preceding article.
The Offshore drilling industry is facing a very difficult outlook and companies such as Pacific Drilling should be seriously thinking about an eventual takeover or merger, while they have still some significant leverage due their a modern and competitive fleet.
