Hercules Bulks Up its Q2 Earnings
Hercules Offshore, Inc. reported net income of $22.9 million, or $0.70 per diluted share, on operating revenues of $76.3 million for the second quarter of 2006, compared to net income of $8.2 million, or $0.34 per diluted share, on operating revenues of $37.0 million for the second quarter of 2005. Net income was $53.8 million, or $1.68 per diluted share, on operating revenues of $132.4 million for the six months ended June 30, 2006, compared to net income of $19.6 million, or $0.81 per diluted share, on operating revenues of $71.1 million for the six months ended June 30, 2005.
The results for the six months ended June 30, 2006, include a gain recognized in the first quarter of 2006 of $18.6 million ($0.59 per diluted share), net of tax of $11.0 million, related to the settlement of the company's insurance claim on the loss of Rig 25 in Hurricane Katrina. Excluding the effect of this item, net income was $35.2 million, or $1.09 per diluted share. The results for the six months ended June 30, 2005, include a charge of $2.8 million ($0.12 diluted share) related to the early retirement of debt.
At June 30, 2006, the company's balance sheet reflected total assets of $492.3 million, including cash balances of $64.6 million, total debt of $94.0 million and stockholders' equity of $326.5 million.
"Our growth in earnings during the second quarter is a result of a number of factors, including strong market conditions in each of our business segments, our disciplined and focused acquisition strategy, and our ability to execute on major shipyard projects in a timely and cost-efficient manner," said Randy Stilley, Hercules' CEO and president.
"Looking forward, the Gulf of Mexico drilling market appears to be entering a period of potential weakness driven by a confluence of factors including: weak U.S. natural gas prices, the onset of hurricane season, and the decision by contractors with high-specification jackups that are scheduled to leave the U.S. Gulf of Mexico to secure lower-risk jobs in the shallow water until the rigs depart. We believe the supply and demand balance in the U.S. Gulf will tighten as we exit hurricane season in the fourth quarter and as a result of the number of jackup rigs scheduled to depart the region. We believe we have largely mitigated the impact to the company from this potential weakness as we have contracted seven of our eight available jackups rigs into 2007. Furthermore, we continue to see strong demand for our liftboat fleet, largely driven by hurricane-related repair and well-intervention work, which we expect to continue into 2007."
Contract Drilling Services Highlights
During the second quarter of 2006, revenues from Domestic Contract Drilling Services were $38.3 million, compared to revenues of $26.3 million in the second quarter of 2005. Operating income increased to $22.4 million in the second quarter of 2006 from $11.2 million in the second quarter of 2005 despite the fact that operating days declined to 494 from 602 days in the respective periods. Operating days declined primarily as a result of the loss of Rig 25 during Hurricane Katrina and shipyard time for repairs to Rig 21 and for an upgrade to Rig 22. Both rigs are now out of the shipyard and under contract. The average daily revenue per rig in the segment increased to $77,513 in the second quarter of 2006, compared to $43,653 in the second quarter of 2005.
International Contract Drilling Services revenues and operating income, which reflect the start-up of Rig 16’s operations in Qatar, were $4.3 million and $1.9 million, respectively, in the second quarter of 2006. The second quarter revenues include standby revenues of approximately $2.0 million earned for a timely departure of the rig from the shipyard in the second quarter of 2006. The average daily revenue per rig was $129,577 in the second quarter of 2006, which includes the contract dayrate of $69,500 per day and the standby revenues of $2.0 million. Utilization was 89.2%. Our average daily revenue per rig is calculated by dividing the total revenue by the number of operating days in the period.
Marine Services Highlights
Domestic Marine Services revenues were $30.1 million in the second quarter of 2006, up from $10.8 million in the second quarter of 2005. Operating income increased to $14.0 million in the second quarter of 2006 from $3.0 million in the second quarter of 2005. The average daily revenue per liftboat increased to $10,765 in the second quarter of 2006 from $6,109 in the second quarter of 2005. Utilization for the company's domestic liftboats increased to 75.8% in the second quarter of 2006 from 73.8% in the second quarter of 2005. The total number of operating days increased to 2,802 from 1,766, which reflected the acquisitions of additional liftboats.
International Marine Services revenues and operating income, which reflect the operation of four liftboats in Nigeria acquired in November 2005, were $3.6 million and $1.1 million, respectively, during the second quarter of 2006. The average daily revenue per liftboat was $10,047 in the second quarter, and utilization was 98.0%.
Update on Recent Events
As previously announced, on June 1, 2006, the company acquired five liftboats from Laborde Marine Lifts, Inc. The company assumed construction of an additional liftboat pursuant to a construction agreement assigned to the company by Laborde at the closing. The total purchase price in connection with the transaction was $52.0 million. The purchase price paid at closing was reduced by $2.7 million, the total amount remaining due under the construction agreement as of the closing date. Construction of the 200' class liftboat is now completed and the vessel entered service on July 22, 2006. The six liftboats have leg lengths ranging from 105 feet to 200 feet and are currently located in the Gulf of Mexico.
In April 2006, the company completed a public offering of 9,200,000 shares of common stock at $36.00 per share. It issued 1,600,000 shares of common stock, while the remaining 7,600,000 shares were sold by certain selling stockholders. The company received approximately $54.2 million of proceeds from the offering, net of underwriter discounts and commissions and estimated expenses. The company is using the net proceeds from the 1,600,000 shares it sold for general corporate purposes.
Headquartered in Houston, Hercules Offshore, Inc. owns a fleet of nine jackup drilling rigs and 51 liftboats. The company offers a range of services to oil and gas producers to meet their needs during drilling, well service, platform inspection, maintenance, and decommissioning operations in shallow waters.
Hercules is providing net income before the gain on the insurance settlement of Rig 25 because management believes that this measure better reflects the normal operations of the company as it excludes a significant gain realized on the loss of a rig in a recent hurricane.
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