Hercules Offshore Swings to Loss in 2Q10



Hercules Offshore reported a loss from continuing operations of $19.0 million, or $0.17 per diluted share, on revenues of $165.9 million for the second quarter 2010, compared with a loss from continuing operations of $7.6 million, or $0.09 per diluted share, on revenues of $183.7 million for the second quarter 2009, excluding the effects of non-recurring items.

The second quarter 2009 results include a non-cash charge of $26.9 million to reflect the impairment of the Hercules 110, which was subsequently sold in the third quarter 2009, and a $13.7 million gain on the retirement of $65.8 million aggregate principal amount of our 3.375% Convertible Senior Notes, net of the related write-off of unamortized issuance cost. On an after-tax basis, these adjustments approximated $4.2 million, or $0.04 per diluted share. When including the effect of non-recurring items, the Company reported a loss from continuing operations of $11.8 million, or $0.13 per diluted share for the second quarter 2009.

John T. Rynd, Chief Executive Officer and President of Hercules Offshore stated, "The uncertainties surrounding the drilling permit approval process had only modest impact to our Domestic Offshore segment's second quarter financial results. We continue to benefit from the stable cash flow generated by our International Offshore segment during the quarter, and performance at our Domestic Liftboat and Delta Towing segments were positively impacted by the incremental demand related to spill remediation activities in the Gulf of Mexico."

"Looking ahead, a continuation of the slowdown in issuance of new drilling permits by the Bureau of Ocean Energy Management, Regulation, and Enforcement ("BOEMRE") will affect our third quarter results, as many of our jackup rigs in the Gulf of Mexico have already completed, or are scheduled to complete, their contracts within the quarter, and will go idle if operators cannot obtain new permits. In the meantime, we are continuing to work diligently with our customers to comply with the new regulations issued by the BOEMRE. As these requirements are met and permit approvals return to a normal pace, we are hopeful that backlog of shallow water drilling work will build to levels achieved earlier in the year."

Offshore

Domestic Offshore revenues decreased to $34.1 million in the second quarter 2010 from $37.0 million for the comparable period in 2009. This decrease was primarily driven by a reduction in average revenue per rig per day to $35,345 in the second quarter 2010 from $52,365 in the second quarter 2009, as a result of the industry wide downturn that pressured dayrates throughout 2009, partially offset by an increase in utilization to 90.1% in the second quarter 2010 compared to 62.1% in the second quarter 2009. Operating expenses declined approximately $3.5 million, or 9%, to $37.2 million in the second quarter 2010 from $40.7 million in the comparable 2009 period, as the second quarter 2010 included a gain of $3.1 million on the sale of one of the Company's retired jackups. Domestic Offshore recorded an operating loss of $20.5 million for the second quarter 2010 compared to an operating loss of $20.2 million for the second quarter 2009.

International Offshore revenues decreased to $73.5 million in the second quarter 2010 from $101.8 million in the second quarter 2009 as a result of a decline in our operating days to 533 from 788, in the same periods, respectively. Operating days were adversely affected by the Hercules 170, which has been warm stacked since the third quarter 2009, and the Hercules 205 and 206, which were contracted in Mexico during 2009 but have since mobilized to the U.S. Gulf of Mexico and are now included in our Domestic Offshore segment. Average operating expenses per rig per day decreased to $39,817 in the second quarter 2010 from $42,998 in the comparable quarter in 2009 largely as a result of our cost reduction efforts. Operating income was $24.2 million in the second quarter 2010, compared to $17.2 million in the prior year period. As previously noted, the second quarter 2009 results include a non-cash charge of $26.9 million to reflect the impairment of the Hercules 110.

Inland

Inland revenues for the second quarter 2010 were $5.2 million, an increase from $96,000 in the second quarter 2009, as a result of increased year-over-year demand in this segment. Average revenue per rig per day for the second quarter 2010 was $20,720 and utilization was 91.6%, compared to the year ago period when the company did not have any operating days. Operating expenses decreased by $2.5 million, or 28%, to $6.4 million in the second quarter 2010 from $8.9 million in the second quarter 2009, as a result of our stacking plan, other cost reduction measures, and modest gains on asset sales. This segment recorded an operating loss of $7.7 million in the second quarter 2010 versus an operating loss of $17.4 million in the second quarter 2009.

Liftboats

Domestic Liftboats generated revenues of $17.9 million in the second quarter 2010 compared to $18.9 million in the second quarter 2009. The modest decrease in revenue was the result of a decrease in average revenue per liftboat per day to $7,149 during the second quarter 2010 from $7,727 in the second quarter 2009, partially offset by an improvement in operating days to 2,503 from 2,444 in the same periods, respectively. The decrease in average revenue per liftboat per day stems from both weaker dayrates on our smaller vessel classes and a shift in the mix of vessel class, as we mobilized four larger class vessels to West Africa in the fourth quarter 2009. The increase in utilization is partly due to the Macondo blowout remediation efforts as we had nine liftboats under contract for various clean-up support related activities during the quarter. This segment recorded operating income of $3.0 million in the second quarter 2010, an increase from operating income of $0.2 million in the prior year period.

International Liftboat revenues increased by 31% to $27.2 million in the second quarter 2010 compared to $20.7 million in the second quarter 2009 primarily due to the aforementioned transfer of four larger class vessels to West Africa from the U.S. Gulf of Mexico, which contributed approximately $9.6 million to second quarter 2010 revenue. Operating days increased by 22% to 1,224 in the second quarter 2010 from 1,005 in the second quarter 2009, and average revenue per liftboat per day increased by 8% to $22,212 from $20,644 in the same periods, respectively. Operating expenses increased to $14.9 million in the second quarter 2010 from $9.1 million in the second quarter 2009, largely as a result of the transfer of four vessels to the segment. Operating income for the segment of $6.5 million during the second quarter 2010 declined from $8.4 million during the second quarter 2009, as higher segment revenues were more than offset by increases in operating expense, depreciation and general and administrative costs.

Liquidity and Capitalization

At June 30, 2010, the Company had unrestricted cash and cash equivalents totaling $91.7 million and unused capacity of $165.0 million under its revolving credit facility. As of June 30, 2010, the Company's balance sheet reflects total debt of $859.7 million.


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