USA: Superior Energy Services Reports Solid Fourth Quarter 2011 Results

Superior Energy Services, Inc. announced net income of $19.4 million, or $0.24 per diluted share on record revenue of $580.0 million for the fourth quarter of 2011, and non-GAAP adjusted net income of $54.6 million, or $0.67 per diluted share, after excluding the following:

* A pre-tax, non-cash $46.1 million reduction in the asset value of the Company’s Marine Services Segment ($35.8 million for the write down of property, plant & equipment and $10.3 million for the write down of goodwill) as a result of the Company’s agreement to sell to a subsidiary of Seacor Holdings, Inc. the 18 liftboats that comprise this segment for $134 million plus working capital. The transaction is expected to close in March 2012;

* Pre-tax expenses of $4.1 million related to the acquisition of Complete Production Services, Inc.;

* Incremental interest expense of $4.1 million associated with the $800 million senior notes offering in December 2011 used to redeem Complete’s notes and pay a portion of the cash component of the Complete acquisition; and,

* An unrealized, pre-tax loss of $1.5 million from hedging contracts at the Company’s equity-method investment.

These results compare with fourth quarter of 2010 net income of $3.0 million, or $0.04 per diluted share, on revenue of $456.9 million, and non-GAAP adjusted net income of $35.6 million, or $0.44 per diluted share.

For the year ended December 31, 2011, the Company recorded net income of $142.6 million, or $1.76 per diluted share, on revenue of $2,070.2 million, and non-GAAP adjusted net income of $169.1 million, or $2.09 per diluted share. For the year ended December 31, 2010, the Company’s net income was $81.8 million, or $1.03 per diluted share, on revenue of $1,681.6 million, and non-GAAP adjusted net income was $130.7 million, or $1.64 per diluted share.

David Dunlap, President and CEO of the Company, commented, “We finished the year with quarterly adjusted operating results that were slightly ahead of our expectations. Assets purchased and deployed as part of our 2011 U.S. land capital expenditures program were significant contributors during the fourth quarter, especially coiled tubing units, intervention services and drilling products. They helped drive 9% revenue growth over the third quarter of 2011 in our U.S. land markets, as compared with a 3% increase in the average number of drilling rigs working in the U.S. during the fourth quarter.

“We also experienced a 12% sequential increase in international revenue due to an 18% increase in international revenue from our Subsea Well Enhancement Segment. Higher demand for subsea inspection, repair and maintenance services as well as snubbing services were the primary factors driving the strong sequential international growth.

“Gulf of Mexico revenue was predictably lower from the third quarter, declining 12% due to seasonality which impacted shallow water intervention services, completion tools and services and liftboats. Declines in activity for these businesses largely contributed to the sequential reduction in our operating income as a percentage of revenue (operating margin), excluding the special items mentioned earlier.

“In summary, we finished the year on a solid note and with good momentum. We look forward to the contributions and benefits from the merger with Complete, including an expanded presence in various U.S. land market areas, new outlets and opportunities for our combined capital expenditures plan and acceleration of our international growth strategy through deployment of enhanced cash flows.”

Fourth Quarter 2011 Geographic Breakdown

For the fourth quarter of 2011, Gulf of Mexico revenue was $170.5 million, U.S. land revenue was $249.5 million, and international revenue was approximately $160.0 million.

Subsea and Well Enhancement Segment

Fourth quarter revenue for the Subsea and Well Enhancement Segment was $392.2 million, as compared with $306.5 million in the fourth quarter of 2010 and $377.6 million in the third quarter of 2011, which represents a 28% year-over-year increase and a 4% sequential increase.

U.S. land revenue in this segment increased 11% sequentially to $170.4 million due to increased demand for coiled tubing, pressure control tools and services, cased hole wireline and remedial pumping services. International revenue increased 18% to $112.9 million primarily due to increased activity for subsea inspection, repair and maintenance services. Gulf of Mexico revenue declined 15% sequentially to $108.8 million due to seasonality in the shallow water market, which led to reduced activity levels for intervention services and completion tools.

Drilling Products and Services Segment

Fourth quarter revenue for the Drilling Products and Services Segment was $170.2 million, as compared with $120.4 million in the fourth quarter of 2010 – a 41% year-over-year improvement – and $163.5 million in the third quarter of 2011, or 4% higher sequentially.

The primary factor driving the higher sequential revenue in this segment was a 5% increase in U.S. land revenue to $79.0 million as a result of increased demand for accommodations, stabilization equipment and accessories. Gulf of Mexico revenue increased 8% sequentially to $44.1 million due to increased rentals of premium drill pipe. International revenue was essentially unchanged at $47.1 million with increased rentals of premium drill pipe in Brazil offsetting a decline in accommodation rentals in other international market areas.

Marine Segment

Marine Segment revenue in the fourth quarter was $17.6 million, a 41% decrease from fourth quarter 2010 revenue of $30.0 million and a 28% decrease from third quarter 2011 revenue of $24.3 million.

Average fleet utilization in the fourth quarter of 2011 was 62.1% as compared with 71.9% in the fourth quarter of 2010 and 76.5% in the third quarter of 2011. The lower utilization and operating results in the most recent quarter were primarily the result of seasonal factors and reduced activity for the two 265-foot class liftboats.

2012 Earnings Guidance and Capital Expenditures Plan

The Company has established a 2012 earnings per share guidance range of $3.20 to $3.60 and a planned capital expenditures range of $1,100 million to $1,200 million. The Company anticipates funding its capital expenditures with its operating cash flow.

The earnings guidance includes the following items:

* Contributions from the products and services of Complete commencing February 8, 2012. These results will be reported as part of the Subsea and Well Enhancement Segment.

* Contributions from Superior’s equity-method investment in Dynamic Offshore Holdings until the sale of Dynamic to Sandridge Energy closes, which is assumed to occur in the second quarter of 2012.

The earnings guidance does not include any contribution from the Marine Segment or transaction expenses associated with the acquisition of Complete and the sale of the Marine Segment.

Dunlap commented, “We anticipate growth in all three of our geographic regions – U.S. land, international and Gulf of Mexico – driven by the significant investments we made in 2011 and increasing demand for many of our products and services. In particular, we anticipate continued strength in the oil and liquids-rich basins in the U.S. markets, additional product line exposure in the U.S. through the combination with Complete, a growing international presence and the continued rebound in deepwater Gulf of Mexico drilling activity. This guidance assumes a 3% to 7% increase in the U.S. rig count and an increase of six to eight rigs drilling for oil and gas in the Gulf of Mexico from the end of 2011.”

The Company anticipates that approximately 70% of the capital expenditures plan will be directed toward the U.S. land market areas, 20% to international market areas and the remainder to the Gulf of Mexico market area.

Dunlap added, “Our 2012 capital expenditures plan will help support our anticipated growth as we continue to invest in high return products and services that are competing in undersupplied geographic markets. We believe our plan will assist in maintaining the product line contribution mix that is currently in place.”

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Subsea World News Staff , February 24, 2012;  Image: Superior Energy Services