Dolphin Drilling Shares New Restructuring Details
Summary
- Dolphin Drilling continues to try a restructuring scheme that will work.
- This time, the plan looks comprehensive and realistic.
- However, it still depends on a successful sale of the drillship Bolette Dolphin.
Dolphin Drilling (OTCPK:FOEAY), which was previously named Fred Olsen Energy, has just published an update on the restructuring process which contains interesting news both for shareholders and the industry in general. As I have previously written, Dolphin started preparations for restructuring back in 2018 but failure to sell drillship Bolette Dolphin jeopardized the plan and brought the company back to the initial position. Now the new plan has been crafted and made public. Here are the details:
- Drillship Bolette Dolphin will be sold. The proceeds from the sale will be used to repay the company’s debt to secured lenders.
- Mid-water floaters will be transferred to a new holding company controlled by secured lenders (NewCo).
- All secured debt left after the sale of Bolette Dolphin will be transferred to NewCo. Debt above $30 million will be equitized, so that NewCo does not have a crushing leverage.
- The current company, Dolphin Drilling ASA, will get 1.5% of shares in NewCo after restructuring, and will have the right to sell this stake to funds advised by Strategic Value Partners LLC for $2 million.
- Secured lenders will provide a $45 million revolving credit facility for NewCo.
- After the completion of restructuring, Dolphin Drilling ASA will have a 1.5% stake in NewCo and assets related to Harland Wolff shipyard.
Source: Dolphin Drilling annual report
As seen in the company’s annual report, the company decided to scrap Belford Dolphin and Bredford Dolphin, which has recently been sold for recycling to Isiksan Ship Recycling as indicated by Bassoe Offshore. Following the sale of Bolette Dolphin, the fleet will consist of Bideford Dolphin, Borgland Dolphin, Byford Dolphin, and Blackford Dolphin. Borgland Dolphin has a 94-day contract with i3 Energy in the UK North Sea, the rig will start working between July 15 and August 15. Other rigs are stacked.
Bassoe Offshore values the four semi-subs at $32 million-$50 million, with Bideford and Byford given scrap values. It is obvious that Dolphin will have to spend a significant amount of money if it plans to bring the stacked rigs back into service (at this point, this does not look like a plausible scenario). Dolphin has the right to sell its 1.5% stake in NewCo for $2 million, valuing the NewCo at $133 million. This is a very high valuation so the logical move for Dolphin is to sell this stake.
The press release clearly outlines this possibility: “[…] the shareholding in NewCo may be sold to SVP Global at a cash price of approximately $2 million. As set out in the annual report of the company for 2018, the financial situation of the Harland Wolff shipyard is challenging, and the Harland Wolff business may be sold or be subject to insolvency proceedings. The board does not expect that any of these alternatives will yield notable value to the company. On this background, the board may propose that the company is to be liquidated upon completion of drilling recapitalization.”
The practical takeaway is that Dolphin Drilling shares are a sell at any company valuation above $2 million.
Another interesting part of this restructuring is the upcoming sale of Bolette Dolphin. Previously, the company attempted to sell this drillship for $340 million, but the rapid oil price downside in the fourth quarter of 2018 destroyed these plans. Currently, Bassoe Offshore values the drillship at $270 million-$298 million, but of course a real-life transaction is better than a thousand estimates. In case Bolette Dolphin is successfully sold, the deal will have a material impact on drillship valuations across the market.
Bolette is a drillship of GustoMSC P10000 design, shared by Transocean’s (RIG) Deepwater Champion, 4 Noble Corp.’s (NE) drillships (Noble Bob Douglas, Noble Don Taylor, Noble Sam Croft, Noble Tom Madden), 4 Diamond Offshore (DO) drillships (Ocean BlackHawk, Ocean BlackLion, Ocean BlackHornet, Ocean BlackRhino), 4 Ensco Rowan (ESV) drillships (Rowan Relentless, Rowan Reliance, Rowan Renaissance, Rowan Resolute) and 2 Caspian Drilling rigs (Fatih and Yavuz). Companies that already have similar rigs in their fleet are logical candidates to bid for Bolette Dolphin, but whether they will in fact be willing to make a purchase remains a question.
Speaking about the perspectives of the North-Sea-focused segment of old semi-subs, I’m not very optimistic. As recent reactivations show, upgrading and unstacking a cold stacked semi-sub may easily cost as much as $100 million – the NewCo will clearly lack such resources. Time will tell, but in my view, the biggest chance for secured lenders is to sell Bolette Dolphin as high as the market will bear rather than count on the successful performance of NewCo.
In short, Dolphin Drilling’s restructuring will likely end in shareholders getting no more than $2 million assuming Harland Wolff's problems will not represent an additional drag on the company's cash and secured lenders fighting to get a high price for Bolette Dolphin and then trying to figure out the ways to keep the NewCo afloat. The price of the drillship sale is the most interesting thing for outside observers.
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