Hercules Offshore Profit Sinks (USA)

Hercules Offshore, Inc. today reported a loss from continuing operations of $38.3 million, or $0.28 per diluted share, on revenue of $143.3 million for the first quarter 2012, compared with a loss from continuing operations of $13.6 million, or $0.12 per diluted share, on revenue of $159.4 million for the first quarter 2011.

John T. Rynd, Chief Executive Officer and President of Hercules Offshore stated, “This year has started off with the completion of several positive transactions, beginning with our acquisition and concurrent long-term contracting of the Hercules 266, followed shortly thereafter by our debt refinancing and capital raise. The strategic importance of these achievements cannot be overstated, as they add a sizable and stable source of earnings and cash flow to our international drilling operations, strengthen our relationship with a key international client, and improve our balance sheet by effectively extending our debt maturity schedule well into 2017 and allowing greater flexibility to pursue strategic investments.

“Operationally, Domestic Offshore continues to experience the positive uptrend in drilling activity and dayrates, which we expect will continue as the year progresses. Recently, this has been offset by downtime in International Offshore, mainly related to previously announced shipyard projects for contract specific items that impacted four of our six contracted rigs during the first quarter 2012. While a portion of this downtime will extend into the second quarter, we expect utilization will rebound sharply from the lows experienced in the first quarter, positioning our international rig fleet, and the Company, for substantially better performance during the second half of 2012.”

Offshore Revenue generated from Domestic Offshore for the first quarter 2012 increased by 144% to $82.3 million from $33.8 million in the same period in 2011, due to an improvement in dayrates and the acquisition of the Seahawk rigs. Average revenue per rig per day increased by 30% to $55,961 for the first quarter 2012 compared to $42,892 in the respective 2011 period. Operating days increased to 1,471 in the first quarter 2012 from 788 in the first quarter 2011, due to the addition of the Seahawk rigs as well as higher utilization from the Company’s legacy rigs. Operating expenses increased to $59.9 million in the first quarter 2012 from $41.0 million in the respective 2011 period, due to the addition of the Seahawk rigs. Domestic Offshore generated operating income of $1.8 million in the first quarter 2012 versus an operating loss of $25.1 million in the first quarter 2011.

International Offshore revenue declined to $18.0 million in the first quarter 2012 from $77.1 million in the first quarter 2011, primarily due to significant scheduled shipyard downtime. Operating days declined to 247 days in the first quarter 2012 from 582 in the first quarter 2011, due to downtime incurred on the Hercules 185, which was undergoing repairs, Hercules 208, which was mobilizing to a job in Indonesia from Vietnam, Hercules 261 and Hercules 262 related largely to contract preparation work, and Hercules 258, which concluded its previous contract in early January 2012. Average revenue per rig per day decreased to $73,069 in the first quarter 2012 from $132,507 in the comparable prior year period. This is due to current contract rates on our working international rigs which were signed at various points in 2011 when market rates were considerably lower than previously contracted rates in 2008. Operating expenses declined to $24.1 million in the first quarter 2012 from $33.8 million in prior year period, primarily due to lower costs associated with rigs that were either idle or in the shipyard during the first quarter 2012 undergoing contract preparation and repair work. International Offshore recorded an operating loss of $20.8 million in the first quarter 2012, versus operating income of $32.7 million in the comparable period during 2011. First quarter 2011 general and administrative expenses and operating income include a $5.0 million benefit from the reversal of an allowance for doubtful accounts related to a payment received from a customer in Angola.

During the first quarter 2012, Inland generated revenue of $4.3 million compared to revenue of $5.5 million in the prior year period, as a result of lower utilization partially offset by higher dayrates. Average revenue per rig per day rose to $31,628 during the first quarter 2012, from $26,839 during the first quarter 2011, while utilization declined to 50.2%, from 75.9% during the same periods, respectively. First quarter 2012 operating expenses decreased to $5.7 million from $7.0 million in the first quarter 2011, primarily on lower labor, worker compensation and equipment rental costs. Inland recorded an operating loss of $4.6 million in the first quarter 2012 compared to an operating loss of $6.4 million in the first quarter 2011.

Domestic Liftboats revenue was relatively flat at $10.4 million in the first quarter 2012 compared to $10.6 million in the first quarter 2011. Average revenue per liftboat per day was $7,773 with 1,342 operating days in the first quarter 2012, compared to average revenue per day of $7,993 and 1,330 operating days during the same period of 2011. First quarter 2012 operating expenses of $8.5 million include a $1.8 million gain from the insurance claim on the Starfish, and compares to operating expense of $9.9 million during the first quarter 2011. Domestic Liftboats recorded an operating loss of $2.3 million in the first quarter 2012 compared to an operating loss of $3.4 million in the first quarter 2011.

International Liftboats generated revenue of $28.2 million in the first quarter 2012 compared to $32.3 million in the first quarter 2011. Operating days declined to 1,202 in the first quarter 2012, from 1,395 operating days in the first quarter 2011. This was partially offset by a modest improvement in revenue per day which averaged $23,452 in the first quarter 2012, compared to $23,173 in the same period in 2011. First quarter 2012 operating expenses of $13.1 million include a $1.6 million gain from the insurance claim on the Mako, and compares to operating expense of $14.7 million during the first quarter 2011. International Liftboats recorded operating income of $8.6 million in the first quarter 2012 compared to operating income of $11.6 million in the prior year period.

March 31, 2012, the Company had unrestricted cash and cash equivalents totaling $165.1 million. The Company’s balance sheet reflects total debt of $823.9 million.

During March, the Company completed the issuance of 20.0 million shares of common stock for net proceeds of approximately $96.7 million. A portion of the net proceeds were used, together with cash on hand, to acquire the Hercules 266 for $40.0 million.

During April, the Company also completed the private placement of $300.0 million of 7.125% Senior Secured Notes due 2017 and $200.0 million of 10.25% Senior Notes due 2019 for net proceeds of approximately $489.5 million. Concurrently, the Company repaid $435.3 million in indebtedness outstanding under the Company’s term loan and terminated its $140.0 million revolving credit facility which was scheduled to mature in July 2012. The Company entered into a $75.0 million five year revolving credit facility with a syndicate of financial institutions. The facility is currently unfunded.

Headquartered in Houston, Hercules Offshore, Inc. operates a fleet of 43 jackup rigs, 17 barge rigs, 63 liftboats, two submersible rigs, and one platform rig. The Company offers a range of services to oil and gas producers to meet their needs during drilling, well service, platform inspection, maintenance, and decommissioning operations in several key shallow water provinces around the world. Hercules Offshore currently holds 28.0% of share capital in Discovery Offshore, a pure play, ultra-high specification jackup rig company.

[mappress]
Source: Hercules Offshore, April 26, 2012