First quarter 2003 net income included $22.1 million, or $0.10 per diluted share, from the settlement of a claim filed in 1993 with the United Nations Compensation Commission for losses suffered as a result of the Iraqi invasion of Kuwait in 1990. Excluding the benefit of this settlement, the company's net income would have been $23.8 million, or $0.10 per diluted share.
Financial and Operating Performance
"As compared to the first quarter of last year, our financial performance for the first quarter of 2003 was adversely affected by lower contract drilling revenues, slightly higher contract drilling operating expenses and a reduced contribution from our drilling management services group," said GlobalSantaFe President and Chief Executive Officer, Sted Garber.
The contract drilling business segment reported operating income of $41.0 million for the first quarter of 2003, down approximately 58 percent from $97.5 million in the first quarter of 2002. These results are largely due to lower utilization and dayrates for the company's land and marine rig fleets.
During the first quarter 2003, the company's marine fleet utilization averaged 85 percent, slightly lower than the first quarter 2002 average utilization of 88 percent. Contributing to lower utilization, eight of the company's marine rigs were idle for various periods during the first quarter 2003 primarily due to upgrade projects and repair and maintenance work. Additionally, seven marine rigs were idle for various periods resulting from drilling market weakness primarily in the Gulf of Mexico and the North Sea. Ten of these fifteen rigs have already returned to work and four are expected to return to work during the second half of 2003. The fifteenth rig, the semisubmersible GSF Arctic II, continued a major paint project through the first quarter of 2003 and it is expected to be cold stacked upon project completion. The average marine fleet dayrate for the first quarter 2003 decreased to $71,600 from the prior year's first quarter average of $76,600, primarily due to softness in the company's North Sea and deepwater operations. The company expects this softness to continue through the second quarter 2003. The company's newly constructed high-performance jackup GSF Constellation I is scheduled for delivery during the second quarter of 2003, and the company is actively marketing the rig.
During the first quarter 2003, the company's land fleet also experienced a decrease in utilization and average dayrates as compared to the first quarter 2002. Lower utilization was primarily the result of eight rigs remaining idle in Venezuela during the entire first quarter 2003. A further contributing factor was the company's decision in March 2003 to suspend drilling operations in Kuwait due to the situation in Iraq. The company expects that eight of its rigs in Kuwait will resume operations by the end of April 2003. Compared to the first quarter of 2002, the company's contract drilling segment experienced slightly higher operating expenses during the first quarter 2003, related to higher marine insurance, labor, mobilization and freight expenses.
"As the military conflict in Iraq comes to a close and the political situations in Venezuela and Nigeria normalize, we are cautiously optimistic that energy prices will stabilize. We believe that oil price stability will contribute to improved customer confidence in global energy markets that in turn should foster increased exploration and development drilling activity. GlobalSantaFe is well positioned worldwide to take advantage of any improvements in these markets," stated Garber.
GlobalSantaFe's drilling management services segment posted operating income of $2.7 million in the first quarter of 2003, down from $7.7 million in the same quarter of 2002. Applied Drilling Technology Inc. (ADTI) drilled a total of twenty turnkey wells and performed six well completions during the first quarter of 2003, compared to eighteen turnkey wells and five completions during the same quarter of last year. Although ADTI reported higher drilling activity levels in 2003's first quarter, the drilling management services segment reported a lower operating margin primarily as a result of losses on three turnkey wells in the first quarter of 2003.
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