Idan Ofer's Pacific Drilling files for bankruptcy

Idan Ofer

The company owes $3 billion, and has only $358 million in cash and cash equivalents.

The share price of Pacific Drilling SA (NYSE: PACD; NOTC: PDSA), a deep water drilling company, fell 15.9% in US trading on Friday. Two days later, the company filed for Chapter 11 bankruptcy protection against its creditors. The recent fall in the share price completed a 99.7% collapse since its peak four years ago, wiping out nearly $2.6 billion in market cap. The main reason is the fall in oil prices, which has rendered the company's activity unprofitable.

Pacific Drilling's controlling shareholder is Israel Corporation (TASE: ILCO) and Kenon Holdings Ltd (TASE:KEN: NYSE: KEN-WI) controlling shareholder Idan Ofer. Through Quantum, Ofer holds 70.5% of the drilling company's shares, now worth $1.8 billion less than their value at the company's peak. Pacific Drilling held its IPO on the New York Stock Exchange in 2011, when oil prices were much higher than they are now, and reached a peak in 2013. The company's shares were recently relegated to over-the-counter trading, after failing to meet the conditions for continued trading.

Ofer has been at risk of losing his holdings in the company in recent months, with Pacific Drilling's creditors demanding to convert their debt into shares and rejecting offers of a settlement. Pacific Drilling, whose debts amount to $3 billion, announced its entry into Chapter 11 "in order to optimize its capital structure in preparation for a recovery in the drilling industry," the company stated. The process was begun in the United States Bankruptcy Court for the Southern District of New York, and the company says that it plans to utilize the proceedings to restructure its debt.

"With $350 million in cash and cash equivalents as of the end of September and seven of the world's most advanced drilling ships, Pacific Drilling is planning to continue its international activity as usual, and pay all of its obligations emerging during the proceeding, subject to court approval," the company's announcement read. According to the report, following an assessment of all the alternatives, it was decided to utilize this proceeding for discussions with all the relevant parties, including its creditors. "We entered Chapter 11 in a strong cash situation and a team that is dedicating everything necessary to providing the highest quality service to our customers," Pacific Drilling CEO Paul Reese said. "During the proceeding, we expect to use our cash to fulfill all our obligations to employees, customers, suppliers, and others."

Reese added, "We expect to continue the discussions with parties at interest in the company, and thank everyone who has been involved in the efforts to date."

A $158 million loss in the third quarter

Together with its report about Chapter 11, Pacific Drilling also published its third quarter results. The company lost $158 million in the third quarter ($7.38 per share), compared with a $138 million loss ($6.48 a share) in the second quarter and a modest $200,000 profit in the corresponding quarter of 2016. The net loss in the quarter includes a $30.8 million write-off for deferred financing expenses and a $6.1 million decline in value of a held security. Pacific Drilling burned $33.1 million on current activity in the third quarter, and had $358 million in cash and cash equivalents at the end of the quarter, compared with a $3 billion debt.

Revenue rose 22% to $82.1 million in the quarter, compared to the preceding quarter, mostly due to the beginning of work by the Pacific Scirocco ship on a new contract, but revenue was still 55% less than in the corresponding quarter last year.

Operating expenses totaled $58.9 million in the third quarter, down 9.4%, compared with the second quarter, but management and general expenses rose 10% to $22.1 million. Adjusted EBITDA reached $1.9 million in the quarter, compared with $17.6 million in the second quarter.

Published by Globes [online], Israel Business News - www.globes-online.com - on November 13, 2017

© Copyright of Globes Publisher Itonut (1983) Ltd. 2017

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