Offshore drilling contractor Valaris on Thursday reported a net loss of $3.01 billion, or $15.19 per share, for the first quarter 2020 compared to a net loss of $216 million, or $1.09 per share, in fourth-quarter 2019.
First-quarter 2020 results included a non-cash asset impairment charge of $2.81 billion related to three drillships, three semisubmersibles, and seven jack-up drilling rigs.
Of this, a non-cash asset impairment charge of $2.55 billion was taken to adjust the book value of floaters VALARIS DS-3, VALARIS DS-5, VALARIS DS-6, VALARIS 8500, VALARIS 8501, and VALARIS 8502 to salvage value as these rigs are expected to be retired from the global fleet.
When it comes to jack-ups, a non-cash asset impairment charge of $254 million was taken related to VALARIS JU-71, VALARIS JU-75, VALARIS JU-87, VALARIS JU-100, VALARIS JU-104, VALARIS JU-105, and VALARIS JU-109.
Revenues declined to $457 million in first-quarter 2020 from $512 million in fourth-quarter 2019 primarily due to a two percentage point decline in fleet utilization to 59% from 61% in the prior quarter.
More losses to come
Chief Executive Officer and President Tom Burke said the quarter was impacted by low oil prices and oil companies cutting planned expenditures and seeking to cancel and defer projects, which in turn, has led to terminations or negotiations of existing rig contracts.
"The combination of these factors negatively impacted our first quarter 2020 financial results, and we expect to continue to report losses and negative cash flows throughout the remainder of the year," Burke said.
He said that the company would work to cut costs, stack and remove uncontracted rigs from the fleet, and "rightsize" onshore organization.
Burke said: "In light of these challenges, we are taking further steps to manage our cost base and preserve liquidity. We expect to stack certain uncontracted rigs and remove others from our fleet, including three drillships and four semisubmersibles."
"We are executing plans that will lower operating costs for contracted rigs, rightsize our onshore organization for anticipated lower levels of fleet utilization, and improve our working capital management. We are also evaluating various alternatives to address our capital structure and annual interest costs, including, without limitation, a comprehensive debt restructuring that may require a substantial conversion of our indebtedness to equity," he said.
In its fleet status report issued last week, Valaris revealed a number of contract terminations, and dayrate and term reductions, along with a few new contracts. See more on that here.
Also, Reuters last week reported, citing people familiar with the matter, that Valaris was preparing to start talks with creditors to see if they can agree on terms for a possible bankruptcy filing.
As at March 31, 2020, Valaris' contracted revenue backlog excluding bonus opportunities was $1.9 billion. The company had $1.5 billion of liquidity of which $0.2 billion of cash, and $1.3 billion of available revolving credit facility. Its total debt was $6.8 billion.
Valaris is facing delisting from the New York Stock Exchange. The world's largest offshore drilling company by fleet size was notified by the New York Stock Exchange (“NYSE”) on April 15, 2020, of its noncompliance with continued listing standards.
This is because the average closing price of its Class A ordinary shares over a prior 30-day consecutive trading period had fallen below $1.00 per share, which is the minimum average closing price per share required to maintain a listing on the NYSE.
Diamond Offshore, another offshore drilling company hurt by the oil market situation, filed for bankruptcy protection in Texas on Sunday, after the company recently skipped making an interest payment and said it had retained restructuring advisers.