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Pacific Drilling Announces Second Quarter 2012 Results

Stocks in this article: PACD

Pacific Drilling S.A. (NYSE: PACD) today announced net income of $1.2 million or $0.01 per diluted share on revenue of $156.8 million for the three months ended June 30, 2012. In the comparable prior year period, net loss was $12.5 million or $0.06 per diluted share on no revenue.

CEO Chris Beckett said, “The second quarter of 2012 was a transition quarter as Pacific Drilling dealt with the challenges of the simultaneous start-up of the majority of our fleet. Operational performance improved throughout the quarter but is not yet where we want it to be. Problems with the blowout preventer on the Pacific Santa Ana experienced at the end of the quarter will negatively affect the third quarter also, with a total of 45 days during the quarter lost to BOP related repairs before the rig restarted operations on August 15. As a result of this downtime, our expectations for full year 2012 average revenue efficiency have been reduced from a range of 90% to 93% to a range of 86% to 89%, with a sequential improvement expected from third to fourth quarter.”

Mr. Beckett added, “During the second quarter, we continued to see favorable market conditions lead ultra-deepwater dayrates higher and encourage customers to inquire about rig availability in 2014. We were able to directly benefit from these market conditions when we converted a letter of award for the Pacific Sharav to a five year contract with Chevron for operations in the U.S. Gulf of Mexico. The contract provides for a maximum effective dayrate, including client reimbursements for mobilization and customer requested upgrades, of $590,000 per day. We are proud to have been selected once again to partner with Chevron. We are also pleased to be able to leverage the operations support infrastructure which we have already developed in the Gulf of Mexico region. In this strong market environment, we continue to have active negotiations and remain optimistic regarding contract opportunities for the Pacific Khamsin, to be delivered in the second quarter of 2013, and the Pacific Meltem, to be delivered in the second quarter of 2014.”

Regarding the operational drillships, Mr. Beckett commented, “The Pacific Bora and the Pacific Scirocco, having completed the shakedown period, delivered strong operating margin in the second quarter, in line with our expectations. In particular, Pacific Scirocco continued to exceed our expected revenue efficiency, and in recognition of our performance, the customer, Total, elected to extend the initial term of its contract on Pacific Scirocco to two years. The Pacific Mistral improved its performance during the quarter, delivering top quartile performance within the Petrobras fleet by quarter’s end. Pacific Santa Ana, our fourth drillship, arrived in the U.S. Gulf of Mexico and started drilling operations and revenue recognition under its five year drilling contract for Chevron on May 4, 2012.”

Second Quarter 2012 Operational Commentary

Contract drilling revenue for the second quarter of 2012 was $156.8 million including recognition of $23.9 million of deferred revenue for mobilization, contract preparation and asset upgrades. During the three months ended June 30, 2012, our operating fleet of four drillships achieved an average revenue efficiency of 85.4% (a) versus our expectation of 91%. During April 2012, Pacific Bora and Pacific Mistral experienced several days of downtime to finalize upgrades to their blowout preventers (BOP) initiated during the first quarter of 2012. The resulting downtime reduced our average quarterly revenue efficiency by approximately 5% during the second quarter.

During the second quarter, Pacific Bora achieved average revenue efficiency of 87.2%. Following the completion of the BOP upgrades in April 2012, and through the remainder of the quarter, Pacific Bora achieved average revenue efficiency in excess of our expectation and reached our longer term targets for operating expenses. Pacific Scirocco delivered average revenue efficiency for the quarter of 93.1%, in excess of our expectation of 90% for a newbuild’s first six months of operations. Pacific Mistral produced average revenue efficiency for the quarter of 76.1% due to BOP related downtime at the beginning of the quarter. The rig continued to ramp up its operational performance as it completed the shakedown process and close out of Petrobras contractual upgrades, reaching target uptime by end of the quarter as well as reductions in operating expenses during the quarter. For the period from May 4, 2012, through June 30, 2012, Pacific Santa Ana delivered an average revenue efficiency level of 84.1%.

Contract drilling expenses for the second quarter of 2012 were $83.5 million, including $18.6 million in amortization of deferred mobilization costs and $5.9 million in shore-based and other support costs. Direct rig operating expenses were approximately $178,000 per day per rig, down from $190,000 per day per rig during the first quarter 2012, while our shore-based and other support costs also fell to $17,600 per day per rig, compared to $21,800 per day per rig during the first quarter 2012. The sequential improvements in contract drilling expenses were driven by significant reductions in costs for our rigs in Nigeria. General and administrative expenses for the second quarter of 2012 totaled $10.8 million.

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