Seadrill Expects Chapter 11 Filing by Mid-September

North Atlantic Drilling jackup West Epsilon, which went off-hire in October 2016 (file image)

John Fredriksen-controlled Seadrill said Thursday that it plans to move forward with a Chapter 11 filing "on or before September 12.” The announcement confirms its earlier warnings of an impending bankruptcy filing. The firm also announced a 34 percent decline in revenue for the second quarter (year-on-year), accompanied by a $100 million operating loss.

The low bottom-line performance was driven in part by losses recognized in the sale of three jack-up rigs. Like so many offshore drilling contractors, Seadrill has a large idle fleet due to the long-running downturn. Economic utilization of its operating assets is high – approaching 100 percent – but 20 of its 52 rigs are idled, awaiting better times or disposal.

"Our primary objective at the moment is concluding final negotiations on our comprehensive restructuring plan," said CEO and President Anton Dibowitz. "Our business execution remains unaffected by these efforts as demonstrated by continued delivery of excellent safety and fleet uptime."

The firm said that a comprehensive restructuring plan will likely involve raising about $1 billion of new capital, a five-year extension of its bank loans and a deferral on the repayment of its debts. In addition, shipyards and bondholders can expect impairments and losses, and shareholders can expect "minimal to no recovery" of their investment. The bankruptcy plan will wipe out the value of the firm's existing shares, which have already lost 99 percent of their worth relative to peak levels in 2013. The restructuring will also affect shareholders of North Atlantic Drilling, which is a 70 percent-owned subsidiary of Seadrill.

In positive news, Dibowitz noted that Seadrill managed to re-contract a number of units during the quarter, and suggested that restructuring would position the firm to take advantage of an eventual recovery in the offshore market. Chapter 11 can be advantageous in challenging times: leading offshore supply vessel operator Tidewater recently emerged from a brief U.S. bankruptcy court proceeding, shedding $1.6 billion in loans under a debt-for-equity agreement with its lenders.