Offshore drilling contactor Valaris, which is exploring a bankruptcy restructuring, on Thursday said it could take up to two years to reactivate idle equipment as contracts dry up during a historic rout in oil prices.
Global oil markets have collapsed since the beginning of March as the coronavirus pandemic has crushed fuel demand. Expensive offshore drilling projects have been halted or delayed, creating an uncertain outlook for service firms that had hardly recovered from the last oil price crash.
London-based Valaris, the result of the 2019 merger of Ensco Plc and Rowan Companies, posted a $2.81 billion asset impairment charge in the first quarter. It is exploring a debt restructuring that might require "a substantial conversion of our indebtedness to equity," it said.
Rival Diamond Offshore this week filed for Chapter 11 bankruptcy, listing debts of $2.6 billion and assets of $5.8 billion.
Valaris said it intends put aside several rigs, including three drillships, a semisubmersible and five jackups for eventual return to service and retire 11 other drillships.
It would reactivate the nine rigs when day rates and contract durations improve, adding it does not expect that to happen for two years.
"This challenging environment is also impacting existing contracts for offshore drillers as operators move to cancel and delay well programs, along with asking for pricing concessions and other modifications to contract terms," said Chief Executive Officer Tom Burke.
The company has had four contracts terminated.
Shares were up 10% on Thursday at 45 cents.
Investment firm Evercore ISI on Thursday said it was suspending its rating of Valaris given the company's plan to turn a portion of its debt to equity.
"We do not believe our efforts to value the equity are possible," Evercore managing director James West wrote in a note.
(Reporting by Liz Hampton; Editing by Andrea Ricci and Cynthia Osterman)