Pacific Drilling Announces Third-Quarter 2019 Results

Pacific Drilling S.A. (NYSE: PACD) (“Pacific Drilling” or the “Company”) today reported results for the third quarter of 2019. Net loss for third-quarter 2019 was $90.8 million or $1.21 per diluted share, compared to net loss of $73.6 million or $0.98 per diluted share in second-quarter 2019.

Pacific Drilling CEO Bernie Wolford commented, “We continue to add meaningful backlog, demonstrating the strength of our marketing team, our reputation for high performance and the quality of our modern fleet. We are pleased to have the Pacific Khamsin committed through the end of the third-quarter 2020.”

Third-Quarter 2019 Operational and Financial Commentary

Third-quarter 2019 contract drilling revenue was $54.3 million, which included $3.1 million in reimbursable revenue. This compared to second-quarter 2019 contract drilling revenue of $76.4 million, which included $3.8 million in reimbursable revenue. The decrease in revenue resulted primarily from the Pacific Sharav completing its legacy Chevron five-year contract in late August 2019 and rolling over to continue working for Chevron at a lower dayrate reflective of the current market. Additionally, the Pacific Bora completed operations with ENI in Nigeria in July 2019.

Operating expenses for third-quarter 2019 were $60.3 million compared to $52.3 million in second-quarter 2019. The increase in operating expenses was primarily due to ramp-up costs as Pacific Khamsin prepares to commence its contract with Equinor in the U.S. Gulf of Mexico. Additionally, operating expenses included reimbursable revenue expenses for third-quarter 2019 of $2.6 million compared to $3.0 million in the second quarter of 2019.

General and administrative expenses for the third quarter of 2019 were $8.9 million, as compared to $10.0 million for the second quarter of 2019.

EBITDA^(a) for third-quarter 2019 was $(14.3) million, compared to $14.0 million in second-quarter 2019 as a result of the decreases to revenue and increases to operating expenses described above.

Capital expenditures for the third quarter of 2019 were $9.7 million compared to $3.8 million in the second quarter of 2019. The increase in capital expenditures was primarily due to payments made to purchase a managed pressure drilling system.

Footnotes

(a)

EBITDA and Adjusted EBITDA are non-GAAP financial measures. For a definition of EBITDA and Adjusted EBITDA and a reconciliation to net loss, please refer to the schedule included in this release. Management uses this operational metric to track company results and believes that this measure provides additional information that highlights the impact of our operating efficiency as well as the operating and support costs incurred in achieving the revenue performance.

2019 Guidance

A schedule of Pacific Drilling’s updated 2019 guidance as of November 5, 2019 is available in the “Quarterly and Annual Results” subsection of the “Investor Relations” section of our website, www.pacificdrilling.com.

Conference Call

Pacific Drilling will conduct a conference call at 10 a.m. Central time on Wednesday, November 6, 2019 to discuss third-quarter 2019 results. To access the conference call, participants should contact the Conference Call Operator at +1 800-377-9510 within North America or +1 334-777-6978 outside of North America approximately 10 minutes prior to the scheduled start time and provide confirmation code #5137602. A replay of the call also will be available on the company’s website or by dialing +1 888-203-1112 within North America or +1 719-457-0820 outside of North America and providing confirmation code #5137602.

About Pacific Drilling

With its best-in-class drillships and highly experienced team, Pacific Drilling is committed to exceeding our customers’ expectations by delivering the safest, most efficient and reliable deepwater drilling services in the industry. Pacific Drilling’s fleet of seven drillships represents one of the youngest and most technologically advanced fleets in the world. Pacific Drilling has principal offices in Luxembourg and Houston. For more information about Pacific Drilling, including our current Fleet Status, please visit our website at www.pacificdrilling.com.

Forward-Looking Statements

Certain statements and information contained in this press release constitute “forward-looking statements” within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, and are generally identifiable by their use of words such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “forecast,” “intend,” “our ability to,” “may,” “plan,” “potential,” “predict,” “project,” “projected,” “should,” “will,” “would”, or other similar words which are not generally historical in nature. The forward-looking statements speak only as of the date hereof, and we undertake no obligation to publicly update or revise any forward-looking statements after the date they are made, whether as a result of new information, future events or otherwise.

Our forward-looking statements express our current expectations or forecasts of possible future results or events, including future financial and operational performance and cash balances; revenue efficiency levels; market outlook; forecasts of trends; future client contract opportunities; future contract dayrates; our business strategies and plans or objectives of management; estimated duration of client contracts; backlog; expected capital expenditures; projected costs and savings; and the potential impact of our completed Chapter 11 proceedings on our future operations and ability to finance our business.

Although we believe that the assumptions and expectations reflected in our forward-looking statements are reasonable and made in good faith, these statements are not guarantees, and actual future results may differ materially due to a variety of factors. These statements are subject to a number of risks and uncertainties and are based on a number of judgments and assumptions as of the date such statements are made about future events, many of which are beyond our control. Actual events and results may differ materially from those anticipated, estimated, projected or implied by us in such statements due to a variety of factors, including if one or more of these risks or uncertainties materialize, or if our underlying assumptions prove incorrect.

Important factors that could cause actual results to differ materially from our expectations include: the global oil and gas market and its impact on demand for our services; the offshore drilling market, including reduced capital expenditures by our clients; changes in worldwide oil and gas supply and demand; rig availability and supply and demand for high-specification drillships and other drilling rigs competing with our fleet; our ability to enter into and negotiate favorable terms for new drilling contracts or extensions; our ability to successfully negotiate and consummate definitive contracts and satisfy other customary conditions with respect to letters of intent and letters of award that we receive for our drillships; possible cancellation, renegotiation, termination or suspension of drilling contracts as a result of mechanical difficulties, performance, market changes or other reasons; costs related to stacking of rigs; downtime and other risks associated with offshore rig operations, including unscheduled repairs or maintenance, relocations, severe weather or hurricanes; our small fleet and reliance on a limited number of clients; our ability to execute our business plans; the effects of our completed Chapter 11 proceedings on our future operations; and the other risk factors described in our 2018 Annual Report on Form 20-F filed with the Securities and Exchange Commission on March 12, 2019 and our Reports on Form 6-K. These documents are available through our website at www.pacificdrilling.com or through the SEC’s website at www.sec.gov.

PACIFIC DRILLING S.A. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(in thousands, except per share information) (unaudited)
		Successor							Predecessor			Successor				Predecessor
		Three Months			Three Months				Three Months			Nine Months				Nine Months
		Ended			Ended				Ended			Ended				Ended
		September 30,			June 30,				September 30,			September 30,				September 30,
		2019			2019				2018			2019				2018
Revenues
Contract drilling		$	54,315		$	76,415			$	56,673		$	196,646			$	205,306
Costs and expenses
Operating expenses			(60,324)			(52,254)				(44,234)			(164,874)				(164,556)
General and administrative expenses			(8,855)			(10,010)				(10,947)			(30,111)				(41,032)
Depreciation and amortization expense			(47,734)			(59,330)				(70,125)			(165,963)				(210,115)
			(116,913)			(121,594)				(125,306)			(360,948)				(415,703)
Operating loss			(62,598)			(45,179)				(68,633)			(164,302)				(210,397)
Other income (expense)
Interest expense			(24,459)			(24,406)				(45,446)			(72,904)				(77,586)
Reorganization items			(24)			(878)				(30,599)			(1,905)				(56,108)
Interest income			1,510			1,665				1,019			5,147				2,720
Equity earnings in unconsolidated subsidiaries			22			(263)				—			(1,293)				—
Expenses to unconsolidated subsidiaries, net			(510)			(437)				—			(1,219)				—
Other expense			(409)			(220)				(923)			(720)				(2,254)
Loss before income taxes			(86,468)			(69,718)				(144,582)			(237,196)				(343,625)
Income tax expense			(4,315)			(3,868)				(201)			(11,152)				(953)
Net loss		$	(90,783)		$	(73,586)			$	(144,783)		$	(248,348)			$	(344,578)
Loss per common share, basic		$	(1.21)		$	(0.98)			$	(6.78)		$	(3.31)			$	(16.13)
Weighted average shares outstanding, basic			75,005			75,001				21,368			75,012				21,357
Loss per common share, diluted		$	(1.21)		$	(0.98)			$	(6.78)		$	(3.31)			$	(16.13)
Weighted average shares outstanding, diluted			75,005			75,001				21,368			75,012				21,357

PACIFIC DRILLING S.A. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(in thousands) (unaudited)
		September 30,			June 30,			December 31,
		2019			2019			2018
Assets:
Cash and cash equivalents		$	355,906		$	305,488		$	367,577
Restricted cash			6,076			8,500			21,498
Accounts receivable, net			29,751			65,403			40,549
Other receivable			—			28,000			28,000
Materials and supplies			43,986			42,441			40,429
Prepaid expenses and other current assets			11,685			14,916			9,149
Total current assets			447,404			464,748			507,202
Property and equipment, net			1,860,724			1,878,848			1,915,172
Receivable from unconsolidated subsidiaries			204,790			204,790			204,790
Intangible asset			—			20,640			85,053
Investment in unconsolidated subsidiaries			11,400			11,234			11,876
Other assets			22,252			30,014			24,120
Total assets		$	2,546,570		$	2,610,274		$	2,748,213
Liabilities and shareholders’ equity:
Accounts payable		$	12,009		$	17,835		$	14,941
Accrued expenses			20,292			18,327			25,744
Accrued interest			31,406			15,703			16,576
Deferred revenue, current			5,931			1,298			—
Total current liabilities			69,638			53,163			57,261
Long-term debt			1,064,643			1,056,037			1,039,335
Payable to unconsolidated subsidiaries			4,194			3,741			4,400
Other long-term liabilities			33,143			33,528			28,259
Total liabilities			1,171,618			1,146,469			1,129,255
Shareholders’ equity:
Common shares			751			750			750
Additional paid-in capital			1,650,685			1,648,756			1,645,692
Treasury shares, at cost			(652)			(652)			—
Accumulated deficit			(275,832)			(185,049)			(27,484)
Total shareholders’ equity			1,374,952			1,463,805			1,618,958
Total liabilities and shareholders’ equity		$	2,546,570		$	2,610,274		$	2,748,213

PACIFIC DRILLING S. A. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(in thousands) (unaudited)
		Successor				Predecessor
		Nine Months				Nine Months
		Ended September 30,				Ended September 30,
		2019				2018
Cash flow from operating activities:
Net loss		$	(248,348)			$	(344,578)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization expense			165,963				210,115
Amortization of deferred revenue			(1,513)				(17,322)
Amortization of deferred costs			879				12,237
Amortization of debt premium, net			(330)				—
Interest paid-in-kind			25,638				456
Deferred income taxes			7,157				(3,069)
Share-based compensation expense			5,076				1,611
Reorganization items			—				22,270
Changes in operating assets and liabilities:
Accounts receivable			38,798				5,932
Materials and supplies			(3,557)				3,033
Prepaid expenses and other assets			(7,972)				6,292
Accounts payable and accrued expenses			16,729				10,712
Deferred revenue			7,444				(481)
Net cash provided by (used in) operating activities			5,964				(92,792)
Cash flow from investing activities:
Capital expenditures			(31,108)				(15,080)
Net cash used in investing activities			(31,108)				(15,080)
Cash flow from financing activities:
Payments for shares issued under share-based compensation plan			(82)				(4)
Proceeds from debtor-in-possession financing			—				50,000
Proceeds from long-term debt			—				1,000,000
Payments for financing costs			(1,215)				(27,422)
Purchases of treasury shares			(652)				—
Net cash provided by (used in) financing activities			(1,949)				1,022,574
Net increase (decrease) in cash and cash equivalents			(27,093)				914,702
Cash, cash equivalents and restricted cash, beginning of period			389,075				317,448
Cash, cash equivalents and restricted cash, end of period		$	361,982			$	1,232,150

EBITDA and Adjusted EBITDA Reconciliation

EBITDA is defined as earnings before interest expense, taxes, depreciation and amortization. Adjusted EBITDA is defined as earnings before interest expense, taxes, depreciation, amortization, equity earnings in unconsolidated subsidiaries, expenses to unconsolidated subsidiaries, net and reorganization items. EBITDA and Adjusted EBITDA do not represent and should not be considered an alternative to net income, operating income, cash flow from operations or any other measure of financial performance presented in accordance with U.S. generally accepted accounting principles (“GAAP”) and our calculation of EBITDA and Adjusted EBITDA may not be comparable to that reported by other companies. EBITDA and Adjusted EBITDA are included herein because they are used by management to measure the Company’s operations. Management believes that EBITDA and Adjusted EBITDA present useful information to investors regarding the Company’s operating performance.

PACIFIC DRILLING S.A. AND SUBSIDIARIES
Supplementary Data—Reconciliation of Net Loss to Non-GAAP EBITDA and Adjusted EBITDA
(in thousands) (unaudited)
		Successor							Predecessor			Successor				Predecessor
		Three Months			Three Months				Three Months			Nine Months				Nine Months
		Ended			Ended				Ended			Ended				Ended
		September 30,			June 30,				September 30,			September 30,				September 30,
		2019			2019				2018			2019				2018
Net loss		$	(90,783)		$	(73,586)			$	(144,783)		$	(248,348)			$	(344,578)
Add:
Interest expense			24,459			24,406				45,446			72,904				77,586
Depreciation and amortization expense			47,734			59,330				70,125			165,963				210,115
Income tax expense			4,315			3,868				201			11,152				953
EBITDA		$	(14,275)		$	14,018			$	(29,011)		$	1,671			$	(55,924)
Add:
Equity earnings in unconsolidated subsidiaries			(22)			263				—			1,293				—
Expenses to unconsolidated subsidiaries, net			510			437				—			1,219				—
Reorganization items			24			878				30,599			1,905				56,108
Adjusted EBITDA		$	(13,763)		$	15,596			$	1,588		$	6,088			$	184

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Contact information

Investor Contact:
James Harris
Pacific Drilling S.A.
+713 334 6662
Investor@pacificdrilling.com

Media Contact:
Amy Roddy
Pacific Drilling S.A.
+713 334 6662
Media@pacificdrilling.com