Pacific Drilling’s (PACD) operating expense-to-revenue ratio stood at 37.5% at the end of 3Q16, similar to the previous quarter’s 37.3% and 3Q15’s 37.7%.
In order to withstand the current industry downturn, offshore drilling companies (OIH) (XLE) have no choice but to reduce their costs as much as possible. Pacific Drilling and its peers Rowan Companies (RDC), Diamond Offshore Drilling (DO), Atwood Oceanics (ATW), Seadrill (SDRL), Ocean Rig (ORIG), Transocean (RIG), and Noble (NE) have announced cost-reduction plans to maintain their profit margins throughout the difficult scenario.
Pacific Drilling’s operating expenses for 3Q16 totaled $68.5 million, a fall of $7.5 million—or 10%—from its 2Q16 expenses.
Direct rig-related daily expenses per operating rig averaged $131,000 in 3Q16, a fall from $140,000 in 2Q16. This was the tenth consecutive quarter in which the company had reduced its operating costs on a per-rig basis.
Pacific Drilling’s general and administrative expenses came in at $15.2 million in 3Q16, compared to $14.2 million in 2Q16.
While answering an analyst’s question in its 3Q16 conference call, Pacific stated that its expense numbers could fall a bit due to the cost-cutting efforts it’s already undertaken, but the company doesn’t expect to bring down costs dramatically from this point. It also stated that further cost reductions from this point could be counterproductive.
Pacific Drilling recorded adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) of $98.1 million, down from $109 million in 2Q16.
Despite its fall in revenue due to its cost-cutting initiative, Pacific Drilling’s EBITDA margin hasn’t suffered much. Its EBITDA margin was 53.8% in 3Q16, compared to 53.9% in 2Q16.