North Atlantic Drilling Ltd. (OTCMKTS:NADLQ) Hits The OTC Markets
Energy

North Atlantic Drilling Ltd. (OTCMKTS:NADLQ) Hits The OTC Markets

In September, North Atlantic Drilling Ltd. (OTCMKTS:NADLQ), the drilling company, filed for bankruptcy. The market reacted by pushing down the share price from $1.25 to $0.75 in only one session and declined even more the following days. The share price is $0.50 as of today, September 19, 2017, so the company lost more than half of its market capitalization.

Why?

Equity holders are fearing that they will not receive anything from the reorganization process that has now commenced. A quick look at the Terms of the Plan of Reorganization that the debt holders offered reveals what stockholders may have to fear.

However, the interesting thing is that the share price did not fall more. Nothing has been approved yet, so perhaps stockholders could present a different proposal. If they are able to get an equity committee to represent them in bankruptcy court, they could recover something from the reorganization process. Nothing is certain under this name. We need to remember that may times shareholders get wiped out.

Have a look at the recent share price action, before we provide more details:

One year stock chart for North Atlantic Drilling Ltd. OTCMKTS: NADLQ

1 year chart for NADLQ

One month stock chart for North Atlantic Drilling Ltd. NYSE:NADL

1 month chart for NADLQ

Business

North Atlantic Drilling focuses on providing drilling services to oil and gas operators. It owns a fleet of seven offshore drilling units, consisting of one drillship, three jack-up drilling rigs, and three semi-submersible drilling rigs. The company is headquartered in Bermuda. The following information is obtained from the company’s website:

West PhoenixWest Phoenix
Rig type
Semi-submersible
Location
United Kingdom
Max water depth
10,000 feet
Availability
Sep 2016
Technical Spec
West AlphaWest Alpha
Rig type
Semi-submersible
Location
Norway
Max water depth
2,000 feet
Availability
Jul 2016
Technical Spec
West VentureWest Venture
Rig type
Semi-submersible
Location
Norway
Max water depth
2,600 feet
Availability
Aug 2015
Technical Spec
West RigelWest Rigel
Rig type
Semi-submersible
Location
Under construction
Max water depth
10,000 feet
Under constructionTechnical Spec
West ElaraWest Elara
Rig type
Jack-up
Location
Norway
Max water depth
450 feet
Availability
Mar 2017
Option 2019
Technical Spec
West LinusWest Linus
Rig type
Jack-up
Location
Norway
Max water depth
450 feet
Availability
May 2019
Option May 2021
Technical Spec
West EpsilonWest Epsilon
Rig type
Jack-up
Location
Norway
Max water depth
400 feet
Availability
Oct 2016
Technical Spec
West NavigatorWest Navigator
Rig type
Drillship
Location
Norway
Max water depth
7,500 feet
Availability
Jan 2015
Technical Spec

Source

Additionally, we could read that the company had 594 employees before the bankruptcy was announced. Finally, this business entity owns 70.4 percent of another subsidiary, Seadrill Limited.

Recent Developments

On August 25, 2017, the company released its second quarter 2017 results. These were the most significant features highlighted by the management:

  • Revenues: $61.7 million (1Q17: $72.6 million)
  • Earnings: (40.1 million)
  • Net loss for the second quarter: $59.1 million
  • Lower dayrates on the West Elara, and West Linus
  • Higher foreign exchange losses due to strengthening of NOK against the USD offset by a higher gain on derivative financial instruments

Please note that the following were the most significant accounts in the balance sheet:

  • Cash and cash equivalents: $21.6 million
  • Drilling units: 2,423.5 million
  • Total Assets: 2,714.6 million
  • Current portion of long-term debt: $993.5 million
  • Long-term interest bearing debt: $866.9 million

What was significant in this document?

It was key to check the refinancing note that was included in the report. It said that the company reached an agreement with its bank group to extend the comprehensive restructuring plan negotiating period until September 12, 2017.

Additionally, it was also noted that several lenders were interested in reaching a deal with the company. This is quite good for employees, as the company could continue its operations:

“Seadrill and the Company are in advanced discussions with certain third party and related party investors, an ad hoc group of its bondholders and its secured lenders on the terms of a comprehensive recapitalization, which remains subject to further negotiation, final due diligence, final documentation and requisite approvals.” Source

Finally, on September 13, 2017, after the negotiating period ended, bankruptcy was declared. Parties representing more than 97% of the loans under the Seadrill group’s 12 credit facilities and approximately 40% of the Seadrill and NADL bonds entered into a restructuring support and lock-up agreement. We encourage readers, especially those owning shares of the company, to check the agreement, as if it is finally approved, it will affect the share price.

Additionally, employees and other third parties will appreciate to know that the company will continue its day-to-day operations and will pay wages and financial costs during the restructuring process:

“As part of the chapter 11 cases, the Company Parties have filed “first day” motions that, when granted, will enable the Company Parties’ day-to-day operations to continue as usual. Specifically, the Company Parties requested authority to pay trade creditors and employee wages and benefits without change or interruption. Additionally, the Company Parties will pay all suppliers and vendors in full under normal terms for goods and services provided during the chapter 11 cases.” Source

Finally, on September 18, 2017, the NYSE noted that the company would trade on the OTC Markets exchange.

Our take and conclusion

Currently trading with a market cap of $11 million, NADLQ was seriously damaged after the market got to know the new restructuring process. We believe that the equity holders may want to offer a different restructuring plan. We cannot really explain why the share price did not continue going down, perhaps another restructuring proposal is in the works. To sum up, we believe that at this point in time, we don’t have enough information to assess what may happen next, thus we encourage readers to stay alert. New announcements could hit the market soon!

We will be updating our subscribers as soon as we know more. For the latest updates on NADLQ, sign up below!

Image courtesy of Esbern Christiansen via Flickr

Disclosure: We have no position in NADLQ and have not been compensated for this article.

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North Atlantic Drilling Ltd. (OTCMKTS:NADLQ) Hits The OTC Markets
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