UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 8-K

 

 

CURRENT REPORT

Pursuant to Section 13 or 15(d)

of the Securities Exchange Act of 1934

Date of report (date of earliest event reported): November 10, 2014

 

 

PARAGON OFFSHORE plc

(Exact name of Registrant as specified in its charter)

 

 

 

England and Wales		001-36465		98-1146017
(State or other jurisdiction of incorporation or organization)		(Commission file number)		(I.R.S. employer identification number)

 

3151 Briarpark Drive, Suite 700 Houston, Texas		77042
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: + 1 832 783 4000

 

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 

¨	Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

¨	Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

¨	Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

¨	Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

 

 

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Item 2.02.

Results of Operations and Financial Condition.

On November 10, 2014, Paragon Offshore plc (the “Company”) issued a press release announcing its financial results for the three and nine months ended September 30, 2014. A copy of such press release is included as Exhibit 99.1 and will be published on the Company’s web site at http://www.paragonoffshore.com.

Pursuant to the rules and regulations of the Securities and Exchange Commission, the press release is being furnished and shall not be deemed to be “filed” under the Securities Exchange Act of 1934.

 

Item 9.01.

Financial Statements and Exhibits.

 

(d)

Exhibits

 

 

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

				Paragon Offshore plc, a public limited company incorporated under the laws of England and Wales
Date: November 10, 2014
		By:		/s/ Steven A. Manz
		Name:		Steven A. Manz
		Title:		Senior Vice President and Chief Financial Officer

 

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INDEX TO EXHIBITS

 

Exhibit No.		Description
99.1		Paragon Offshore plc Press Release dated November 10, 2014, announcing the financial results for the three and nine months ended September 30, 2014.

 

4

EXHIBIT 99.1

 

Paragon Offshore plc 3151 Briarpark Drive Suite 700 Houston, Texas 77042

 

PRESS RELEASE

PARAGON OFFSHORE REPORTS THIRD QUARTER 2014 RESULTS

HOUSTON, November 10, 2014 – Paragon Offshore plc (“Paragon”) (NYSE: PGN) today reported a third quarter 2014 net loss of $894 million, or $10.14 per diluted share as compared to third quarter 2013 net income of $158 million, or $1.80 per diluted share. Results for the quarter include a $929 million, or $10.53 per diluted share, non-cash impairment charge related to Paragon’s three drillships in Brazil and its cold-stacked FPSO in the U.S. Gulf of Mexico and a $6.9 million, or $0.08 per diluted share, gain related to the previously disclosed repurchase of an aggregate principal amount of $50.2 million of its senior unsecured notes. Excluding the impairment and the gain, Paragon’s adjusted net income (see Reconciliation of GAAP to Non-GAAP Financial Measures table for a reconciliation to net income) was $52 million, or $0.59 per diluted share. For periods prior to Paragon’s spin-off from Noble Corporation plc (“Noble”) on August 1, 2014 (the “Spin-Off”), results of operations are based on Noble’s standard-specification business and include contributions from three standard specification rigs retained by Noble and three standard specification rigs that were sold prior to the Spin-Off. For more information regarding the Spin-Off, please see Paragon’s filings with the U.S. Securities and Exchange Commission (the “SEC”) available on the company’s website at www.paragonoffshore.com.

“As a result of deteriorating market conditions in the third quarter, Paragon engaged in a proactive evaluation of our fleet value,” said Randall D. Stilley, President and Chief Executive Officer. “We concluded that the current values of our drillships in Brazil and our FPSO are higher than the current market values for similar units. Note that the impairment does not affect our outlook for the Brazilian market, which will continue to be important for Paragon. We remain committed to serving Petrobras and we are actively seeking to secure extensions for our rigs operating there.”

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Mr. Stilley continued, “I am proud that Paragon delivered some very strong operating results in our first quarter as an independent company. Despite rapidly evolving market conditions, we have managed the transition well, added new contracts for our rigs, controlled costs, and improved the balance sheet. In short, we are executing the strategy we laid out to deliver long-term shareholder value.”

Total revenues for the third quarter of 2014 were $505 million compared to $479 million in the second quarter of 2014. Total revenues for the third quarter and second quarter of 2014 include $16 million and $42 million, respectively, for rigs retained or sold by Noble. Excluding the revenues for the rigs retained by Noble, total revenues for the third quarter of 2014 were $489 and $437 million for the second quarter. Paragon reported utilization for its marketed rig fleet, which excludes two cold stacked floaters and one cold stacked jackup, as 82 percent for the third quarter of 2014, which was flat compared to the second quarter of 2014. Average daily revenues increased two percent in the third quarter to $151,000 per rig compared to the previous quarter average of $148,000 per rig. Contract drilling operating costs decreased two percent in the third quarter to $217 million compared to $222 million in the second quarter of 2014.

Net cash from operating activities was $160 million in the third quarter of 2014 as compared to $206 million for the second quarter of the year. Capital expenditures in the third quarter totalled $72 million, bringing the total for the nine months ended September 30, 2014 to $182 million. Liquidity, defined as cash and cash equivalents plus availability under the company’s revolving credit facility, totalled $873 million at September 30, 2014.

Operating Highlights

Paragon’s total contract backlog at September 30, 2014 was an estimated $2.0 billion compared to $2.3 billion at June 30, 2014.

Utilization of Paragon’s marketed floating rig fleet was 100 percent in the third quarter of 2014 and in the second quarter of 2014. Average daily revenues for Paragon’s floating rig fleet were $291,000 per rig in the third quarter of 2014, an improvement of approximately three percent compared to $283,000 per rig in the second quarter of 2014.

 

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Third quarter 2014 utilization of Paragon’s marketed jackup rig fleet was 79 percent, a slight increase from the 78 percent utilization achieved during the second quarter of 2014. Average daily revenues for Paragon’s jackup fleet during the third quarter improved by approximately three percent to $117,000 per rig from $113,000 per rig during the second quarter of 2014.

At the end of the third quarter of 2014, 80 percent of Paragon’s available rig operating days for both floater and jackup units were committed for the remainder of 2014. For 2015, an estimated 45 percent of the available rig operating days are committed, including 66 percent and 41 percent of the floating and jackup rig days, respectively. The calculations for committed operating days exclude available days related to two floating units, one jackup and the FPSO that are currently cold stacked.

Outlook

During the quarter, Paragon added approximately $162 million in backlog related primarily to contract extensions in the North Sea, Mexico, and West Africa. In the North Sea, the Paragon C461 received a contract extension from early March 2015 to mid-November 2015 at a dayrate of $170,000 and the Paragon C462 received a contract extension from mid-January 2015 to late December 2015 at a dayrate of $167,000. In Mexico, the Paragon L781 received a contract extension from mid-July 2014 to early February 2015 at a dayrate of $82,000. Paragon also reported two more contract extensions in Mexico for the Paragon M821 and M823 that were extended from late August 2014 and early September 2014 respectively to late March 2015 at their respective dayrates of $69,000 and $85,000. In West Africa, the Paragon L783 received a contract extension from mid-October 2014 to early December 2014 at a dayrate of $145,000.

In addition, Paragon announced today three new contracts in India for the Paragon M1161, Paragon L786 and Paragon L1112, which have contract lengths of three years each with respective net dayrates of $62,000, $53,000 and $62,000. The contracts for the Paragon M1161 and Paragon L786 are expected to start in early 2015 following rig preparation and mobilization to India while the Paragon L1112 is expected to begin its contract later in the year. Paragon operates in India through a modified bareboat charter agreement whereby our partner receives a portion of the gross revenue with respect to these contracts.

 

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Mr. Stilley concluded, “We have entered an environment with falling commodity prices, where customers are increasingly focused on maximizing their return on capital. We believe this will create additional opportunities for our fleet of well-maintained and safely operated rigs. We are aggressively pursuing those opportunities and we are committed to maintain our status as a low cost provider.”

About Paragon Offshore

Paragon is a global provider of standard specification offshore drilling rigs. Paragon’s drilling fleet consists solely of standard specification rigs and includes 34 jackups and eight floaters (five drillships and three semisubmersibles). Paragon’s primary business is contracting its rigs, related equipment and work crews to conduct oil and gas drilling and workover operations for its exploration and production customers on a dayrate basis around the world. Paragon’s principal executive offices are located in Houston, Texas. Paragon is a public limited company registered in England and Wales with company number 08814042 and registered office at 20-22 Bedford Row, London, WC1R 4JS, England. Additional information is available at www.paragonoffshore.com.

Forward-Looking Disclosure Statement

This release contains forward-looking statements. Statements regarding contract backlog, earnings, costs, revenue, rig demand, fleet condition or performance, shareholder value, contract commitments, dayrates, contract commencements, contract extensions or renewals, industry fundamentals, customer relationships and requirements, strategic initiatives, future performance, growth opportunities, market outlook, as well as any other statements that are not historical facts in this release, are forward-looking statements that involve certain risks, uncertainties and assumptions. These include but are not limited to risks associated with the general nature of the oil and gas industry, risks associated with the operation of Paragon as a separate, publicly traded company, actions by regulatory authorities, customers and other third parties, and other factors detailed in the “Risk Factors” section of Paragon’s registration statement on Form 10 as filed with the SEC on July 14, 2014, in Paragon’s Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2014, and in Paragon’s other filings with the SEC, which are available free of charge on the SEC’s website at www.sec.gov. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those indicated.

 

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Conference Call

Paragon also scheduled a teleconference and webcast related to its third quarter 2014 results on Tuesday, November 11, 2014, at 8:00 a.m. U.S. Central Standard Time. The teleconference can be accessed from the U.S. and Canada by dialling 1-855-307-2986, or internationally by dialling 1-508-938-6940, and using access code: 20077331. Interested parties may also listen to the webcast through a link posted on Paragon’s website at www.paragonoffshore.com, under “Events & Presentations” in the “Investor Relations” section of the website.

A telephonic replay of the conference call will be available on Tuesday, November 11, 2014, beginning at approximately 12:00 p.m. U.S. Central Standard Time, through Tuesday, November 25, 2014, ending at approximately 11:00 p.m. U.S. Central Standard Time. The phone number for the conference call replay is 1-855-859-2056 or, for calls from outside of the U.S., 1-404-537-3406, using access code: 20077331. A replay of the conference call will also be available on Paragon’s website at www.paragonoffshore.com, under “Events & Presentations” in the “Investor Relations” section of the website.

For additional information, contact:

 

For Investors		Lee M. Ahlstrom
& Media:		Senior Vice President – Investor Relations, Strategy and Planning
		+1.832.783.4040

 

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PARAGON OFFSHORE PLC

CONSOLIDATED AND COMBINED STATEMENTS OF INCOME

(In thousands, except per share amounts)

(Unaudited)

 

		Three Months Ended September 30,								Nine Months Ended September 30,
		2014				2013				2014				2013
Operating revenues
Contract drilling services		$	456,174			$	468,348			$	1,410,471			$	1,345,967
Reimbursables			40,481				12,840				63,374				36,486
Labor contract drilling services			8,562				8,466				24,919				26,150
Other			5				28				5				94
			505,222				489,682				1,498,769				1,408,697
Operating costs and expenses
Contract drilling services			217,378				219,022				666,158				670,146
Reimbursables			35,592				9,588				51,442				27,185
Labor contract drilling services			6,593				6,110				19,029				17,856
Depreciation and amortization			108,027				105,445				331,147				306,046
General and administrative			12,037				16,911				37,965				47,914
Loss on impairment			928,947				3,585				928,947				3,585
Gain on disposal of assets, net			—				(35,646	)			—				(35,646	)
Gain on contract settlements/extinguishments, net			—				(22,573	)			—				(24,373	)
Gain on repurchase of long-term debt			(6,931	)			—				(6,931	)			—
			1,301,643				302,442				2,027,757				1,012,713
Operating income (loss)			(796,421	)			187,240				(528,988	)			395,984
Other income (expense)
Interest expense, net of amount capitalized			(22,453	)			(1,318	)			(28,725	)			(3,553	)
Interest income and other, net			340				1,237				865				1,461
Income (loss) before income taxes			(818,534	)			187,159				(556,848	)			393,892
Income tax provision			(75,682	)			(29,524	)			(117,757	)			(71,142	)
Net income (loss)		$	(894,216	)		$	157,635			$	(674,605	)		$	322,750
Earnings per share
Basic and diluted		$	(10.14	)		$	1.80			$	(7.68	)		$	3.68

 

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PARAGON OFFSHORE PLC

CONSOLIDATED AND COMBINED BALANCE SHEETS

(In thousands)

(Unaudited)

 

		September 30,				December 31,
		2014				2013
ASSETS
Current assets
Cash and cash equivalents		$	81,908			$	36,581
Accounts receivable			441,875				356,241
Prepaid and other current assets			119,782				51,182
Total current assets			643,565				444,004
Property and equipment, net			2,033,635				3,459,684
Other assets			103,092				79,111
Total assets		$	2,780,292			$	3,982,799
LIABILITIES AND EQUITY
Current liabilities
Current maturities of long-term debt		$	6,500			$	—
Accounts payable			147,352				124,442
Accrued payroll and related costs			66,753				60,738
Other current liabilities			215,111				41,374
Total current liabilities			435,716				226,554
Long-term debt			1,670,087				1,561,141
Deferred income taxes			79,482				101,703
Other liabilities			120,110				88,068
Total liabilities			2,305,395				1,977,466
Total shareholders’ equity			474,897				2,005,333
Total liabilities and equity		$	2,780,292			$	3,982,799

 

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PARAGON OFFSHORE PLC

CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 

		Nine Months Ended
		September 30,
		2014				2013
Cash flows from operating activities
Net income		$	(674,605	)		$	322,750
Adjustments to reconcile net income to net cash from operating activities:
Depreciation and amortization			331,147				306,046
Loss on impairment			928,947				3,585
Gain on disposal of assets, net			—				(35,646	)
Gain on repurchase of Senior Notes			(6,931	)			—
Other changes in operating activities			(12,456	)			(9,221	)
Net cash from operating activities			566,102				587,514
Cash flows from investing activities
Capital expenditures			(182,351	)			(283,290	)
Proceeds from sale of assets			6,570				61,000
Change in accrued capital expenditures			(3,000	)			(17,313	)
Net cash from investing activities			(178,781	)			(239,603	)
Cash flows from financing activities
Net change in borrowings outstanding on bank credit facilities			707,472				973,055
Proceeds from issuance of Senior Notes and Term Loan Facility			1,710,550				—
Repurchase of Senior Notes			(42,468	)			—
Net transfers to parent			(2,698,295	)			(1,333,416	)
Debt issuance costs			(19,253	)			(2,432	)
Net cash from financing activities			(341,994	)			(362,793	)
Net change in cash and cash equivalents			45,327				(14,882	)
Cash and cash equivalents, beginning of period			36,581				70,538
Cash and cash equivalents, end of period		$	81,908			$	55,656

 

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PARAGON OFFSHORE PLC

OPERATIONAL INFORMATION

(In thousands, except operating statistics)

(Unaudited)

 

		As Reported												Rigs Retained or Sold by Noble												As Adjusted
		Three Months Ended												Three Months Ended												Three Months Ended
		September 30,								June 30,				September 30,								June 30,				September 30,								June 30,
		2014				2013				2014				2014				2013				2014				2014				2013				2014
Rig fleet operating statistics (1)(2)
Jackups:
Average Rig Utilization			77	%			93	%			76	%			50	%			100	%			50	%			77	%			93	%			78	%
Marketed Utilization (3)			79	%			96	%			78	%			50	%			100	%			50	%			80	%			96	%			80	%
Operating Days			2,447				3,096				2,492				31				184				91				2,416				2,912				2,401
Average Dayrate		$	116,967			$	105,413			$	113,125			$	98,194			$	96,614			$	98,625			$	117,208			$	105,969			$	113,675
Floaters:
Average Rig Utilization			76	%			67	%			78	%			100	%			100	%			100	%			75	%			63	%			75	%
Marketed Utilization (3)			100	%			86	%			100	%			100	%			100	%			100	%			100	%			83	%			100	%
Operating Days			583				552				637				31				92				91				552				460				546
Average Dayrate		$	291,498			$	257,210			$	283,221			$	414,839			$	354,596			$	355,174			$	284,571			$	237,733			$	271,229
Total:
Average Rig Utilization			77	%			84	%			76	%			67	%			60	%			67	%			77	%			87	%			77	%
Marketed Utilization (3)			82	%			90	%			82	%			67	%			60	%			67	%			83	%			94	%			83	%
Operating Days			3,030				3,648				3,129				62				276				182				2,968				3,372				2,947
Average Dayrate		$	150,548			$	128,381			$	147,752			$	256,516			$	182,605			$	226,901			$	148,334			$	123,943			$	142,865

 

(1)

We define average rig utilization for a specific period as the total number of days our rigs are operating under contract, divided by the product of the total number of our rigs, including cold-stacked rigs, and the number of calendar days in such period. Information reflects our policy of reporting on the basis of the number of available rigs in our fleet.

(2)	Excludes the Paragon FPSO1.

(3)	Excludes the impact of Paragon cold-stacked rigs.

 

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PARAGON OFFSHORE PLC

CALCULATION OF BASIC AND DILUTED EARNINGS PER SHARE

(In thousands, except per share amounts)

(Unaudited)

The following table sets forth the computation of basic and diluted net income and earnings per share:

 

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2014				2013				2014				2013
Allocation of net income
Basic and Diluted
Net income		$	(894,216	)		$	157,635			$	(674,605	)		$	322,750
Earnings allocated to unvested share-based payment awards			35,181				(5,307	)			24,004				(10,867	)
Net income to ordinary shareholders - basic and diluted		$	(859,035	)		$	152,328			$	(650,601	)		$	311,883
Weighted average number of shares outstanding - basic and diluted			84,753				84,753				84,753				84,753
Weighted average unvested share-based payment awards			3,471				2,953				3,127				2,953
Earnings per share
Basic and Diluted		$	(10.14	)		$	1.80			$	(7.68	)		$	3.68

 

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PARAGON OFFSHORE PLC

RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES

(In thousands, except per share amounts)

(Unaudited)

The following table sets forth the reconciliation of adjusted net income (non-GAAP) to net income:

 

		Three Months
		Ended
		September 30,
		2014
Net income (loss)		$	(894,216	)
Less:
Gain on repurchase of long-term debt			(6,931	)
Add:
Loss on impairment			928,947
Tax impact of loss on impairment			24,079
Adjusted net income		$	51,879
Allocation of adjusted net income
Basic and Diluted
Adjusted net income		$	51,879
Earnings allocated to unvested share-based payment awards			(2,041	)
Adjusted net income to ordinary shareholders - basic and diluted		$	49,838
Weighted average number of shares outstanding - basic and diluted			84,753
Weighted average unvested share-based payment awards			3,471
Adjusted earnings per share
Basic and Diluted		$	0.59

 

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PARAGON OFFSHORE PLC

RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES (Cont’d)

(In thousands, except operating statistics)

(Unaudited)

 

		As Reported												Rigs Retained or Sold by Noble												As Adjusted
		Three Months Ended												Three Months Ended												Three Months Ended
		September 30,								June 30,				September 30,								June 30,				September 30,								June 30,
		2014				2013				2014				2014				2013				2014				2014				2013				2014
Operating revenues
Contract drilling services		$	456,174			$	468,348			$	462,334			$	15,904			$	50,399			$	41,296			$	440,270			$	417,949			$	421,038
Labor contract drilling services			8,562				8,466				8,146				—				—				—				8,562				8,466				8,146
Reimbursables and other			40,486				12,868				8,477				327				917				1,078				40,159				11,951				7,399
			505,222				489,682				478,957				16,231				51,316				42,374				488,991				438,366				436,583
Operating costs and expenses
Contract drilling services			217,378				219,022				222,317				5,701				18,813				16,972				211,677				200,209				205,345
Labor contract drilling services			6,593				6,110				6,223				—				—				—				6,593				6,110				6,223
Reimbursables			35,592				9,588				5,224				158				729				497				35,434				8,859				4,727
Depreciation and amortization			108,027				105,445				112,536				3,877				11,727				11,255				104,150				93,718				101,281
General and administrative			12,037				16,911				12,683				536				1,781				901				11,501				15,130				11,782
Loss on impairment			928,947				3,585				—				—				3,585				—				928,947				—				—
Gain on disposal of assets, net			—				(35,646	)			—				—				(35,646	)			—				—				—				—
Gain on contract settlements/extinguishments, net			—				(22,573	)			—				—				—				—				—				(22,573	)			—
Gain on repurchase of long-term debt			(6,931	)			—				—				—				—				—				(6,931	)			—				—
			1,301,643				302,442				358,983				10,272				989				29,625				1,291,371				301,453				329,358
Operating income			(796,421	)			187,240				119,974				5,959				50,327				12,749				(802,380	)			136,913				107,225
Other income (expense)
Interest expense, net of amount capitalized			(22,453	)			(1,318	)			(2,972	)			n/a				n/a				n/a				(22,453	)			(1,318	)			(2,972	)
Interest income and other, net			340				1,237				338				n/a				n/a				n/a				340				1,237				338
Income (loss) before income taxes			(818,534	)			187,159				117,340				5,959				50,327				12,749				(824,493	)			136,832				104,591
Income tax provision			(75,682	)			(29,524	)			(22,292	)			n/a				n/a				n/a				(75,682	)			(29,524	)			(22,292	)
Net income (loss)		$	(894,216	)		$	157,635			$	95,048			$	5,959			$	50,327			$	12,749			$	(900,175	)		$	107,308			$	82,299
Add:
Income tax provision																											75,682				29,524				22,292
Interest expense, net of amount capitalized																											22,453				1,318				2,972
Loss on impairment																											928,947				—				—
Depreciation and amortization																											104,150				93,718				101,281
Less:
Gain on repurchase of long-term debt																											(6,931	)			—				—
Interest income and other, net																											(340	)			(1,237	)			(338	)
EBITDA																										$	223,786			$	230,631			$	208,506

 

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