Hercules Offshore Sells 3 Jackup Drilling Rigs For $65.1 Million In Cash
Sep. 2, 2016 2:26 PM ET|
Summary
ADES purchased the Hercules 261, 262 and 266 for $65.1 million in cash.
The sale price represents 44.6% of the backlog attached to the two working rigs.
I recommend avoiding HERO due to the elevated risk.
Image: Hercules 261 (1979); Source: Company Website.
This article is an update of my earlier article on Hercules Offshore (NASDAQ:HERO) from July 12, 2016, regarding the sale of the Hercules 267 for $3.16 million. Yesterday, Sept. 1, 2016, Hercules offshore announced the following:
On Aug. 31, 2016 (the "Execution Date"), Hercules Offshore Middle East Ltd. (the "Seller"), a subsidiary of Hercules Offshore, Inc. (the "Company"), entered into a purchase and sale agreement (the "Purchase Agreement") with Advanced Energy Systems S.A.E. (the "Buyer"). The Buyer is purchasing from the Seller three jack-up drilling rigs named Hercules 261, Hercules 262 and Hercules 266 in their entirety, together with everything onboard or onshore, if any, relating solely to such rigs, including all mentioned or unmentioned provisions, spare parts and equipment onboard, rig site inventory, drawings, operating manuals, maintenance records, service contracts and all other documents pertaining to them for $65,088,800 in cash (collectively, the "Rigs"). The Purchase Agreement is expected to close within 60 days from the Execution Date, subject to certain closing conditions, including the novation of certain drilling contracts relating to the Rigs.
A Quick Reminder Regarding the Fleet Status
The company has only three jackups still operating as of Sept. 2, 2016.
Hercules 260, working in Congo for ENI at $75k/d until 4/13/2020
Hercules 261, working in Saudi Arabia for Saudi Aramco at $64k/d (2016) until 9/29/2019
Hercules 262, working in Saudi Arabia for Saudi Aramco at $64k/d (2016) until 11/08/2019
Hercules 266 was working in Saudi Arabia for Saudi Aramco and is now "ready stacked," per rigzone
Hercules is managing the Perisai Pacific 101 (Hess) in Malaysia until 8/4/2017 at ~$8K/d ($4k/d plus 12% EBITDA of the rig and expenses)
Contract Backlog Remaining
Rig
Contract in days Day rate in K$/d Total in $ million
Hercules 260 1,321 75 99.08
Hercules 261 1,124 64 71.94
Hercules 262 1,164 64 74.50
Pacific 101 338 8~ 2.7
$248 million
Note: Hercules Offshore is still getting revenues from its international liftboats at approximately $3.5 million/month.
In short, Hercules offshore is selling the three jackups, which were involved with Saudi Aramco. Only two are still contracted long term, and the Hercules 266 is now "ready stacked." The actual backlog allocated to these three jackups is $146 million, based on the 2016 dayrate as of Sept. 1, which is to be revised on a yearly basis. The sale price represents 44.6% of the backlog attached to the two working rigs. Because the sale will be finalized in 60 days, the backlog remaining will be roughly $142.5 million in early November 2016.
After the sale of the 3 jackups, Hercules offshore will have only one rig under long-term contract, the Hercules 260, a rig under management and a fleet of liftboats working in Africa. ADES is an Egyptian onshore and offshore drilling private company, which owns also liftboats.
ADES Group was first established in 1997 as an offshore drilling company in Egypt and has since grown to become a Middle Eastern conglomerate having consolidated all upstream services both onshore and offshore in the oil and gas sector through its main subsidiaries: ADES, AMAK DPS and ECDC," begins the company's Vice President Offshore, Mohamed Khalil. "The Group currently employs over 1200 qualified employees and our rigs have performed drilling operations in over 2000 wells. Because of this expansive range of operations we are considered to be the second largest operator in Egypt.
Conclusion
This is another distressed sale that Hercules Offshore was forced to accept, selling three rigs and a firm backlog of $142.5 million (on Nov. 1) for $65.1 million. The Chapter 11 cases include Hercules and some of its U.S. subsidiaries. The company's international businesses are not included in the case, but will be a part of the sale process. The company filed on June 6, 2016, a Chapter 11 FAQs -- see here.
On June 6, 2016, Hercules Offshore announced that it had filed a voluntary, pre-packaged Chapter 11 case to facilitate orderly asset sales and maximize value for stakeholders. However, on June 8, 2016, Hercules Offshore faced strong opposition from major shareholder Centerbridge Partners regarding its plan to shut down and sell off its assets. Centerbridge is urging that the confirmation hearing be put off.
Time is of the essence here, and any delay will translate to less value for shareholders. The recent recoveries proposed to shareholders in the recent restructuring support agreement -- $0.625 per share as a consent premium and $0.75 per share after $420 million have been already collected by the senior lenders -- seem highly unlikely to materialize, in my opinion.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
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