Net income increased 70% compared to $40.6 million, or $0.24 per diluted share reported for the fourth quarter of 2005, while revenues rose 21% compared to $551.0 million during the fourth quarter of 2005. Results for the three months ended December 31, 2006 included expenses of $14.4 million, or $0.08 per diluted share after tax, resulting from the previously announced early termination of certain existing agency relationships associated with five of the Company's semisubmersible rigs in Brazil; $4.9 million, or $0.02 per diluted share after tax, relating to the Audit Committee's ongoing investigation; and $3.9 million, or $0.01 per diluted share after tax, resulting from the impairment of two platform rigs in the Company's Offshore segment and three workover rigs in its Latin America Land segment.
In November 2006, the Company announced the acquisition of its partner's interest in the joint venture companies that owned the two dynamically positioned, deepwater semisubmersible rigs Pride Rio de Janeiro and Pride Portland, increasing the Company's ownership in the two units from 30% to 100%. As a result of the transaction, revenues for the three months ended December 31, 2006 increased by $8.0 million related to the amortization of deferred credits associated with contracts acquired. Operating costs declined by $7.8 million due to the elimination of lease payments on the two rigs. Depreciation expense increased $5.0 million, and interest expense increased by $2.0 million, due primarily to the addition of $284.1 million of joint venture debt to the Company's balance sheet. Giving effect to these items, the acquisition has a net impact of $0.05 per diluted share on fourth quarter 2006 after-tax earnings.
For the 12 months ended December 31, 2006, net income totaled a record $296.5 million, or $1.72 per diluted share, on record revenues of $2,495.4 million, compared to net income of $128.6 million, or $0.80 per diluted share, on revenues of $2,033.3 million in 2005.
Louis A. Raspino, President and Chief Executive Officer of Pride International, Inc., stated, "The Company achieved record financial results in 2006 as a result of improving fleet dayrates and activity. These financial results were accomplished despite an active rig maintenance and upgrade schedule that included 10 rigs entering shipyards in 2006 combined with a moderating U.S. Gulf of Mexico jackup dayrate environment. The offshore drilling industry continues to experience strong customer demand in most offshore drilling regions, producing exceptional contracting opportunities for our floating rig fleet. The Company concluded 2006 with a record revenue backlog of approximately $5.7 billion, providing an excellent foundation for cash flow growth in 2007 and beyond. In addition, 2006 will be remembered for the Company's excellent safety performance, which was the best in its history and followed record safety performance in 2005.''
Raspino added, "With the completion of the Brazilian joint venture acquisition in November 2006, combined with the acquisition of our partner's joint venture interest in Angola in late 2005, the Company has made an aggregate investment of approximately $700 million in technically advanced deepwater assets. These investments, combined with the January 2007 appointment of an executive team capable of leading our Latin America Land and E&P Services segments on a standalone basis, and the continued sale of non-strategic assets, which totals approximately $250 million since late 2004, is evidence of the Company's continued progress toward a strategic focus on offshore drilling with a greater exposure to the high-specification floater segment. During 2007, we will intensify our efforts regarding the pursuit of other value-adding growth opportunities.''
Consolidated revenues for the three months ended December 31, 2006 were a record $669.2 million, an increase of $26.4 million, or 4.1% over the third quarter in 2006. Revenues benefited from improved average dayrates and activity levels in the Company's Offshore segment, as several rigs returned to work following out-of-service periods during the third quarter of 2006. The improvement in dayrate and activity levels, along with the positive revenue impact from the Brazilian joint venture acquisition, was partially offset by unplanned downtime on the semisubmersible rig Pride North America and lower revenues in the Company's E&P Services segment.
Consolidated earnings from operations for the three months ended December 31, 2006 totaled $134.3 million, a $21.3 million decrease from the preceding quarter in 2006, due primarily to early termination of agency agreements in Brazil, the impact of a general strike in Argentina, higher engineering project costs, depreciation and asset impairments. In addition, the third quarter of 2006 included a gain on the sale of assets not present in the fourth quarter. These items were partially offset by the favorable impact of the Brazilian joint venture acquisition.
Offshore Segment Results
The Company's Offshore segment reported revenues of $432.9 million for the three months ended December 31, 2006, up $34.5 million, or 8.7% from the preceding quarter in 2006 with improving dayrates and higher utilization evident for floating rigs and international jackup rigs throughout most offshore regions. Segment earnings from operations were $128.0 million in the fourth quarter of 2006, down $7.1 million from the third quarter of the year.
Revenues from the segment's eight deepwater rigs totaled $125.5 million in the fourth quarter of 2006, essentially flat with the preceding quarter, with increased revenues from the semisubmersible rigs Pride Rio de Janeiro and Pride Portland, following the Brazilian joint venture acquisition, being substantially offset by out-of-service time on the Pride North America. This out-of-service time on the rig and corresponding repair costs, combined with the costs associated with the termination of the Brazilian joint venture agency agreement, impairment charges and higher engineering project costs contributed significantly to the $11.7 million reduction in earnings from operations for the deepwater fleet to $27.5 million in the fourth quarter from $39.2 million in the third quarter of 2006.
Revenues from the segment's six mid-water semisubmersible rigs improved to $64.9 million in the fourth quarter of 2006, an 80% increase from the third quarter, led principally by the return to service of the semisubmersible rig Pride Venezuela following a shipyard visit that kept the rig out-of-service for the entire third quarter of 2006. The rig's dayrate improved to $244,000 per day from a previous dayrate of $120,000, contributing in the fourth quarter of 2006 to improved earnings from operations for the mid-water fleet of $14.7 million, up from $6.8 million in the preceding quarter of 2006.
The segment's 28 jackup rigs recorded revenues of $185.6 million during the fourth quarter of 2006, a 6% improvement from the third quarter, while earnings from operations improved slightly to $85.9 million, from $84.5 million in the preceding quarter. The operating performance was achieved despite a generally weaker environment for U.S. Gulf of Mexico-based jackup rigs, where average revenue per day declined to $102,500 per day in the fourth quarter of 2006, from $111,600 per day in the preceding quarter. Several rigs returned to service in the fourth quarter following the completion of shipyard programs, including the Pride California, Pride Nevada, and Pride Oklahoma. In addition, the jackup rig Pride Louisiana returned to active status during the quarter following 71 days of idle time in the third quarter of 2006. In February 2007, the Pride Tennessee and Pride Arkansas completed maintenance and periodic surveys and have departed for Mexico to begin multi-year contracts with Pemex.
Latin America Land Segment
Revenues from the Latin America Land segment were $159.6 million during the fourth quarter of 2006, essentially flat with revenues in the third quarter of 2006, despite the impact of a seven-day general strike against the energy industry that affected drilling, workover and service operations in Argentina. Earnings from operations in this segment declined 12% to $29.0 million over the previous quarter, due primarily to costs associated with the labor strike. During the quarter, the Company mobilized an idle land drilling rig from Kazakhstan to Colombia following the award of a three-year contract, and relocated two workover rigs and a land drilling rig to Argentina from Venezuela and Bolivia, respectively. Average daily revenue per rig for the land drilling rig fleet improved to $15,700 during the fourth quarter of 2006, compared to $15,600 in the preceding quarter. Average daily revenue for the land workover rig fleet was $6,800 in the fourth quarter of 2006, compared to $6,200 during the third quarter.
E&P Services Segment
Revenues from the E&P Services segment were $51.2 million for the three months ended December 31, 2006, down from $55.2 million in the preceding quarter of 2006, while income from operations totaled $7.2 million, compared to $8.3 million in the third quarter of 2006. Segment results in the quarter were negatively impacted by the seven-day general strike in Argentina.
For the 12 months ended December 31, 2006, cash flow from operations totaled $611.7 million, up from $321.9 million in 2005. The Company reported total debt at December 31, 2006 of $1,386.6 million, representing a $319.5 million increase from total debt at September 30, 2006. The increase in total debt during the quarter related to the acquisition of the Brazilian joint venture, including net borrowings of $50 million under the revolving credit facility to fund the purchase and the consolidation of $284 million of joint venture debt.
Capital expenditures during the three months ended December 31, 2006 were $130 million, resulting in total capital expenditures for the year of $356 million compared to capital expenditures of $157 million for the 12 months ended December 31, 2005. The Company anticipates completing in 2007 its two-year major capital expenditures program, with capital expenditures during the year expected to be in the range of $400 million. Following 2007, capital expenditures are expected to be significantly lower.
Financial results for the first quarter of 2007 are expected to improve from results achieved in the fourth quarter of 2006, adjusted for the impact of the Brazilian agency buyout costs, impairment costs and ongoing investigation charges. First quarter 2007 earnings per share are expected to be $0.57 to $0.60 and reflect the impact of the current softness in the U.S. Gulf of Mexico market.
Pride International, Inc., headquartered in Houston, Texas, is one of the world's largest drilling contractors. The Company provides onshore and offshore drilling and related services in more than 25 countries, operating a diverse fleet of 277 rigs, including two ultra-deepwater drillships, 12 semisubmersible rigs, 28 jackups, 16 tender-assisted, barge and platform rigs, and 214 land rigs.
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