Pacific Drilling Delivers Solid Second Quarter 2013 Results

Pacific Drilling Delivers Solid Second Quarter 2013 Results

Pacific Drilling S.A. announced revenue of $176.8 million for the three months ended June 30, 2013, as compared to revenue of $175.0 million for the first quarter of 2013 and $156.8 million in the second quarter of 2012.

Net income excluding charges related to our debt refinancing for the second quarter of 2013 was $21.0 million or $0.10 per diluted share, an increase of $5.9 million, or 40%, over the prior quarter net income. The company reported a net loss of $45.6 million for the three months ended June 30, 2013, which included $66.6 million in non-recurring charges related to the refinancing of our Project Facilities Agreement (PFA). These non-recurring charges consisted primarily of $38.2 million in swap termination costs and a non-cash $27.6 million write-off of unamortized deferred financing costs. Reconciliations of net income excluding charges and adjusted EBITDA to reported net loss are included in the accompanying schedules to this release.

CEO Chris Beckett commented, “We delivered a third consecutive solid quarter of results through a continued focus on operational uptime and optimizing drilling expenses. This bolsters our conviction that an exclusive focus on a consistent ultra-deepwater fleet of modern assets can yield industry leading operational and financial results. The projected cash flows generated by our fleet, plus the recent financial transactions that provide us with low cost, long term financing, give our company additional confidence in terms of our ability to start distributing dividends as early as 2015, while continuing to grow the fleet.”

Regarding the market for ultra-deepwater drillships, Mr. Beckett continued, “We continue to see a marked customer preference for premium, ultra-deepwater drilling rigs as demonstrated by the latest fixtures. The bifurcation in dayrates and asset utilization between the latest generation, more efficient drillships and the older 5th and earlier generation rigs demonstrates the significant marketing advantage of operating a modern fleet. Through the first half of the year, our customers awarded drilling contracts to the latest generation rigs at a rapid pace, above that of the first half of 2012 in terms of rig years. We expect a continuation of this healthy market over the coming months and believe that this sustained growth in demand for ultra-deepwater drillships and the preference for the most modern rigs will yield attractive contracts for the Pacific Meltem and the Pacific Zonda.”

Second Quarter 2013 Operational and Financial Commentary

Contract drilling revenue for the second quarter of 2013 was $176.8 million including deferred revenue amortization of $17.3 million. During the three months ended June 30, 2013, our operating fleet of four drillships achieved an average revenue efficiency(c) of 90.2% as compared to 90.3% in the first quarter of 2013. During the second quarter, the Pacific Mistral underwent contractually required equipment upgrades that resulted in approximately 20 days of unpaid downtime, representing a 4.8% reduction in fleet revenue efficiency for the quarter.

Contract drilling expenses for the second quarter of 2013 were $79.5 million as compared to $84.5 million for the first quarter of 2013. Contract drilling expenses for the second quarter of 2013 included $9.7 million in amortization of deferred mobilization costs and $5.9 million in shore-based and other support costs. Direct rig related daily operating expenses, excluding reimbursable costs that are fully recovered in our revenue, averaged $164,000 in the second quarter of 2013, as compared to $178,000 for the first quarter of 2013. The quarter benefited from lower maintenance expenses on Pacific Mistral and the Pacific Santa Ana incurred during the completion of required equipment upgrades and from the postponement of maintenance projects on the Pacific Scirocco and Pacific Santa Ana to the third quarter. Further, this decrease demonstrates our sustained focus on managing our operational expenses and represents continued improvement from our fully operational, delivered fleet. Daily reimbursable costs averaged $11,500 per rig in the second quarter of 2013, as compared to $14,000 for the first quarter of 2013.

Interest expense for the second quarter of 2013, excluding $38.2 million in non-recurring swap termination costs incurred in connection to our debt refinancing, was $21.7 million as compared to $22.8 million for the first quarter of 2013.

Adjusted EBITDA for the second quarter of 2013 was $85.5 million, as compared to adjusted EBITDA of $79.7 million during the first quarter of 2013. Adjusted EBITDA margin(d) for the second quarter of 2013 was 48.3% as compared to 45.6% in the prior quarter.

Liquidity and Capital Expenditures

Cash balances on June 30, 2013, were $603 million and the total outstanding debt was $2.3 billion.

During the second quarter of 2013, the capital expenditures were $83 million of which $54 million related to the construction of the newbuild drillships and $24 million was capitalized interest. The remaining expenditures primarily relate to contractually required upgrades on the operating rigs that are partially or fully reimbursed by the customers. Excluding capitalized interest and client reimbursed asset upgrades, the company estimate the remaining capital expenditures to complete construction of the four newbuild drillships to be approximately $1.9 billion.

During the second quarter 2013, the company closed three financing transactions totaling $2 billion, a portion of which was used to fully repay all $1.35 billion outstanding on our PFA. Of the existing credit facilities, $1.2 billion remain undrawn and we retain $103 million in letter of credit capacity.

CFO William Restrepo commented, “These financing transactions allowed us to lock in historically low financing rates for an average 6 year period, reducing the average interest rate on our debt to approximately 5.6% once our facilities are fully drawn. We were further able to improve liquidity by eliminating restricted cash requirements, significantly reducing amortization payments, adding a revolving credit facility and extending our debt repayment profile.”

As previously stated, Pacific Drilling expects to secure new debt financing before repaying the February 2015 senior unsecured bonds and taking delivery of Pacific Zonda on March 31, 2015.

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Press Release, August 09, 2013