GulfMark Offshore Q3 2010 Operating Results
GulfMark Offshore, Inc. announced the results of operations for the three- and nine-month periods ended September 30, 2010. For the three months ended September 30, 2010, revenue was $94.5 million. Net income for the same period was $19.2 million, or $0.75 per diluted share. The results for the quarter ended September 30, 2010, include a gain of $5.2 million, or $0.21 per diluted share, on the sale of the 1998-built North Traveller, a PSV operating in the North Sea.
Results of Operations
Revenue for the third quarter of 2010 was $94.5 million, an increase of 2%, or $1.7 million, over the second quarter of 2010. Average day rate in each of the three operating segments increased on a sequential quarterly basis; however, utilization was lower in all three regions for the same period. Utilization was impacted by increased drydock activity, particularly in the North Sea and the Americas. Also, during the quarter, the Company repositioned certain vessels out of the Gulf of Mexico, including relocating four vessels to Brazil to begin long-term contracts with Petrobras, which adversely impacted utilization in the Americas region.
In the North Sea, revenue increased $1.1 million to $38.3 million for the quarter. The average day rate increased 7% from the second quarter to $17,637. Of this percentage increase in average day rate, approximately 4% was due to the foreign currency effect of a weakening U.S. dollar. Utilization in the North Sea decreased 4% from the prior quarter.
Revenue in the Americas was down $0.5 million to $38.3 million for the quarter. The average day rate was $15,830, up 17% from the second quarter average. However, utilization in the Americas decreased 16 percentage points to 76% for the third quarter. Utilization in the Americas was adversely impacted by the drydocking and subsequent relocation of four vessels to Brazil during the quarter.
Revenue for the third quarter in Southeast Asia was $17.9 million, up 6%, or $1.0 million, from the prior quarter. The average day rate in the region was $16,841, up slightly from the respective second quarter average. Utilization in Southeast Asia was 85.2%, down 8 percentage points sequentially. Utilization in Southeast Asia was impacted by the delivery of the last two vessels in the new-build program. After delivery in Poland in late June, these two vessels were transitioned to Southeast Asia.
Drydock expense was approximately $7.2 million in the third quarter, an increase of $1.1 million from the second quarter of 2010. Full-year 2010 drydock expense is still expected to be approximately $22.0 million, which results in a drydock expense expectation for the fourth quarter of $1.7 million.
Direct operating expenses for the third quarter were $41.7 million, down slightly from the second quarter of 2010, but in line with anticipated direct operating expenses prior to capitalized mobilization costs. During the quarter, costs of $1.4 million related to the mobilization of the four vessels to Brazil were capitalized and will be amortized over the four-year life of the contracts.
Operating income before special items was $20.8 million, up 12%, or $2.2 million, from the second quarter. The increase was driven by an increase in revenue of $1.7 million accompanied by approximately $0.5 million of lower operating costs. Reported net income for the quarter was $19.2 million, or $0.75 per diluted share.
Bruce Streeter, President and CEO, commented, "The third quarter was better than we expected. The decrease in drilling activity in the Gulf of Mexico was offset by prolonged spill response work, but as the quarter progressed, particularly in September, we began to feel the impact of the drilling moratorium. In the Gulf of Mexico, we, along with everyone else, lack a clear understanding of the near-term activity levels. As such, the outlook for the remainder of 2010 remains uncertain.
"As previously disclosed, we have taken steps to relocate a portion of our U.S. fleet to Trinidad, Mexico and Brazil, and we will continue to look at selectively relocating vessels to other markets. We expect that our results for the fourth quarter will be adversely impacted by the drilling moratorium. The expiration of the drilling moratorium is positive, but until the de facto moratorium created by the unwillingness of the BOEM to issue drilling permits is changed, our near-term outlook for the Gulf of Mexico will be weak. In addition, our long-term outlook for the Gulf of Mexico will continue to deteriorate the longer the de facto moratorium remains in place.
"Our international operations have performed well. The North Sea had a solid third quarter. Revenue and average day rates were up nicely in both the Norwegian and U.K. sectors of the North Sea. Excluding the impact of the delivery of the Sea Valiant and the Sea Victor into Southeast Asia, quarterly utilization was 98% in that region. Southeast Asia has seen a sharp increase in the supply of vessels during 2010, and that increase in supply is likely to continue to impact utilization in that region over the next few quarters. The newly delivered vessels have arrived in Southeast Asia and are ready for work, but have not yet obtained employment. Despite the lack of benefit from the new vessels, day rates, and more importantly revenue, for Southeast Asia have both increased on a sequential quarterly basis."
Mr. Streeter continued, "We remain optimistic about the future, although we expect that the fourth quarter will be a soft quarter, impacted by the de facto drilling moratorium and seasonality in the North Sea. Our focus is on longer-term positive developments. The current price of oil should continue to increase drilling and exploration expenditures, and activity in the international marketplace. GulfMark's existing international presence allows us to capture the short-term, and more importantly, the longer-term benefit of continued international expansion. We feel that deepwater drilling in the Gulf of Mexico will rebound once the industry receives regulatory clarity, and this clarity combined with a general economic recovery should provide a strong global marketplace for our vessels. Maintaining a young, technologically advanced fleet results in enhanced utilization throughout the cycle, and we continue to look for those new projects and investments that meet our customers' expectations and improve our fleet value, mix and earning capacity."
Liquidity, Capital Commitments and Contract Cover
Cash flow from operations totaled $18.0 million in the third quarter. Cash on hand at September 30, 2010, was $87.9 million, and as of that date, $10.0 million was drawn on the $175.0 million revolving credit facility. Total debt at September 30, 2010, was $344.7 million, and debt net of cash on hand was $256.8 million. Quarterly principal amortization on the remaining term-loan facility is $8.3 million. There are no remaining capital commitments under the recently completed new-build program. Total contracted future revenue was $673 million as of September 30, 2010, a slight increase over the prior quarter.