Pacific Drilling SA (OTCMKTS:PACDF) Gets A Close Look

Today, we need to talk about a new profile that was overlooked by the market recently. Its name is Pacific Drilling SA (OTCMKTS:PACDF), which operates as an offshore drilling contractor. The stock was used to be traded in the respected NYSE exchange until September when it got delisted and started trading on the OTC Markets.The problem was that its market capitalization was below the $15 million threshold required by the exchange. We believe that many market participants were forced to sell their stakes, as they may not be allowed to own OTC stocks. Company LogoIn our opinion, this is an opportunity, as the share price seemed to go too low. Have a look at the share price reaction before we provide more details: 1 year chart for PACDF 1 month chart for PACDFBusinessPacific Drilling S.A. provides offshore drilling services to the oil and natural gas industry. It owns a fleet of seven drillships to drill wells for its customers. It was founded in 2006 and its main office is in Houston, Texas.It is not a small company. According to the last annual report, 843 employees work for the company. Additionally, in its recent report, it showed $4.9 billion only in Property Plant and Equipment. Furthermore, it reported $769 million in total revenues.Hence, it is not the typical micro cap company trading on the OTC Markets. It is a big company, which has encountered large difficulties with banks. We will assess it later in this article. Image from the Company WebsiteRecent DevelopmentsOn August 1, 2017, the company CEO, Christian J. Beckett, stepped down to pursue other opportunities. The Board of Directors had elected Paul T. Reese, the company's Executive Vice President and Chief Financial Officer, to serve as CEO. Additionally, the company’s Senior Vice President – Finance and Treasurer – had been promoted to serve as Senior Vice President and CFO. Also, Richard E. Tatum, the company’s current Vice President and Controller, had been promoted to serve as Senior Vice President and Chief Accounting Officer.What happened?We believe that the company did not explain what was going on at that time. In our opinion, bankers were contacting PACDF to get paid part of the company's current debt and the Board had decided to elect a CEO with finance expertise to sign a deal.A few days later, on August 3, 2017, the company noted that it may file for Chapter 11 bankruptcy protection. The company needs to restructure, but we already knew that. For what reasons? $3 billion in total debt and the risk of a default on loan agreements at the end of September. The market was obviously pushing down the share price as the news was being released.Finally, in September, it was noted that the NYSE was delisting the shares to be traded in the OTC Markets exchange after the trading close of September 12, 2017.Why?The NYSE stated that the company did not comply with the listing standard and had a market capitalization less than $15.0 million over a consecutive 30 trading-day period. We do not worry about this change, as the shares can be bought and sold normally. This new exchange may not provide the same liquidity, but it offers the same functionality to the market participants.As per our experience, when companies leave the NYSE or the NASDAQ exchanges, the market tends to push down the share price dramatically, as many people are not allowed to trade on the OTC Markets. This creates a bounce opportunity once this selling stops.FinancialsAs the company may file for Chapter 11, we believe that the balance sheet reported needs to be highlighted. Shareholders need to be careful, as in this type of situations, sometimes they get wiped out. Please note that the company is based in Luxembourg:Period Ending12/31/201612/31/201512/31/2014Current Assets (All numbers in thousands)Cash And Cash Equivalents626,168116,033167,794Short Term Investments---Net Receivables94,622168,050231,027Inventory95,67998,24395,660Other Current Assets24,34624,89456,920Total Current Assets840,815407,220551,401Long Term Investments202,575202,575-Property Plant and Equipment4,909,8735,143,5565,431,823Goodwill---Intangible Assets---Accumulated Amortization---Other Assets44,94439,36948,099Deferred Long Term Asset Charges--45,978Total Assets5,998,2075,792,7206,077,301SourceThe key in this case is to compare the current amount in cash and the current liabilities:Accounts Payable77,915112,313111,074Short/Current Long Term Debt496,79076,793377,648Other Current Liabilities45,75549,22784,104Total Current Liabilities620,460238,333572,826Long Term Debt2,648,6592,768,8772,781,242Other Liabilities30,65532,81635,549Deferred Long Term Liability Charges32,23360,639108,812Minority Interest---Negative Goodwill---Total Liabilities3,332,0073,100,6653,498,429SourceConclusionCurrently trading with a market cap of $18 million, PACDF is a company that will be assessed quite a bit in the future. Investment websites like Seeking Alpha and many others are already analyzing what will be the future of the company.Negotiations with debt holders will be the key in this case. We see two options, if the two parties sign a deal, shareholders may receive some money.If this does not happen, debt holders may take over the firm, restructure, sell some assets and dilute shareholders.Shares have recovered off the lows. It remains to be seen what fair market value is for the stock; however, with oil prices recovering, this makes offshore drillers more valuable. This certainly benefits shareholders and explains the strong bounce we've seen.We will be updating our subscribers as soon as we know more. For the latest updates on PACDF, sign up below!Image courtesy of OnEarth Magazine via FlickrDisclosure: We have no position in PACDF and have not been compensated for this article.