Hercules Reports Mightier Q3 Profit in 2006



Hercules Offshore, Inc. on Monday reported net income of $29.7 million, or $0.90 per diluted share, on operating revenues of $97.2 million for the third quarter of 2006, compared to net income of $10.1 million, or $0.41 per diluted share, on operating revenues of $42.2 million for the third quarter of 2005. Net income was $83.5 million, or $2.57 per diluted share, on operating revenues of $229.6 million for the nine months ended September 30, 2006, compared to net income of $29.7 million, or $1.22 per diluted share, on operating revenues of $113.3 million for the nine months ended September 30, 2005. The results for the nine months ended September 30, 2006 include a gain recognized in the first quarter of 2006 of $18.6 million ($0.59 per diluted share), net of tax of $11.0 million, related to the settlement of the Company's insurance claim on the loss of Rig 25 in Hurricane Katrina. Excluding the effect of this item, net income was $64.9 million, or $1.98 per diluted share for the nine month period.

At September 30, 2006, the Company's balance sheet reflected total assets of $556.7 million, including cash balances of $85.0 million, total debt of $93.6 million and stockholders' equity of $356.6 million.

Randy Stilley, Chief Executive Officer and President of Hercules Offshore, Inc., commented on the results and outlook: "Our continued strong sequential earnings growth is a positive reflection of both our acquisition and marketing strategies. We expect our operating days to continue to increase over the next several quarters as additional acquired assets enter service."

"Looking ahead, we anticipate continued favorable market conditions for our liftboats and in the international offshore drilling market, which remains undersupplied. As was the case last quarter, the near-term outlook for U.S. Gulf of Mexico contract drilling remains uncertain. The Company's committed contract backlog has largely mitigated any potential weakness in our 2006 operating results, and the continued migration of U.S. Gulf of Mexico jackup rigs to international markets should maintain a favorable balance between supply and demand, leading to improvements in contracted backlog during 2007."

Contract Drilling Services Highlights

During the third quarter of 2006, revenues from Domestic Contract Drilling Services were $46.4 million, compared to revenues of $28.2 million in the third quarter of 2005. Operating income increased to $27.8 million in the third quarter of 2006 from $12.2 million in the third quarter of 2005 despite the fact that operating days declined to 548 from 571. Operating days declined primarily as a result of the loss of Rig 25 during Hurricane Katrina. The average daily revenue per rig in the segment increased to $84,776 in the third quarter of 2006, compared to $49,471 in the third quarter of 2005. Utilization was 99.3% during the third quarter of 2006, compared to 95.5% during the third quarter of 2005.

International Contract Drilling Services revenues and operating income were $7.9 million and $2.5 million, respectively, in the third quarter of 2006, which reflected the start-up of Rig 16's operations in Qatar in the second quarter of 2006 and the mobilization of Rig 31 to India in the third quarter of 2006. Prior to the start-up of Rig 16's operations in Qatar, we did not have international drilling operations. The average daily revenue per rig was $78,825 in the third quarter of 2006, and utilization was 100.0%.

Marine Services Highlights

Domestic Marine Services revenues were $40.1 million in the third quarter of 2006, up from $13.9 million in the third quarter of 2005. Operating income increased to $21.0 million in the third quarter of 2006 from $3.4 million in the third quarter of 2005. The average daily revenue per liftboat increased to $12,641 in the third quarter of 2006 from $5,432 in the third quarter of 2005. Utilization for the Company's domestic liftboats decreased to 77.0% in the third quarter of 2006 from 79.7% in the third quarter of 2005. The total number of operating days increased to 3,171 from 2,566, which reflected the acquisitions of additional liftboats.

International Marine Services revenues and operating income, which reflect the operation of four liftboats in Nigeria acquired in November 2005, were $2.8 million and $0.2 million, respectively, during the third quarter of 2006. The average daily revenue per liftboat was $12,050 in the third quarter, and utilization was 63.9%. The third quarter 2006 utilization was lower than the utilization in the second quarter of 2006 due to drydocking schedules for two liftboats during a portion of the third quarter. Both vessels are now back in service.

Update on Recent Events

As previously announced, on August 24, 2006, one of the Company's wholly owned subsidiaries entered into a definitive agreement with Halliburton West Africa Limited and Halliburton Energy Services Nigeria Limited (collectively, "Halliburton") to purchase eight liftboats owned by Halliburton and assume Halliburton's rights to operate five additional liftboats under an arrangement with the third party vessel owner. The liftboats are currently operating in the coastal waters of Nigeria and Cameroon and have leg lengths ranging from 105 to 215 feet. The initial purchase price is approximately $50.0 million. The parties will also enter into an earn-out agreement, whereby Hercules will make additional payments, up to a maximum of $10.0 million, to Halliburton over a three-year period based upon Hercules's liftboat operations in West Africa meeting certain annual profitability and capital expenditures targets. We expect the transaction to close this week.

Headquartered in Houston, Hercules Offshore, Inc. owns a fleet of nine jackup drilling rigs and 51 liftboats. The Company offers a range of services to oil and gas producers to meet their needs during drilling, well service, platform inspection, maintenance, and decommissioning operations in shallow waters.

The Company is providing net income before the gain on the insurance settlement of Rig 25 because management believes that this measure better reflects the normal operations of the Company as it excludes a significant gain realized on the loss of a rig in a recent hurricane.

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