Hercules Offshore files for bankruptcy for the second time in less than a year

Hercules Offshore Inc. filed for bankruptcy protection, its second in just under a year after it could not find itself a buyer in the last few months amid a depressed market for oil drilling services.

According to CEO Troy Carson, the company was planning to sell off its assets in a ‘controlled-manner’ as it had the support of almost all the top lenders that helped it out of bankruptcy in November 2015.

A voting report stated that Hercules received support from lenders holding more than $249m in first-lien loans.

Hercules was said to court its stockholders, promising a “meaningful recovery” if they agreed to go along with the new plan. The company’s stock was created in the previous bankruptcy, when bondholders agreed to take equity in lieu of collecting their debts of $1.2bn.

According to court documents, shareholders were being offered between $12.5m and $41m, depending on how Hercules’s asset sales go, if they supported the bankruptcy wind-down plan. Otherwise, a negative vote would result in a recovery ranging from nothing to $27m.

Hercules’ international subsidiaries wouldn’t be included in the U.S. bankruptcy, but they would be part of the final sale process.

 Source: WSJ

Seadrill 1Q 2016 Results

Offshore drillship operator Seadrill Ltd. reported its 1Q 2016 results today. Key takeaways of the release are as follows:

  • Revenues for the first quarter of 2016 were $891m, a 28% decline as compared to previous year’s revenues of $1.2bn. The decline in revenues was attributed to lower day rates on its fleet which failed to offset higher fleet utilization during the quarter of 97%.
  • EBITDA for 1Q 2016 was $528m, a 26% decline vs. $715m in 1Q 2015, translating into an EBITDA margin of 59% vs. 57% previously.
  • Net Debt for 1Q 2016 decreased to $9.6bn from $11.4bn in March 2015.
  • Cash flow from operating activities for 1Q 2016 declined to $294m from $499m a year ago.
  • Seadrill, as part of its broader plan to refinance and recapitalize its business, extended the nearest three maturing borrowing facilities and amended certain covenants across all its secured debt.
  • Seadrill agreed not to draw on any of the $467m available to it under its revolving credit facilities as part of negotiations with lenders and agreed to increase its minimum liquidity covenant contained in its secured credit facilities from $150m to $250m.
  • The company deferred delivery on its new vessels; 2 ultra-water drillships, West Aquila and West Libra deferred until 2Q’18 and 1Q’19 respectively and 5 jack-ups deferred until 2017 and 3 until 2018.

 Company Guidance

For 2Q 2016, EBITDA is expected to be around $510m in anticipation of lower day-rates on certain vessels (West Tellus, Sevan Brasil & West Cressida) and on contract culmination for West Prospero, West Castor and West Hercules which offsets commencement of operation or higher utilization on vessels West Eclipse & West Phoenix

For FY 2016, the company expects to achieve cash cost savings of about $340m, of which $305m would be attributed to sustainable cost savings, and $35m toward deferred spending.

Source: Company Press Release


Seadrill hires advisors to restructure debt

Bermuda-based offshore drilling rig provider Seadrill Ltd. hired Houlihan Lokey Inc. and Morgan Stanley to advise it on restructuring its debt worth $11bn. The process is expected to gain traction by June 2016.

According to sources, the company might opt for a debt-to-equity swap and a subsequent equity infusion of $1bn.

Seadrill, which provides rig services to upstream oil and gas companies, has seen a decline in its revenue as its clients have cut capex/drilling budgets.  The company has seen declining day rates and contract expiry on some of its vessels.

Source: Zacks Investment Research