Photo: West Auriga; Source: Seadrill

Seadrill Partners files for voluntary Chapter 11 protection

Offshore drilling contractor Seadrill Partners has filed voluntary petitions under Chapter 11 of the Bankruptcy Code to preserve value and to continue the operation and marketing its assets.

Seadrill Partners said on Tuesday that it has been in negotiations with an ad hoc group of lenders under the company’s Term Loan B credit facility regarding a consensual reorganization of its balance sheet.

In consultation with the ad hoc group, Seadrill filed voluntary petitions under Chapter 11 for bankruptcy protection.

The company added that it would use the bankruptcy process to ensure that all customer, vendor, and employee obligations were met without interruption and complete a consensual restructuring of its debt.

Seadrill Partners LLC, set up as an asset-holding unit, owns four drillships, four semi-submersible rigs, and three so-called tender rigs which are all operated by Seadrill Ltd.

Seadrill Ltd, which owns 35 per cent of Seadrill Partners, has its own financial issues – as many offshore drillers do these days.

Namely, Seadrill Ltd has been working with its senior creditors to provide an interim solution to the high cash outflow for debt service since the end of 2019. In June, the company moved to delist from NYSE and focus upon the Oslo Stock Exchange going forward.

Earlier this year, Seadrill said it entered into forbearance agreements with certain creditors in respect of the group’s senior secured credit facility agreements, senior secured notes, and guarantee facility agreement.

Notably, the forbearance has not been agreed concerning termination events that may arise under the company’s leasing agreements in respect of the West Hercules, West Linus, and West Taurus rigs.

The purpose of the forbearance agreements was to allow the company and its stakeholders more time to negotiate on the head terms of a comprehensive restructuring of its balance sheet.

In late November, while trying to restructure its debt, Seadrill Ltd managed to agree on the suspension of payments with creditors related to leasing arrangements for the three rigs and the corresponding financing agreements.

Seadrill Partners just one of many drillers in peril

Chapter 11 protection has been a common occurrence in the offshore driller world in 2020. To prove that point we will mention several cases which happened during the year.

Namely, Diamond Offshore started voluntary Chapter 11 proceedings to restructure and strengthen its balance sheet back in April. Also, Valaris – offshore drilling contractor with the world’s largest fleet – filed for bankruptcy protection in August.

More recent examples which did the same thing were Pacific Drilling and Noble Corporation – worth noting, Noble announced it was preparing to exit Chapter 11 in early November and a bankruptcy court approved its reorganization plan just last week.

An honourable mention goes to Borr Drilling which is facing a very challenging financial situation in 4Q, going into 2021, amid difficult market environment combined with payment delays for its rigs working for Pemex.