World’s Largest Offshore Rig Owner Files Bankruptcy
This company is the largest rig owner in The World.
UK-based offshore drilling contractor Valaris has filed for bankruptcy protection in the United States, offering creditors to swap some $6.5 billion of its $7.8-billion debt pile for equity.
Valaris follows Diamond Offshore Drilling and Noble Corp in bankruptcy court as the offshore drilling segment suffers the hardest blow from the latest oil industry crisis.
The company has been in luck: about half of its bondholders have agreed to the proposed deal, which will allow the company to clear up most of its debt, the Wall Street Journal reports, quoting Valaris chief executive Tom Burke as saying the pandemic was likely to cause an extended downturn in the industry.
The offshore drilling industry has been pummeled hard by the pandemic and the oil price crash. Many analysts see a lot more bankruptcies down the road as most companies in the field are heavily leveraged, and demand for offshore drilling is extremely tight as E&Ps go into survival mode, cutting or postponing all non-essential expenses, including costly offshore drilling.
The Global Rig Count Hits A Record Low
– The U.S. rig count has hit its lowest level in decades, but the global rig count is also at a record low.
– Offshore rig providers are going bankrupt at the fastest pace in years. Valaris (NYSE: VAL) filed for bankruptcy this week, seeking to restructure $7 billion in debt.
– “Offshore drilling is structurally damaged, and recovery is not imminent,” Bernstein wrote in a note to investors.
– Valaris has a fleet of 55 rigs, but the company’s CEO Tom Burke said that the offshore rig market will suffer from a prolonged contraction.
Wind and solar financing scales up
– Solar PV and onshore wind (and increasingly offshore wind, although from a small base) have attracted trillions of dollars in asset finance over the past decade. In 2019 alone, the sectors attracted $271.5 billion.
– The sectors are now perceived as low-risk by investors, flipping the script when compared to oil and gas. Poor (and volatile) returns from oil and gas has led to capital shifting into renewables.
– Bloomberg profiled a Texas rancher who wants to install over 700,000 solar panels on his land, who specifically noted that oil and gas appeared financially risky – the rancher expected to see declining royalties over time. Solar, by comparison, was a safer bet.