Hercules Offshore Q4 & Full Year 2009 Results

Wednesday, March 03, 2010

Hercules Offshore, Inc. (NASDAQ:HERO) reported a loss from continuing operations of $26.9 million, or $0.23 per diluted share, on revenues of $176.4 million for the fourth quarter ended December 31, 2009, versus a loss from continuing operations of $1.1 billion, or $12.90 per diluted share, on revenues of $313.5 million for the quarter ended December 31, 2008.

When adjusting for certain items outlined in the attached Reconciliation of GAAP to Non-GAAP Financial Measures, the company reported a loss from continuing operations of $25.8 million, or $0.23 per diluted share for the fourth quarter 2009, compared with income from continuing operations of $36.2 million, or $0.41 per diluted share for the fourth quarter 2008, also adjusted for certain items. The fourth quarter 2009 loss of $0.23 per diluted share has not been adjusted for the accounts receivable reserve and related items associated with the Hercules 185 which adversely impacted the results on a pre-tax basis by a net of $31.6 million. The accounts receivable reserve associated with Hercules 185 was reduced from the previously announced amount by $3.0 million due to a payment received.

The company reported a loss from continuing operations of $90.1 million, or $0.93 per diluted share, on revenues of $742.9 million for the twelve month period ended December 31, 2009, versus a loss from continuing operations of $1.1 billion, or $12.25 per diluted share, on revenues of $1.1 billion for the twelve month period ended December 31, 2008.

The company reported a loss from continuing operations for the twelve months ended December 31, 2009, of $75.2 million, or $0.77 per diluted share, as adjusted for certain items, compared to income from continuing operations of $92.9 million, or $1.04 per diluted share for the twelve months ended December 31, 2008, also adjusted for certain items.

John T. Rynd, Chief Executive Officer and President of Hercules Offshore stated, "Our fourth quarter 2009 results were adversely impacted by the accounts receivable reserve in International Offshore as well as relatively weak business conditions in our Domestic Offshore and Inland segments. However, solid results from our cost reduction measures partially offset these challenges. Overall, 2009 was one of the most difficult years our industry has ever seen and I am extremely proud of the proactive response by our management team and employees to enhance revenue opportunities, eliminate costs, reduce capital spending and strengthen our capital structure."

Rynd continued, "While the slope of the recovery is still uncertain, we believe that the recovery is underway, as evidenced by the recent increase in our Domestic Offshore activity levels and our increasing backlog which is providing better visibility than we have had in over a year. The recent strengthening and stabilization in commodity prices, reduced oilfield service costs, the improvement in the capital markets and feedback we have received from our customers are all pointing toward increasing exploration and production spending both in the U.S. and internationally, which serve to reinforce our belief that the industry has entered the initial stages of recovery."

Offshore
Domestic Offshore revenues in the fourth quarter 2009 decreased to $25.8 million from $109.7 million in the fourth quarter 2008 due to declines in both operating days and dayrates which were primarily caused by weak demand. Fourth quarter 2009 average revenue per rig per day decreased to $37,799 compared to $72,008 in the fourth quarter 2008, while operating days declined to 682 from 1,524, in the same periods, respectively. The decline in revenue was partially offset by a 28% reduction in operating costs to $43.8 million in the fourth quarter 2009 from $61.0 million in the fourth quarter 2008 as a result of the Company's stacking plan. Domestic Offshore recorded an operating loss of $34.5 million for the fourth quarter 2009 compared with operating income of $29.9 million, before the impairment of property and equipment and goodwill, for the fourth quarter 2008.

International Offshore generated revenues of $98.5 million in the fourth quarter 2009, a slight increase from $93.2 million in the fourth quarter 2008. Average revenue per rig per day increased to $131,571 from $127,981 in the same periods, respectively, despite a decline in market dayrates as the Company benefitted from a change in the mix of rigs working. Operating days increased modestly to 749 in the fourth quarter 2009 from 728 in the fourth quarter 2008, as a result of the fourth quarter 2008 and first quarter 2009 commencement of operations on our two jackup rigs operating in Saudi Arabia, largely offset by fewer operating days on the Hercules 156 and Hercules 170, which were warm stacked earlier in 2009, and the Hercules 206, which has mobilized to the U.S. Gulf of Mexico in November 2009 from Mexico. Fourth quarter 2009 operating income was $11.2 million, including the net charge of $31.6 million related to the Hercules 185 compared to operating income of $43.3 million in the comparable quarter, excluding the impairment of goodwill. The Company continues to pursue all commercial and legal avenues for the collection of the receivable related to the Hercules 185. Although the amount owed by the customer remains undisputed and the Company recently received a $3.0 million payment from the customer, the collection of the receivable remains uncertain.

Inland
During the fourth quarter 2009, Inland revenues declined to $4.3 million from $37.5 million in the fourth quarter 2008 due to extremely weak demand, which also led to a decline in average revenue per rig per day to $18,346 from $39,454 in the same periods, respectively. Operating days declined to 237 in the fourth quarter 2009 from 951 in the fourth quarter 2008. However, utilization of marketed rigs increased to 85.9% in the fourth quarter 2009 from 68.9% in the comparable period of 2008 because of significantly reduced available days resulting from our stacking plan, which also led to a 72.3% reduction in operating expenses to $8.0 million in the fourth quarter 2009 from $29.0 million in the fourth quarter 2008. Inland recorded an operating loss of $11.9 million in the fourth quarter 2009 versus a fourth quarter 2008 operating loss of $8.5 million excluding the effect of impairment charges.

Liftboats
Domestic Liftboats generated revenues of $14.8 million during the fourth quarter 2009 compared to revenues of $31.2 million in the fourth quarter 2008. Utilization decreased to 62.5% in the fourth quarter 2009, following a mild hurricane season from 81.4% in the same period of 2008, which was bolstered by repair work stemming from Hurricanes Gustav and Ike. As a result of the reduced demand and a fleet mix shift following the mobilization of four of our larger class liftboats to West Africa, average revenue per liftboat per day declined to $6,780 in the fourth quarter 2009 from $9,918 in the fourth quarter 2008. The reduced fleet size and decline in utilization led to a reduction in operating income to approximately $353,000 in fourth quarter 2009 from $12.3 million in the fourth quarter 2008.

During the fourth quarter 2009, International Liftboats generated revenues of $26.8 million compared to $27.0 million in the fourth quarter 2008. Average revenue per liftboat per day increased slightly to $21,972 from $20,177 in the fourth quarters of 2009 and 2008, respectively. Partially offsetting the higher average revenue per liftboat per day was a decrease in utilization to 63.3% in the fourth quarter 2009 from 78.3% in the fourth quarter 2008, due to weak demand, particularly for the smaller vessels, and an extensive drydocking schedule. Our average operating expense per liftboat per day increased to $8,582 in the fourth quarter 2009 from $6,643 in the fourth quarter 2008 largely driven by expenses related to the mobilization of the four aforementioned liftboats as well as the mix shift in the type of liftboats. As a result, operating income decreased to $4.6 million in the fourth quarter 2009 from $10.9 million in the fourth quarter 2008.

Liquidity and Capitalization
At December 31, 2009, the Company had unrestricted cash and equivalents totaling $140.8 million and unused capacity of $165.0 million under its revolving credit facility. As of December 31, 2009, the Company's balance sheet reflects total debt of $861.7 million. Cash flow provided by operations was $17.9 million and capital expenditures plus deferred drydocking expenditures were $6.7 million during the three months ended December 31, 2009.

(www.herculesoffshore.com)

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