Hercules Reports Loss in 4Q10

Hercules Offshore reported a loss from continuing operations of $84.6 million, or $0.74 per diluted share, on revenue of $172.3 million for the fourth quarter 2010, compared with a loss from continuing operations of $26.9 million, or $0.23 per diluted share, on revenue of $176.4 million for the fourth quarter 2009. Fourth quarter 2010 includes a non-cash impairment charge on property and equipment of $125.1 million. On an after tax basis, this adjustment approximated $81.3 million, or $0.71 per diluted share.

When adjusting for the impairment charge outlined in the Reconciliation of GAAP to Non-GAAP Financial Measures, the Company reported a loss from continuing operations of $3.3 million, or $0.03 per diluted share for the fourth quarter 2010, compared to a loss of $25.8 million, or $0.23 per diluted share for the fourth quarter 2009.

For the twelve month period ended December 31, 2010, the Company reported a loss from continuing operations of $134.6 million, or $1.17 per diluted share, on revenue of $657.5 million, versus a loss from continuing operations of $90.1 million or $0.93 per share on revenue of $742.9 million for the twelve month period ended December 31, 2009. When adjusting for certain items outlined in the Reconciliation of GAAP to Non-GAAP Financial Measures, the Company reported a loss from continuing operations of $53.3 million, or $0.46 per diluted share, for the twelve month period ended December 31, 2010, compared to $75.2 million, or $0.77 per diluted share, for the twelve month period ended December 31, 2009.

John T. Rynd, Chief Executive Officer and President of Hercules Offshore, stated, "Last year presented a number of significant challenges for our company and the entire drilling industry that stemmed from the Macondo incident, followed by the ensuing regulatory uncertainties that still plague our business today. In spite of these difficulties, our employees pulled together to maintain the quality of our service and improve our safety performance. During the fourth quarter of 2010 we generated positive operating income, on an adjusted basis, for the first time since the second quarter of 2009. These are significant accomplishments under the current market conditions and I am very proud of the entire Hercules team for their perseverance and professionalism in an extremely difficult environment."

"As we begin 2011, the Board of Directors and our management team have been very proactive in positioning Hercules Offshore for the long term, starting with our investment in Discovery Offshore, and more recently, with our agreement to acquire the assets of Seahawk Drilling. In addition to the strategic rationale and operational flexibility that both opportunities provide, we have also structured these transactions in such a way that limits our risk and keeps us within our financial capacity. The recent amendment to our credit facility adds to our financial flexibility going forward, further enhancing our future prospects."

Offshore

Revenue generated from Domestic Offshore for the fourth quarter 2010 increased to $35.9 million from $25.8 million in the same period of 2009 as a result of improvement in dayrates and utilization year over year. Average revenue per rig per day increased to $40,112 compared to $37,799 for the fourth quarter 2009. Operating days increased by 31% to 895 in the fourth quarter 2010 from 682 for the fourth quarter 2009, resulting in average utilization of 88.4% versus 67.4% in the respective period. Operating expenses declined to $32.6 million in the fourth quarter 2010 compared to $43.8 million in the fourth quarter 2009. Domestic Offshore recorded an operating loss of $99.7 million for the fourth quarter 2010, which includes a non-cash impairment charge of $84.7 million, versus an operating loss of $34.5 million in the same period of 2009.

During the fourth quarter 2010, International Offshore generated revenue of $70.2 million in the fourth quarter 2010, down from $98.5 million in the comparable 2009 period, due to a 32% decline in operating days to 508 from 749 in the same periods, respectively. This decrease is primarily due to the mobilization of the Hercules 205 and Hercules 206 from Mexico to the U.S. Gulf of Mexico, idle time incurred on the Hercules 185 in Angola during the fourth quarter 2010, and downtime incurred for repairs on the Hercules 261 in Saudi Arabia. Average revenue per rig per day increased to $138,094 in the fourth quarter 2010 from $131,571 in the fourth quarter 2009. Average operating expense per rig per day decreased to $38,727 from $44,101 in the fourth quarter periods of 2010 and 2009, respectively. International Offshore recorded an operating loss of $16.7 million for the fourth quarter 2010, which includes a non-cash impairment charge of $38.0 million, versus operating income of $11.2 million in the fourth quarter 2009.

Inland

During the fourth quarter 2010, Inland generated revenue of $6.2 million compared to revenue of $4.3 million in the comparable quarter of 2009 as a result of an increase in average revenue per rig per day to $27,515 from $18,346 in the same periods, respectively. Utilization declined modestly to 82.2% in the fourth quarter 2010 from 85.9% in the fourth quarter 2009. Fourth quarter 2010 operating expenses decreased to $7.3 million compared with fourth quarter 2009 operating expenses of $8.0 million. Inland recorded an operating loss of $6.2 million in the fourth quarter 2010 versus an operating loss of $11.9 million in the respective 2009 period.

Liftboats

Domestic Liftboats generated revenue of $16.8 million in the fourth quarter 2010 compared to $14.8 million in the fourth quarter 2009. Average revenue per liftboat per day increased to $7,591 in the fourth quarter 2010 from $6,780 in the respective period of 2009. Fourth quarter utilization was essentially flat at 63.2% and 62.5% in 2010 and 2009, respectively. Domestic Liftboats recorded operating income of $2.2 million in the fourth quarter 2010 compared with $353,000 in the fourth quarter 2009.

International Liftboats revenue increased by 33% to $35.7 million in the fourth quarter 2010 compared to $26.8 million in the fourth quarter 2009. Average revenue per liftboat per day increased to $23,738 from $21,972 in the fourth quarters of 2010 and 2009, respectively. Operating days increased by 23% to 1,504 in the fourth quarter 2010 from 1,221 in the same period of 2009, primarily as a result of a full quarter of activity from four liftboats transferred to the International segment in late 2009. Average operating expense per liftboat per day decreased to $6,413 from $8,582 in the fourth quarter periods of 2010 and 2009, respectively, primarily due to expenses related to the mobilization of the four liftboats in the fourth quarter of 2009. International Liftboats generated operating income of $16.0 million in the fourth quarter 2010, a marked increase from $4.6 million in the same period of 2009.

Liquidity and Capitalization

At December 31, 2010, the Company had unrestricted cash and cash equivalents totaling $136.7 million and unused capacity of approximately $163.5 million under its revolving credit facility. As of December 31, 2010, the Company's balance sheet reflects total debt of $858.1 million.

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