Paragon Offshore suffers $1B loss. Delays newbuild delivery

Paragon Offshore, a provider of offshore drilling rigs, has expanded its loss for the third quarter of 2015 when compared to the same period last year. In addition, the company has extended the delivery date for its newbuild jack-up rig. 

Paragon Offshore on Monday reported a third quarter 2015 net loss of $1.08 billion, as compared to a third quarter 2014 net loss of $869.2 million.

According to the drilling contractor’s 3Q results report, results for the current quarter included a $1.15 billion non-cash asset impairment charge comprising: $781.2 million related to five rigs of Paragon’s floating fleet including the Paragon MSS2, Paragon MDS1, Paragon DPDS1, Paragon DPDS2, and Paragon DPDS3; $289.3 million related to 16 rigs of Paragon’s jack-up fleet including rigs currently cold-stacked; $43 million related to deposits previously made by subsidiaries of Prospector Offshore Drilling S.A. to the shipyard for the construction of Prospector 6, Prospector 7, and Prospector 8; and $37.4 million of goodwill related to the company’s previous acquisitions a $66.3 million tax benefit as a result of the impairment.

“Conditions in the contract drilling industry continued to worsen during the third quarter as customers continued to curtail capital spending in light of low commodity prices,” said Randall D. Stilley, President and Chief Executive Officer.

“Dayrates and utilization deteriorated for all rig classes in all markets and as a result, our annual assessment of asset values resulted in a required impairment of various rig values.”

Stilley continued, “Consistent with our strategy as the high-quality, low-cost drilling contractor, we have taken steps to lower costs as we aggressively market our available units. We have quickly stacked idle rigs, reduced shorebased support costs, and lowered our corporate operations support costs. As a result, we expect our 2015 full-year contract drilling services costs will be approximately 13% lower and our G&A costs to be approximately 14% lower than 2014 totals, excluding certain costs related to our ongoing review of strategic alternatives related to our capital structure.

“We also expect our capital spending for the year will be close to $60 million below 2014 levels. Finally, Paragon has a significant available cash balance of $733 million, providing liquidity and flexibility in this difficult market.”

Paragon has seen lower revenues in the third quarter 2015 of $369 million when compared to $369 million revenues in 2Q 2015, and $505.2 million in 3Q 2014.

The drilling contractor’s capital expenditures in the third quarter totaled $43.7 million.

Furthermore, its total contract backlog at September 30, 2015 was an estimated $1.29 billion compared to $1.59 billion at June 30, 2015, including approximately $142.1 million of backlog for the Paragon DPDS3 which Paragon’s customer Petrobras has indicated it may contest in connection with the length of prior shipyard projects relating to the rig.

Paragon delays jack-up delivery

Paragon also reported that a wholly-owned subsidiary has signed an agreement with Shanghai Waigaoqiao Shipbuilding Co., LTD., to extend the delivery date of the high specification Friede and Goldman JU-2000E jack-up Prospector 7 to a date 12 months after the subsidiary has technically accepted the unit from the shipyard.

Paragon says it expects that technical acceptance of the unit will occur on or before December 31, 2015. Under the terms of the agreement, no payments are due to the shipyard until the delivery date and upon completion of the delivery protocol.

Outlook

Turning to the market outlook, Paragon CEO concluded, “There is no indication that conditions in offshore drilling markets will improve in the near future. Current oil prices suggest that our customers’ 2016 capital budgets may be at or below 2015 levels, placing additional pressure on utilization and dayrates in our industry. We expect oil markets to begin a recovery late in 2016, with drilling activity, particularly in shallow waters, to follow.

“We will focus on our core areas of operation and continue to optimize our cost structure for this environment in order to best position ourselves for the recovery.” 

Offshore Energy Today Staff