GlobalSantaFe Announces Third Quarter 2004 Results

GlobalSantaFe Corporation (NYSE: GSF) reported net income for the quarter ended September 30, 2004, of $58.6 million, or $0.25 per diluted share, as compared to net income of $15.1 million, or $0.06 per diluted share, for the same quarter in 2003. Included in net income for the third quarter of 2004 is income from continuing operations of $60.8 million, or $0.26 per diluted share, on revenues of $463.3 million, as compared to income from continuing operations of $12.4 million, or $0.05 per diluted share, on revenues of $430.9 million for the same quarter in 2003.

For the nine months ended September 30, 2004, the company reported net income of $151.3 million, or $0.64 per diluted share, as compared to net income of $104.9 million, or $0.45 per diluted share, for the corresponding period in 2003. Net income for the first nine months of 2004 includes income from discontinued operations of $112.4 million, or $0.48 per diluted share, arising primarily from a $113.1 million after-tax gain on the sale of the company's land rig assets in the second quarter. In the same nine-month period of 2004, income from continuing operations was $38.9 million, or $0.16 per diluted share, on revenues of $1,225.4 million and included: (i) a second-quarter after-tax charge of $21.0 million, or $0.09 per diluted share, related to the early retirement of debt; (ii) a third-quarter after-tax gain of $24.0 million, or $0.10 per diluted share, from the insurance settlement related to the loss of the jackup rig GSF Adriatic IV; and (iii) a third- quarter after-tax gain of $13.7 million, or $0.06 per diluted share, related to the sale of a portion of the company's interest in the Broom Field, a development project in the North Sea.

Net income for the corresponding nine months of 2003 included income from the company's discontinued land rig operations of $10.8 million, or $0.05 per diluted share. In the same nine-month period of 2003, income from continuing operations was $94.1 million, or $0.40 per diluted share, on revenues of $1,327.4 million and included $22.3 million, or $0.09 per diluted share, from the settlement of claims filed in 1993 with the United Nations Compensation Commission.

Third-quarter 2004 Analysis

Excluding the after-tax gains on the insurance settlement and the sale of a portion of the company's interest in the Broom Field discussed above and totaling $37.7 million, or $0.16 per diluted share, the company had income from continuing operations of $23.1 million, or $0.10 per diluted share for the third quarter of 2004, as compared to $12.4 million, or $0.05 per diluted share, for the same quarter in 2003. The improvement in income from continuing operations reflects a 79% increase in contract drilling operating income from $24.3 million in the third quarter of 2003 to $43.5 million in the same quarter of 2004.

The higher operating income from contract drilling for the third quarter of 2004 was primarily due to lower operating expenses and depreciation, and higher dayrates and utilization for the company's North Sea and Middle East drilling fleets, higher utilization for its drilling rigs in Trinidad and improved dayrates for its jackup fleet in the U.S. Gulf of Mexico, partially offset by lower dayrates and utilization for its fleet in West Africa and lower dayrates for two of its ultra-deepwater drillships, the GSF Explorer and the GSF Jack Ryan, as compared to the same quarter of the previous year.

For the third quarter of 2004, the company's drilling management services segment reported an operating loss of $6.9 million on revenues of $157.7 million, compared to operating income of $5.5 million on revenues of $128.8 million in the same period of 2003. The operating loss in the current quarter resulted primarily from losses on five wells totaling $13.1 million, and an unusually high level of profit deferral related to intersegment accounting eliminations from turnkey projects in which the company's oil and gas subsidiary owned an interest. As a result of these eliminations, the drilling management services segment deferred $11.5 million of operating profit in the third quarter, compared to only $1.9 million in the third quarter of 2003. The deferred profit will ultimately be realized through lower depletion expense for the company's oil and gas subsidiary.

CEO's Comments and Market Overview

GlobalSantaFe President and Chief Executive Officer Jon Marshall said, "While our drilling management services group had a difficult third quarter this year, we expect this segment of our business to be profitable in the fourth quarter of this year." Marshall added, "As we enter the last quarter of 2004 and look forward to 2005, we are encouraged by a continued improvement in demand for our drilling equipment and services. Evidencing the growing demand for ultra-deepwater floaters, we recently announced an attractive contract for our newbuild ultra-deepwater semisubmersible, GSF Development Driller I. If current trends continue, we would expect dayrates to increase for our floating drilling rigs as contracts for these rigs expire during 2005 and we enter into new contracts. While the North Sea market for jackups remains somewhat soft, the jackup markets in the U.S. Gulf of Mexico, West Africa, Southeast Asia and the Middle East continue to strengthen, enabling us to increase dayrates in these markets."
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