Houston offshore driller files for bankruptcy protection after layoffs

Houston-based Diamond Offshore Drilling Inc. (NYSE: DO) and 14 affiliates filed for Chapter 11 bankruptcy protection in Houston on April 26.

In court documents, the company listed total assets of more than $5.8 billion, total debts of more than $2.6 billion and between 5,000 and 10,000 creditors.

Diamond noted in the court documents that it was already dealing with a general industry downturn, which was “worsened precipitously in recent months due to two unprecedented global developments, an oil ‘price war’ between OPEC and Russia and the Covid-19 pandemic.” In response, the company “took various actions in an attempt to preserve existing contract backlog, liquidity and financial flexibility,” including borrowing $400 million under its revolving credit facility, before turning to the bankruptcy courts.

Earlier this month, Diamond skipped a semiannual interest payment on its 5.7% senior notes due 2039, according to a filing with the U.S. Securities and Exchange Commission. The payment was due April 15, and the company had a 30-day grace period to make the payment before triggering a default.

On April 16, S&P Global Ratings and Moody’s downgraded Diamond.

“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 a press release. “Despite having adequate liquidity and no maturities before October 2023, this looks like the first step for the company to begin discussions with creditors.”

In the SEC filing, Diamond said it Lazard Frères & Co. LLC as financial adviser and Paul, Weiss, Rifkind, Wharton & Garrison LLP as legal adviser to assist the board and management team in evaluating various alternatives related to the company’s management structure.

Additionally, Diamond laid off 103 people permanently starting on April 15, cutting staff from its corporate office at 15415 Katy Freeway in Houston, according to a Worker Adjustment and Retraining Notification Act letter filed with the Texas Workforce Commission that same day. The company said it wasn’t able to give more advance warning of the layoffs because of how rapidly the situation developed.

The layoffs are expected to be complete by April 28.

Job cuts associated with the latest price crisis are likely to come in two waves. The first wave is associated with the cessation of some portion of the industry’s operations and typically involve layoffs among field personnel. The second phase will come later, when companies go bankrupt and much-anticipated consolidation sweeps across the sector. Layoffs in that wave will hit hardest among corporate support staff, engineers and other technical employees — the kinds of people who work in Houston, in other words.

Several other Houston energy companies, including NexTier Oilfield Solutions Inc. (NYSE: NEX), Halliburton Co. (NYSE: HAL) and Baker Hughes Co. (NYSE: BKR), have also conducted layoffs in recent weeks as oil prices plunge lower and the market gets ever tougher.

By Olivia Pulsinelli and Joshua Mann

Courtesy of Houston Business Journal

https://www.bizjournals.com/houston/news/2020/04/26/houston-offshore-driller-files-for-bankruptcy.html