As noted above, during the second quarter of 2003 the company recorded after-tax asset impairments of $13.8 million, relating to a note receivable from Delta Towing, LLC, the U.S. inland marine and shallow water support vessel business in which the company has a 25% equity interest, and $11.8 million, which pertained to five jackup rigs belonging to the company's Gulf of Mexico Shallow and Inland Water business segment, one mid-water semisubmersible rig and one self-erecting tender rig following the decision to remove the units from drilling service.
For the six months ended June 30, 2003, the company reported net income of $2.7 million, or $0.01 per diluted share, on revenues of $1,219.9 million. During the corresponding six months in 2002, the company reported a net loss of $1,206.4 million, or $3.73 per diluted share, on revenues of $1,314.1 million. Excluding the impact of the losses from the early retirement of debt and asset impairments, partially offset by the favorable tax resolution, net income for the six months ended June 30, 2003 was $28.5 million, or $0.09 per diluted share. Results for the first six months of 2002 included non-cash charges of $1,364.4 million, or $4.22 per diluted share, pertaining to the impairment of an asset belonging to the company's Gulf of Mexico Shallow and Inland Water business segment and the adoption in January 2002 of Statement of Financial Accounting Standards 142, Goodwill and Other Tangible Assets. Excluding these non-cash charges, net income for the six months ended June 30, 2002 was $158.0 million, or $0.49 per diluted share.
The company's International and U.S. Floater Contract Drilling Services business segment reported revenues of $548.5 million during the three months ended June 30, 2003, a 3% decline from revenues of $562.7 million reported over the three months ended March 31, 2003. During the corresponding three months in 2002, segment revenues were $609.1 million. Revenues in the second quarter of 2003 were adversely impacted by a $16 million loss of revenue due to both the labor strike in Nigeria and the riser separation incident on the drillship Discoverer Enterprise. Segment operating income before general and administrative expense was $84.2 million for the three months ended June 30, 2003 compared to income of $144.0 million for the first three months of 2003 and $185.9 million for the corresponding three months in 2002. Field operating income (defined as revenues less operating and maintenance expenses) was $192.6 million for the three months ended June 30, 2003, down 22% from $247.2 million during the first three months of 2003. For the corresponding three months in 2002, field operating income was $289.0 million. As expected, operating and maintenance expense in the second quarter of 2003 was significantly higher than first quarter 2003 due primarily to increased activity, including a seasonal increase in the North Sea, higher shipyard and maintenance expenses, the acquisition of ConocoPhillips' interest in Deepwater Drilling II L.L.C. and the net effect of various deferrals and amortization of costs. In addition, unexpected costs were incurred primarily related to the Discoverer Enterprise riser incident and the labor strike in Nigeria. Segment fleet utilization declined during the three months ended June 30, 2003 to 68%, from 69% and 78% during the three months ended March 31, 2003 and June 30, 2002, respectively.
The company's International and U.S. Floater Contract Drilling Services business segment is expected to experience diminishing opportunities during the second half of 2003 for mid-water semisubmersible rigs in the North Sea, Brazil and Southeast Asia. However, customer inquiries for deepwater drilling programs in the Gulf of Mexico have improved in recent weeks and we remain optimistic regarding deepwater drilling activity in West Africa. The recent two-year contract for the semisubmersible rig Transocean Richardson for drilling operations offshore Ivory Coast in West Africa represents one of several development drilling programs possible in the region over the next 12 to 18 months. Finally, the company's non-U.S. jackup rig fleet is expected to benefit from stable-to-improving activity for the remainder of 2003 and into 2004, despite some current idle jackup rig capacity in West Africa. However, recently announced contract awards for three of the company's international jackup rigs, each for three-year terms, will result in reduced revenue for these units during the third quarter of 2003 when these rigs mobilize to India for anticipated late-October-to-early-November 2003 contract commencements.
Operating revenues from the company's Gulf of Mexico Shallow and Inland Water business segment totaled $55.4 million for the three months ended June 30, 2003, improving 4% from revenues of $53.3 million reported for the first three months of 2003. Segment revenues during the corresponding three months in 2002 were $37.1 million. The segment's operating loss before general and administrative expense was $49.5 million for the three months ended June 30, 2003 compared to a loss of $28.5 million for the first three months of 2003 and $30.9 million for the corresponding three months in 2002. The segment recorded a field operating loss of $15.2 million during the three months ended June 30, 2003 compared to field operating losses in both the three months ended March 31, 2003 and June 30, 2002 of $5.3 million and $8.4 million, respectively. Segment operating and maintenance expense during the second quarter of 2003 increased from first quarter 2003 levels due mainly to costs associated with the well control incident on inland barge Rig 62 and improved activity. Segment fleet utilization was 42% during the three months ended June 30, 2003, up from 38% and 27% during the three months ended March 31, 2003 and June 30, 2002, respectively.
The outlook for the company's Gulf of Mexico Shallow and Inland Water business segment remains uncertain for the balance of 2003. Although utilization among the segment's jackup rigs improved to 46% during the second quarter of 2003, up from 32% during the first three months of the year, utilization in recent weeks has flattened, while activity among the segment's inland barge fleet has declined. Recent dayrates for some of the segment's jackup rigs have increased slightly, aided by the continued contraction of the Gulf of Mexico jackup rig supply, while barge dayrates have declined. The company was recently notified by Petroleos Mexicanos (Pemex) that two of its jackup rigs in the Gulf of Mexico and a platform rig in Trinidad were awarded multi-year contracts for work offshore Mexico. The contracts for jackup rigs RBF 205 and RBF 206 are expected to begin during the fourth quarter of 2003, while the contract for platform rig Cliffs #3 is expected to commence during the third quarter of 2004.
The company also reported that cash flow from operations was $114.4 million and $305.2 million for the three and six months ended June 30, 2003, respectively. Cash and cash equivalents declined to $714.0 million at June 30, 2003 from $1,520.4 million at March 31, 2003, following cash paid for debt repayments and retirements totaling $871.4 million during the second quarter of 2003.
The company anticipates a difficult earnings environment over the remainder of 2003. The company has previously noted that a decrease in earnings can substantially increase its effective tax rate due in part to the effect of operations in countries with revenue-based taxes. The deterioration in 2003 profitability is now expected to result in an effective tax rate of approximately 38% on 2003 earnings, excluding the impact of the above-described asset impairments and debt retirement loss. The application of the higher rate to earnings for the first six months of 2003 resulted in a charge for income taxes in the second quarter significantly higher than previously anticipated, offset by the tax benefits relating to the asset impairments, debt retirement loss and favorable resolution of the non-U.S. income tax liability.
Most Popular Articles