Pacific Drilling has reported results for the second quarter of 2020. Net loss for second-quarter 2020 was $87.4 million or $1.16 per diluted share, compared to net loss of $61.0 million or $0.81 per diluted share in first-quarter 2020.

Pacific Drilling CEO Bernie Wolford commented, 
“In the second quarter, our crews and leadership continued to exemplify our commitment to safe and efficient operations, including adopting measures to manage risks associated with COVID-19 transmission, delivering exceptional results for our clients, efficiently preserving the value of our assets and significantly reducing overhead costs.”

Mr. Wolford continued, 
“Although oil prices began to rebound during the second quarter, clients have generally reduced their drilling investments, as evidenced by Equinor’s decision to cancel the previously exercised third firm well for Pacific Khamsin, and Murphy’s decision to cancel the two well Mexico contract for the Pacific Sharav. In both cases our clients chose to pay a termination fee rather than perform the drilling programs. We expect the current contract for Pacific Khamsin to end in September 2020. Despite these headwinds for 2020, we are actively pursuing opportunities for contracts and are proud to extend our relationship with Murphy through a new contract for Pacific Sharav for 10 firm wells and 5 option wells in the U.S. Gulf of Mexico, which we expect to commence in the second quarter of 2021.”

Mr. Wolford concluded, 
“Although we currently see more contract opportunities for 2021, compared to 2020, contract durations remain relatively short, on average, and we expect excess rig supply to maintain downward pressure on dayrates. We have no debt maturities until 2023, and cash in excess of $252 million as of June 30, 2020. We project that we have sufficient liquidity to fund our cash needs over the next 12 months. However, due to current market conditions and our outlook for contracting opportunities through 2020 and 2021, we do not believe our current capital structure will be sustainable. We have engaged financial and legal advisors to assist us in evaluating various alternatives to address our longer-term liquidity outlook and capital structure, which may include a negotiated restructuring of our debt that is implemented under the protection of Chapter 11 of the U.S. Bankruptcy Code. We are currently engaged in discussions with a group of our creditors seeking to reach acceptable terms for a restructuring. Any such agreement that we may reach may include the equitization of all or certain of the Company’s indebtedness, which would place our common shareholders at significant risk of losing all of their interests in the Company. While we evaluate our strategic alternatives to address our liquidity outlook and current capital structure, we continue to deliver the safe, efficient and high-quality drilling services for which Pacific Drilling is recognized in our industry.”

Second-Quarter 2020 Operational and Financial Commentary

Contract drilling revenue for second-quarter 2020 was $38.9 million, which included $6.6 million in reimbursable revenue. This compared to first-quarter 2020 contract drilling revenue of $89.4 million, which included $6.4 million in reimbursable revenue. The decrease in revenue resulted primarily from the Pacific Sharav and the Pacific Bora completing their contracts in early April, and the PacificSanta Ana earning a lower force majeure rate in April and a reduced standby rate for the reminder of the second quarter.

Operating expenses for second-quarter 2020 were $61.9 million, which included $4.5 million in reimbursable expenses. This compared to first-quarter 2020 operating expenses of $86.5 million, which included $5.8 million in reimbursable expenses. The decrease in operating expenses was due to the ramp down of costs on rigs transitioning from operating to standby and idle status.

General and administrative expenses for the second quarter of 2020 were $10.9 million, as compared to $9.6 million for the first quarter of 2020. The increase was due to advisory fees of $2.6 million and severance costs of $0.3 million incurred in the second quarter of 2020. Excluding the impact of such charges, the decrease in general and administrative expenses for the second quarter of 2020 resulted from a reduction in force implemented in May 2020 and a decrease in salaries for all employees.

Adjusted EBITDA(a) for second-quarter 2020 was $(31.1) million, compared to $(1.8) million in first-quarter 2020.

Capital expenditures for the second quarter of 2020 were $1.0 million compared to $5.9 million in the first quarter of 2020. The decrease was from deferral or elimination of rig projects with resulting second-quarter activity limited to required sustaining capital expenditures.

(a) EBITDA and Adjusted EBITDA are non-GAAP financial measures.

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