Houston-based Diamond Offshore Drilling Inc., caught in the web of low commodity prices and budget cutbacks by customers brought on in part by the coronavirus, plans to reorganize under Chapter 11 after filing a petition in the U.S. Bankruptcy Court for the Southern District of Texas.

Gulf of Mexico

The offshore contract driller, 53% owned by Loews Corp., has a global fleet of 15 rigs, consisting of 11 semisubmersibles and four dynamically positioned drillships. In the U.S. Gulf of Mexico, it has four available to work in ultra-deepwater at depths of more than 7,500 feet.

“After a careful and diligent review of our financial alternatives, the board of directors and management, along with our advisers, concluded that the best path forward for Diamond and its stakeholders is to seek Chapter 11 protection,” CEO Marc Edwards said. “Through this process, we intend to restructure our balance sheet to achieve a more sustainable debt level to reposition the business for long-term success.”

Clients and vendors “should expect business as usual across our organization.”

As a result of filing, Loews said Diamond would be deconsolidated from the consolidated financial statements.

“In connection with the deconsolidation, Loews expects to record, in the second quarter of 2020, a significant noncash loss to recognize the difference between the carrying value and estimated fair value of its interest in Diamond as of the filing date,” it said in a Securities and Exchange Commission Form-8K filing.

Loews said the carrying value of its Diamond stake was $1.5 billion at the end of 2019.

For 4Q2019, Diamond’s net losses totaled $74.77 million (minus 54 cents/share), compared to sequential losses of $95.13 million (minus 69 cents). Revenue increased to $276 million from $254 million.

During 2019, Diamond secured $620 million of backlog. As of January, total contracted backlog was $1.6 billion, excluding a $100 million margin commitment from one customer. Diamond expects to file its 1Q2020 results on May 4.

In a credit note about Diamond, Moody’s Investors Service said Monday the “rapid and widening spread of the coronavirus outbreak, deteriorating global economic outlook, falling oil prices, and asset price declines are creating a severe and extensive credit shock across many sectors, regions and markets. The combined credit effects of these developments are unprecedented.

“The oilfield services and drilling sector is one of the sectors most significantly affected by the shock given its sensitivity to demand and oil prices. Diamond is vulnerable to the outbreak continuing to spread and oil prices remaining weak.”

Paul, Weiss, Rifkind, Wharton & Garrison LLP is acting as Diamond’s legal counsel and Alvarez & Marsal is serving as the restructuring adviser. Lazard Frères & Co. LLC is serving as financial adviser.