Hercules Offshore Files For Bankruptcy For The Second Time

Hercules Offshore, Inc. (NASDAQ:HERO) , along with some of its affiliates, has filed chapter 11 proceedings under the U.S. Bankruptcy Code for the District of Delaware after 99.7% of its first-lien lenders voted to endorse the prepackaged bankruptcy plan.

This is the second time that the Houston-based operator of drilling rigs and liftboats has filed for bankruptcy. Hercules Offshore emerged from bankruptcy protection just six months ago. The company had filed for Chapter 11 in Aug 2015, wherein it called upon bondholders to swap $1.2 billion in debt for control of the company.

Under the terms of the second bankruptcy plan, the company intends to shut down its business and sell all its assets to cover the payments to lenders. The remaining assets, if any, will be placed into a wind-down vehicle and would remain operational until sales are finalized. Notably, the company's international subsidiaries will not be included as part of the Chapter 11 process. However, these units will also be part of the aforesaid sale.

Moreover, the agreement provides that unsecured creditors will be paid in full in the ordinary course of business or at the completion of the Chapter 11 process. Shareholders will receive some cash upfront if they vote for the plan or will receive a portion of the proceeds from the asset sale if they vote against it.

Despite oil’s massive recovery since February, it’s still under $50 – about half the level of two years ago – and far below the breakeven price for many energy companies. As a result, the upstream companies are increasingly reducing investments in exploration and production operations as they are not been able to sell the commodities at attractive prices. This, in turn has adversely affected oil drilling companies like Hercules Offshore. The ongoing decline in oil prices, the consolidation of its U.S. customer base and the addition of new capacity has negatively impacted dayrates and demand for the company’s drilling services.

Hercules Offshore provides shallow-water drilling and marine services to the oil and natural gas exploration and production industry worldwide. The company also offers oil and gas exploration and development drilling, well services, platform inspection, maintenance, and decommissioning services in various shallow-water provinces.

The company currently holds a Zacks Rank #2 (Buy), which implies that the stock will outperform the broader U.S. equity market over the next one to three months.

Other favorably placed players from the broader energy sector include Braskem S.A. (NYSE:BAK) , Murphy USA Inc. (NYSE:MUSA) and EP Energy Corporation (NYSE:EPE) . All these stocks sport a Zacks Rank #1 (Strong Buy).