R&B Falcon - 10-K Liquidity Excerpts
<<Liquidity
At December 31, 1998, the Company had approximately $413.6 million in the aggregate of cash, cash equivalents and borrowing capacity under its revolving credit facilities.
At December 31, 1998, approximately $99.4 million of total consolidated cash and cash equivalents of $177.4 million were restricted from the Company's use outside of Arcade Drilling's activities. See Note A of Notes to Consolidated Financial Statements.
The Company is currently constructing or significantly upgrading seven wholly owned deepwater drilling rigs. The Company estimates the gross capital expenditures on these projects will be approximately $1.8 billion, of which approximately $1.0 billion remains to be funded by the Company. Since May 1998, there has been a downturn in demand for marine drilling rigs resulting in a decline in rig utilization and dayrates. The decline has been particularly dramatic in the domestic barge and jack-up rig markets where the Company is one of the largest contractors. As a result, although the Company's operating revenues increased by $99.6 million from 1997 to 1998, on a quarterly basis during 1998 the Company experienced a decline in operating revenues from $279.4 million for the first quarter of 1998 to $228.7 million for the fourth quarter of 1998. As a result, the Company's cash flow from operations, cash on hand, and funds available under its existing credit facilities will not be sufficient to satisfy the Company's short-term and long-term working capital needs, planned investments, capital expenditures, debt, lease and other payment obligations, without selling certain assets or terminating construction contracts.
On March 26, 1999, the Company issued three series of senior notes
with an aggregate principal amount of $1.0 billion. The senior notes
consisted of $400.0 million of 11% senior secured notes due 2006, $400.0 million of 11.375% senior secured notes due 2009 and $200.0 million of 12.25% senior notes due 2006 (collectively, the "Senior Notes"). The $800.0 million senior secured notes are collateralized by ten of the Company's drilling rigs. As a result, the Company received net proceeds of approximately $971.5 million after deducting estimated offering related expenses. The Company used the proceeds to repay existing indebtedness of approximately $556.0 million and the remainder will be used to acquire, construct, repair and improve drilling rigs and for general corporate purposes.
Proceeds from the Senior Notes met a portion of the Company's capital requirements. However, it will also be necessary for the Company to obtain additional capital through debt and/or equity financings to meet its currently projected obligations. The Company is currently evaluating two project financings to meet a portion of its additional capital requirements. The first is an approximately $270.0 million financing in the form of a synthetic lease that would be collateralized by the drillship Deepwater Frontier and drilling contract revenues from such drillship. Proceeds of such financing, if obtained, would be used in part to refinance the interim financing facility, under which $135.0 million ($81.0 million represents the Company's portion) had been borrowed at March 15, 1999 and was repaid with a portion of the proceeds from the Senior Notes. The foregoing interim loan has been made to a limited liability company which will operate the Deepwater Frontier and which is owned 60% by the Company and 40% by Conoco. The Company has guaranteed repayment of 60% of this interim loan. The second financing being contemplated is an approximately $250.0 million project financing that would be collateralized by the semisubmersible RBS8M (formerly the RBS6), as well as the drilling contract revenues from such rig.
The Company currently believes it will be able to consummate the
proposed project financings. However, there can be no assurance that
these or any other additional financings can be obtained, or if obtained, that they will be on terms favorable to the Company or for the amounts needed. Further, the Company has limited ability under its indenture covenants to incur additional recourse indebtedness and to secure that debt. In the event that the Company is unable to obtain its requisite financing, the Company may have to sell assets or terminate or suspend one or more construction projects. Termination or suspension of a project may subject the Company to claims for penalties or damages under the construction contracts or drilling contracts for rigs that are being constructed. In addition, asset sales made under duress in today's drilling market may not yield attractive sales prices. Accordingly, the inability of the Company to complete such financings would have a material adverse effect on the Company's financial condition and its ability to repay its outstanding indebtedness.
Three of the Company's outstanding credit facilities were repaid and terminated in March 1999 from proceeds from the Senior Notes. To assist the Company's liquidity position, the Company may seek to establish a new revolving bank credit facility of up to $180.0 million, and may sell certain assets. There can be no assurance, however, that such facility will be obtained or sales completed.
The liquidity of the Company should also be considered in light of
the significant fluctuations in demand that may be experienced by
drilling contractors as changes in oil and gas producers' expectations
and budgets occur, primarily in response to declines in prices for oil and gas. These fluctuations can rapidly impact the Company's liquidity as supply and demand factors directly affect utilization and dayrates, which are the primary determinants of cash flow from the Company's operations. The decline in oil and gas prices since 1997 has negatively impacted the Company's performance, particularly in the shallow water U.S. Gulf market, by adversely affecting the Company's rig utilization and dayrates. Utilization of the Company's domestic jack-up fleet has declined from approximately 100% in January 1998 to approximately 57% in January 1999, and dayrates on new contracts have declined from a range of $35,000 to $40,000 in January 1998 to a range of $10,000 to $13,000 at present. Dayrates for the Company's domestic barge drilling rig fleet have not declined materially, but utilization of the fleet declined from approximately 96% in January 1998 to approximately 30% in January 1999. The Company's international jack-up fleet has experienced declines in
utilization and dayrates since January 1998, but such declines have not been as dramatic as those experienced in the domestic jack-up fleet. The Company believes a continued depression in oil and gas prices will have a material adverse effect on the Company's financial position and results from operations.
The Company's construction and upgrade projects are subject to the
risks of delay and cost overruns inherent in any large construction
project, including shortages of equipment, unforeseen engineering
problems, work stoppages, weather interference, unanticipated cost
increases and shortages of materials or skilled labor. Significant cost overruns or delays would adversely affect the Company's liquidity, financial condition and results of operations. Delays could also result in penalties under, or the termination of, the long-term contracts under which the Company plans to operate these rigs.
The Company has based its estimates regarding its financing needs on the assumption that conditions in the marine contract drilling industry will remain approximately the same as currently exist through 1999 and will improve in 2000. If conditions during these periods are less favorable than the Company has assumed, the Company may be required to seek additional financing. Any additional financing, if obtained, would be subject to the risks and contingencies described above.
The impact of general economic inflation on the Company's operations for the three years ended December 31, 1998 has not been material.>> |
