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Paragon's Floating Rig Fleet Up 100%; Jackup Rigs Down 71%
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Paragon Offshore plc reported first quarter 2015 net income of $61.1 million, or $0.69 per diluted share as compared to first quarter 2014 net income of $124.6 million, or $1.47 per diluted share.
Results for the quarter include a $16.8 million, or $0.17 per diluted share, gain on the sale of an asset and a $4.3 million, or $0.05 per diluted share, gain related to the repurchase of an aggregate principal amount of $11 million of its senior unsecured notes. For periods prior to Paragon's spin-off from Noble Corporation plc on August 1, 2014, results of operations are based on Noble's standard-specification business and include contributions from three standard specification rigs retained by Noble and three standard specification rigs that were sold prior to the Spin-Off.
Randall D. Stilley, President and Chief Executive Officer, commented: "In the midst of a challenging environment, Paragon delivered another strong quarter of operational results with unpaid downtime below two percent and cost control efforts well underway. We also successfully concluded the Prospector acquisition and fully repaid the outstanding Prospector debt using our revolving credit facility. In addition, we added $108 million of contract backlog during the quarter, demonstrating that customers continue to value Paragon's safe, reliable, and efficient standard fleet."
Operating Highlights
Paragon's total contract backlog at March 31, 2015 was an estimated $1.9 billion compared to $2.2 billion at December 31, 2014.
Utilization of Paragon's marketed floating rig fleet increased in the first quarter to 100 percent compared to 94 percent in the fourth quarter of 2014. Average daily revenues for Paragon's floating rig fleet decreased four percent to $277,000 per rig in the first quarter of 2015 from $287,000 per rig in the fourth quarter of 2014.
First quarter 2015 utilization of Paragon's marketed jackup rig fleet decreased to 71 percent compared to the 82 percent utilization achieved during the fourth quarter of 2014. Average daily revenues for Paragon's jackup fleet during the first quarter improved by five percent to $127,000 per rig from $120,000 per rig during the fourth quarter of 2014.
At the end of the first quarter of 2015, an estimated 56 percent of the marketed rig operating days were committed for 2015, including 82 percent and 53 percent of the floating and jackup rig days, respectively. The calculations for committed operating days exclude available days related to one floating unit that was recently stacked.
Financial Results
Total revenues for the first quarter of 2015 were $430.6 million compared to $495.0 million in the fourth quarter of 2014. Paragon reported utilization for its marketed rig fleet, which excludes one recently stacked floater, as 74 percent for the first quarter of 2015, as compared to 84 percent in the fourth quarter of 2014. Average daily revenues increased three percent in the first quarter of 2015 to $152,000 per rig compared to the previous quarter average of $149,000 per rig. Contract drilling operating costs increased slightly in the first quarter to $225.1 million compared to $224.5 million in the fourth quarter of 2014.
Net cash from operating activities was $210.4 million in the first quarter of 2015 as compared to $130.9 million for the fourth quarter of 2014. Capital expenditures in the first quarter totaled $50.7 million. At March 31, 2015, liquidity, defined as cash and cash equivalents plus availability under the company's revolving credit facility, totaled $495.9 million while the ratio of the company's net debt to trailing twelve months EBITDA, as defined in the company's revolving credit facility, was 2.4 at March 31, 2015.
Outlook
During the quarter, Paragon added approximately $108.0 million in backlog related primarily to previously disclosed new contracts and extensions in the North Sea and West Africa. In the North Sea, the Paragon HZ1 received a contract extension from early July 2015 to late August 2016 at a dayrate of $142,000 while the Paragon C463 received a new contract with GDF SUEZ for 225 days beginning late January 2015 at a dayrate of $130,000. Finally, the Paragon C20052received a contract award for 75 days at a dayrate of $170,000 and a new contract from early July 2015 to late August 2015 at a dayrate of $145,000. In West Africa, the Paragon L782 received a new contract from late May 2015 to mid-September 2015 at a dayrate of $90,000 while theParagon L783 received a contract extension from early March 2015 to early May 2015 at a dayrate of $129,000.
On May 6, 2015, Paragon reported that a subsidiary had received written notices of termination from PEMEX - Exploración y Producción ("PEMEX") of the drilling contracts on the Paragon L1113 and the Paragon B301. These contracts have been terminated by PEMEX pursuant to PEMEX's right to terminate the contracts on 30 days' notice. The effective termination dates for the contracts is expected to be late May 2015. As a result of the contract terminations, Paragon's backlog decreased by approximately $60 million. Paragon continues to engage in discussions with PEMEX regarding the company's remaining drilling rigs operating in Mexico.
Mr. Stilley concluded, "Despite recent improvements in oil prices, conditions in the offshore drilling space are likely to deteriorate further during the remainder of 2015. Dayrates may head lower, driven by a variety of supply and demand factors; and we believe the industry will see additional contract renegotiations and outright contract cancellations. Our approach to navigating these turbulent waters includes the following actions: (1) reduce operating costs and capital expenditures to preserve contract drilling margins and liquidity; (2) refinance the debt we assumed as part of the Prospector acquisition; (3) aggressively pursue new contracts by utilizing our position as the low cost provider of offshore rigs; (4) continue to evaluate additional opportunities to strengthen our balance sheet; and (5) above all else, maintain our focus on being the high-quality, safe, and low-cost offshore drilling contractor - a key differentiator for Paragon."