Pacific Drilling : Announces Fourth-Quarter and Full-Year 2014 Results

Conference call set 10 a.m. Central time Monday, Feb. 23

• EBITDA(a) for the fourth quarter of $179.1 million, representing an EBITDA margin(b) of 56.0 percent, and EBITDA for the full year of $563.3 million, an increase of 57.3 percent over the prior year's adjusted EBITDA(a)
• Revenue efficiency(c) of 96.7 percent for the fourth quarter yielded revenue of $319.7 million, a 59 percent increase over the prior year's fourth-quarter revenue
• Cash flow from operations for the full year of $396.4 million, an increase of 72 percent over the prior year
• 4.2 million shares repurchased to date pursuant to share repurchase program
• Board defers initiation of distributions in recognition of market conditions

LUXEMBOURG--(BUSINESS WIRE)-- Pacific Drilling S.A. (NYSE:PACD) today announced net income for fourth-quarter 2014 of $68.0 million or $0.32 per diluted share, compared to net income for third-quarter 2014 of $48.1 million or $0.22 per diluted share. Net income for fourth-quarter 2013 was $25.7 million or $0.12 per diluted share.

For the year ended Dec. 31, 2014, net income was $188.3 million or $0.87 per diluted share, an increase of $96.1 million over the prior-year net income excluding charges(d). A reconciliation of net income excluding charges to reported net income is included in an accompanying schedule to this release.

CEO Chris Beckett said, "Pacific Drilling had another outstanding quarter capping a year of strong operations in 2014. We demonstrated again that our focus on performance excellence can result in industry-leading financial results. In the fourth quarter, we delivered our eighth consecutive quarter of revenue growth, as well as a company record EBITDA and EBITDA margin. I am extremely proud of what our team accomplished in 2014."

Mr. Beckett continued, "The current oil price environment continues to impact clients' abilities to plan their major capital spending in 2015 and beyond. Although visibility of new offshore rig contract opportunities is limited, we also see limited competitive supply between now and the end of the year, with only two or three rigs available with latest-generation 2.5 million pound hook loads. In light of current market conditions, our board of directors has deferred the decision on further distributions to shareholders (beyond purchases under our existing share buyback program) in 2015. In weak markets, customers become much more discerning, and we believe that the strategic focus on service and asset quality upon which we built the company will prove to be a differentiator."

Fourth-Quarter and Full-Year 2014 Operational and Financial Commentary

Contract drilling revenue for fourth-quarter 2014 was $319.7 million, which included $25.9 million of deferred revenue amortization, compared to contract drilling revenue of $279.6 million for third-quarter 2014, which included $27.3 million of deferred revenue amortization. Revenue benefited from higher average dayrates during the quarter, driven by a full quarter of operations for Pacific Sharav and extension of the contract for Pacific Bora in August, which brought our average contractual dayrate in the fourth quarter to more than $540,000 per day. Contract drilling revenue for the year ended Dec. 31, 2014, was $1,085.8 million, including $109.2 million of deferred revenue amortization, as compared to contract drilling revenue of $745.6 million, including $72.5 million of deferred revenue amortization, for the year ended Dec. 31, 2013.

During the three months ended Dec. 31, 2014, our operating fleet of six drillships achieved average revenue efficiencyof 96.7 percent as compared to 94.4 percent in the prior quarter. The increase in revenue efficiency resulted from strong operational uptime on our five mature rigs, partially offset by the impact of shakedown on the Pacific Sharav, which performed above our expectations for a rig during its first few months of operations.

Contract drilling expenses for fourth-quarter 2014 were $123.8 million as compared to $116.9 million for third-quarter 2014. Contract drilling expenses for fourth-quarter 2014 included $11.5 million in amortization of deferred costs, $6.5 million in reimbursable expenses, and $9.6 million in shore-based and other support costs. Direct rig-related daily operating expenses, excluding reimbursable costs, averaged $174,200 in fourth-quarter 2014, as compared to $175,500 for third-quarter 2014. Contract drilling expenses for full-year 2014 were $459.6 million as compared to $337.3 million for full-year 2013. The year-over-year increase in contract drilling costs was primarily due to a full year of operations from Pacific Khamsin and a partial year of operations from Pacific Sharav, which commenced its contract on Aug. 27, 2014. In 2014, contract drilling expenses included $51.2 million in amortization of deferred costs, $26.0 million in reimbursable expenses, and $35.9 million in shore-based and other support costs.

General and administrative expenses for fourth-quarter 2014 were $14.9 million as compared to $16.5 million for third-quarter 2014. General and administrative expenses for full-year 2014 were $57.7 million as compared to $48.6 million for the prior year. The increase in general and administrative expenses is primarily related to planned employee headcount additions required to support our expanding fleet.

EBITDA for fourth-quarter 2014 was $179.1 million, compared to EBITDA of $145.5 million in the prior quarter. EBITDA for the year ended Dec. 31, 2014, was $563.3 million, compared to adjusted EBITDA(a) of $358.1 million for the year ended Dec. 31, 2013. EBITDA margin for full-year 2014 was 51.9 percent, as compared to adjusted EBITDA margin(b) of 48.0 percent for full-year 2013. A reconciliation of EBITDA and adjusted EBITDA to net income is included in the accompanying schedules to this release.

Interest expense for fourth-quarter 2014 was $39.9 million, as compared to $35.6 million for third-quarter 2014. Interest expense for full-year 2014 was $130.1 million.

Liquidity and Capital Expenditures

For full-year 2014, cash flow from operations was $396.4 million. Cash balances totaled $167.8 million as of Dec. 31, 2014, and total outstanding debt was $3.15 billion. We used a portion of our cash on hand and $180 million under our 2014 revolving credit facility to fund the repayment of the outstanding principal and interest on our unsecured bonds on Feb. 20, 2015. As of Feb. 23, 2015, we have more than $800 million of available liquidity, including up to approximately $720 million of undrawn capacity under existing credit facilities. Our solid liquidity position consists of cash on hand, $300 million available and undrawn capacity on the 2013 revolving credit facility, and $170 million available and undrawn capacity on the 2014 revolving credit facility. Additionally, we will have access to approximately $100 million available on the senior secured credit facility and $150 million available on the 2014 revolving credit facility upon entry into satisfactory drilling contracts for the Pacific Meltem and Pacific Zonda, respectively.

During fourth-quarter 2014, capital expenditures were $386.5 million, of which $354.8 million related to construction of newbuild drillships, including the delivery payment for Pacific Meltem. Capitalized interest amounted to $11.1 million. The remaining expenditures primarily related to fleet spares. We estimate the remaining capital expenditures required to complete construction of our newbuild drillship and develop spare blowout preventer, riser and thruster capacity will be approximately $479.3 million, excluding capitalized interest. We expect to cover these capital expenditures with a combination of existing cash balances, future operating cash flows, and undrawn capacity on existing credit facilities.

To date, under the share repurchase program approved by shareholders in November 2014, we have repurchased 4.2 million shares at an average price of $4.17 per share. We intend to continue share repurchases up to the full 8 million shares as approved in our share repurchase program.

CFO Paul Reese commented, "Beginning with the refinancing of our project facilities agreement in 2013, we have continued to proactively strengthen the company's financial position. In October, we put in place the necessary financing for Pacific Zonda at a very attractive rate. Last week, we repaid our unsecured bonds, which was our most expensive debt outstanding. Our average cost of debt now stands at below 5 percent. We are also in the process of obtaining remaining bank approvals needed for amending some of our financial covenants to address the delays in newbuild deliveries. Additionally, our exceptional operational performance in 2014 translated into strong cash flow, which supports our liquidity position going into 2015. We believe that our future operating cash flow based on existing contracted backlog and current available financing will provide ample liquidity to meet our commitments until late 2017, when our 7.25 percent bonds mature."

2015 Guidance

We reiterate our guidance on revenue efficiency provided with our fleet status report on Feb. 6, 2015. The average revenue efficiency ranges apply to our operating rigs on contract and include our expectations for unplanned downtime as well as planned events such as maintenance. With respect to our newbuild rigs, we expect an average revenue efficiency of 90 percent during a rig's first six months of operations and 95 percent thereafter. However, revenue efficiency for individual rigs tends to be volatile on a monthly and even on a quarterly basis.

The following table summarizes our full-year 2015 guidance for certain items:

The following table summarizes our first-quarter 2015 guidance for certain items:

The contract drilling expenses guidance reflects reduced operating expenses during anticipated idle time prior to or between drilling contracts for our rigs that are currently uncontracted and available to work in 2015.

Updated schedules of expected amortization of deferred revenue, depreciation and interest expense for our existing financing, as well as capital expenditures are available in the "Quarterly and Annual Results" subsection of the "Investor Relations" section of our website, www.pacificdrilling.com.

Please note the guidance provided above is based on management's current expectations about the future, and both stated and unstated assumptions, and does not constitute any form of guarantee, assurance or promise that the matters indicated will actually be achieved. Actual conditions and assumptions are subject to change. The guidance set forth above is subject to all cautionary statements and limitations described under the "Forward-Looking Statements" section of this press release.

Conference Call

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