Included in the earnings was a $20.7 million pre-tax charge ($0.16 per share) for the write-off of the total estimated cost to Helix for a mechanical failure in the drilling of a well at the Tulane prospect. In late March, mechanical difficulties were experienced drilling this well and, after further review and analysis, we determined the wellbore would be plugged and abandoned. Therefore, under the Company's successful efforts method of accounting, the total estimated drilling costs to the Company were charged to earnings in the first quarter.
Despite this first quarter charge, due primarily to the continued strengthening of the contracting services markets, the Company raises the lower end of its earnings guidance estimates for 2006 to a range of $2.70 -- $3.30 per diluted share.
Summary of Results (in thousands, except per share amounts and percentages) First Quarter Fourth Quarter 2006 2005 2005 Revenues $291,648 $159,575 $264,028 Gross Profit 102,266 51,873 95,852 35% 33% 36% Net Income 55,389 25,411 56,006 19% 16% 21% Diluted Earnings Per Share 0.67 0.32 0.69
Owen Kratz, Chairman and Chief Executive Officer of Helix, stated, "We had a first quarter to be very proud of, except for the unexpected setback in drilling the Tulane prospect. The decision to abandon the well was a difficult one given that it was a mechanical failure as opposed to a dry hole (the reservoir could still be there). This was one of the deals closed in early 2005 in which we participated as a non-operator through a promote. It is the risk of this kind of negative impact that gave rise to the realization that we needed to be in more control and on the operator side of these arrangements. This event clearly highlights the strategic rationale for the pending acquisition of Remington Oil and Gas. It is a testament to the strengths of our overall business model that we came close to eclipsing our record earnings of Q4/05 despite the Tulane charge."
Financial Highlights * Revenues: The $132.1 million increase in year-over-year first quarter revenues was driven primarily by significant improvements in Contracting Services revenues due to the introduction of newly acquired assets and much better market conditions. * Margins: 35% is two points better than the year ago quarter despite the $20.7 million pre-tax charge (Tulane) taken in the first quarter of 2006. Without this charge, margins would have been 42% driven by the improved market conditions for Contracting Services. * SG&A: $21.0 million increased $8.2 million from the same period a year ago due primarily to increased overhead to support the Company's growth. This level of SG&A was 7% of first quarter revenues, compared to 8% in the year ago quarter. * Equity in Earnings: $6.2 million reflects our share of Deepwater Gateway, L.L.C.'s earnings for the quarter relating to the Marco Polo facility as well as our share of Offshore Technology Solutions Limited's earnings which is the Trinidadian company to which we contributed the Witch Queen. * Income Tax Provision: The Company's effective tax rate for the quarter was 34.1% which is less than the 36% rate in last year's first quarter due primarily to the Company's ability to realize foreign tax credits due to improved profitability both domestically and in foreign jurisdictions. * Balance Sheet: Total debt as of March 31, 2006 was $445 million. This represents 37% debt to book capitalization and with $425 million of EBITDA during the last twelve months, this represents 1.0 times trailing twelve month EBITDA.
Helix Energy Solutions, headquartered in Houston, Texas, is an energy services company that provides innovative solutions to the oil and gas industry worldwide for marginal field development, alternative development plans, field life extension and abandonment, with service lines including diving services, shelf and deepwater construction, robotics, well operations, well engineering and subsurface consulting services, platform ownership and oil and gas production.
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