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Thursday, October 29, 2020

Paragon Offshore PLC (OTCMKTS:PGNPQ) Denied by Court on Reorganization Plan

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Paragon Offshore PLC (OTCMKTS:PGNPQ) just got slashed and burned to close last week, with the stock diving over 63% on Friday on a ruling from the bankruptcy court judge denying the feasibility of the recently submitted reorganization plan. Paragon is another one of the many nearly fatally wounded players in the oil patch, overloaded with over eager debt as a hangover from the false oil boom in place from 2012 to early 2014.

We’ve looked at a number of these cases of late, and the spread among the group varies extensively in terms of future prospects. So we thought, in light of Friday’s ruling, that it would be a good time to take a close look at Paragon and see how this story should be framed going forward.

Paragon Offshore PLC (OTCMKTS:PGNPQ) trumpets itself as a company that provides offshore drilling rigs.

The company is involved in contracting its rigs, related equipment, and work crews to conduct oil and gas drilling and workover operations for its exploration and production customers on a day rate basis.

Its drilling fleet consists of 34 jackups, 4 drillships and 2 semisubmersibles. The company has operations in Mexico, Brazil, the North Sea, West Africa, the Middle East, India, and Southeast Asia.

Paragon Offshore plc was incorporated in 2014 and is headquartered in Houston, Texas. As of February 14, 2016, Paragon Offshore plc is in reorganization.

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Apparently, the key part of the bad news last week was about cash for operations. As with most of these plays, the whole matter rests on what can and cannot be seen as reasonable forward estimates for commodity prices.

With a producer, it’s the immediate margin on production that is determined by Crude oil prices. However, with an equipment and service provider, the price is still the key. When Crude is pricing in a bullish mode, the amount of supply picks up as a function of market economics. When production ramps, more equipment and services are needed. And, hence, demand for Paragon’s operations picks up. That in turn, producers cash from operations.

The key right now for the Crude Oil market is OPEC, and how they manage to get their promised production freeze in place with Russia on board. The key meeting is set for November 30. But we are already seeing signs that the agreement will be watered down by too many exceptions. That may make Russia unwilling to join as well. The whole deal rests on very precarious footing at this point.

As referenced above, the company announced late last week that the United States Bankruptcy Court for the District of Delaware has given an oral ruling denying confirmation of the company’s previously filed Modified Second Amended Joint Chapter 11 Plan of Reorganization. A written ruling is expected to follow shortly. Paragon filed for protection under chapter 11 of the United States Bankruptcy Code on February 14, 2016.

In issuing his oral ruling, Judge Christopher Sontchi commented that the Plan is not feasible as it removes too much cash from the company during the current downturn. However, he noted that his ruling did not preclude the company from a restructuring, only that the company could not do so under the current Plan.

As noted in the release, “Paragon is evaluating its course of action but cannot comment on details of the next steps the company will take. The company continues to believe, but cannot provide any assurances, that a positive resolution of the company’s restructuring process can be achieved.”

At this time, carrying a capital value in the market of $24M, PGNPQ is enduring the unpredictable winding road of Chapter 11 bankruptcy and reorganization. As with each of these, we like to warn readers that the common shares almost always go out worthless. So, shares will most likely end up at $0. But there is always a risk, and short interest involved is normally extremely high. So, if we see a breakthrough in negotiations among OPEC members and with Russia, and the price of oil reacts sharply higher, we may well see this stock quickly retake is recently lost ground. In such a case, we will be there with an update right away. For continuing coverage on shares of $PGNPQ stock, as well as our other hot stock picks, sign up for our free newsletter today and get our next hot stock pick!

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