United states securities and exchange commission

Results of Operations

Year ended December 31, 2017 compared to Year ended December 31, 2016

The following table provides a comparison of our consolidated results of operations for the years ended December 31, 2017 and 2016:

		Years Ended December 31,
		2017			2016			Change			% Change
		(in thousands, except percentages)
Revenues
Contract drilling		$	319,716		$	769,472		$	(449,756)		58%
Costs and expenses
Operating expenses			(244,089)			(290,038)			45,949		16%
General and administrative expenses			(87,134)			(63,379)			(23,755)		37%
Depreciation expense			(278,949)			(275,901)			(3,048)		1%
Operating income (loss)			(290,456)			140,154			(430,610)		307%
Other income (expense)
Interest expense			(178,983)			(189,044)			10,061		5%
Write-off of deferred financing costs			(30,846)			—			(30,846)		100%
Gain on debt extinguishment			—			36,233			(36,233)		100%
Reorganization items			(6,474)			—			(6,474)		100%
Other expense			(5,544)			(2,393)			(3,151)		132%
Loss before income taxes			(512,303)			(15,050)			(497,253)		3304%
Income tax expense			(12,863)			(22,107)			9,244		42%
Net loss		$	(525,166)		$	(37,157)		$	(488,009)		1313%

 

Revenues. The decrease in revenues for the year ended December 31, 2017, as compared to the year ended December 31, 2016, resulted primarily from the Pacific Bora and the Pacific Scirocco being idle for a portion of the year in addition to earning lower dayrates in their current contracts compared to their previous contracts in the prior year, and the Pacific Santa Ana completing its contract with Chevron in January 2017 and starting its contract with Petronas at a lower dayrate in December 2017.

During the year ended December 31, 2017, our operating fleet of drillships achieved an average revenue efficiency of 98.3%, as compared to 98.2% during the year ended December 31, 2016.

Contract drilling revenue for the years ended December 31, 2017 and 2016 also included amortization of deferred revenue of $46.8 million and $67.1 million and reimbursable revenues of $6.0 million and $19.0 million, respectively. The decrease in the amortization of deferred revenue was primarily due to lower amortization resulting from the Pacific Santa Ana  completing its contract with Chevron in January 2017 and the Pacific Bora completing its contract with Chevron in September 2016. The decrease in reimbursable revenues resulted from lower reimbursable costs incurred with fewer of our drillships operating under drilling contracts.

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Operating expenses. The following table summarizes operating expenses:

		Years Ended December 31,
		2017			2016
		(in thousands)
Direct rig related operating expenses, net		$	196,588		$	228,934
Reimbursable costs			4,197			18,362
Shore-based and other support costs			31,615			28,797
Amortization of deferred costs			11,689			13,945
Total		$	244,089		$	290,038

 

The decrease in direct rig related operating expenses for the year ended December 31, 2017, as compared to the year ended December 31, 2016, resulted primarily from lower costs on the Pacific Bora , the Pacific Scirocco and the Pacific Santa Ana while offhire and the continued benefits of our cost saving measures.

Reimbursable costs are not included under the scope of the drilling contract’s initial dayrate, but are subject to reimbursement from our clients. Reimbursable costs can be highly variable between quarters. Because the reimbursement of these costs by our clients is recorded as additional revenue, they do not generally negatively affect our margins.

Direct rig related operating expenses and shore-based and other support costs divided by the number of operating and offhire rig days were as follows:

		Years Ended December 31,
		2017			2016
		(in thousands, amounts per rig per day)
Direct rig related operating expenses, net		$	74.3		$	89.7
Shore-based and other support costs			12.4			11.2
Total		$	86.7		$	100.9