Paragon Offshore sees 2Q profit slump. No improvement in sight

  • Exploration & Production
Image: Paragon Offshore; The Paragon L782 offshore in Equatorial Guinea.
Image: Paragon Offshore; The Paragon L782 offshore in Equatorial Guinea.

Paragon Offshore CEO Randall D. Stilley has said in the company’s second quarter 2015 results report that the offshore drilling environment has deteriorated further since the quarter ended and there is no improvement on the near-term horizon. 

The offshore drilling contractor today reported a fall in its second quarter 2015 net income when compared to the same period last year. Namely, Paragon’s 2Q 2015 net income was $47.3 million, as compared to 2Q 2014 net income of $95 million.

Results for the quarter include a $4.1 million loss on the sale of an asset and a $1.7 million non-cash impairment charge related to assets which the company previously announced it had decided to retire from service.

Excluding the above charges, Paragon’s adjusted net income was $53.1 million.

“Paragon’s second quarter 2015 results demonstrate our ongoing ability to deliver safe, reliable and efficient operations while controlling costs and securing additional backlog,” said Randall D. Stilley, President and Chief Executive Officer.

“Furthermore, we secured $300 million of financing on Prospector 1 and Prospector 5 through the recently closed sale-leaseback transaction, enhancing our cash position and providing Paragon with significant optionality during the challenging days ahead.”

Total revenues for the second quarter of 2015 were $393.2 million compared to $430.6 million in the first quarter of 2015.

Paragon reported utilization for its marketed rig fleet, which excludes one stacked floater, as 69 percent for the second quarter of 2015, as compared to 74 percent in the first quarter of 2015.

Average daily revenues decreased three percent in the second quarter of 2015 to $149,000 per rig compared to the previous quarter average of $152,000 per rig.

Contract drilling operating costs declined in the second quarter to $197.0 million compared to $225.1 million in the first quarter of 2015.

Net cash from operating activities was $96.6 million in the second quarter of 2015 as compared to $210.4 million for the first quarter of 2015. Capital expenditures in the second quarter totaled $62.4 million.

Paragon’s total contract backlog at June 30, 2015 was an estimated $1.6 billion compared to $1.9 billion at March 31, 2015.

Outlook

Stilley concluded, “As we anticipated, the offshore drilling environment has deteriorated further since the quarter ended and there is no improvement on the near-term horizon, particularly in the floating rig market segment where there is an oversupply of assets and very little demand.

To remind, Paragon Offshore recently stacked two jack-up rigs, one in the Gulf of Mexico and the other one in UAE, and stacked several more before that. Furthermore, the contract extensions received had mostly been with reduced dayrates.

“The shallow water segment has worsened as well and also faces supply challenges, though we see few speculative newbuild jack-ups coming to market and securing contracts. In fact, Paragon’s low-cost, high-quality focus has enabled us to win work in the few regions where there has been demand. Our cash position is strong and we continue to reduce costs aggressively as we do not expect a quick recovery in our markets.” 

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