All You Need To Know About Paragon Offshore's Q2 2016 Results

| About: Paragon Offshore (PGNPQ)

Summary

Paragon Offshore released its second-quarter results on August 8, 2016. Revenue was $184.935 million, down 30.2% quarter-over-quarter. Net loss was $25.109 million or 0.29 per share.

On August 5, 2016, Paragon plubished the new amendment plan, and a new shares outstanding repartition less favorable for PGNPQ shareholders.

PGNPQ is trading with too much volatility, and I expect the same basic pattern until October. It is quite an opportunity for traders. Investors should avoid the stock.

Paragon Offshore (OTCQX:PGNPQ)

Image: Paragon Offshore Jackup L785

This article is an update to my preceding article about Paragon on July 19, 2016.

Fleet status report August 8, 2016, click here.

2. Class: Semisubmersibles

# Name

Spec.

K feet

Contract

End

Current

Day rate

$ K

Information

Location

(Est. Days) at 0 revenue Q4

1

MSS1

1979-2000

4/25 Late 8/16-Late 10/16 110

[Nexen]

UKNS

Click to enlarge

3 - Class: Jackups

# Name

Year

Built

Spec.

Feet/K feet

Contract

End

Current

Day rate

Location

Rate at 0 revenue

1 Dhabi II

1982/2006

120/20

mid 7/17

76

[NDC]

UAE

0-rate

(30d)2Q'16

3

M1161

1980

300/20

Early 4/18

62

[Dynamic Drilling/ONGC]

Bareboat chartered

India

4

B152

1982/2004

150/20

Late 11/17

81

[NDC]

UAE

5

(L1112)

Noble Ed Holt

1981/2003

300/20

Late 10/18

38

[Dynamic Drilling/ONGC]

Bareboat chartered

India

6

HZ1

1981

213/35

Early 9/16

142

[Wintershall]

UK

7

L784

1981/2002

300/20

Early 11/16

95

Early termination

[NDC/ZADCO]

UAE

8

L786

1983/1998

300/25 mid 3/18 53

[Dynamic Drilling/ONGC]

Bareboat chartered

India

(7d) 2Q'16

9

C461

1982

205/25

mid 11/17

113

[ONE]

NL

10 M1162 328/30 mid 1/19 85

[NDC]

In/UAE

11

Prospector 1

2013

JU 2000E

HS-HE

mid 9/16

185

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

[Total]

UK NS

Sold to SinoEnergy

12

Prospector 5

6/2014

JU 2000E

HS-HE

mid 11/17

218

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

[Total]

UK NS

Sold to SinoEnergy

Click to enlarge

4. Prospector Offshore HE-HS Jackup newbuild.

#

Name

Year built

Spec.

Feet/K feet

Contract

End

Information

1

Prospector 6

Delayed

JU 2000E

HS-HE

Available Option
2

Prospector 7

delayed

JU 2000E

HS-HE

Available Option
3

Prospector 8

delayed

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
1 DPDS1 1979 US GoM 11/14 Cold stacked
2 DPDS2

1981/2002

2011

Cape Town 9/15 Ready stacked
3 DPDS3 1977/2005 2013 Brazil 8/16 Waiting on Location
1 MDS1 1975 UAE 10/15 Stacked
2 MSS2 1977/2004 GoM 4/16 Puerto Rico for stacking.
1 C462 1982 North Sea Late October Ready stacked
2 L1111 1982/2004 US GoM 11/13 Cold stacked
3 L1113 1975/1993 US GoM 5/15 Cold stacked
4 L1114 1982 US GoM 10/14 Cold stacked
5 L1115 1976/2001 Relocated to UAE Late October Ready stacked
6 L1116 1977-1996 US GoM 11/13 Cold stacked
7 L783 1982-2003 Cameroon 7/15 Cold stacked
8 L785 1981-1995 Malaysia 4/15 Cold stacked
9 M531 1972-1998 US GoM 12/14 Cold stacked
10 M821 1976-2003 US GoM 2/15 Cold stacked
11 M823 1979-1999 US GoM 11/14 Cold stacked
12 L781 1982-1998 US GoM 5/15 Cold stacked
13 B301 1976-1993 US GoM 6/15 Cold stacked
14 M841 1975/1997 US GoM 9/15 Cold stacked
15 M824 1982 US GoM 9/15 Cold stacked
16 L782 1981/1995 Cameroon 10/15 Ready stacked
17 C20052 1980 North Sea 2/16 Ready Stacked per Rigzone
18 M826 1983/1990 Tz 2/16 Stacked in UAE
19

M842

1975/1995 GoM 3/16 Stacked
20 C463 - North Sea 4/16 Ready Stacked per Rigzone
21

M825

1984/2003 West Africa 4/16 Ready Stacked per Rigzone
22 B391 1981/2001 UK 5/16 Ready stacked per Rigzone
23 C20051 1982/2005 UK 8/16 Ready stacked per Rigzone
Click to enlarge

Note: The JUs B391 (5/16 UK), C463 (4/16 North Sea), M825 (West Africa 4/16) and C20051 (NS 8/16) have not been classified as "Stacked" in the FSR since April and May, despite being effectively out of work.

Also the drillship DPDS3 is now "waiting on Loc." I am sure Lee Ahlström who does a good job by the way, has a logical explanation for this, but it would be clearer for shareholders, if the idle rigs were indicated as idle in the FSR in a special category.

The company indicated a backlog of $472 million as of June 30, 2019.

Paragon's total contract backlog at June 30, 2016 was approximately $472 million compared to $806 million at March 31, 2016. Although Paragon continues to contest the approximately $143 million of backlog associated with what we believe to be an early release of the Paragon DPDS3 by Paragon's customer Petrobras, we have removed that amount from our June 30, 2016 backlog total. The March 31, 2016 backlog total included this disputed amount.

Fleet status:

Total Drillship Semi-submersible Jackup
Working 12 0 1*(8/16) 11
Stacked 28 3 2 23
Total 40 3 3 34
Click to enlarge

The recent fleet status has no contract or contract extension. However, here is what happened since the last FSR that need to be indicated.

1 - The Drillship DPDS3 is not classified as "waiting on Loc" and is about to be leaving Brazil for its stacked location. The company continues to claim $142 million in loss backlog. The backlog is finally including this fact and was $471 million as of June 30, 2016.

2 - The JU C20053 is now classified as "ready stacked" by Rigzone.

3 - Paragon Offshore lost a very important 7-year service contract with Hibernia to Parker Drilling (NYSE:PKD). I commented on the issue on June 17, 2016.

4 - No news about the Prospector 1 which is scheduled to roll off contract mid-next month.

2Q'16 Financial Snapshot (7 consecutive quarters)

Q2 2016 Q1 2016 Q4 2015 Q3 2015 Q2 2015 Q1 2015 Q4 2014

Revenue

$ million

184.94 265.12 299.56 368.97 393.24 430.65 494.99

Net income

$ million

(25.109) (5.21) (23.26) (1,084.8) 47.33 61.13 2.8

Non-cash impairment

$ million

0 0 28.81 1,150.9 1.7 0 130.5
Earnings per share - basic (0.29) (0.06) (0.27) (12.46) 0.51 0.69 0.03

Adjusted EBITDA

$ million

65.982 115.40 95.86 140.35 158.35 164.56 214

Average daily revenues

$/d

134,586 136,296 140,086 144,158 148,537 152,353 148,615

Capital expenditures

$ million

29.882

17.87

(23.0)

45.41 43.7 113.07 50.7 79.3

Cash and cash equivalent

$ million

889.09 835.40 773.57 735.7 112.36 85.77 56.7
Outstanding long-term debt $ million 197.976 217.72 2,559.5 2,569.4 1,984.4 1,990.9 1,888.4
Current maturities of long-term debt 666.272 667.14 40.63 - - - -

Shares outstanding

in million

87.601 87.373 86.026 87.077 85.836 85.055 84.753

Backlog in

$ billion

471

0.806

(0.552)

1.0 1.29 1.6 1.9 2.2
Click to enlarge

Commentary:

Paragon Offshore released its second-quarter results on August 8, 2016.

Revenues were $184.935 million, down 30.2% quarter-over-quarter. The net loss was $25.109 million or 0.29 per share.

The worrying point is that revenues are about to dip further, starting next quarter.
I have prepared an estimated revenues based on the actual backlog for Q3'16 to Q1'16 and we can see the seriousness of the situation.

Per my estimate, Paragon Offshore will have between $120 million and $130 million in total revenues in 3Q'16 and then this number dips to under $60 million in Q4'16 and Q1'17. This is totally dismal and begs the query. Do we have to look at the back mirror and congratulate the company or look seriously at what is occurring?

Paragon offshore is still in the middle of a legal battle to get the bankruptcy plan approved by Judge Sontchi, which is scheduled to rule in mid-October. Paragon recently amended, for the second time, the "plan" to address some issues regarding the business outlook and renegotiated with the bondholders and revolving credit facility banks. Please, read my preceding article.

On August 5, 2016, Paragon published the new amendment plan, and a new shares outstanding repartition less favorable for PGNPQ shareholders, but still quite impressive (47%/53%).

Personally, I do not value this new deal as "feasible" in the long run. Paragon Offshore is not going to survive after this first bankruptcy, and a more honest plan should be presented, including the whole debt, to the Judge Sontchi.

Conclusion:

The stock jumped to over 0.70 after the deal was unveiled with the Bondholders and Revolving Credit Facility Banks. I indicated that the stock was an opportunity below 0.40, and I happy to sell out at over 0.70.

Nonetheless, the stock is trading with too much volatility, as we speak, and I expect the same basic pattern until October.

It is quite an opportunity for traders only, and if you can catch the right timing(s) you can profit handsomely.

It is not an investment and the ones who want to invest in the offshore drilling sector should avoid this penny stock.

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.

Additional disclosure: I may buy again under 0.45

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