Parker Drilling Says 2006 A Good Year
Parker Drilling Company (NYSE: PKD) reported strong financial and operating results for the three and twelve months ended December 31, 2006. Financial highlights in 2006 include:
* Full-year 2006 revenues of $586.4 million and EBITDA of $205.0 million were the highest since 1982. * Pretax income increased 67 percent to $117.4 million for 2006 driven by strong operating results and lower interest costs. * Quail Tools reported record rental tool revenues of $122.0 million and record EBITDA of $75.5 million in 2006 and announced expansion into new markets. * Strong financial results enabled the Company to utilize $99.5 million of net operating loss carryforwards in 2006. Based on current market conditions, Parker believes it will report continued strong results in 2007. * Debt decreased to $329.4 million in 2006, a decrease of $242.2 million or 42 percent since 2003 with a corresponding decrease in interest expense of $22.2 million compared to 2003. * Ended 2006 with a debt to capitalization ratio of 42 percent, down significantly from 59 percent at the end of 2005 and 76 percent at the end of 2004. This was achieved through debt reduction, the successful issuance of $99.9 million of equity in January 2006 and equity from earnings of $179.9 million over the last two years.
Robert L. Parker Jr., chairman, president and chief executive officer of Parker Drilling, said: "2006 was a year of significant accomplishment for Parker Drilling. Our strengthening financial performance is the result of the steadfast execution of our strategic growth plan, as we converted investments in our fleet and expansion platform into growth opportunities, expanded our international footprint to include Algeria and Saudi Arabia, capitalized on record margins in our U.S. barge rig and rental tool operations and sharpened our focus on providing our customers with high-performance integrated drilling solutions."
For the three months ended December 31, 2006, Parker posted earnings of $37.2 million, or $0.34 per diluted share, on revenues of $146.3 million, compared to revenues of $149.6 million and net income of $56.7 million, or $0.58 per diluted share, for the fourth quarter of 2005. Net income in the fourth quarter of 2006 included net non-routine income of $0.12 per diluted share or $12.8 million, of which $12.6 million was non-cash deferred taxes. The fourth quarter of 2005 included $0.45 per diluted share or $44.6 million of non-routine items, $44.9 million of which was non-cash deferred tax benefit. The tax benefit was incurred as a result of the Company's profitability in 2005 with a sustained profit outlook, thereby making the realization of past net operating loss tax deductions highly likely. (See note "a" below)
Earnings before interest, taxes, depreciation and amortization (EBITDA) were $51.7 million for the fourth quarter of 2006, 18 percent higher than the $43.9 million in the fourth quarter of 2005. Significantly higher dayrates resulted in a 61 percent EBITDA improvement for Parker's U.S. Gulf of Mexico barge rigs over the prior year's quarter. Quail Tools also showed an improvement, with a 29 percent increase from the prior year's quarter. For the year 2006, EBITDA was $205.0 million, a 27 percent increase over the $161.6 million for 2005. (The details of the EBITDA calculation, a non-GAAP financial measure, for the current and prior eight quarters are defined and reconciled later in this press release to their most directly comparable GAAP financial measure.)
For the year ended December 31, 2006, Parker Drilling reported revenues of $586.4 million, a 10 percent increase from $531.7 million in 2005. Net income was $81.0 million, or $0.75 per diluted share, compared to $98.9 million, or $1.02 per diluted share, in 2005. Net income for 2006 includes non-routine items of $0.14 per diluted share, and net income for 2005 includes non-routine items of $0.56 per diluted share. The details of the non-routine items for the year and the quarter are available on Parker's website and can be viewed or downloaded by going to "Investor Relations" and then to "Reconciliation of Non-Routine Items."
Capital expenditures for the year 2006 totaled $195.0 million. Total debt was $329.4 million at December 31, 2006, a reduction of $50.6 million from the previous year. The Company's cash, cash equivalents and marketable securities totaled $155.1 million at year end compared to $78.2 million at year end 2005.
Average utilization for the Gulf of Mexico barge rigs for the fourth quarter of 2006 was 68 percent, compared to 73 percent reported for the fourth quarter of 2005. The decline in utilization is attributable to customers delaying some projects until 2007, causing two deep barge rigs to experience downtime during the quarter; however, both rigs have since re-entered the active fleet. In addition, two rigs were alternatively down for upgrades and scheduled preventive maintenance. Deep barge rig 50 completed its refurbishment program and re-entered the fleet in December under a six-month contract, and intermediate barge rig 8 is scheduled to re-enter the fleet in April under a ten-month contract.
Current utilization is 76 percent for the Gulf of Mexico barge rigs. Despite the slight decline in average utilization during the fourth quarter, the Company's deep drilling barge dayrates in the Gulf of Mexico continued to experience record levels, averaging $49,500 per day during the fourth quarter of 2006, up approximately 44 percent, or $15,000 per day, from the fourth quarter of 2005 and up approximately eight percent, or $3,700 per day, above the third quarter of 2006. (Average dayrates for each classification of barge by quarter are available on Parker's website and can be viewed or downloaded by going to "Investor Relations" and then to "Dayrates -- GOM.")
The average utilization of international land rigs for the fourth quarter of 2006 decreased to 46 percent from the 84 percent reported for the fourth quarter of 2005 as a result of rigs mobilizing to new areas of operation. International utilization should increase during the first quarter of 2007 as newly constructed land rigs are deployed in Algeria, and as rigs working under previously announced contracts contribute for the full quarter.
Quail Tools, Parker Drilling's drilling and production rental tools subsidiary, continued its outstanding performance as it posted revenues of $31.6 million in the fourth quarter. 2007 is anticipated to improve as additional equipment is scheduled to be delivered during the first half of 2007. Quail's new operating facility in Northeast Texas will open in March, and will provide increased coverage of the Barnett Shale area and Fayetteville Shale area in Arkansas, in addition to the East Texas and Oklahoma markets.
"Looking ahead, we expect increasing contributions from our international segments in 2007 due to higher demand, forecasted increased customer spending and a greater focus on our international markets," said Parker. "Domestically, we expect continued steady demand for our preferred barge rigs in our U.S. Gulf of Mexico transition zone market; although we anticipate the growth in dayrates will begin to level out during the first half of 2007 as they normalize from the record pace of increases seen over the last two years. Finally, we also expect continued growth and outstanding performance from our rental tools segment, as the benefits from expansion plans and capital investment are realized in the first half of 2007."
Parker continued: "In 2006, we completed the first full year of our strategic growth plan, resulting in dramatic improvements in key operational metrics and a stronger balance sheet. As we continue execution of our plan we expect to strengthen our financial position and increase our market share in the critical domestic and international markets that value our competitive differentiation based on preferred rigs, rental tools and project management services. We also plan to build on our competitive advantages in deep and frontier drilling through technological innovation while maintaining our industry leadership in safety and performance. These factors will enable us to capture demand, manage our Company's growth and provide our customers with cost-effective integrated drilling solutions. The combination of these factors makes us optimistic about our outlook for 2007."
Operating Segment Highlights * Barge rig 53 was awarded an additional two-year contract by Pemex for drilling services in Mexico. The rig has drilled continuously in the region since 2004, and new contract terms contain dayrates in accordance with current market pricing that will improve the rig's operating margins. * Rig 188 in New Zealand was awarded an extension of its current long- term contract. The rig is expected to drill continuously throughout 2007 and into 2008. * Construction on two of our four new 2,000 horsepower, variable- frequency drive land rigs has been completed. The rigs are currently being mobilized to Algeria for a three-year contract with Sonatrach and should begin operations during the second quarter. * Ultra-deep barge rig 77, the newest barge rig in our Gulf of Mexico fleet, completed construction and mobilized in December, and is currently operating under two consecutive three-month contracts. * The scope of our previously announced joint venture in Saudi Arabia, which will perform a three-year contract for Saudi Aramco with a one year option, has expanded from four rigs to six. Four of the rigs are in-country and are currently rigging up and commissioning equipment, with expected spud dates ranging throughout the late first quarter and second quarter of 2007.
Parker has scheduled a conference call at 9 a.m. CST (10 a.m. EST) Feb. 22, 2007 to discuss fourth quarter 2006 results. Those interested in participating in the call may dial in at (303) 262-2138. The conference call replay can be accessed from Feb. 22 through Mar. 1 by dialing (303) 590-3000 and using the access code 11083271#. Alternatively, the call can be accessed live through the Company's website at http://www.parkerdrilling.com and will be archived on the site for 12 months.
(a) The 2005 results reflect a $44.9 million non-cash benefit from the elimination of the valuation allowance related to federal Net Operating Loss Carryforwards (NOL) and other deferred tax assets. The valuation allowance was originally recorded in accordance with Generally Accepted Accounting Principles (GAAP) as an offset to the Company's deferred tax assets, which consisted primarily of net operating loss carryforwards.
GAAP required the Company to recognize a valuation allowance unless it was "more likely than not" that the Company could realize the benefit of the NOL and deferred tax assets in future periods. Because expected earnings performance would enable the Company to benefit from the federal NOL, the valuation allowance was no longer required in the fourth quarter of 2005. The 2006 results reflect a $12.6 million non-cash benefit from the elimination of the valuation allowance related to state NOL carryforward and other deferred tax assets. The Company fully utilized its federal NOL during 2006 and expects to utilize the state NOL over the next three to five years.