VesselsValue: Pacific Drilling rig fleet value drops from $6B to $1B

Debt-laden Pacific Drilling which this week filed for Chapter 11 bankruptcy has seen its fleet value drop from almost $6 billion a few years back, to a little over a billion today, according to VesselsValue (VV).

The company, owning a fleet of ultra-deepwater drillships, on Monday filed for bankruptcy protection, after a recent failure to extend bond maturity date.

Houston-based driller, which is looking to restructure its $3.0 billion in principal amount of outstanding debt, currently owns a relatively young fleet of seven deepwater drillships.

VesselsValue, the maritime and offshore analytics company, has now shared an update valuation of the drillers’ fleet. In its evaluation, VV said the whole fleet is currently valued at $1.07 billion, down from its highest value of almost six billion in 2013. This also means, that, even if it sold all its ships at the current value, the company would not resolve its debt woes.

Commenting on Pacific Drilling, VV’s head of Offshore Charlie Hockless said the outlook for the ultra deep water asset rigs was bleak.

He said: “In the case of Pacific Drilling, their fleet is entirely comprised of high spec ultra deepwater drillships, all built at the South Korean yard Samsung at a cost of $500-700 mil each.

“This puts them in an unfortunate position as there just isn’t sufficient demand for these vessels in the current market. This is reflected in their current fleet value ($ 1.07 billion) compared to their highest value of $5.98 billion in 2013.”

He said the issue with ultra deepwater drillship sector is that it is highly sensitive to oil price.

“Drilling the furthest out to sea, likely in harsh conditions, they are the most expensive in terms of opex. There are only 147 of these vessels (live & on order), so it’s a very niche sector. When the price of oil crashed, ultradeep water drilling was the first type to lose work as companies focused less expensive drilling projects. Even if you are able to secure work today, the current daily rates for these vessels are not high enough to cover the operating costs,” he said.

Worth noting, Pacific Drilling has managed to secure two contracts for its drillships – Pacific Bora and Pacific Santa Ana, with Erin Energy and Petronas, on dayrates of $150,000 and $265.000, respectively.

Out of seven drillship, Pacific Drilling has contracts for three. However, the only long-term contract with a substantial dayrate is the the Pacific Sharav which is operating for Chevron in the U.S. Gulf of Mexico, on a $551.000 dayrate until August 2019.

Buyer hard to find

VesselsValue’s Hockless remains skeptical of the future for Pacific Drilling: “When demand for niche vessels disappears they become useless and can lose their value very quickly. This is a particularly illiquid market and it will be difficult to find a buyer for the Pacific Drilling assets.”

“You would need an owner who has work available for these vessels or someone who was cash rich and happy to let pay the costs associated with letting these vessels sit idle, waiting for a market recovery. The big players out there, companies like Transocean, Ensco, Noble Drilling, OceanRig, are in a similar position of protecting their assets and trying to secure work. It would be surprising if anyone has pockets deep enough to take on these vessels.”

For comparison, just four years back, one would hardly be able to buy two hi-spec drillships for $1 billion, let alone seven, so surely there would be suitors to take Pacific Drilling’s rig at a discount? Not, according to Charlie Hockles.

In a statement given to Offshore Energy Today, Hockles said he believed no one would buy the rigs as they are costly to stack/reactivate and rates will take a number of years to recover to pre-crash levels.

“It seems unlikely that Pacific Drilling will find buyers for their assets in the current market, and if they did the fleet value will not cover the outstanding debt,“ he said.

Hockles also briefly turned to Pacifi Drilling’s bankruptcy filing: “Chapter 11 bankruptcy seems like the right thing to do as they still have some revenue from outstanding charters, and liquidating the company would not benefit either creditors or debtors.”

Offshore Energy Today Staff