GlobalSantaFe Says 4Q06 Net Income Up
GlobalSantaFe Corporation (NYSE: GSF) reported fourth quarter 2006 net income of $349.4 million, or $1.48 per diluted share, on revenues of $950.6 million, compared with net income of $180.2 million, or 73 cents per diluted share, on revenues of $603.5 million in the fourth quarter of 2005. For the 12 months ended Dec. 31, 2006, the company reported record net income of $1.01 billion, or $4.13 per diluted share, on revenues of $3.31 billion, compared with net income of $423.1 million, or $1.73 per diluted share, on revenues of $2.26 billion in 2005.
Net income for the fourth quarter of 2006 includes an after-tax gain of $31.2 million, or 13 cents per diluted share, from the sale of the hurricane- damaged GSF Adriatic VII and an additional insurance recovery related to the rig, while net income for the fourth quarter of 2005 included an after-tax gain of $23.5 million, or 9 cents per diluted share, from the sale of the Glomar Robert F. Bauer drillship. The full year 2006 results include after- tax gains totaling $94.9 million, or 39 cents per diluted share, on proceeds related to the GSF Adriatic VII and GSF High Island III jackup rigs, which were severely damaged by Hurricane Rita, while the 2005 results included the gain on the sale of the drillship.
GlobalSantaFe continued to repurchase its stock during the fourth quarter under a $2 billion buyback program authorized by its board of directors on March 3, 2006. The company repurchased $1.1 billion of its shares through Dec. 31, 2006, including $300 million purchased during the fourth quarter.
"During 2006, we generated our highest net income in history while increasing our contract revenue backlog to nearly $11 billion," said GlobalSantaFe President and CEO Jon Marshall. "Notwithstanding some recent softness in the Gulf of Mexico jackup market, we continue to benefit from the strength in international offshore drilling markets."
Fourth Quarter 2006 Analysis
Fourth quarter 2006 net income benefited from an 87 percent increase in operating income to $370.6 million from $198.2 million in the fourth quarter of 2005, as well as a lower effective tax rate in the 2006 period. The increase in operating income primarily resulted from higher contract drilling dayrates in 2006. Average revenues per day from contract drilling increased 62 percent in the fourth quarter of 2006 to $144,300 from $89,200 in the fourth quarter of 2005. Average fleet utilization declined to 94 percent in the fourth quarter of 2006 from 98 percent in the fourth quarter of 2005, primarily because the company idled four of its jackup rigs in the U.S. Gulf of Mexico for upgrade and maintenance in preparation for their move to the Arabian Gulf to begin four-year contracts.
The combined drilling management services and oil and gas segments reported fourth quarter operating income of $21.9 million on revenues of $211.3 million, compared with operating income of $19.1 million on revenues of $136.5 million in the fourth quarter of 2005. The drilling management services segment reported a total of 22 turnkey projects in each of the two quarters.
Full Year 2006 Analysis
The significant improvement in 2006 net income was primarily driven by a 139 percent increase in operating income to $1.11 billion from $464.4 million in 2005 and also reflects a decline in the company's effective tax rate to 10.0 percent in 2006 from 12.9 percent in 2005. The sharp rise in operating income was driven by higher contract drilling dayrates and improved deepwater fleet utilization and the previously mentioned gains related to the two jackup rigs damaged by Hurricane Rita. Operating income for 2005 included the gain on the drillship sale.
Average revenues per day from contract drilling increased 55 percent to $122,600 per rig in 2006, compared with $78,900 in the prior year. Average fleet utilization in 2006 was 95 percent, compared with 96 percent in 2005.
The combined drilling management services and oil and gas segments reported 2006 operating income of $38.8 million on revenues of $772.4 million, compared with operating income of $65.2 million on revenues of $623.3 million in 2005. The lower operating income reflects increased profit deferrals on turnkey wells in which GlobalSantaFe's oil and gas segment held a working interest, as well as a $14.4 million loss on one turnkey project in 2006. During 2006, the drilling management services segment reported a total of 97 turnkey projects, compared with 99 in 2005. The oil and gas group participated in 34 of these projects in 2006, compared with 23 in 2005.
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