Diamond Offshore files for bankruptcy

Diamond Offshore Drilling has become the latest oil company to seek bankruptcy protection amid havoc on oil markets.

David Wethe and Jeremy Hill had the news for Bloomberg:

Diamond Offshore Drilling Inc., the rig contractor controlled by Loews Corp., filed for bankruptcy amid an unprecedented crash in crude prices that’s wrecking demand for oil exploration at sea.

The company listed $5.8 billion of assets and $2.6 billion of debt in a Chapter 11 petition filed in Houston, citing year-end 2019 data. It has about $434.9 million of cash on hand, according to the document.

Diamond owns rigs that can drill in water more than two miles deep. But offshore oil is among the most expensive to produce, putting the company at a disadvantage when prices plunged to less than $30 a barrel.

While newer deepwater projects are less expensive, they still take longer to develop than shale wells and they still can’t compete on costs. What’s more, a global glut of offshore vessels has squeezed profit margins.

The AP reported:

Diamond Offshore reported a net loss of $62.7 million in the last quarter of 2019, even before the May future for the U.S. benchmark plunged below zero this month. Its failure to make a bond interest payment earlier this month on $500 million in debt due in 2039 raised expectations it might seek a restructuring. The company also announced it had hired advisors to discuss how to handle its predicament.

“Diamond’s decision to not make an interest payment shows that the coronavirus induced crash in oil prices and corresponding capital spending cuts by oil and gas producers has indefinitely deferred any potential recovery in offshore drilling activity and dayrates,” Pete Speer, Moody’s senior vice president, said in issuing a downgrade for the company.

Laura Noonan from the Financial Times wrote:

Diamond said it had taken “various actions” to shore up its finances, including borrowing $400m under a revolving credit facility in March, but that Chapter 11 bankruptcy represented the best return to stakeholders.

Those stakeholders include NYSE-listed Loews Corporation, which owns 53 per cent of Diamond, 2,500 staff who work there, and bondholders who are owed more than $2bn.

In an April 16 note downgrading Diamond’s debt to the 17th point on its 21-point scale, rating agency Moody’s said the oilfield services sector would be “one of the sectors most significantly affected” by the “severe and extensive” shock from the coronavirus pandemic, falling oil prices and asset price declines.

“There is a high likelihood that the company restructures its debts, either through an out-of-court settlement with its creditors or through the bankruptcy process,” Moody’s analysts stressed.