Pride's Floating Rig Fleet Improves Financial Results
Pride reported income from continuing operations, net of tax, for the three months ended March 31, 2010 of $80.7 million, or $0.45 per diluted share. The results compared to a loss from continuing operations, net of tax, for the three months ended December 31, 2009 of $23.2 million, or $0.13 per diluted share. The results for the fourth quarter of 2009 included an accrual of $56.2 million relating to the possible resolution with the Department of Justice and Securities and Exchange Commission of potential liability under the U.S. Foreign Corrupt Practices Act and a tax benefit of $5.1 million. Excluding these items, the company had income from continuing operations, net of tax, for the fourth quarter of 2009 of $27.9 million, or $0.16 per diluted share. For the three months ended March 31, 2009, income from continuing operations, net of tax, was $148.9 million, or $0.84 per diluted share. Revenues for the first quarter of 2010 totaled $362.8 million compared to $316.7 million in the fourth quarter of 2009 and $451.9 million during the first quarter of 2009.
Net income for the three months ended March 31, 2010 was $73.0 million, or $0.41 per diluted share, including a loss from discontinued operations of $7.7 million, or $0.04 per diluted share. The reported results compared to a net loss for the three months ended December 31, 2009 of $32.8 million, or $0.19 per diluted share, including a loss from discontinued operations of $9.6 million, or $0.06 per diluted share. For the three months ended March 31, 2009, net income was $158.9 million, or $0.90 per diluted share, including income from discontinued operations of $10.0 million, or $0.06 per diluted share.
Louis A. Raspino, President and Chief Executive Officer of Pride International, commented, "First quarter 2010 financial results rebounded from the final quarter of 2009 with the return to service of the Pride North America and Pride South Pacific following the completion of scheduled shipyard projects, along with lower out-of-service time throughout the floating rig fleet. Also, operating costs in the quarter declined 6% from the fourth quarter of 2009, due largely to lower repair and maintenance expense in our floating rig fleet and reduced activity in the jackup rig fleet, partially offset by increasing start-up costs associated with the new drillships. Our floating rig fleet contributed 96% of total earnings before interest, taxes, depreciation and amortization (EBITDA) from our operating segments in the quarter."
"The Deep Ocean Ascension, the first of our four ultra-deepwater drillships under construction, was delivered from the Samsung Heavy Industries shipyard during the first quarter. The rig is currently in transit to the U.S. Gulf of Mexico where we expect to commence a five-year contract during the third quarter of 2010, following field testing and client acceptance. Construction of the Deep Ocean Clarion, the second scheduled delivery in the construction program, is progressing as originally planned, and we expect to take delivery of the rig in August 2010. Like the Deep Ocean Ascension, the rig will mobilize to the U.S. Gulf of Mexico with a five-year contract expected to commence in January 2011. The remaining two drillships in the deepwater expansion program, the Deep Ocean Mendocino and Deep Ocean Molokai, remain on schedule for shipyard completions in January and December of 2011, respectively."
In closing, Raspino noted, "Despite short-term headwinds relating to growing deepwater rig supply, we remain confident that the deepwater sector presents the most compelling case for long-term growth in the offshore drilling industry. The sector is benefiting from excellent exploration success, expanding geographic and geologic reach, a growing base of multi-year development projects, enabling technologies and increasingly complex well construction requirements. Also, crude oil prices have sustained a trading range over the past nine months that is supportive of increased deepwater exploration and production spending from our clients. Our company is well-positioned to benefit from these sector attributes, and we expect to secure contracts for our deepwater rigs available in 2011 and 2012, including the Deep Ocean Molokai."
The company's balance sheet at March 31, 2010 included cash and cash equivalents of $347 million compared to $763 million at December 31, 2009. The decline was largely the result of the final milestone payment made on delivery of the Deep Ocean Ascension. Total long-term debt at March 31, 2010 was $1.2 billion and stockholders' equity was $4.3 billion, resulting in a debt-to-total-capital ratio of 21%. The company expects its debt-to-total-capital ratio to peak at approximately 28% later this year. The higher ratio would follow delivery of the second drillship, the Deep Ocean Clarion, and as preparations are made to take delivery of the third drillship, the Deep Ocean Mendocino.
Net cash flows from operating activities were $100.2 million during the first quarter of 2010 while capital expenditures, excluding capitalized interest, in the quarter totaled $494 million, including capitalized interest. Approximately $422 million of the capital expenditures were associated with the drillship construction program, including rig mobilization costs, capital spares and other start-up costs. Estimated total capital expenditures for 2010 are $1.05 billion, or an estimated $551 million over the remaining three quarters in 2010. An estimated $1.27 billion of capital expenditures are required to complete the drillship construction program, which includes rig mobilization costs, capital spares and other start-up costs. Approximately $739 million is expected to be spent through the delivery of the Deep Ocean Mendocino, which is scheduled in January 2011.
Revenues from the company's Deepwater segment improved 24% in the three months ended March 31, 2010 to $220.8 million compared to $178.1 million in the fourth quarter of 2009. Earnings from operations almost doubled to $87.5 million compared to $47.4 million over the same comparative period. Approximately 69% of total EBITDA from our operating segments in the first quarter of 2010 was contributed by the Deepwater segment, or $108.2 million, up from $67.3 million in the fourth quarter of 2009. The improved financial performance was driven primarily by increased utilization on the semisubmersible rigs Pride North America and Pride South Pacific, with both rigs completing planned shipyard programs that consumed all or a substantial portion of days in the fourth quarter of 2009. The return to service of both rigs contributed significantly to a 13-point rise in segment utilization to 88% during the first quarter of 2010, up from 75% in the fourth quarter of 2009. The increase in first quarter 2010 segment utilization was partially offset by out-of-service time on the semisubmersible rig Pride Carlos Walter, which began a planned 50-day shipyard program on March 15, 2010, and repairs on the semisubmersible rig Pride Rio de Janeiro. Also contributing to the improved first quarter financial performance was a 4% increase in average daily revenues to $335,100 compared to $322,700 in the fourth quarter of 2009, resulting primarily from the commencement of the Pride South Pacific contract offshore Equatorial Guinea. Segment operating costs, before client reimbursables, increased 2% in the first quarter of 2010 compared to fourth quarter 2009 levels, as higher labor costs, increased fleet activity and start-up expenses relating to hiring and training of personnel for the ultra-deepwater drillship additions Deep Ocean Ascension and Deep Ocean Clarion, were partially offset by lower repair and maintenance expenses. At March 31, 2010, the Deepwater segment had 100% of the available rig days remaining in 2010 under contract, with 80% under contract in 2011, 67% in 2012 and 55% in 2013.
The company maintains a guarded near- to intermediate-term outlook for the deepwater sector, as new rig capacity and existing rig availability increase at a time when customer demand continues to develop at a slow pace, and some short-term customer needs are met through the subleasing of rig time. These factors are expected to present resistance to improvement in dayrates during 2010 and into 2011.
Despite short-term uncertainties, the company's long-term outlook for the sector remains strong, supported in part by continued exploration success. Following a record year in 2009 with 25 announced deepwater discoveries, an additional eight discoveries have been announced through March 2010, placing the year on pace to exceed the 2009 record. Many of these discoveries are expected to lead to multi-year project developments in the coming years. In addition, the expansion of deepwater drilling programs beyond the traditional basins in Brazil, Angola and the U.S. Gulf of Mexico are expected to continue while emerging and frontier areas, such as Equatorial Guinea, Ghana, the Eastern Mediterranean and the east coast of Africa, become the latest additions to a growing list of deepwater areas of interest. Also, the complexity of many deepwater drilling programs is growing and requires the advanced well construction features and numerous efficiencies provided by the industry's new ultra-deepwater technology, including the advanced features on the company's ultra-deepwater drillships under construction. Finally, the continued strength of crude oil prices, which averaged $79 per barrel during the first quarter of 2010 and have sustained a trading range of $65 to $85 per barrel over the past nine months, is expected to bolster client confidence toward future deepwater exploration and production spending plans.
Higher utilization and an improvement in average daily revenues contributed to a 24% increase in revenues from the company's Midwater segment during the first quarter of 2010 to $94.2 million compared to $75.7 million in the fourth quarter of 2009. Earnings from operations and EBITDA totaled $30.9 million and $42.9 million, respectively, during the first quarter of 2010, up significantly from $7.9 million and $19.1 million in the fourth quarter of 2009. The improved financial results were due in part to increased utilization, higher average daily revenues and a 9% decrease in segment operating expenses, driven in part by a reduction in repair and maintenance expenses. Segment utilization reached 66% in the first quarter of 2010 compared to 55% in the fourth quarter of 2009, as the semisubmersible rigs Sea Explorer and Pride Mexico recorded utilization at or near 100% following out-of-service events in the fourth quarter of 2009. The semisubmersible rigs Pride Venezuela and Pride South Seas remained idle throughout the first quarter, with the Pride South Seas cold stacked and not expected to be reactivated before the end of the year. The utilization improvement on the Pride Mexico resulted in higher first quarter 2010 bonus revenues from the rig, which contributed to the increase in segment average daily revenues to $265,000, up from $249,100 in the fourth quarter of 2009. At March 31, 2010, the Midwater segment had 67% of the available rig days remaining in 2010 under contract, with 65% under contract in 2011, 35% in 2012 and 14% in 2013.
Client demand for midwater rigs advanced modestly in early 2010, but improvement was due primarily to seasonal patterns in the United Kingdom and Norwegian sectors of the North Sea. A large percentage of the industry's fleet is expected to complete contracts in 2010 while weakness in the deepwater segment for conventionally moored rigs continues to persist, presenting a continued threat to near-term midwater sector fundamentals, as these more capable deepwater units bid reduced dayrates for work programs in shallower water depths. As a result, midwater sector utilization and dayrates are expected to remain under pressure for the balance of 2010. Contract opportunities in several offshore regions may offer some encouragement for later in the year, with client needs visible in Brazil and in the Asia Pacific region where several discoveries have been announced in 2010 offshore China and Australia.
The company is increasingly optimistic regarding the potential reactivation of the semisubmersible rig Pride Venezuela during 2010. The rig is expected to exit a shipyard in the Middle East in July 2010.
Independent Leg Jackup Segment
Revenues from the company's seven independent leg jackup rigs were $31.6 million during the first quarter of 2010 compared to $43.9 million during the fourth quarter of 2009. Segment utilization declined to 45% in the first quarter of 2010 compared to 56% in the fourth quarter of 2009, while average daily revenues declined to $110,100 compared to $122,500 over the same comparative period. Three rigs were idle throughout the first quarter, including the Pride Tennessee, Pride Wisconsin and Pride Pennsylvania. In addition, the Pride Cabinda and Pride Montana were in shipyards for a portion of the quarter for repairs and maintenance. The shipyard programs have been completed and both rigs are back in service. The lower segment activity and reduced average daily revenues resulted in a loss from operations in the first quarter of 2010 of $1.2 million compared to earnings from operations in the fourth quarter of 2009 of $3.1 million. Segment EBITDA was $6.3 million in the first quarter compared to $10.8 million in the fourth quarter of 2009. Segment operating costs declined 24% in the first quarter compared to fourth quarter 2009 costs, driven primarily by the reduced activity. At March 31, 2010, the Independent Leg Jackup Segment had 19% of the available rig days remaining in 2010 under contract, with 7% under contract in 2011 and no rig days under contract beyond 2011.
The outlook for the industry's standard international-class jackup rig fleet remains tenuous at best, due to growing new jackup capacity, a large supply of idle rigs and declining contract backlogs. At present, four of the company's seven jackup rigs are idle, with limited prospects for work over the course of the year.