USA: Superior Operating Results Surpass Expectations, Says CEO

Superior Energy Services, Inc. announced net income from continuing operations of $70.2 million, or $0.55 per diluted share, and net income of $53.9 million, or $0.42 per diluted share, on revenue of $966.8 million for the first quarter of 2012.

The Company completed its acquisition of Complete Production Services, Inc. on February 7, 2012. Financial results for the first quarter of 2012 include results from the legacy Complete business starting on February 8, 2012. The first quarter 2012 results also include a pre-tax charge for acquisition-related expenses of $29.0 million and unrealized pre-tax losses of $3.1 million from hedging contracts at the Company’s equity-method investment. Exclusive of these expenses, non-GAAP adjusted earnings from continuing operations was $90.4 million, or $0.71 per diluted share.

Discontinued operations reflect the operating results and the losses associated with the sale of the 18 liftboats and related assets comprising the marine segment and the sale of a derrick barge during the first quarter of 2012.

These results are compared with net income from continuing operations of $9.9 million, or $0.12 per diluted share, and net income of $15.5 million, or $0.19 per diluted share, on revenue of $385.0 million for the first quarter of 2011.

David Dunlap, CEO of Superior, commented, “The operating results surpassed our prior expectations as sequential growth in the Drilling Products and Services Segment and the contributions from the legacy Complete Production Services were greater than anticipated. We are extremely pleased that the post-merger operations have gotten off to an excellent start.

“The resurgence in drilling activity led to a 15% sequential increase in Gulf of Mexico revenue for our Drilling Products and Services Segment. In the Subsea Well Enhancement Segment, Gulf of Mexico revenue was slightly lower as compared to the fourth quarter of 2011 due to seasonal factors. However, the decline was less than anticipated as demand for intervention and end-of-life services was better than expected. We should continue to benefit from our broad exposure to operations across the lifecycle of the well in the Gulf of Mexico, especially during the second and third quarters when the traditional work season for intervention and end-of-life projects is in full swing.

“The industry’s continued emphasis on horizontal drilling – which oftentimes requires premium drill pipe and extensive use of other downhole tools – led to a 15% sequential increase in U.S. land revenue for our Drilling Products and Services Segment. Companywide, revenue from legacy Superior products and services operating in the U.S. land market areas increased 7% sequentially as compared with a 1% decline in the U.S. land drilling rig count, which supports our belief that operational execution and efficient deployment of capital are more important drivers for us than small changes in the drilling rig count.

“Income from continuing operations as a percentage of revenue (operating margin) – excluding transaction-related expenses – was essentially unchanged from the fourth quarter of 2011. The operating margin in the Drilling Products and Services Segment increased, which offset a lower operating margin in the Subsea and Well Enhancement Segment. This segment’s margin was lower primarily due to a small decline in margin for legacy Superior products and services.”

Geographic Breakdown

For the first quarter of 2012, U.S. land revenue was approximately $642.8 million (inclusive of approximately $375.7 million in revenue from the legacy Complete Production Services), international revenue was approximately $171.1 million (inclusive of approximately $21.7 million from the legacy Complete Production Services), and Gulf of Mexico revenue was approximately $153.0 million.

Subsea and Well Enhancement Segment

First quarter revenues in the Subsea and Well Enhancement Segment were $777.5 million, which includes results from the legacy Complete from February 8, 2012. Complete contributed $397.4 million of revenue and $83.7 million of income from continuing operations.

The products and services that comprise Superior’s legacy Subsea and Well Enhancement Segment contributed revenue of $380.1 million, compared with $256.7 million in the first quarter of 2011 and $392.2 million in the fourth quarter of 2011, which represents a 48% year-over-year increase and a 3% sequential decrease. Sequentially, U.S. land revenue for these products and services increased 3% due to increased demand for coiled tubing and pressure control tools and services. Gulf of Mexico revenue decreased 6% sequentially due to typical seasonal factors, which resulted in reduced activity levels for intervention and end-of-life services. International revenue decreased 10% due primarily to a seasonal reduction in activity for subsea construction services in southeast Asia.

Drilling Products and Services Segment

First quarter revenue for the Drilling Products and Services Segment was $189.4 million, as compared with $128.3 million in the first quarter of 2011 – a 48% year-over-year improvement – and $170.2 million in the fourth quarter of 2011, or 11% higher sequentially.

U.S. land revenue increased 15% sequentially primarily due to increased rentals of premium drill pipe. Demand for accommodations and ancillary equipment also increased. Gulf of Mexico revenue increased 15% sequentially due to increased rentals of bottom hole assemblies, premium drill pipe and other surface tools. International revenue was essentially unchanged as compared with the fourth quarter of 2011.

2012 Earnings Guidance Update

The Company has raised the lower end of its 2012 non-GAAP adjusted earnings from continuing operations guidance. The new range is $3.30 and $3.60 per diluted share, compared with $3.20 and $3.60 previously.

Mr. Dunlap commented, “The change in earnings guidance reflects the stronger-than-anticipated first quarter results. We are essentially leaving unchanged our expectations for the remaining nine months of 2012.

“Exposure in multiple geographic market areas, product and service diversification and business mix balance provide us a degree of confidence in our guidance range. We have solid committed contracting coverage in pressure pumping through the remainder of the year and we anticipate demand for fluid management, well servicing, intervention services and downhole drilling products will remain strong driven by high service intensity in certain U.S. land basins. We expect to benefit from the ongoing recovery in deep water Gulf of Mexico activity and seasonal improvements in shallow water Gulf of Mexico demand.”

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Subsea World News Staff , April 27, 2012;  Image: Superior