Diamond Offshore enters bankruptcy to achieve sustainable debt profile

By Caroline Salls

Pittsburgh, April 27 – Diamond Offshore Drilling, Inc. and some of its subsidiaries filed Chapter 11 bankruptcy Sunday in the U.S. Bankruptcy Court for the Southern District of Texas to restructure and strengthen its balance sheet and achieve a more sustainable debt profile, according to a company news release.

The company said it is pursuing negotiations with its key stakeholders regarding a comprehensive restructuring plan to address the capital structure.

Diamond has enough capital to fund its global operations in the ordinary course and to make continued investments in safety and reliability during the reorganization proceedings and does not require additional post-bankruptcy financing at this time, the release said.

“After a careful and diligent review of our financial alternatives, the board of directors and management, along with our advisers, concluded that the best path forward for Diamond and its stakeholders is to seek Chapter 11 protection,” president and chief executive officer Marc Edwards said in the release.

“Our clients and vendors should expect business as usual across our organization.”

The Diamond subsidiaries included in the filing are Diamond Offshore Finance Co., Diamond Offshore Development Co., Diamond Offshore Services Co., Diamond Offshore Management Co., Diamond Offshore Co., Arethusa Off-Shore Co., Diamond Offshore General Co., Diamond Offshore (Brazil) LLC, Diamond Offshore Holding, LLC, Diamond Foreign Asset Co., Diamond Offshore International Ltd., Diamond Rig Investments Ltd., Diamond Offshore Ltd. and Diamond Offshore Drilling (UK) Ltd.

Beach Energy lawsuit

In addition, the company filed a lawsuit Sunday against Beach Energy Ltd. and Beach Energy (Operations) Ltd., asking the bankruptcy court to invalidate the termination of a years-long drilling contract worth potentially more than a hundred million dollars to Diamond Offshore’s estate.

Diamond Offshore said it contracted with Beach in December 2018 to configure and transport the Ocean Onyx semi-submersible deepwater drilling rig to execute a drilling program in the Otway Basin off the southern coast of Australia.

“For the past 16 months, Diamond Offshore has spent countless man hours and more than $100 million preparing and transporting the rig to meet its obligations under the drilling agreement,” the complaint said.

“Just days before this bankruptcy filing, Beach abruptly terminated the drilling agreement on the ground that Diamond Offshore supposedly missed, by a matter of days, a contractual milestone to deliver the rig.”

Diamond Offshore said this termination came after months of dialogue between the parties to address the difficult logistical challenges presented by the global Covid-19 pandemic.

“The delay in delivery of the rig was largely of Beach’s own making, and, in any event, was assented to by Beach,” the lawsuit said.

Debt details

According to court documents, Diamond Offshore had $5,834,044,000 in total assets and $2,601,834,000 of total debt as of Dec. 31.

The company’s largest unsecured creditors are Bank of New York Mellon, based in New York, with a $768.08 million 4 7/8% notes claim, a $515.2 million 5.7% notes claim, a $507.88 million 7 7/8% notes claim and a $254.26 million 3.45% notes claim; National Oilwell Varco of Houston, with a $6.22 million trade claim; and Hydril, based in Houston, with a $4.97 million trade claim.

The company said it expects to file its 10-Q for the quarter ended March 31 on May 4.

Incentive programs

According to an 8-K filed with the Securities and Exchange Commission, in response to the current economic and market uncertainty and volatility in the global oil and gas industry, Diamond Offshore’s board of directors adopted changes in the company’s compensation programs to incentivize and retain key employees.

As a condition to the receipt and retention of accelerated payments, each grantee has agreed that if he or she resigns or is terminated with cause before the first anniversary of the payment date, the grantee will be required to repay to the company the entire amount of the payment.

The board also approved the adoption of a 2020 key employee incentive plan, non-executive incentive plan and key employee retention plan, which will each be subject to bankruptcy court approval.

The board also approved an amendment to the compensation program for its members, except those employed by the company or Loews Corp., which replaces the annual equity compensation component of the program with an equivalent amount of cash compensation.

As a result, the company will pay each of its eligible non-employee directors an annual cash retainer of $200,000 per year, increased from $150,000, paid in quarterly installments.

Paul, Weiss, Rifkind, Wharton & Garrison LLP is acting as the company’s legal counsel, and Alvarez & Marsal is serving as restructuring adviser. Lazard Freres & Co. LLC is serving as financial adviser.

The offshore oil and gas drilling contractor is based in Houston. The Chapter 11 case number is 20-32307.

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