Seadrill, a deep-water drilling contractor that provides offshore drilling services to the oil and gas industry, announced that the company plans to file for Chapter 11 bankruptcy protection by mid-September of 2017, in order to implement a restructuring plan. In a statement by Seadrill’s CEO Anton Dibowitz, the company’s “primary objective at the moment is concluding final negotiations on our comprehensive restructuring plan, which is at an advanced stage and likely to be implemented via Chapter 11 proceedings”.
Seadrill reported a second quarter net loss of $158 million on revenues of $577 million, and the announcement to file for Chapter 11 bankruptcy is not great news for shareholders who will receive little or no recovery on their existing shares. Despite this, the company will continue its business operations and expects to be able to meet customer obligations. In further stockholder dismay, Seadrill’s (SDRL) shares dropped considerably to 16 cents per share following the news, down by a dismal 99% since 2013.
Even though Seadrill has been able to dodge restructuring deadlines over the past 12 months, an upcoming $1 billion bond is due in September which is most likely the main cause for the restructuring announcement. The company hopes that the restructuring plan will raise $1 billion in new capital and give the company a 5 year extension on its bank facilities.
Many oil and gas companies have been hit hard over the previous three years as the price of oil has steadily dropped. Many energy stocks have sought out mergers and buyouts in order to survive and continue to grow in these new pricing environments. Seadrill actual suspended its dividend payments as a result of the downturn in the industry in 2014. While the company’s owner assured the public during a Wall Street Journal article that it would be hard to answer if the company will be able to survive the restructuring, he believes the company would come out okay. What is uncertain is if the same will be said for the individuals that invested in the company.