Paragon Offshore - January 2016 Fleet Status, Commentary On Its Uncertain Future

| About: Paragon Offshore (PGNPQ)

Summary

The Jan. 16 fleet status had no significant changes -- there were no new contracts or extensions.

On Dec. 29, 2015, Paragon Offshore qualified to trade on the OTCQX Best Market.

Paragon Offshore announced that it elected to defer an interest payment of approximately $15.4 million due today on its 6.75% July 2022 senior unsecured notes.

PGNPF is now about to announce a debt restructuring probably under Chapter 11. As always, common shareholders will pay the price.

This article is an update to my preceding article on Paragon Offshore (PGN) on Dec. 15, 2015.

Source: Stock photo.

Here is a look at the fleet status, as of Jan. 18, 2016.

1. Class: Drillships

# Name

Spec.

K feet

Contract

End

Current

Day rate

Information

(Est. Days) at 0 revenue Q4

Location
1

DPDS3

1977/2005 2013

7.2/25.75 8/17 347

Petrobras has indicated to us
that it may contest approximately 380 days of the drilling contract backlog.
We continue to discuss the matter with Petrobras.

[Petrobras] Brazil

0-rate (11d)4Q'15

Click to enlarge

2. Class: Semisubmersibles

# Name

Spec.

K feet

Contract

End

Current

Day rate

$ K

Information

(Est. Days) at 0 revenue Q4

Location
1

MSS1

1979/2000

1.5/25

Early 2/16

200

[Nexen] U.K. North Sea
2

MSS2

1977/2004

4/25 Early 4/16 270

Eligible for a maximum 10% performance bonus.

[Petrobras] Brazil

Right to terminate contract in case of excessive downtime

Click to enlarge

3. Class: Jackups

# Name

Year

Built

upgraded

Spec.

Feet/K feet

Contract

End

Current

Day rate

Est. Days

Rate at 0 revenue

others

Location
1

Dhabi II

1982/2006

1982/2006 120/20

mid 7/17

76

(15d)2Q'16

[NDC]

UAE

0-rate (15d) 1Q'16

2

C20051

1982/2005

1982/2005 360/25

5/16

135

-

[Total]

NL

3

C20052

1982

1982 256/30

Late 1/16

170

-

NL

[Petrogas] NL

4

M1161

1980

1980 300/20

Early 4/18

62

Bareboat chartered

[Dynamic Drilling/ONGC]

UAE

5 B152 1982/2004 150/20

Late 11/17

81

-

[NDC]

UAE

6

(L1112)

Noble Ed Holt

1981/2003

1981/2003 300/20

Late 10/18

38

Bareboat chartered

(13d) 4Q'15

[Dynamic Drilling/ONGC]

India

0-rate (5d) 4Q'15

7

M825

1984/2003

1984/2003 250/20

Late 3/16

149

[Perenco]

CM

8

M842

1975/1995

1975/1995 350/25 Early 3/16 70 Rate Subject to be reviewed in 12/31/15

[Pemex] Mexico

0-rate (10d) 1Q'16

9

HZ1

1981

1981 213/35

Late 8/16

142

(23d)4Q'15

(37d)1Q'16

[Wintershall] UK

10

L784

1981/2002

1981/2002 300/20

6/16

6/16 - 6/18

88

95

-

[NDC/ZADCO]

UAE

11

B391

1981/2001

1981/2001 290/20 Early 4/16 154 [Centrica] UK NS
12

L786

1983/1998

1983/1998 300/25 3/18 53 Bareboat chartered

[Dynamic Drilling/ONGC]

UAE

13

M826

1983/1990

1983/1990 250/20

Late 1/16

105

[PanAfrican Energy]

TZ

14

C461

1982

1982 205/25

mid 11/17

113

-

[ONE]

NL

15 C463 1982 205/25

1/16- Early 3/16

130

[ENGIE]

NL

16 M1162 1979/2009 328/30 Mid 1/17 135 -

[NDC]

UAE

(Others)
1

M71

Labor contract - Rigzone reports the unit as drilling

Hibernia Platform

Canada

2 M72 Labor contract Waiting on location - -

Hibernia Platform

Canada

Click to enlarge

4. Prospector Offshore HE-HS Jackups

# Name

Year

Built

upgraded

Spec.

Feet/K feet

Contract

End

Current day-rate

$ K

Information

(Est. Days)

at 0 revenue Q4

Location
1

Prospector 1

Sold to SinoEnergy

2013

JU 2000E

HS-HE

Mid 9/16

185

(Fee $71k/d to $42k/d)

Option till 2018

(1Y and 4 6m)

Five-year bareboat rental charter

[Total] UK NS
2

Prospector 5

Sold to SinoEnergy

6/2014

JU 2000E

HS-HE

Mid 11/17

218

(Fee $71k/d to $42k/d)

Option till 2018 (2x 1Y)

Five-year bareboat rental charter.

[Total] UK NS
3 Prospector 6

4/2015

Delayed

JU 2000E

HS-HE

Available Option
4 Prospector 7 9/2015

JU 2000E

HS-HE

Available Option
5 Prospector 8 3/2016

JU 2000E

HS-HE

Available Option
Click to enlarge

Note: Prospector has the option to delay the delivery of Prospector 6. The three rigs (P6, P7 and P8) are being constructed on a non-recourse basis with no parent company guarantees. They do not figure into the fleet status anymore.

Cold Stacked and Ready Stacked Rigs

Note: Ready stacked includes warm stacked, hot stacked and available.

Name Year built Location Last contract date status
DPDS1 1979 US GoM 11/14 Cold stacked
DPDS2

1981/2002

2011

Cape Town 9/15 Ready stacked
MDS1 1975 Transit UAE 10/15 Ready Stacked
C462 1982 North Sea Late October Ready stacked
L1111 1982/2004 US GoM 11/13 Cold stacked
L1113 1975/1993 US GoM 5/15 Cold stacked
L1114 1982 US GoM 10/14 Cold stacked
L1115 1976/2001 Relocated to UAE Late October Ready stacked
L1116 1977-1996 US GoM 11/13 Cold stacked
L783 1982-2003 Cameroon 7/15 Cold stacked
L785 1981-1995 Malaysia 4/15 Cold stacked
M531 1972-1998 US GoM 12/14 Cold stacked
M821 1976-2003 US GoM 2/15 Cold stacked
M823 1979-1999 US GoM 11/14 Cold stacked
L781 1982-1998 US GoM 5/15 Cold stacked
B301 1976-1993 US GoM 6/15 Cold stacked
M841 1975/1997 US GoM 9/15 Cold stacked
M824 1982 US GoM 9/15 Cold stacked
L782 1981/1995 Cameroon 10/15 Ready stacked
Click to enlarge

Fleet Status

Total Drillship Semi-submersible Jackup
Working 21 1 2 18
Stacked 19 2 1 16
Total 40 3 3 34
Click to enlarge

Commentary

The Jan. 16 fleet status had no significant changes, besides a few modifications I mentioned above. The two significant events that have negatively affected the stock recently were not really a surprise. I have commented on these subjects in detail in my other articles on Paragon Offshore.

Most of the shareholders knew, for a while, that the company was about to be delisted from the New York Stock Exchange. On Dec. 17, 2015, the New York Stock Exchange notified Paragon Offshore that due to an "abnormally low" price, it decided to delist the company's stock. On Dec. 29, 2015, the OTC Market group indicated that PGNPF qualified to trade on the OTCQX Best Market. The stock reacted to the news with a rapid plunge on Dec. 17, as we can see below, followed by a surprising jump early this year and finally another collapse to $0.08.

The company continues to struggle financially. On Jan. 15, 2016, Paragon Offshore announced the following:

It has elected to defer an interest payment of approximately $15.4 million due today on its 6.75% senior unsecured notes maturing July 2022 (the '2022 Notes'). Under the terms of the indenture governing the 2022 Notes, the company has a 30-day grace period after the interest payment date before an event of default occurs. Paragon believes it is in the best interests of all stakeholders, including equity holders, to use the grace period to continue to engage in discussions with its secured and unsecured debtholders related to alternatives to improve Paragon's long-term capital structure.

There is no assurance that the discussions with Paragon's debtholders will result in an agreement before the end of the grace period. Paragon can elect to make the interest payment at any time during the grace period. However, if Paragon decides not to make the interest payment by the end of the grace period, such failure would result in the rights of the requisite holders of certain of its indebtedness, including the 2022 Notes and revolving credit facility, to accelerate the repayment of the principal amounts due thereunder, which acceleration would result in a cross-default under Paragon's term loan facility.

In my preceding article rom Dec. 7, 2015, I noted that CEO Randy Stilley spoke at the Cowen and Company 5th Annual Ultimate Energy Conference. It was an interesting presentation, and we learned that the company was about to restructure its debt. Stilley said:

We have already started conversations with lenders and noteholders around a board of proof proposal we are going to make to them. So, we're continuing that engagement; we have proposed solutions that work for our all stakeholders, and I can assure you that the ones we are not forgetting about are the equityholders. You know, we are not going to wipe everybody out. The idea is to find a solution that works for everybody.

As far as the timeline, we would like to move as quickly as possible; if it was up to us, we would already be done with it. It always takes longer than we think ... But, I think our initial discussion with lenders has been very constructive, I think we will reach a solution that will work for everybody in the near term, and I intend really to maximize value for all the stakeholders. We are certainly focused on our shareholders and we are in a position to do so in the future.

In conclusion, remember that Paragon is three things: We are safe, we are reliable, and we are efficient. And we will be around when this downturn is over.

The tone was unusually bullish and reassuring for shareholders. Stilley was even confident enough to talk about acquiring distressed assets in 2016, when Paragon Offshore's balance sheet will be better after wiping out the common shareholders - a small detail that was never really mentioned.

Question: Kind of related to that, one of your main strategies going forward is going to be acquiring rigs. There will be a lot rigs for sale in 2016; what do you get through this balance sheet restructuring before you get to that point? And you are doing things as quickly as possible -- do you think you are going to be in the position of actually acquiring rigs in 2016?

CEO Stilley: I think so. I think as soon as we get through our current restructuring activities, we expect to have our balance sheet with a strength that will allow us to do something and we will be very inventive about how we finance them. I think, if we look of what we are doing with Prospector, the sale lease back, you know, there is potential to do more of that. We have a great relationship with the Chinese and the biggest banks in the work in fact, in China, and I think we will find a solution that satisfies everybody.

A little over a month has passed, and here we are now. Shareholders are still waiting for the news of the restructuring, and have totally lost faith in anything the company said. For those who do not believe me, just read the above-mentioned transcript again. The stock price will drift lower when the time to pay the bill arrives.

The first bankruptcy was Hercules Offshore (NASDAQ:HERO), followed by Vantage Drilling (OTCPK:VTGDF). Soon, it will be Paragon Offshore. A quick look at what shareholders received after the restructuring is implemented and done will help us guess what is about to happen to PGNPF. My only question is always the same, under these circumstances: How can we honestly justify a tremendous loss for PGNPF shareholders -- who should have known better and have been warned about the risks, by the way -- and let this weak management (who seem "bullet proof") be basically unaccountable for what it has done?

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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