For the six months ended June 30, 2004, net income totaled $70.7 million, or $0.22 per diluted share, on revenues of $1,285.2 million, compared to net income of $2.7 million, or $0.01 per diluted share, on revenues of $1,219.9 million for the six months ended June 30, 2003. Net income adjusted for the sale of the semisubmersible rig Sedco 602, the early retirement of debt and TODCO initial public offering (IPO)-related items, was $75.9 million, or $0.23 per diluted share, for the six months ended June 30, 2004. For the six months ended June 30, 2003, net income was $28.5 million, or $0.09 per diluted share, after adjustment for early retirement of debt, asset impairment charges and the favorable resolution of an existing tax liability.
Transocean Drilling Segment - Revenues for the three months ended June 30, 2004 declined 4% to $552.5 million, compared to revenues of $578.2 million during the three months ended March 31, 2004. The decline was due in part to a reduction in integrated services revenue and lower average utilization among the company's High Specification Floaters. The lower utilization was most pronounced in the company's Other Deepwater Floaters where five units experienced fewer days on contract compared to the previous three months in 2004, due chiefly to planned shipyard programs and idle time between contracts. Operating income before general and administrative expense (2) was $127.2 million and field operating income (2) (defined as revenues less operating and maintenance expenses) was $214.4 million for the three months ended June 30, 2004. Both figures declined relative to levels for the three months ended March 31, 2004 of $178.2 million and $245.0 million, respectively, due primarily to lower revenues and, in the case of operating income before general and administrative expenses, the absence of the gain recorded in the first quarter in connection with the TODCO IPO. Average fleet utilization and dayrates for the three months ended June 30, 2004 were 68% and $89,100, respectively, compared to 69% and $90,200, respectively, for the three months ended March 31, 2004.
The company also provided an update on the labor strike in Norway and the fire on jackup rig Trident 20, two previously reported events that occurred early in the third quarter of 2004. A labor strike in Norway, which was called on July 1 by one of three unions representing offshore workers in the country, has disrupted operations on Transocean's active Norwegian fleet, comprised of the semisubmersibles Polar Pioneer, Transocean Leader and Transocean Searcher. The three rigs are expected to complete the process of securing well operations during the week and rig headcounts will be reduced to a minimum safe level. The company has a contract for the semisubmersible rig Transocean Arctic with Statoil which was expected to commence by August 15, 2004, but could now also be affected by the strike. The company cannot currently estimate the possible length of the strike nor its financial impact.
In addition, an engine room fire aboard the jackup rig Trident 20, which occurred on July 3, is now expected to idle the rig for approximately four months. The rig has a three-well contract providing drilling services offshore Turkmenistan. The contract has been suspended by the customer to allow time for rig repairs and the company expects to resume operations upon completion of the repairs. The company is in the process of completing an estimate of the expected costs to repair the rig.
These events, coupled with expected downtime due to rig mobilizations, including the drillship Deepwater Discovery to West Africa, the semisubmersible rigs Jack Bates and Actinia to Australia and India, respectively, and jackup rigs Trident VI and J.T. Angel to Southeast Asia, as well as planned shipyard programs on the semisubmersible rigs Polar Pioneer and Sedco 709, will have a negative impact on revenues and profitability in the third quarter of 2004 relative to revenue and profitability levels in the second quarter of 2004.
While third quarter financial performance will decline for the reasons stated, there are encouraging indications of growing customer interest and an improving offshore drilling environment. This improving level of interest is supported by recent contract signings involving the company's High Specification Floaters, including a two-year contract on the semisubmersible rig P.B. Loyd, Jr. in the UK-sector of the North Sea, an estimated 210-day program for the semisubmersible rig Cajun Express in the U.S. Gulf of Mexico, an estimated 120-day contract for the drillship Deepwater Discovery in West Africa and the reactivation of the semisubmersible rig Sovereign Explorer for an estimated 320-day contract in Trinidad and Venezuela. In addition, customers have recently issued two tenders for deepwater rigs in India and the Black Sea. Although customer interest for High Specification rigs appears to be building, the timing of some drilling programs remains uncertain, leaving some rigs at risk of downtime.
The company's Other Floaters are experiencing relatively stable business conditions, although the sector remains underutilized in most regions. Improving conditions are evident in the North Sea region, where the company currently has contracts in place on four units to work through the traditionally weak winter period, and expects further improvement in the region during 2005. Finally, customer demand for the company's Jackup Rig fleet remains strong, particularly in Southeast Asia and the Middle East. The company plans to mobilize two jackup rigs currently located in West Africa and another jackup rig in India to Southeast Asia during the third quarter of 2004. Two of the three units are expected to begin drilling assignments during the fourth quarter of 2004.
Currently, 60% of the company's remaining fleet days in 2004 are committed to contracts, including 71% of the remaining High Specification Floater fleet days. In 2005, 34% of the fleet days are currently committed to contracts, with 48% of the High Specification Floater fleet committed.
TODCO Segment - Revenues for the three months ended June 30, 2004 totaled $80.7 million. The segment reported an operating loss before general and administrative expenses (2) of $9.4 million and field operating income (2) of $12.6 million for the three months ended June 30, 2004.
Effective Tax Rate -The increase in the company's effective tax rate (3) to 34.7% for the six months ended June 30, 2004 from 27.3% in the first quarter was primarily due to an increase in the tax valuation allowance established at the time of the TODCO IPO (a 2.6 percentage point increase), international tax dispute developments (a one percentage point increase), and changes in the expected amount and geographical concentration of taxable income for the remainder of 2004 (which accounts for the remainder of the increase). The company currently estimates its effective tax rate for the year to be 34.7%. The final effective tax rate for the year could vary significantly from current expectations.
Liquidity - Cash flow from operations totaled $280.6 million for the six months ended June 30, 2004. Net debt (4) declined 13% to $2,754.8 million at June 30, 2004 compared to $3,184.1 million at December 31, 2003.
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