Houston-based Hercules Offshore Inc. announced Wednesday that it will file for bankruptcy, as part of a creditor-supported restructuring plan so the shallow-water driller can adjust to what company officials see as a continued down trend in petroleum prices and new jackup rigs entering the market.
“Once our financial restructuring is completed, the new capital structure will provide a better foundation for Hercules to meet the challenges in the global offshore drilling market due to the downcycle in crude oil prices and expected influx of newbuild jackup rigs over the coming years,” Hercules president and CEO John T. Rynd said in a statement announcing the plan.
The restructuring plan calls for Hercules to enter Chapter 11 bankruptcy proceedings in July, followed by its noteholders exchanging $1.2 billion in debt for 96.9% of the company stock.
That will deleverage Hercules’ balance sheet, and the noteholders also agreed to support $450 million of new debt to continue construction of Hercules Highlander and other corporate purposes. The company has enough liquidity to pay employees as usual and maintain its obligations to customers and vendors, Rynd said.
“The agreement we reached contemplates a value maximizing transaction for the company, which we expect will impact our balance sheet only, while our operations will continue as usual. Once our financial restructuring is completed, the new capital structure will provide a better foundation for Hercules to meet the challenges in the global offshore drilling market due to the downcycle in crude oil prices and expected influx of newbuild jackup rigs over the coming years,” Rynd said.
The Hercules filing will come on the heels of other bankruptcies, like Houston offshore service company Cal Dive and oil producers American Eagle and Dune Energy. The drop in oil prices since 2014 that has brought layoffs and cold stacking of rigs is compounded by the industry’s levels of high-yield debt, according to analysts.
Hercules operates 27 jackup rigs, including the Hercules Highlander under construction, and two dozen liftboats. Eleven of its 20 Gulf of Mexico jackups are cold stacked.
