For the six months ended June 30, 2004, the company reported net income of $92.7 million, or $0.40 per diluted share, on revenues of $762.1 million, as compared to net income of $89.8 million, or $0.38 per diluted share, on revenues of $896.5 million for the corresponding period in 2003. Net income for the first six months of 2004 and 2003, respectively, includes income from discontinued operations of $114.6 and $8.1 million, or $0.49 and $0.03 per diluted share. Net income for the six months ended June 30, 2003, included $22.3 million, or $0.09 per diluted share, from the settlement of claims filed in 1993 with the United Nations Compensation Commission.
Revenues for the second quarters of 2004 and 2003 exclude $17.0 million and $25.3 million, respectively, related to land rig operations, the results of which are reflected as discontinued operations. Similarly, revenues for the six months ended June 30, 2004 and 2003 exclude $43.9 million and $53.9 million, respectively, related to land rig operations.
Second Quarter 2004 Analysis
Net income for the second quarter of 2004 includes items totaling $86.3 million, or $0.37 per share, comprised of an after tax gain of $113.1 million from the sale of the company's land rig assets and after tax expenses of $5.8 million to exit the land rig business and $21.0 million related to the early retirement of $300 million of 7 1/8% Senior Notes due 2007. Excluding these items, the company incurred a net loss of $2.3 million, or $0.01 per diluted share for the second quarter of 2004.
The decline in the company's net income from continuing operations for the second quarter of 2004 primarily reflects a decrease in contract drilling operating income to $2.7 million from $55.1 million in the same quarter of the previous year, and the loss related to the early retirement of $300 million of 7 1/8% Senior Notes due 2007. The lower operating income from contract drilling was mainly due to decreased revenues resulting from lower dayrates and utilization for the company's ultra-deepwater, West Africa and North Sea drilling fleets, partially offset by higher dayrates for its jackup rigs in the U.S. Gulf of Mexico.
For the second quarter of 2004, the drilling management services segment reported operating income of $6.5 million on revenues of $105.4 million, compared to operating income of $3.2 million on revenues of $136.5 million in the same quarter in 2003. The higher margin for the drilling management services segment during the second quarter of 2004 was primarily the result of improved operating performance on a fewer number of total turnkey projects. During July 2004, the company encountered difficulties on two turnkey wells in the Gulf of Mexico. Both wells are still in progress, and the company currently estimates it will incur approximately $7 million in losses on the two wells in the third quarter of 2004.
CEO's Comment and Market Outlook
GlobalSantaFe's President and Chief Executive Officer Jon Marshall said, "The sale of our land rig assets in May enables us to focus our attention on our offshore drilling operations and drilling management services. We utilized the proceeds from the sale of the land rig business to reduce debt, which, through lower interest expense, will contribute to our improving cost structure in future quarters."
Marshall added, "Financial results for our contract drilling operations for the first half of this year have been disappointing, primarily due to low utilization. However, we continue to be encouraged by improvements in most of the world's major offshore drilling markets and expect improved utilization and earnings in the second half of the year. We are particularly optimistic regarding jackups, and are expecting improved utilization and increasing dayrates going forward in almost every jackup market in which we operate. We are also encouraged with the outlook for the ultra-deepwater floater market, where our analysis shows demand exceeding supply by the end of this year, a market condition that has not existed for several years. While the market for the mid-water depth semisubmersibles is not as favorable as the jackups and ultra-deepwater floaters, we are experiencing improving dayrates for our mid- water depth semisubmersibles in the North Sea, while dayrates in other markets where we operate these rigs remain stable."
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