Parker Drilling Delivers 'Reasonable Results' for 2Q
Parker Drilling Co has reported financial and operating results for the 2009 second quarter, including net income of $4.4 million or $0.04 per diluted share on revenues of $221.8 million. Excluding non-routine items the Company reported net income of $7.0 million or $0.06 per diluted share.
Second Quarter Highlights
- Revenues of $221.8 million exceeded the prior year's second quarter revenues of $216.7 million by 2 percent. The Company reported a significant increase in Construction Contract revenues, and a modest increase in revenues for the International Drilling segment, while revenues for each of the other segments declined, reflecting prevailing market conditions;
- Gross margin as a percent of revenues increased significantly for both International Drilling and Project Management and Engineering Services when compared to the prior year and the preceding quarter;
- Initiation of the sea-lift of the BP-owned "Liberty" rig to its operating site in Alaska's Beaufort Sea. In addition, the construction of the two Parker-owned arctic Alaska rigs continues on schedule for their 2010 deployment to the North Slope to begin drilling on two five-year contracts for BP;
- A better-than-breakeven gross margin from the U.S. barge drilling operation, a significant improvement from first quarter results and in-line with the operating objectives for this business;
- An average utilization rate of 68 percent for the international rig fleet and 30 percent for the U.S. barge rig fleet; and
- A June year-to-date Company safety performance of 0.49 Total Recordable Incident Rate (TRIR), better than Parker's 2008 industry-leading TRIR of 0.66.
"Despite pressures worldwide on contractors and service providers to the energy exploration and development markets, Parker Drilling delivered reasonable results for the quarter," said Robert L. Parker Jr., chairman and chief executive officer. "Our international drilling and project management operations increased their profitability, measured by gross margin and gross margin as a percent of revenues, while slowing demand and increased discounting in the U.S. drilling market put pressure on the gross margin for our rental tools. The Gulf of Mexico barge drilling business returned to a positive gross margin in the quarter, benefiting from a reduced cost structure and stabilizing demand.
"The accumulating weight of global economic conditions and the slowdown in exploration have led us to pare back our expectations of near-term revenue trends for the Company. The actions we have implemented to reduce our cost structure while improving service to our customers and leveraging our technical and safety leadership should allow us to sustain profitable operations, though I expect Parker's net income and earnings per share to decline from current levels and remain low for the remainder of the year," Mr. Parker concluded.
For the three months ended June 30, 2009, Parker Drilling posted net income of $4.4 million, or $0.04 per diluted share, on revenues of $221.8 million, compared to net income of $21.9 million, or $0.19 per diluted share, on revenues of $216.7 million for the 2008 second quarter. Excluding the impact of non-routine items, adjusted net income for the 2009 second quarter was $7.0 million or $0.06 per diluted share, compared with 2008 second quarter adjusted net income of $23.6 million or $0.21 per diluted share. (The results for 2008 have been restated for the impact of the recently adopted FASB Staff Position APB 14-1, "Accounting for Convertible Debt Instruments That May Be Settled in Cash Upon Conversion (Including Partial Cash Settlement)"). The 2009 second quarter included non-routine net after-tax expense of $2.6 million, or $0.02 per diluted share, related to the previously disclosed investigations by the Department of Justice and the Securities and Exchange Commission 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. The results for the 2008 second quarter included net after-tax expense of $1.7 million, or $0.02 per diluted share, for non-routine items. (Details of the non-routine items are provided in the attached financial tables.)
U.S. Barge Drilling revenues declined 74 percent to $12.9 million from $49.4 million, due to lower utilization and reduced dayrates for the Gulf of Mexico barge drilling fleet. International Drilling revenues increased 2 percent, to $79.3 million from $77.9 million, due to higher dayrates in the CIS/AME region which more than offset the effects of the decline in the segment's average utilization rate. Rental Tools revenues decreased 30 percent to $28.2 million from $40.4 million, with the impact of the recent decline in U.S. land and Gulf of Mexico shelf drilling somewhat offset by increased coverage in the active shale regions and an increase in demand for workover equipment.
Revenues for Project Management and Engineering Services declined 18 percent to $23.9 million from $29.0 million, primarily as a result of a lower amount of reimbursables in revenues. Construction Contract segment revenues of $77.6 million, a significant increase from the prior year's second quarter, reflect the quarter's progress on the construction contract for the BP-owned "Liberty" ultra-extended-reach rig.
Adjusted EBITDA, after non-routine items, for the second quarter 2009 was $49.2 million compared to $72.6 million in the second quarter 2008. (Adjusted EBITDA is a non-GAAP financial measure. The calculations of adjusted EBITDA and reconciliation to the most directly comparable GAAP measure are provided in the attached tables). Increases in gross margin for the International Drilling and Project
Management and Engineering Services segments were more than offset by year-to-year declines in U.S. Barge Drilling and Rental Tools. International Drilling's gross margin increased 43 percent to $30.4 million from the prior year's second quarter gross margin of $21.3 million.
As a result, gross margin as a percent of revenues was 38.3 percent in the 2009 second quarter compared to 27.3 percent in the prior year's second quarter and 35.7 percent in the 2009 first quarter. The increase compared to the prior year's second quarter was primarily the result of a significant rise in the dayrate for Rig 257, Parker's Caspian Sea barge rig, and lower operating costs throughout the segment.
Project Management and Engineering Services' gross margin increased 32 percent to $5.6 million from $4.2 million for the prior year's second quarter. Gross margin as a percent of revenues was 23.5 percent for the 2009 second quarter compared to 14.7 percent in the prior year's second quarter and 19.2 percent in the 2009 first quarter. Much of this improvement is due to a reduction in the proportion of lower margin revenues generated by reimbursable expenses. U.S. Barge Drilling reported a gross margin of $1.3 million, a turnaround from the segment's gross margin loss in the first quarter, as a result of cost management actions and fleet deployment initiatives.
For the first six months of 2009, Parker reported a 1 percent increase in revenues, to $395.7 million from $390.0 million for the same period in the prior year. Adjusted EBITDA, after non-routine items, declined by 30 percent, to $94.2 million from $134.0 million for the comparable period. Earnings per diluted share, excluding non-routine items, was $0.11, down from $0.37 for the same period of 2008.
- Average utilization for the Company's Gulf of Mexico barge rigs for the second quarter 2009 was 30 percent, compared to 91 percent in the prior year's second quarter and 25 percent in the 2009 first quarter. Currently, barge rig utilization is 33 percent. The Company's barge dayrates in the Gulf of Mexico averaged $29,800 per day during the 2009 second quarter, compared to $38,700 per day in the 2008 second quarter and $28,000 per day in the 2009 first quarter.
- Average utilization of international rigs, both land and barge rigs, for the 2009 second quarter was 68 percent, compared to 76 percent reported for the prior year's second quarter and 79 percent reported for the 2009 first quarter.
The Company's Americas region operated at 82 percent average utilization, with nine of ten rigs working during the quarter. Two of the working rigs completed their contracted work during the quarter, one in April and another in June. As a result of recently signed contracts, six of the ten rigs in this region have commitments to work into 2010.
Parker's twelve rigs located in the Commonwealth of Independent States / Africa Middle East (CIS / AME) region achieved average utilization of 79 percent during the quarter. Ten rigs worked during the quarter, with three rigs completing their work before quarter-end. Eight of the twelve rigs in the CIS / AME region are operating under contracts that extend beyond 2009.
The eight-rig Parker fleet located in the Asia Pacific region operated at 41 percent average utilization during the quarter, with five of the eight rigs having worked during the quarter. Two of the working rigs completed their contracted work during the quarter, one in April and another in May. While most contracts in this region are for short duration projects, three rigs are committed to programs that extend into 2010.
- Rental tool demand slowed, primarily driven by the decline in U.S. drilling activity. Quail Tools' solid customer base and presence in the more active shale regions has provided some support to revenues and earnings.
- In Project Management and Engineering Services, the "Yastreb" rig operated by Parker Drilling for the Sakhalin-1 consortium, was successfully moved to its new location, 100 kilometers north of its previous site, and spud in April on a drilling program to evaluate the Odoptu field.
Capital expenditures for the three months ended June 30, 2009 totaled $42.6 million, including $13.7 million for the construction of Parker's two newbuild land rigs for Alaska, and $8.2 million for tubular goods and other rental equipment.
At the end of the period total debt was $427.6 million and the Company's total debt-to-capitalization ratio was 42.0 percent. Adjusted for the Company's cash and cash equivalents balance of $94.6 million, Parker's ratio of net-debt-to-net capitalization was 36.0 percent, compared to 31.6 percent at the end of 2008. The Company's $50 million term loan begins to amortize on September 30, 2009 at $3.0 million per quarter, while the remaining components of the Company's debt do not mature until 2012 and 2013.