Paragon Offshore Reports Second Quarter 2015 Results

Aug 12, 2015, 16:11 ET from Paragon Offshore plc

HOUSTON, Aug. 12, 2015 /PRNewswire/ -- Paragon Offshore plc ("Paragon") (NYSE: PGN) today reported second quarter 2015 net income of $47.3 million, or $0.51 per diluted share as compared to second quarter 2014 net income of $95.0 million, or $1.12 per diluted share.  Results for the quarter include a $4.1 million, or $0.04 per diluted share, loss on the sale of an asset and a $1.7 million, or $0.02 per diluted share, 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 (see Reconciliation of GAAP to Non-GAAP Financial Measures Table for a reconciliation to net income) was $53.1 million, or $0.57 per diluted share.

The results for the second quarter include a tax benefit of $18.5 million, as compared to a tax provision of $6.6 million in the first quarter of 2015, primarily as a result of restructuring certain of our operations. For periods prior to Paragon's spin-off from Noble Corporation plc ("Noble") on August 1, 2014 (the "Spin-Off"), results of operations are based on Noble's standard-specification business (our "Predecessor") and include contributions from three standard specification rigs retained by Noble and three standard specification rigs that were sold prior to the Spin-Off.  For more information regarding the Spin-Off, please see Paragon's filings with the U.S. Securities and Exchange Commission (the "SEC") available on the company's website at www.paragonoffshore.com.

"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. At June 30, 2015, liquidity, defined as cash and cash equivalents plus availability under the company's revolving credit facility, totaled $454.9 million while our leverage ratio, the ratio of the company's net debt to trailing twelve months EBITDA, as defined in the company's revolving credit facility, was 2.6 at June 30, 2015.

On July 24, 2015 the company closed a sale-leaseback transaction in connection with Prospector 1 and Prospector 5.  Net of fees and expenses, the company received proceeds of approximately $292.0 million of which $23.0 million is required to be maintained in certain restricted accounts, leaving the company with available proceeds of approximately $269.0 million. The company's cash and cash equivalents as of June 30, 2015 adjusted for the available funds from the sale-leaseback transaction plus availability under the company's revolving credit facility, results in a pro forma liquidity of $723.9 million.

Operating Highlights

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

Utilization of Paragon's marketed floating rig fleet was 100 percent in the second quarter and in the first quarter of 2015. Average daily revenues for Paragon's floating rig fleet decreased seven percent to $258,000 per rig in the second quarter of 2015 from $277,000 per rig in the first quarter of 2015.

Second quarter 2015 utilization of Paragon's marketed jackup rig fleet decreased to 64 percent compared to the 71 percent utilization achieved during the first quarter of 2015. Average daily revenues for Paragon's jackup fleet during the second quarter declined by two percent to $124,000 per rig from $127,000 per rig during the first quarter of 2015.

At the end of the second quarter of 2015, an estimated 57 percent of the marketed rig operating days were committed for 2015, including 87 percent and 52 percent of the floating and jackup rig days, respectively. The calculations for committed operating days exclude available days related to one floating unit that is stacked.

During the quarter, Paragon added approximately $89.9 million in backlog related primarily to previously disclosed new contracts and extensions in India, the Middle East and West Africa. In India, the Paragon MDS1 received a contract extension from mid-April 2015 to mid-August 2015 at a dayrate of $97,000.  In the Middle East, the Paragon L784 received a contract award from early June 2015 to early June 2018, at a dayrate of $88,000 from early June 2015 to early June 2016 and $95,000 from early June 2016 to early June 2018. In West Africa, the Paragon M826 received a new contract from mid-August 2015 to mid-December 2015 at a dayrate of $105,000.

In addition, Paragon added approximately $200.0 million in backlog related to contracts and extensions announced in its July 13, 2015 and August 10, 2015 Fleet Status Reports. In the Middle East, the Paragon B152 received a contract extension from late November 2015 to late November 2017 at a rate of $81,000 while the Dhabi II received a contract extension from mid-July 2015 to mid-July 2017 at a dayrate of $76,000. In the North Sea, the Paragon C461 received a contract extension from mid-November 2015 to mid-November 2017 at a dayrate of $113,000. The Paragon C20051 received a contract extension from early December 2015 to late May 2016 at dayrates between $125,000 and $135,000. In addition, we agreed to a backlog swap between the Paragon C462 and Paragon C463 and received a contract extension from late December 2015 to early March 2016 on the Paragon C463 at a dayrate of $130,000.

Outlook

Mr. 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.  The shallow water segment has worsened as well and also faces supply challenges, though we see few speculative newbuild jackups 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."

About Paragon Offshore

Paragon is a global provider of offshore drilling rigs.  Paragon's operated fleet includes 34 jackups, including two high specification heavy duty/harsh environment jackups, and six floaters (four drillships and two semisubmersibles). Paragon's primary business is contracting its rigs, related equipment and work crews to conduct oil and gas drilling and workover operations for its exploration and production customers on a dayrate basis around the world. Paragon's principal executive offices are located in Houston, Texas. Paragon is a public limited company registered in England and Wales with company number 08814042 and registered office at 20-22 Bedford Row, London, WC1R 4JS, England. Additional information is available at www.paragonoffshore.com.

Forward-Looking Disclosure Statement

This release contains forward-looking statements. Statements regarding contract backlog, earnings, costs, revenue, rig demand, fleet condition or performance, shareholder value, contract commitments, dayrates, contract commencements, contract extensions or renewals, industry fundamentals, customer relationships and requirements, strategic initiatives, future performance, growth opportunities, market outlook, as well as any other statements that are not historical facts in this release, are forward-looking statements that involve certain risks, uncertainties and assumptions. These include but are not limited to risks associated with the general nature of the oil and gas industry, risks associated with the operation of Paragon as a separate, publicly traded company, actions by regulatory authorities, customers and other third parties, and other factors detailed in the "Risk Factors" section of Paragon's annual report on Form 10-K for the fiscal year ended December 31, 2014, and in Paragon's other filings with the SEC, which are available free of charge on the SEC's website at www.sec.gov. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those indicated.

Conference Call

Paragon also scheduled a teleconference and webcast related to its second quarter 2015 results on Thursday, August 13, 2015, at 8:00 a.m. U.S. Central Time. The teleconference can be accessed from the U.S. and Canada by dialing 1-888-771-4371, or internationally by dialing 1-847-585-4405, and using access code: 40293273. Interested parties may also listen to the webcast through a link posted on Paragon's website at www.paragonoffshore.com, under "Events & Presentations" in the "Investor Relations" section of the website.

A telephonic replay of the conference call will be available on Thursday, August 13, 2015, beginning at approximately 12:00 p.m. U.S. Central Time, through Thursday, August 27, 2015, ending at approximately 11:00 p.m. U.S. Central Time. The phone number for the conference call replay is 1-888-843-7419 or, for calls from outside of the U.S., 1-630-652-3042, using access code: 40293273#.  A replay of the conference call will also be available on Paragon's website at www.paragonoffshore.com, under "Events & Presentations" in the "Investor Relations" section of the website.

For additional information, contact:

For Investors

Lee M. Ahlstrom

& Media:

Senior Vice President – Investor Relations, Strategy and Planning

 +1.832.783.4040

 

PARAGON OFFSHORE plc CONSOLIDATED AND COMBINED STATEMENTS OF INCOME (In thousands, except per share amounts) (Unaudited)

Three Months Ended

Six Months Ended

June 30,

June 30,

2015

2014

2015

2014

Operating revenues

Contract drilling services

$

363,089

$

462,334

$

762,908

$

954,297

Labor contract drilling services

7,206

8,146

14,371

16,357

Reimbursables and other

22,949

8,477

46,613

22,893

393,244

478,957

823,892

993,547

Operating costs and expenses

Contract drilling services

196,969

222,317

422,074

448,780

Labor contract drilling services

5,681

6,223

11,294

12,436

Reimbursables

18,678

5,224

38,656

15,850

Depreciation and amortization

94,673

112,536

184,748

223,120

General and administrative

13,737

12,683

29,101

25,928

Loss on impairment

1,701

1,701

(Gain) loss on disposal of assets, net

4,078

(12,717)

(Gain) on repurchase of long-term debt

(4,345)

335,517

358,983

670,512

726,114

Operating income

57,727

119,974

153,380

267,433

Other income (expense)

Interest expense, net of amount capitalized

(29,042)

(2,972)

(59,237)

(6,272)

Interest income and other, net

169

338

2,434

525

Income before income taxes

28,854

117,340

96,577

261,686

Income tax benefit (provision)

18,477

(22,292)

11,912

(42,075)

Net income

$

47,331

$

95,048

$

108,489

$

219,611

Net income attributable to non-controlling interest

(31)

Net income attributable to Paragon Offshore

$

47,331

$

95,048

$

108,458

$

219,611

Earnings per share

Basic and diluted

$

0.51

$

1.12

$

1.19

$

2.59

 

PARAGON OFFSHORE plc

CONSOLIDATED BALANCE SHEETS

(In thousands)

(Unaudited)

June 30,

December 31,

2015

2014

ASSETS

Current assets

Cash and cash equivalents

$

112,359

$

56,772

Restricted cash

12,502

Accounts receivable, net of allowance for doubtful accounts

356,132

539,376

Prepaid and other current assets

99,531

104,644

Total current assets

568,022

713,294

Property and equipment, net

2,318,460

2,410,360

Other assets

138,365

129,735

Total assets

$

3,024,847

$

3,253,389

LIABILITIES AND EQUITY

Current liabilities

Current maturities of long-term debt

$

6,500

$

272,166

Accounts payable

131,370

160,874

Accrued payroll and related costs

50,868

81,416

Other current liabilities

160,545

207,838

Total current liabilities

349,283

722,294

Long-term debt

1,984,421

1,888,439

Deferred income taxes

39,034

58,497

Other liabilities

53,945

89,910

Total liabilities

2,426,683

2,759,140

Total shareholders' equity

598,164

491,608

Non-controlling interest

2,641

Total equity

598,164

494,249

Total liabilities and equity

$

3,024,847

$

3,253,389

 

PARAGON OFFSHORE plc

CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

Six Months Ended

June 30,

2015

2014

Cash flows from operating activities

Net income

$

108,489

$

219,611

Adjustments to reconcile net income to net cash from operating activities:

Depreciation and amortization

184,748

223,120

Loss on impairment

1,701

Gain on disposal of assets, net

(12,717)

Gain on repurchase of long-term debt

(4,345)

Other changes in operating activities

29,144

(37,043)

Net cash provided by operating activities

307,020

405,688

Cash flows from investing activities

Capital expenditures

(113,071)

(110,687)

Proceeds from sale of assets

29,316

6,570

 Acquisition of Prospector Offshore Drilling S.A. non-controlling interest

(2,185)

Change in restricted cash

12,502

Change in accrued capital expenditures

(12,533)

13,594

Net cash used in investing activities

(85,971)

(90,523)

Cash flows from financing activities

Net change in borrowings on Predecessor bank credit facilities

707,472

Net change in borrowings outstanding on Revolving Credit Facility

211,000

Repayment of Term Loan Facility

(3,250)

Repayment of Prospector Senior Credit Facility

(265,666)

Repayment of Prospector Bonds

(101,000)

Purchase of Senior Notes

(6,546)

 Debt issuance costs

(386)

 Net transfers to parent

(1,026,144)

Net cash used in financing activities

(165,462)

(319,058)

Net change in cash and cash equivalents

55,587

(3,893)

Cash and cash equivalents, beginning of period

56,772

36,581

Cash and cash equivalents, end of period

$

112,359

$

32,688

 

PARAGON OFFSHORE plc

OPERATIONAL INFORMATION

(Unaudited)

As Reported

Rigs Retained or Sold by Noble

As Adjusted

Three Months Ended

Three Months Ended

Three Months Ended

June 30,

March 31,

June 30,

March 31,

June 30,

March 31,

2015

2014

2015

2015

2014

2015

2015

2014

2015

Rig fleet operating statistics (1)(2)

Jackups:

Average Rig Utilization

64%

76%

71%

n/a

50%

n/a

64%

78%

71%

Marketed Utilization (3)

64%

78%

71%

n/a

50%

n/a

64%

80%

71%

Operating Days

1,989

2,492

2,174

n/a

91

n/a

1,989

2,401

2,174

Average Dayrate

$

123,556

$

113,125

$

126,646

n/a

$

98,625

n/a

$

123,556

$

113,675

$

126,646

Floaters:

Average Rig Utilization

83%

78%

83%

n/a

100%

n/a

83%

75%

83%

Marketed Utilization (3)

100%

100%

100%

n/a

100%

n/a

100%

100%

100%

Operating Days

455

637

450

n/a

91

n/a

455

546

450

Average Dayrate

$

257,764

$

283,221

$

276,560

n/a

$

355,174

n/a

$

257,764

$

271,229

$

276,560

Total:

Average Rig Utilization

67%

76%

73%

n/a

67%

n/a

67%

75%

73%

Marketed Utilization (3)

69%

82%

74%

n/a

67%

n/a

69%

83%

74%

Operating Days

2,444

3,129

2,624

n/a

182

n/a

2,444

2,947

2,624

Average Dayrate

$

148,537

$

147,752

$

152,353

n/a

$

226,899

n/a

$

148,537

$

142,864

$

152,353

(1)

We define average rig utilization for a specific period as the total number of days our rigs are operating under contract, divided by the product of the total number of our rigs, including cold-stacked rigs, and the number of calendar days in such period. Information reflects our policy of reporting on the basis of the number of available rigs in our fleet.

(2)

Amounts exclude the Paragon FPSO1.

(3)

Marketed utilization excludes the impact of Paragon cold-stacked rigs for the current quarter.

 

PARAGON OFFSHORE plc

CALCULATION OF BASIC AND DILUTED EARNINGS PER SHARE

(In thousands, except per share amounts)

(Unaudited)

The following table sets forth the computation of basic and diluted net income and earnings per share:

Three Months Ended

Six Months Ended

June 30,

June 30,

2015

2014

2015

2014

Allocation of net income

Basic and diluted

Net income attributable to Paragon Offshore

$

47,331

$

95,048

$

108,458

$

219,611

Earnings allocated to unvested share-based payment awards (1)

(3,532)

(6,611)

Net income to ordinary shareholders - basic and diluted

$

43,799

$

95,048

$

101,847

$

219,611

Weighted average number of shares outstanding - basic and diluted

85,836

84,753

85,549

84,753

Weighted average unvested share-based payment awards (1)

6,922

5,553

Earnings per share

Basic and diluted

$

0.51

$

1.12

$

1.19

$

2.59

(1)

Our basis of presentation related to weighted average unvested shares outstanding for all periods prior to the Spin-Off does not include our unvested restricted stock units that were granted to our employees in conjunction with Paragon's 2014 Employee Omnibus Incentive Plan.  As a result, we have no earnings allocated to unvested share-based payment awards in our earnings per share calculation for periods prior to the Spin-Off.

 

PARAGON OFFSHORE plc

RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES

(In thousands, except per share amounts)

(Unaudited)

The following table sets forth the reconciliation of adjusted net income (non-GAAP) to net income:

Three Months Ended

Six Months Ended

June 30,

June 30,

2015

2014

2015

2014

Net income attributable to Paragon Offshore

$

47,331

$

95,048

$     108,458

$       219,611

Adjustments:

(Gain) on repurchase of long-term debt

(4,345)

(Gain) loss on disposal of assets, net

4,078

(12,717)

Loss on impairment

1,701

1,701

Adjusted net income

$

53,110

$

95,048

$

93,097

$

219,611

Allocation of adjusted net income

Basic and diluted

Adjusted net income

$

53,110

$

95,048

$

93,097

$

219,611

Earnings allocated to unvested share-based payment awards (1)

(3,963)

(5,675)

Adjusted net income to ordinary shareholders - basic and diluted

$

49,147

$

95,048

$

87,422

$

219,611

Weighted average number of shares outstanding - basic and diluted

85,836

84,753

85,549

84,753

Weighted average unvested share-based payment awards (1)

6,922

5,553

Adjusted earnings per share

Basic and diluted

$

0.57

$

1.12

$

1.02

$

2.59

(1)

Our basis of presentation related to weighted average unvested shares outstanding for all periods prior to the Spin-Off does not include our unvested restricted stock units that were granted to our employees in conjunction with Paragon's 2014 Employee Omnibus Incentive Plan. As a result, we have no earnings allocated to unvested share-based payment awards in our earnings per share calculation for periods prior to the Spin-Off.

 

PARAGON OFFSHORE plc

RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES (Cont'd)

(In thousands)

(Unaudited)

As Reported

Rigs Retained or Sold by Noble

As Adjusted

Three Months Ended

Three Months Ended

Three Months Ended

June 30,

March 31,

June 30,

March 31,

June 30,

March 31,

2015

2014

2015

2015

2014

2015

2015

2014

2015

Operating revenues

Contract drilling services

$

363,089

$

462,334

$

399,819

n/a

$

41,302

n/a

$

363,089

$

421,032

$

399,819

Labor contract drilling services

7,206

8,146

7,165

n/a

1,079

n/a

7,206

7,067

7,165

Reimbursables and other

22,949

8,477

23,664

n/a

n/a

22,949

8,477

23,664

393,244

478,957

430,648

n/a

42,381

n/a

393,244

436,576

430,648

Operating costs and expenses

Contract drilling services

196,969

222,317

225,105

n/a

16,966

n/a

196,969

205,351

225,105

Labor contract drilling services

5,681

6,223

5,613

n/a

n/a

5,681

6,223

5,613

Reimbursables

18,678

5,224

19,978

n/a

496

n/a

18,678

4,728

19,978

Depreciation and amortization

94,673

112,536

90,075

n/a

11,256

n/a

94,673

101,280

90,075

General and administrative

13,737

12,683

15,364

n/a

1,144

n/a

13,737

11,539

15,364

Loss on impairment

1,701

n/a

n/a

1,701

(Gain) loss on disposal of assets, net

4,078

(16,795)

n/a

n/a

4,078

(16,795)

(Gain) on repurchase of long-term debt

(4,345)

n/a

n/a

(4,345)

335,517

358,983

334,995

n/a

29,862

n/a

335,517

329,121

334,995

Operating income

57,727

119,974

95,653

n/a

12,519

n/a

57,727

107,455

95,653

Other income (expense)

Interest expense, net of amount capitalized

(29,042)

(2,972)

(30,195)

n/a

n/a

(29,042)

(2,972)

(30,195)

Interest income and other, net

169

338

2,265

n/a

n/a

169

338

2,265

Income before income taxes

28,854

117,340

67,723

n/a

12,519

n/a

28,854

104,821

67,723

Income tax benefit (provision)

18,477

(22,292)

(6,565)

n/a

(1,336)

n/a

18,477

(20,956)

(6,565)

Net income

$

47,331

$

95,048

$

61,158

n/a

$

11,183

n/a

$

47,331

$

83,865

$

61,158

Net income attributable to non-controlling interests

(31)

n/a

n/a

(31)

Net income attributable to Paragon Offshore

$

47,331

$

95,048

$

61,127

n/a

$

11,183

n/a

$

47,331

$

83,865

$

61,127

Adjustments:

 Depreciation and amortization

94,673

101,280

90,075

 Loss on impairment

1,701

 (Gain) loss on disposal of assets, net

4,078

(16,795)

 (Gain) on repurchase of long-term debt

(4,345)

 Interest expense, net of amount capitalized

29,042

2,972

30,195

 Income tax (benefit) provision

(18,477)

20,956

6,565

EBITDA

$

158,348

$

209,073

$

166,822

 

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SOURCE Paragon Offshore plc



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