Hercules Offshore's Revenues Down in First Quarter 2009
Hercules Offshore reported a loss from continuing operations of $4.5 million, or $0.05 per diluted share, on revenues of $223.5 million for the first quarter 2009, compared with income from continuing operations of $4.9 million, or $0.05 per diluted share, on revenues of $212.5 million for the first quarter 2008.
John T. Rynd, Chief Executive Officer and President of Hercules Offshore stated, "As expected, we experienced a significant retrenchment in our sequential quarterly revenues during the first quarter due to deteriorating industry fundamentals. While the results were disappointing, they were not unexpected; however, I am proud of how quickly our management team and employees moved to reduce our cost structure in such a meaningful manner as we entered this historic slowdown in our business. Despite having additional international capacity coming on line during the last two quarters, our reported operating expenses declined by over $30 million in the first quarter 2009 relative to the third quarter 2008 when the financial crisis began in earnest. We expect to realize additional reductions in operating expenses in the second quarter 2009."
Mr. Rynd continued, "Demand for drilling rigs in the U.S. Gulf of Mexico region remains very weak, however, the rate of decline appears to have slowed in recent weeks and activity may be at a near-term bottom. We remain cautious as to the outlook later in 2009 as we progress into the active part of hurricane season, particularly with relatively high levels of natural gas storage and the continuing weakness in the price of natural gas. Yet, we firmly believe that the massive reduction in the U.S. rig count is setting the stage for a very strong recovery in natural gas prices and thus ultimately our customers' capital spending and drilling activity. Demand and pricing are also weakening in international regions; however, we continue to benefit from our attractive level of backlog. While global liftboat activity has slowed somewhat, demand remains steady relative to what we have experienced in our drilling related segments."
During the first quarter 2009, revenues from Domestic Offshore decreased to $59.2 million from $62.4 million in the comparable period in 2008. This decrease was primarily driven by a reduction in operating days due to weaker demand somewhat offset by higher average dayrates. Average revenue per day per rig increased to $68,497 in the first quarter 2009 from $56,873 in the first quarter 2008, while operating days declined to 864 from 1,098 in the same periods, respectively. Operating expenses increased to $54.4 million in the first quarter 2009 from $47.8 million in the comparable period in 2008 due to a number of factors including the commencement of operations of the Hercules 350 in June 2008, higher repair and maintenance expense related to Hurricanes Gustav and Ike and the impact of a wage increase that was implemented in June 2008. These increases were somewhat offset by our recent cost reduction efforts. Domestic Offshore recorded an operating loss of $11.9 million for the first quarter 2009, versus an operating loss of $1.9 million in the first quarter 2008.
International Offshore revenues increased to $103.5 million in the first quarter 2009 from $65.3 million in the comparable period in 2008 partly as a result of an increase in operating days to 795 from 654 reflecting the commencement of operations of three additional drilling rigs during 2008 and one during 2009 and partly as a result of an increase in our average revenue per day per rig to $130,128 from $99,913 in the same periods, respectively. Our average operating expenses per day increased to $52,115 in the first quarter 2009 from $32,147 in the comparable quarter in 2008 which is partly due to re-billed marine package expense on Hercules 258 and Hercules 260 that commenced long-term contracts during 2008. Operating income increased to $42.9 million in the first quarter 2009 from $34.4 million in the prior year period.
During the first quarter 2009, our inland segment generated revenues of $12.9 million, a decrease from the prior year period's revenue of $40.3 million due to a significant reduction in the industry activity. Operating days declined to 298 in the first quarter 2009 from 938 in the year-ago period. Including depreciation and amortization expense of $8.0 million, this segment recorded an operating loss of $16.2 million in the first quarter 2009 compared with an operating loss of $1.9 million in the first quarter of 2008.
Domestic Liftboats generated revenues of $22.6 million in the first quarter 2009 versus $15.9 million in the first quarter 2008. Average revenue per day per liftboat declined to $9,270 in the first quarter 2009 from $9,965 in the first quarter 2008. However, utilization, bolstered by repair work related to Hurricanes Gustav and Ike, increased to 63.0% in the first quarter 2009 versus a utilization rate of 38.2% in the comparable period in 2008, which was hampered by unusually high storm activity. Operating income increased to $3.0 million during the first quarter 2009 from an operating loss of $4.6 million in the first quarter of the previous year.
International Liftboats revenues increased to $18.6 million in the first quarter 2009 from $18.3 million in the first quarter 2008 due largely to a substantial increase in average revenue per day per liftboat to $20,307 from $15,030 in the same periods, respectively, somewhat offset by a significant decline in utilization to 53.7% in the first quarter 2009 from 78.7% in the first quarter 2008.
However, mainly as a result of an increase in operating expenses, general and administrative expenses and depreciation and amortization partly related to the commencement of liftboat operations in the Middle East, operating income decreased to $6.9 million during the first quarter 2009 from $8.1 million in the first quarter 2008.
Liquidity and Capitalization
At March 31, 2009, the Company had cash and cash equivalents totaling $158.7 million and unused capacity of $235.9 million under its revolving credit facility. As of March 31, 2009, the Company's balance sheet reflects total debt of $1.03 billion. Since March 31, 2009, the company repurchased an aggregate principal amount of $20.0 million of the Company's 3.375% Convertible Senior Notes at approximately 30.5% of the par value of the notes, for approximately $6.1 million in cash. Since September 30, 2008, the Company has retired approximately $125.9 million of notional amount of debt for total cash costs of $68.6 million.
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