Hornbeck Offshore Announces $265 Million in New Expansion Plans
Hornbeck Offshore Services says that its Board of Directors recently approved new vessel construction programs for each of its two business segments. This will be the Company's fourth OSV newbuild program and second tug and tank barge (TTB) newbuild program. The Company is seeking bids from domestic shipyards for the two programs. Based on internal estimates, the incremental cost of the two expansion programs is expected to be approximately $265 million in the aggregate. The precise number of vessels to be constructed and their specifications will be finalized as certain milestones are completed, including the negotiation of shipyard contracts. Construction costs related to these two programs will be funded, in part, with the proceeds of the concurrent public common stock offering and private placement of additional 6.125% senior notes that are being announced separately today.
OSV Segment. The Company plans to build an additional 20,000 deadweight tons of new generation OSV vessel capacity with an estimated cost of approximately $170 million. In May 2005, the Company announced plans to convert two coastwise sulfur tankers into 370 class multi-purpose supply vessels, or MPSVs, at a currently estimated total project cost of $65 million. When combined with the Company's current MPSV conversion program, the total cost of the two OSV expansion programs is budgeted to be approximately $235 million in the aggregate. The Company expects to deliver its two new 370 class MPSVs in early 2007. All of the new vessels to be constructed under the latest OSV newbuild program are expected to be delivered by mid-2008, with the first vessel expected in mid-2007. Hornbeck Offshore expects to generate incremental annual EBITDA of approximately $39 million to $47 million for the first full-year of operations of all vessels to be converted or constructed under these two programs. Please refer to the attached table for a definition and reconciliation of EBITDA to its most directly comparable GAAP financial measure.
TTB Segment. The Company also plans to build an additional 400,000 barrels of double-hulled tank barge barrel-carrying capacity and, unlike its first TTB newbuild program, plans to construct the related offshore tugs to be used as power units for the new barges. The estimated cost of the new ocean-going tugs and barges will be approximately $95 million in the aggregate. The Company's first TTB newbuild program, which included the acquisition and retrofit of four 6,000 horsepower ocean-going tugs, is expected to be completed during the fourth quarter of 2005. All of the new vessels to be constructed under the second TTB newbuild program are expected to be delivered during 2007. Hornbeck Offshore expects to generate incremental annual EBITDA of approximately $16 million to $17 million for the first full-year of operations of all vessels to be constructed under the latest TTB newbuild program.
Todd Hornbeck, Chairman, President and Chief Executive Officer, commented, "As with our recently announced 370 class MPSV conversion program, the Company will once again introduce the latest in technologically advanced vessels to the deepwater and ultra-deepwater regions of the offshore oil services industry. These new vessels will embody innovative design features that we believe will offer our customers superior logistical efficiencies. Customer demand for our equipment, including our new MPSVs, remains high. The substantial repairs required to be made to Gulf of Mexico infrastructure damaged by Hurricanes Katrina and Rita highlight the demand for versatile vessels to service the deepwater Gulf of Mexico. In addition, as we complete our first tank barge newbuild program, we believe additional equipment is necessary to address pent-up customer demand for double-hulled equipment in the northeastern United States. We have also experienced a significant level of increase in inquiries for our vessels relating to certain non-oilfield specialty services. Our assessment of the visible demand for deepwater tonnage indicates a need for more U.S.-flagged equipment over the next several years. Because our existing equipment is fully utilized and so is that of the entire new generation OSV industry, now is the time for us to build more proprietary vessels. Our in-house team of naval architects and engineers will, yet again, design improvements to the existing versatility of our vessels to create the type of equipment that the market is telling us it requires."
Current OSV Market Conditions
Mr. Hornbeck continued, "On our last conference call on August 4, 2005, we announced that our fleetwide OSV dayrates were averaging around $13,000 and that our leading-edge spot deck was averaging about $14,000 to $15,000 for the fleet with rates for our smallest vessels to our largest vessels ranging from $13,000 to $20,000. During the third quarter of 2005, we have experienced a substantial increase in our OSV dayrate structure with our fleetwide average currently above $14,000 and a leading-edge spot deck average of over $15,000 per day. We have recently moved our fleetwide range of spot rates for new fixtures up a few thousand dollars a day across the board to roughly $17,000 to $22,000."
The following statements are based on management's current expectations. These statements are forward-looking and actual results may differ materially. Other than as expressly stated, these statements do not include the potential impact of any future capital transactions, such as business combinations, divestitures, financings, unannounced newbuilds or vessel acquisitions that may be commenced or completed after the date of this news release.
Updated Third Quarter 2005 Guidance. The Company now expects EBITDA for the third quarter of 2005 to range between $23.0 million and $25.0 million. As EBITDA is a non-GAAP financial measure, the reconciliation to cash flow provided by operations for these figures can be found in tables below. Based on that reconciliation, the Company's diluted earnings per share guidance for the third quarter of 2005 is now expected to range between $0.37 and $0.43.
Updated Calendar 2005 Guidance. The Company now expects EBITDA for the full year 2005 to range between $90.0 million and $95.0 million and diluted earnings per share is now expected to range between $1.39 and $1.53, excluding the previously reported $0.05 per share loss on early extinguishment of debt incurred during the first quarter of 2005.
Updated Calendar 2006 Guidance. The Company now expects EBITDA for the full year 2006 to range between $110.0 million and $115.0 million and diluted earnings per share is now expected to range between $1.64 and $1.76.
Key Assumptions. The above guidance ranges are based on the assumption that current market conditions in both of the Company's business segments will continue through at least the end of 2006. Any material change in market conditions in either of the Company's two business segments could affect its guidance. Average OSV dayrates are expected to remain at or above $14,000 and average fleetwide utilization is expected to remain in the mid to high-90% range throughout the 2005 and 2006 guidance periods.
The above guidance also reflects the fact that 2005 is a transition year for the Hornbeck tug and tank barge fleet. Our 2005 EBITDA from the tug and tank barge segment is expected to be approximately 25% of the mid-point of the company-wide 2005 upwardly revised guidance range of $90.0 million to $95.0 million. Guidance for 2006 assumes a full-year contribution from all five new tank barges from the Company's first TTB newbuild program, which is expected to result in EBITDA from the tug and tank barge segment of approximately 30% of the mid-point of the company-wide 2006 guidance range of $110 million to $115 million. Our 2006 guidance does not reflect any contribution from the MPSV conversion program that was announced last quarter or the newbuild programs announced today.
The Company expects year-over-year increases of approximately 10% in its aggregate operating and G&A expenses for both 2005 and 2006 commensurate with prevailing oilfield service industry trends and higher costs related to corporate governance. G&A is assumed to remain at approximately 10% to 11% of revenue for both 2005 and 2006. However, the above guidance assumes that improvements in revenue will allow the Company to maintain or improve operating and net income margins for each of the next two years.
In addition, for purposes of fourth quarter 2005 and calendar 2006 EPS guidance ranges, the Company has taken into account the anticipated effect of the financing transactions announced separately today.
Upgrade of Tug and Tank Barge Fleet. In connection with the Company's ongoing efforts to upgrade its tug and tank barge fleet over time, it recently sold an older ocean-going tug, the North Service, agreed to sell one inactive single-hulled tank barge, the Energy 9501, and bought two 6,000 horsepower ocean-going tugs that are being retrofitted for delivery in the fourth quarter of 2005. These tugs have been renamed the Eagle Service and Patriot Service. The estimated aggregate cost to acquire and retrofit these two higher horsepower tugs is approximately $16 million. Two of the five new tank barges in the current TTB newbuild program have been delivered, one in March 2005 and the other in July 2005. The other three barges in this newbuild program are expected to be delivered by year-end 2005.
Plans to Renegotiate Revolving Credit Facility. Upon completion of its concurrent common stock offering and private placement of senior notes, the Company plans to negotiate a new revolving credit facility with its current bank group, and possibly add new lenders. Its goal will be to provide for, among others things, a longer maturity, increased borrowing capacity, lower interest rates and an updated covenant package commensurate with the Company's improved credit standing.
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- Hornbeck Offshore Opens Wallet for 16 More Offshore Supply Vessels (Nov 17)