Pacific Drilling S.A. (NYSE:PACD) today announced net income of $18.3 million or $0.08 per diluted share on revenue of $117.4 million for the three months ended March 31, 2012. In the comparable prior year period, net loss was $10.1 million or $0.07 per diluted share on no revenue, excluding equity and earnings from our joint venture with Transocean, which was divested in March of 2011. As reflected on our March 31, 2011, financial statements, reported net income for the quarter was $9.1 million or $0.06 per diluted share.
CEO Chris Beckett stated, “During the early part of 2012, demand for ultra-deepwater drillships continued to strengthen, as demonstrated by the acceleration in multi-year inquiries and contract awards with increasingly higher dayrates. We expect to see market demand exceed supply well into 2014. In this favorable market context, the Pacific Sharav received a letter of award from a major oil company for a long term commitment. We expect to provide more details on this commitment in the coming weeks. These positive market dynamics supported our decision to order a seventh drillship, scheduled for delivery in May 2014.”
Regarding the delivered drillships, Mr. Beckett added, “During the first quarter, the Pacific Scirocco and the Pacific Mistral started drilling operations in Nigeria and Brazil, respectively. Pacific Scirocco exceeded our expected efficiency, and our client, Total, has elected to extend the initial term of their contract to two years. We consider this a strong vote of confidence in our company’s performance from a leading deepwater operator. Pacific Mistral started its contract with Petrobras in February 2012, and after its start-up phase, we anticipate the rig will perform in line with our other two operating vessels. The Pacific Bora, in operation since August 2011, continued to deliver revenue efficiency above expectations in line with its 2011 performance. The Pacific Santa Ana, our fourth drillship, recently arrived in the U.S. Gulf of Mexico to start its five-year contract with Chevron. We are extremely proud of Pacific Santa Ana, the first drillship custom-built to perform dual gradient drilling services. Dual gradient drilling, an exciting new technology championed by Chevron, is expected to change the way deepwater wells are drilled, providing a safer more efficient technique than conventional methods, according to a May 2011 report sponsored by the U.S. Bureau of Ocean Energy Management, Regulation and Enforcement.”
Operational CommentaryContract drilling revenue for the first quarter of 2012 was $117.4 million including recognition of $19.3 million of deferred revenue for mobilization, contract preparation and asset upgrades. Through March 31, 2012, our operating fleet of three rigs achieved an average revenue efficiency of 88.9% (a). During its first 55 days of operations, Pacific Mistral suffered several days of unplanned downtime due to subsea equipment design issues. Pacific Bora and Pacific Scirocco delivered revenue efficiency levels in excess of industry expectation of 90% for a newbuild’s first six months of operations despite similar equipment issues. We have now upgraded all of our blowout preventers (BOP) to fully address this design weakness, with the complete support of the original equipment manufacturer. The BOP issues experienced during the quarter reduced our average quarterly revenue efficiency by more than 5%. Pacific Santa Ana began recognizing revenue on May 4, 2012, after receiving U.S. customs clearance and meeting other required criteria. Contract drilling expenses for the first quarter of 2012 were $64.9 million, including $14.7 million in amortization of deferred mobilization costs and $5.2 million in shore-based and other support costs. Rig operating expenses for Pacific Mistral and Pacific Scirocco were adversely affected by the start-up costs inherent to the first few months of operations for a new drillship including incremental costs for the upgrade of our BOPs. General and administrative expenses for the first quarter of 2012 totaled $12.4 million and, as anticipated, included approximately $2.1 million in legal fees related to our $1.8 billion credit facility. These expenses were incurred to increase flexibility in the use of our funds and remove some inefficiencies from our corporate structure that should result in cost savings going forward. First quarter 2012 results also included a pre-tax gain of $23.7 million in loss of hire insurance recovery as a result of previously disclosed claims relating to repairs and upgrades to Pacific Scirocco. Financial Commentary Pacific Drilling’s liquidity position was strengthened significantly following two recent financial transactions. In February 2012, the company placed $300 million in senior unsecured bonds with international institutional investors to support the financing of our seventh drillship and our working capital requirements. Our cash balances on March 31, 2012, stood at $627 million, including $358 million of restricted cash related primarily to our project financing facility and collateral for our bonds and lines of credit. On April 19, 2012, we closed on two credit facilities totaling approximately $200 million, under which letters of credit for the same amount were issued to support the Nigeria temporary importation bonds for Pacific Bora and Pacific Scirocco. As a result of securing these facilities, we were able to release approximately $126 million of cash collateral from our restricted cash balance. During the first quarter of 2012, we invested $102 million in the construction of the fleet, including the initial payment for our seventh drillship. We estimate the remaining capital expenditures for our committed drillships at $1.6 billion.