Transocean Drilling Segment - Revenues for the three months ended March 31, 2004 of $578.2 million were 9% greater than revenues reported during the three months ended December 31, 2003 due chiefly to integrated services revenue generated from a North Sea drilling program, increased activity in Asia and the buyout of the remaining interest in the Deepwater Drilling L.L.C. joint venture, which owns the drillship Deepwater Pathfinder. Segment operating income before general and administrative expense of $178.2 million and field operating income(2) (defined as revenues less operating and maintenance expenses) of $245.0 million for the three months ended March 31, 2004 improved from levels experienced in the preceding three months ended December 31, 2003 due to the higher revenues in the quarter and lower operating and maintenance costs aided by the absence of Nigeria restructuring charges. Segment fleet utilization during the three months ended March 31, 2004 improved slightly to 69% from 68% for the three months ended December 31, 2003 due principally to higher utilization of the company's High Specification Floaters, especially in Asia and the Gulf of Mexico.
The company has seen improving demand for its High-Specification Floaters in the Norwegian North Sea market sector and expects to see improvement in other market sectors as the year progresses. Since the commencement of 2004, five of the company's High-Specification rigs have received new contracts with durations of 12 to 36 months. Development drilling projects in West Africa and exploration opportunities in the Gulf of Mexico continue to support prospects for deepwater rig demand improvement over the long-term, although the risk of project delays remains, especially in Nigeria and Angola. The company currently has 64% of its remaining High-Specification Floater fleet days in 2004 committed to firm contracts, up from 55% in late 2003, but remains concerned regarding the risk of intermittent idle time on these units. Expected idle time on some High-Specification rigs in Brazil, Norway and West Africa, following the completion of projects and planned shipyard time, together with the mobilization of a drillship for a drilling program offshore Pakistan will contribute to an expected reduction in revenues from the High-Specification Floater fleet during the second quarter of 2004.
Prospects for the company's Jackup Rig fleet are currently strengthening with near-term incremental jackup rig demand expected in Southeast Asia and the Middle East, followed by anticipated improving demand in India beginning in the fourth quarter of the year. The excess jackup rig capacity present in West Africa since the second half of 2003 is continuing, but some of these idle units could be mobilized to other regions during the year.
The company's Other Floaters remain significantly underutilized, especially in the U.K. sector of the North Sea and the Gulf of Mexico where approximately 40% of the industry's capacity resides. Seasonal improvement in the U.K. sector of the North Sea has begun and should support higher utilization in the region into the third quarter of 2004, while utilization in the Gulf of Mexico continues to be hindered by competition from higher specification rigs. Other regions are generally balanced or modestly oversupplied, offering few opportunities for mobilizing units to more robust market sectors. A reduction in activity for integrated services programs in the North Sea should result in lower revenues for this segment of the company's fleet during the second quarter of 2004.
TODCO Segment - Revenues for the three months ended March 31, 2004 were $73.8 million. The segment reported an operating loss before general and administrative expense of $26.9 million and a field operating loss of $5.4 million during the same three month period.
Liquidity - Cash flow from operations totaled $192.2 million for the three months ended March 31, 2004, while total debt was reduced by $411.7 million. During the quarter, the company received net proceeds of $155.7 million from the TODCO IPO.
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