Parker Drilling Posts Q4, Full Year Financial Results
Parker Drilling Company has reported financial and operating results for the 2008 fourth quarter and year. For the fourth quarter of 2008 Parker Drilling reported a net loss of $39.5 million or $0.35 per diluted share on revenues of $212.4 million. Excluding non-routine items, the most significant of which is a charge for goodwill impairment, net income was $29.9 million or $0.27 per diluted share. For all of 2008, the Company reported net income of $25.6 million or $0.23 per diluted share on revenues of $829.8 million. Excluding non-routine items, net income was $95.4 million or $0.85 per diluted share.
The fourth quarter closes a year of significant achievements for the Company, including:
- Record revenues of $829.8 million, a 27 percent increase over the prior year;
- Record earnings before interest, taxes, depreciation and amortization (adjusted EBITDA) of $273.8 million, a 5 percent increase over the prior year (adjusted EBITDA is a non-GAAP financial measure defined below);
- Record revenues and segment gross margin for International Drilling, Project Management and Engineering Services and Rental Tools;
- A company-best safety performance of 0.66 Total Recordable Incident Rate (TRIR) for 2008, below last year's record 0.81 TRIR;
- Significant Project Management wins, including the Engineering Procurement Construction and Installation (EPCI) contract for the land-based BP Liberty rig, designed to drill ultra extended-reach wells to offshore targets in the Liberty field of the Alaskan Beaufort Sea; and the Front-End Engineering and Design (FEED) contract for the drilling package portion of the Sakhalin-1 Arkutun-Dagi offshore platform; and
- Parker's reentry into the Alaskan drilling market with the commitment to build two advanced design land rigs to fulfill a long-term development drilling contract for BP. The two Parker-owned rigs are expected to start operations during the latter part of 2010.
"Parker's strategy delivered in 2008," said Robert L. Parker Jr., Chairman and Chief Executive Officer. "Our diverse businesses cushioned the effects of the year's wide swings in oil and natural gas prices, while we focused on programs to realize solid returns from our drilling, project management and rental tool operations. Our position as a preferred partner was enhanced by the award of new FEED, EPCI and newbuild contracts for work in some of the world's most technology-intensive environments; our investments in our global rig fleet; and the expansion of our rental tools operations," he continued.
"Although the outlook for 2009 will be affected by restrained customer spending, we believe the strategy and focus of the Company are suited to this difficult environment," said Mr. Parker. "Our financial condition is sound and our technical and safety leadership, cultivated through decades of project execution in remote, extreme and environmentally sensitive locations, equips us with a competitive edge. We will proceed cautiously at the outset of 2009, and will employ our strategic balance and geographic diversity to sustain our overall performance," he concluded.
Goodwill Impairment Charge
Included in 2008 fourth quarter non-routine items is a $100.3 million non-cash charge ($77.8 million, net of tax benefits, or $0.69 per diluted share) eliminating all goodwill associated with the Company's 1996 acquisitions of the Gulf of Mexico barge drilling business, Mallard Bay Drilling, Inc. ($64.2 million) and the rental tools business, Quail Tools, Inc. ($36.1 million). This impairment of goodwill, resulting from the application of SFAS No. 142, Goodwill and Other Intangible Assets, is primarily driven by adverse financial market conditions that have reduced the Company's equity market capitalization below its Shareholders' Equity. It takes into account the deteriorating macro-economic environment, the reduced accessibility to the credit markets for customers, and the high degree of uncertainty about the eventual return to normalcy. The Company continues to believe there is value to be derived from both the competitive advantage achieved by the recent upgrades of its Gulf of Mexico barge fleet and the continuing strong results of the rental tools business.
Fourth Quarter Financial Review
For the three months ended December 31, 2008, Parker posted a net loss of $39.5 million, or $0.35 per diluted share, on revenues of $212.4 million, compared to net income of $34.6 million, or $0.31 per diluted share, on revenues of $180.8 million for the fourth quarter 2007. The results for the fourth quarter of 2008 included net after-tax expense of $69.4 million, or $0.62 per diluted share, for non-routine items. Among these were: goodwill impairment of $100.3 million related to the 1996 acquisitions of Mallard Bay Drilling and Quail Tools; $6.3 million of expenses related to the previously disclosed investigation by the Department of Justice (DOJ) regarding the Company's utilization of the services of a customs agent in certain countries and an internal investigation regarding U.S. economic sanctions related primarily to the Company's operations in Turkmenistan; and $12.5 million of foreign tax credits for prior years' taxes. Net income in the fourth quarter of 2007 included a gain of $8.6 million, or $0.08 per diluted share, for non-routine items. These included a $17.6 million reserve related to the Saudi Arabia joint venture operations; a $25.6 million tax benefit from the application of FIN 48: Accounting for Uncertainty in Income Taxes; and $0.6 million for other items.
Total revenues for the fourth quarter 2008 increased 17 percent compared to the same period last year, with increases in all segments except U.S. Drilling. U.S. Drilling revenues declined 34 percent, to $33.6 million from $50.9 million, due to lower utilization and lower dayrates for the Gulf of Mexico barge drilling fleet. International Drilling revenues rose 24 percent to $86.2 million from $69.7 million, primarily the result of higher average dayrates in each of Parker's three focus regions and the addition of two rigs to the fleet during 2008. Rental Tools revenues increased 11 percent to $45.7 million from $41.1 million, led by increased coverage in the active shale areas of Williston, ND and a new facility in Texarkana, TX. Revenues for Project Management and Engineering Services increased nearly two-fold, to $37.9 million from $19.1 million, primarily as a result of higher dayrates, including retroactive adjustments, for the Sakhalin projects. Construction Contract segment revenues of $8.9 million reflect the quarter's progress on the construction contract for the BP Liberty ultra-extended-reach rig.
Adjusted EBITDA for the fourth quarter 2008 was $69.3 million compared to $69.7 million in the fourth quarter 2007. (Adjusted EBITDA is a non-GAAP financial measure. The calculation of adjusted EBITDA and reconciliation to the most directly comparable GAAP measure is shown on the attached tables). The Company's U.S. Drilling segment gross margin was $14.7 million, down from $30.6 million in the prior year's comparable period, reflecting the impact of lower utilization and dayrates. With a larger fleet operating at a higher average dayrate, Parker's International Drilling operations' gross margin increased 61 percent to $27.7 million, compared to fourth quarter 2007 segment gross margin of $17.2 million. As a result of growing revenues, Rental Tools achieved a record segment gross margin of $28.7 million, 15 percent greater than segment gross margin of $25.0 million for the comparable period of 2007 and topping the record set in the third quarter of 2008. Segment gross margin for Project Management and Engineering Services was $8.1 million - more than two times the prior year's fourth quarter level of $3.1 million, reflecting higher dayrates for the Sakhalin projects, including retroactive adjustments, and additional projects.
2008 Financial Review
For the twelve months ended December 31, 2008, Parker reported revenues of $829.8 million and net income of $25.6 million or $0.23 per diluted share compared to revenues of $654.6 million and net income of $104.1 million or $0.94 per diluted share for the same period of 2007. Reported 2008 results were decreased by a net after-tax expense of $69.8 million, or $0.62 per diluted share, from non-routine items. Included in 2007 results was a net after-tax gain of $9.1 million, or $0.08 per diluted share, from non-routine items.
Capital expenditures for the twelve months ended December 31, 2008 totaled $197.1 million, including $31.2 million to complete the construction of international land rigs; $53.5 million for the construction of two newbuild land rigs for Alaska; and $36.8 million for tubular goods and other rental equipment.
At the end of the period total debt was $461.1 million, and the Company's total debt-to-capitalization ratio was 44.8 percent. To assure the availability of capital to meet its newbuild Alaska land rig commitments, Parker drew most of its credit facilities during the second half of 2008. As a result, the Company's cash and cash equivalents totaled $172.3 million at December 31, 2008, and Parker's ratio of net-debt-to-net capitalization improved to 33.7 percent from 37.0 percent at the end of 2007. The Company's $50 million term loan begins to amortize at $3.0 million per quarter beginning the third quarter of 2009, while the remaining components of the Company's debt do not mature until 2012 and 2013.