Gulf Hurricanes Weaken Helix's O&G Financial Results
Helix reported a net loss of $859.9 million or $(9.47) per diluted share, for the fourth quarter of 2008 compared with net income of $120.4 million, or $1.25 per diluted share, for the same period in 2007, and net income of $60.6 million, or $0.65 per diluted share, in the third quarter of 2008. The net loss for the year ended December 31, 2008 was $634.0 million, or $(6.99) per diluted share, compared to net income of $316.8 million, or $3.34 per diluted share, for the year ended December 31, 2007.
Owen Kratz, President and Chief Executive Officer of Helix, stated, "Our fourth quarter results reported large non-cash impairments and other charges totaling $935 million (pre-tax) plus weak results in our oil and gas business due to shut-in production from Hurricane Ike. However, our core Contracting Services business continues to produce strong results and we have now brought our oil and gas production close to pre-Ike levels. Thus, our fundamental business operations remain profitable and we should generate positive cash flow in 2009."
Fourth quarter 2008 results included the following items:
- Non-cash charges of $907.6 million ($840.2 million net of tax, or $9.25 per diluted share), including $715.0 million, or $7.87 per diluted share, associated with a reduction in the carrying value of goodwill and $192.6 million ($125.2 million net of tax, or $1.38 per diluted share), related to reductions in the carrying values of certain oil and gas properties. The majority of the goodwill reduction related to the oil and gas business associated with the acquisition of Remington Oil and Gas Corporation in 2006. The oil and gas property impairments reflected a deterioration of the affected properties' field economics primarily resulting from a decrease in both oil and natural gas prices during the fourth quarter.
- Other non-cash exploration charges of $26.6 million ($17.3 million net of tax, or $0.19 per diluted share) primarily related to two suspended exploratory wells drilled in prior years that are no longer considered economical to develop.
- A $6.7 million loss ($4.4 million net of tax, or $0.05 per diluted share) associated with the sale of our interest in the Bass Lite field located in Atwater Valley Block 426 in December 2008. Gross proceeds from the sale totaled approximately $49 million. Fourth quarter 2007 results included the following items: · Non-cash gain of $151.7 million ($98.6 million net of tax, or $1.02 per diluted share) resulting from an adjustment in our investment in Cal Dive following the Horizon acquisition. · Non-cash oil and gas impairments/exploration expenses totaling $84.2 million ($54.8 million net of tax, or $0.57 per diluted share). Revenues for our Contracting Services business were $300 million, reflecting high vessel and equipment utilization during the fourth quarter of 2008. Oil and gas revenues of $46 million for the fourth quarter were $89 million lower than the third quarter primarily because of reduced production, which totaled 6.4 billion cubic feet of natural gas equivalent (Bcfe) in fourth quarter 2008 compared with 10.5 Bcfe in the third quarter. The decrease in production is primarily due to a number of our oil and gas fields being shut-in following Hurricanes Gustav and Ike.
- Deepwater construction revenues in the fourth quarter of 2008 benefited from exceptionally high utilization of pipelay assets (86%) and higher day rates. In addition, our robotics business also experienced high asset utilization (80%). Our deepwater construction assets have good backlog for the first half of 2009. Our robotics division benefited from the increased scope of work resulting from the effects of Hurricanes Gustav and Ike.
- Our well operations business experienced decreased revenues in the fourth quarter as compared to the third quarter of 2008 reflecting the commencement of certain project work in the Gulf of Mexico that has slightly lower contract prices and margins than our typical contracts performed in 2008 as well as slightly lower utilization rates (93% vs. 100%).
- Gross profit margins for Contracting Services decreased primarily because of lower margins associated with certain longer-term and large scale projects.
- Our services' segments have estimated backlog of nearly $900 million (including $350 million for Cal Dive), of which we expect to recognize around $660 million in 2009.
Shelf Contracting (Cal Dive)
- Cal Dive revenues, gross profit and net income decreased in the fourth quarter of 2008 compared with third quarter of 2008 reflecting normal seasonal decline in activity offset in part by additional services associated with hurricane inspection, repair and maintenance activities in the Gulf of Mexico following Hurricanes Gustav and Ike. The results for the fourth quarter 2008 were significantly higher than the results achieved during the fourth quarter of 2007 primarily reflecting the contributions from the Horizon assets which were acquired in December, 2007, as well as additional service activity following Hurricanes Gustav and Ike.
Oil and Gas
- Oil and Gas revenues for the fourth quarter of 2008 were lower than the third quarter of 2008 primarily reflecting significantly lower production following Hurricanes Gustav and Ike as well as declines in both oil and natural gas prices. Production in fourth quarter of 2008 was 6.4 Bcfe compared with 10.5 Bcfe in third quarter 2008. The average prices realized for our gas sales volumes, including the effect of hedge contracts, totaled $6.32 per thousand cubic feet of gas (Mcf) in the fourth quarter of 2008 and $10.22 per Mcf in the third quarter of 2008. For our oil sales volumes we realized $49.08 per barrel in the fourth quarter of 2008 and $107.14 per barrel in the third quarter of 2008, including the effects of hedge contracts. As a result of Hurricanes Gustav and Ike, certain oil and gas contracts no longer qualified for hedge accounting treatment and an $11.5 million gain from the settlements of these contracts was recorded in other income in our consolidated statements of operations. In addition, our other income includes unrealized gains of $7.4 million associated with contracts that will settle in first quarter 2009.
- The Company's current production has been restored to levels approximating those achieved pre-Hurricane Ike. As of February 24, 2009 our oil and gas production totaled approximately 132 million cubic feet of natural gas equivalent per day (MMcfe/d), which is more than 90% of pre-Hurricane Ike production rates, adjusting for the sale of our interest in the Bass Lite field
- The Company has previously announced a discovery at Garden Banks Block 426 (Bushwood) field in the deepwater of Gulf of Mexico. The well logged 273 feet of net hydrocarbons in deeper exploratory zones and the proved reserves associated with this discovery are included in the Company's year-end 2008 estimates of proved reserves.
- · Year-end 2008 proved reserves of oil and gas totaled 665 Bcfe as compared with 677 Bcfe at December 31, 2007. Reserve additions of 176 Bcfe from discoveries and field extensions resulting from 2008 drilling activities offset the approximate 140 Bcfe reduction of estimated proved reserves resulting from price declines, property sales and hurricane damage. In 2008, our reserve additions replaced 371% of our 2008 production (47.5 Bcfe). The average prices used in our proved reserve estimates were $42.76 per barrel of oil and $5.74 per Mcf of natural gas in 2008 as compared to $103.34 per barrel and $7.84 per Mcf in 2007. The present value of our total estimated proved reserves using the SEC mandated PV-10 standardized measure was approximately $1.9 billion at December 31, 2008 compared with $2.8 billion at December 31, 2007.
- Selling, general and administrative expenses for the fourth quarter of 2008 were 7.8% of revenue, compared to 8.2% in the third quarter of 2008, and 9.0% in the fourth quarter of 2007. The improvement over the third quarter was a result of reduced spending measures initiated in light of the weaker economic environment.
- Net interest expense and other decreased to $13.2 million in the fourth quarter of 2008 from $23.5 million in the third quarter of 2008 due primarily to net hedging gains of $15.3 million and $4.6 million of lower foreign exchange losses during the fourth quarter of 2008. Net interest expense increased to $22.3 million in the fourth quarter compared with $19.8 million in third quarter 2008 due primarily to higher levels of gross debt.
Financial Condition and Liquidity
- Consolidated net debt at December 31, 2008 decreased to $1.84 billion from $1.87 billion as of September 30, 2008. Total debt associated with our Cal Dive consolidated subsidiary totaled $315 million, which is non-recourse to Helix. Net debt to book capitalization as of December 31, 2008 was 60%. (Net debt to book capitalization is a non-GAAP measure. See reconciliation attached hereto.)
- Capital expenditures for 2008 (including $83 million related to Cal Dive) totaled $855 million.
The Company has taken the following actions to improve its financial condition and liquidity:
- Hedged a substantial level (approximately 73%) of estimated 2009 oil and gas production in order to stabilize the Company's expected 2009 cash flow from its oil and gas operations.
- The Company's planned 2009 capital budget has been reduced considerably from 2008 levels and is estimated to be $350 million to $400 million (of which $78 million relates to Cal Dive).
- In January 2009, the Company sold approximately 13.6 million shares of Cal Dive common stock to Cal Dive for proceeds totaling $86 million.
- Implemented certain cost control measures and other spending controls.
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