Parker Drilling Posts 1Q Financial Results
Parker Drilling reported results for the three-month period ended March 31, 2010. The Company's results for the quarter included a net loss of $2.1 million or $0.02 per diluted share on revenues of $157.6 million, compared with net income of $2.1 million or $0.02 per diluted share on revenues of $173.9 million for the 2009 first quarter. Excluding the effects of non-routine items the Company reported net income of $2.6 million or $0.02 per diluted share compared with similarly adjusted 2009 first quarter net income of $5.6 million or $0.05 per diluted share. Adjusted EBITDA excluding non-routine items was $37.9 million compared with $45.0 million for the prior year’s first quarter.
Compared with the fourth quarter of 2009, the Company's net income, adjusted for non-routine items, was higher by $3.1 million or $0.03 per diluted share and adjusted EBITDA was $3.4 million higher. Revenues declined 10 percent compared to the preceding quarter.
"Our performance in the first quarter reflects improvements in U.S. drilling markets and continued sluggishness in international drilling contract awards and renewals. In our U.S. businesses we are benefiting from actions taken to enhance our strategic position," said Parker Drilling chief executive officer David Mannon. "Our barge drilling business had a significant upturn in revenues and earnings this past quarter, compared with the prior year’s first quarter. In 2009 we decided to 'ready-stack' our Gulf of Mexico barge rigs. This strategy enabled us to capture a large portion of newly-contracted work by providing fast back-to-work response times while keeping costs in line with market conditions. Parker’s rental tools business continued to benefit from the strategic positioning of stores in the active shale plays and recent investments in tubular inventory. These enabled the business to leverage the earnings impact of recovering rig activity and reductions in price discounting." Mr. Mannon went on to say, "The effects of the 2009 reduction in worldwide E&P spending continue to contribute to the lower international utilization we have today."
First Quarter Highlights
- Parker's U.S. barge drilling business increased revenues, gross margin and gross margin as a percent of revenues compared with the prior year’s first quarter. In addition, Parker operated more barge drilling rigs in the U.S. Gulf of Mexico than any of its competitors.
- The Company's Rental Tools business' gross margin as a percent of revenues increased to 63 percent, compared with 55 percent in the prior year’s fourth quarter and 57 percent in the prior year’s first quarter. The business benefited from a growing international and offshore presence, a reduction of discounting in the U.S. land drilling market and lower operating costs.
- Parker issued $300 million of 9.125% senior notes due in 2018. Net proceeds are being used to retire its 9.625% senior notes maturing in 2013 and pay off borrowings under its revolving credit facility.
"Recent trends in U.S. land drilling, the sustained level of oil prices and an expected increase in worldwide exploration and production spending are encouraging factors in our markets. Though natural gas fundamentals present a risk to sustained growth in demand from U.S. land activity, we believe the shift to more oil-directed drilling may mitigate this," said Mr. Mannon. "Overall, we believe these trends will contribute to renewed growth for Parker. Demand for rental tools continues to improve and price discounting has eased. Our barge drilling activity has picked up and stabilized. In many of our international drilling markets contract tender activity is improving and should provide increased deployment opportunities for our rig fleet during the year. Our project management business continues to grow its opportunity list of longer-term design, construction and operating projects. We are continuing to develop each of our businesses in line with its strategy, and I expect the strategies we have deployed to result in improving operating performance as the year progresses," he concluded.
First Quarter Review
Results for the three months ended March 31, 2010, included the impact of several non-routine items that decreased net income by $4.6 million or $0.04 per diluted share. Included in non-routine items is $3.9 million, pre-tax, of expense related to the ongoing Department of Justice and Securities and Exchange Commission investigations and Parker's internal review regarding possible violations of the Foreign Corrupt Practices Act and other laws. Also included in non-routine items is $3.2 million, pre-tax, of debt extinguishment costs related to the portion of the Company's 9.625% senior notes which were tendered and exchanged in the quarter. The remaining non-tendered 9.625% senior notes were redeemed in the second quarter. The results for the 2009 first quarter included non-routine, net after-tax expense of $3.5 million or $0.03 per diluted share. Details of the non-routine items are provided in the attached financial tables.
Parker's revenues for the 2010 first quarter declined to $157.6 million or by 9 percent from the 2009 first quarter revenues of $173.9 million. The Company's 2010 first quarter gross margin, before depreciation and amortization expense, declined to $44.1 million or by 16 percent from the 2009 first quarter gross margin of $52.7 million, while gross margin as a percentage of revenues was 28 percent compared with 30 percent for the 2009 first quarter.
- International Drilling revenues declined to $63.9 million from $77.4 million, and gross margin, before depreciation and amortization expense, declined to $16.7 million from $27.6 million. The decrease in revenues was primarily the result of reduced fleet utilization and the impact of having the Caspian Sea barge rig in a shipyard throughout the quarter for scheduled overhaul and upgrade. This was partially offset by an increase in the fleet's average dayrate. Average fleet utilization for the 2010 first quarter was 61 percent, compared with 78 percent for the prior year's first quarter. For the quarter, the ten-rig Americas regional fleet operated at 77 percent average utilization, the eleven-rig CIS/AME regional fleet operated at 64 percent average utilization and the eight-rig Asia Pacific regional fleet operated at 44 percent average utilization.
- U.S. Drilling revenues increased 53 percent, to $15.1 million from $9.9 million and gross margin, before depreciation and amortization expense, rose to $2.1 million from a loss of $3.3 million. The increase in revenues and gross margin was primarily due to higher barge rig activity and lower operating costs partially offset by a decrease in the fleet's average dayrate. For the quarter the Company had an average of three more rigs operating under contract than for the comparable period of 2009. The fleet's average dayrate was $21,900 for the 2010 first quarter and $28,000 for the 2009 first quarter.
- Rental Tools revenues declined to $33.8 million from $37.9 million, gross margin, before depreciation and amortization expense, declined to $21.2 million from $21.4 million, and gross margin as a percent of revenues rose to 63 percent from 57 percent. As some demand stability has returned to the rental tools marketplace price discounts have eased. In addition, the rental tools business benefited from lower operating costs and expanded offshore and international placements.
- Project Management and Engineering Services revenues declined to $24.4 million from $32.1 million and gross margin, before depreciation and amortization expense, declined to $4.9 million from $6.2 million. The prior year included revenues associated with the relocation and upgrade of the Yastreb rig for ExxonNeftegas (ENL) on Sakhalin Island and operational revenues for ENL's Orlan platform which has since moved to a non-operating mode.
- Construction Contract revenues increased to $20.4 million from $16.7 million and the recorded gross margin, before depreciation and amortization expense, was a $0.8 million loss, compared to a $0.8 million gain in the prior year's comparable period. The 2010 first quarter reflects an adjustment of the fixed fee for the cost-reimbursable Liberty project, due to the expanded costs which have impacted the percentage-of-completion allocation.
Cash Flow and Capitalization
Capital expenditures for the 2010 first quarter were $57.9 million, including $41.2 million for the construction of Parker's two newbuild arctic rigs for Alaska and $9.3 million for tubular goods and other rental equipment.
During the first quarter Parker issued $300 million of senior debt at an effective rate of 9.125% due in 2018. The proceeds are being used to refinance the Company’s outstanding $225 million of 9.625% senior notes and to repay borrowings under its revolving credit facility. Included in the current portion of long-term debt at March 31, 2010 was $130.0 million of 9.625% senior notes which were called in March and retired in April.