Hornbeck to Spend $265M on New Boats

Hornbeck Offshore Services, Inc. announced a new vessel construction programs for each of its two business segments, making it the company's fourth OSV newbuild program and second tug and tank barge (TTB) newbuild program. Hornbeck is seeking bids from domestic shipyards for the two programs. Based on internal estimates, the incremental cost of the two expansion programs is expected to be approximately $265 million in the aggregate. The precise number of vessels to be constructed and their specifications will be finalized as certain milestones are completed, including the negotiation of shipyard contracts. Construction costs related to these two programs will be funded, in part, with the proceeds of the concurrent public common stock offering and private placement of additional 6.125% senior notes that are being announced separately.

OSV Segment

Hornbeck plans to build an additional 20,000 dwt of new generation OSV vessel capacity with an estimated cost of approximately $170 million. In May 2005, it announced plans to convert two coastwise sulfur tankers into 370 class multi-purpose supply vessels, or MPSVs, at a currently estimated total project cost of $65 million. When combined with the company's current MPSV conversion program, the total cost of the two OSV expansion programs is budgeted to be approximately $235 million in the aggregate. The company expects to deliver its two new 370 class MPSVs in early 2007. All of the new vessels to be constructed under the latest OSV newbuild program are expected to be delivered by mid-2008, with the first vessel expected in mid-2007. Hornbeck Offshore expects to generate incremental annual EBITDA of approximately $39 million to $47 million for the first full-year of operations of all vessels to be converted or constructed under these two programs.

Hornbeck also plans to build an additional 400,000 barrels of double-hulled tank barge barrel-carrying capacity and, unlike its first TTB newbuild program, plans to construct the related offshore tugs to be used as power units for the new barges. The estimated cost of the new ocean-going tugs and barges will be approximately $95 million in the aggregate. The company's first TTB newbuild program, which included the acquisition and retrofit of four 6,000 hp ocean-going tugs, is expected to be completed during the fourth quarter of 2005. All of the new vessels to be constructed under the second TTB newbuild program are expected to be delivered during 2007. Hornbeck Offshore expects to generate incremental annual EBITDA of approximately $16 million to $17 million for the first full-year of operations of all vessels to be constructed under the latest TTB newbuild program.

"As with our recently announced 370 class MPSV conversion program, the company will once again introduce the latest in technologically advanced vessels to the deepwater and ultra-deepwater regions of the offshore oil services industry,” said Todd Hornbeck, Chairman, President and CEO. “These new vessels will embody innovative design features that we believe will offer our customers superior logistical efficiencies. Customer demand for our equipment, including our new MPSVs, remains high. The substantial repairs required to be made to Gulf of Mexico infrastructure damaged by Hurricanes Katrina and Rita highlight the demand for versatile vessels to service the deepwater Gulf of Mexico. In addition, as we complete our first tank barge newbuild program, we believe additional equipment is necessary to address pent-up customer demand for double-hulled equipment in the northeastern United States. We have also experienced a significant level of increase in inquiries for our vessels relating to certain non-oilfield specialty services. Our assessment of the visible demand for deepwater tonnage indicates a need for more U.S.-flagged equipment over the next several years. Because our existing equipment is fully utilized and so is that of the entire new generation OSV industry, now is the time for us to build more proprietary vessels. Our in-house team of naval architects and engineers will, yet again, design improvements to the existing versatility of our vessels to create the type of equipment that the market is telling us it requires."

Current OSV Conditions

Hornbeck said, "On our last conference call on August 4, 2005, we announced that our fleetwide OSV dayrates were averaging around $13,000 and that our leading-edge spot deck was averaging about $14,000 to $15,000 for the fleet with rates for our smallest vessels to our largest vessels ranging from $13,000 to $20,000. During the third quarter of 2005, we have experienced a substantial increase in our OSV dayrate structure with our fleetwide average currently above $14,000 and a leading-edge spot deck average of over $15,000 per day. We have recently moved our fleetwide range of spot rates for new fixtures up a few thousand dollars a day across the board to roughly $17,000 to $22,000."