Diamond Offshore Drilling Inc. (DO) on Sunday filed for bankruptcy proceedings as the contract driller grapples with the collapse in crude prices coupled with lower energy demand.
The Houston-based energy exploration company, controlled by Loews Corp. (L), submitted the Chapter 11 petition at the U.S. District & Bankruptcy Court of the Southern District of Texas, according to a Bloomberg report. Offshore Drilling has $5.8 billion of assets and $2.6 billion of debt according to the Chapter 11 petition filed in Houston, citing year-end 2019 data. It has about $434.9 million of available cash, according to the filing.
Diamond Offshore said that conditions worsened “precipitously in recent months,” citing a price war between OPEC and Russia and the Covid-19 pandemic.
Diamond Offshore is joining a list of oil and gas producers who have been suffering from weak exploration demand as a result of coronavirus-related lockdowns and as U.S. crude prices have plunged almost 60% this year to less than $30 a barrel.
The Chapter 11 filing will not come as a surprise to some analysts.
Kurt Hallead, analyst at RBC Capital on April 21 downgraded Diamond Offshore to Sell from Hold and lowered the price target to $0.25 from $3, citing increased risk of a Chapter 11 bankruptcy filing.
“The fundamental outlook for the offshore drilling sector has radically changed with the Covid-19 economic impact and the collapse in oil price,” said Hallead. “Last week, DO missed an interest payment and hired legal and financial advisers to help determine capital structure alternatives.”
The remainder of Wall Street analysts have a Moderate Sell consensus rating on the stock based on 7 Sells and 6 Holds. The $2.67 average price target indicates 185% upside potential in the shares in the coming 12 months. (See Diamond Offshore stock analysis on TipRanks).
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