Pride Cites Seahawk Spin-Off as Significant 3Q Achievement
Pride International has reported income from continuing operations, net of tax, for the three months ended September 30, 2009 of $79.9 million, or $0.45 per diluted share. Results for the quarter included severance costs totaling $6.9 million, or $0.03 per diluted share, associated with certain organizational changes. These quarterly results compared to income from continuing operations of $144.2 million, or $0.82 per diluted share, for the corresponding three months in 2008. Revenues totaled $386.1 million during the third quarter of 2009, compared to $463.3 million during the corresponding three months in 2008.
On August 24, 2009, the company completed the spin-off of its former wholly-owned subsidiary Seahawk Drilling, Inc. to its shareholders through a pro rata stock distribution. The results of operations for Seahawk Drilling for the third quarter of 2009 and all comparative periods are reported as income (loss) from discontinued operations.
Louis A. Raspino, President and Chief Executive Officer of Pride International, Inc., commented, "A significant accomplishment in the quarter was the closing of the company's spin-off of Seahawk Drilling. This represents the final step to position the company as a highly focused floating rig fleet with an increasing emphasis in deepwater drilling. The transaction has also created significant value for Pride's shareholders, as the company's presence in the deepwater segment is increasingly recognized and valued by investors, along with the value associated with the separated assets of Seahawk. Following the spin-off, we believe Pride International offers investors a unique investment alternative based upon:
- a high concentration of quarterly EBITDA from the floating rig fleet, in the third quarter totaling more than 75% of total EBITDA generated by our Deepwater, Midwater and Independent Leg Jackup segments,
- a solid balance sheet and disciplined financial approach to investing for growth, and
- a contract backlog that currently exceeds $7 billion, representing 125% of the company's enterprise value, with strong earnings and cash flow growth expected to begin in 2011.
"With the repositioning complete, our focus is on continued growth and providing our clients with deepwater solutions through excellent safety, operations and engineering capabilities."
In addressing the quarter, Raspino noted, "Third quarter 2009 financial performance was characterized by a heavy schedule of planned shipyard time in our floating fleet, including two rigs that are our highest revenue generators. During the quarter, the Pride North America, Pride South Pacific and Pride Portland incurred out-of-service time for planned shipyard programs, while the Pride Carlos Walter experienced out-of-service time for repairs. Both the Pride Portland and Pride Carlos Walter have returned to service. Also contributing to the lower revenues for the period, the Sea Explorer finished its contract in Congo and experienced out-of-service time to complete a periodic survey and mobilize to Brazil where the rig is expected to begin a two-year contract in November at a dayrate of $335,000, up from $255,000 on the rig's previous contract. Fourth quarter 2009 financial performance will be negatively influenced by the continuation of the shipyard projects on the Pride North America, which is expected to be out of service until mid-November, and the Pride South Pacific, which is expected to be out of service until mid-December."
Net income for the three months ended September 30, 2009 was $35.6 million, or $0.20 per diluted share, including a loss from discontinued operations of $44.3 million, or $0.25 per diluted share. Net income for the three months ended September 30, 2008 was $189.1 million, or $1.08 per diluted share, including income from discontinued operations of $44.9 million, or $0.26 per diluted share.
For the nine months ended September 30, 2009, income from continuing operations, net of tax, was $363.5 million, or $2.06 per diluted share, while net income totaled $318.6 million, or $1.80 per diluted share, including a loss from discontinued operations of $44.9 million, or $0.26 per diluted share. For the nine months ended September 30, 2008, income from continuing operations, net of tax, was $336.3 million, or $1.89 per diluted share. Net income during the same nine months of 2008 was $616.4 million, or $3.47 per diluted share, including income from discontinued operations of $280.1 million, or $1.58 per diluted share. Revenues for the nine months ended September 30, 2009 totaled $1,277.4 million compared to $1,212.4 million during the corresponding nine months in 2008.
Raspino added, "While we have seen fewer contracting commitments in the industry during 2009 for most classes of offshore rigs, customer inquiries have increased since earlier in the year. This is particularly true for ultra-deepwater rigs. With average crude oil prices improving 15% during the third quarter, relative to the average price during the second quarter of the year, and now up over 130% since the 2009 low price seen in March, we expect these higher prices to eventually support increased spending by our clients. Should oil market fundamentals lead to higher confidence among our clients of a sustainable crude oil price trading range, this should support higher exploration and production spending and greater demand for offshore drilling services."
Cash and cash equivalents totaled $958 million at September 30, 2009. Total debt was $1.2 billion, resulting in a debt-to-total-capital ratio of 22%.
For the third quarter of 2009, cash flows from operating activities reached $158 million, bringing the total for the nine months ended September 30, 2009 to $532.1 million. Capital expenditures for the third quarter of 2009 were $223.9 million, including $122 million in connection with the company's four ultra-deepwater drillships currently under construction. For the nine months ended September 30, 2009, capital expenditures were $699 million, with $437 million directed toward the four construction projects. Capital expenditures for 2009 are expected to total $1.2 billion, including $702 million of expenditures relating to the four drillships under construction. At September 30, 2009, the company had an estimated $1.6 billion of expenditures remaining to complete the four ultra-deepwater drillships under construction.
Revenues from the company's Deepwater Segment, composed of two drillships and six semisubmersible rigs, were $191.8 million during the third quarter of 2009 compared to $234.8 million during the second quarter of the year. Earnings from operations were $71.8 million during the third quarter of 2009 compared to $125.2 million in the second quarter, while EBITDA was $90.8 million compared to $144.3 million over the same comparative period. The lower financial performance was due primarily to a decline in segment utilization to 76% in the third quarter of 2009 from 95% during the preceding quarter of the year. Three units, the Pride North America, Pride Portland and Pride South Pacific, experienced out-of-service time totaling 122 days for planned maintenance and upgrades, while the Pride Carlos Walter incurred 21 days of out-of-service time to complete repairs. The Pride Portland returned to service on October 13 and the Pride Carlos Walter on July 29. Shipyard programs on the Pride North America and Pride South Pacific continue into the fourth quarter of 2009. In addition, segment operating costs, net of client reimbursables, increased $11.2 million in the third quarter, to $99.7 million. Approximately $6.2 million of the increase was the result of severance costs associated with organizational changes. Excluding the severance costs, operating costs trended slightly higher compared to the preceding quarter in 2009, due largely to higher labor and repair costs. Average daily revenues improved slightly in the third quarter to $343,200 from $338,500 during the preceding quarter of the year, due primarily to higher average daily revenues from the Pride South Pacific. At September 30, 2009, the company had 100% of the available rig days under contract in the final quarter of 2009, while 98% of the available days are under contract in 2010, 82% in 2011 and 67% in 2012.
Utilization for the industry's deepwater fleet is expected to remain high into late 2010, especially for the most technically capable rigs, and clients continue to have needs for deepwater rigs that extend well into the next decade. Long-term contract opportunities are most visible in Brazil where incremental deepwater rig needs are expected to rise by up to 28 units from 2014 to 2020. Outside of Brazil, clients continue to express deepwater drilling interest in numerous areas, such as the U.S. Gulf of Mexico, Angola, Nigeria, India, Mexico and Australia, as well as in new, emerging locations, such as the Black Sea and most recently, Sierra Leone. To date, 21 discoveries in water depths of 4,500 feet and greater have been reported by clients in 2009, establishing the year as one of the most successful on record. The continued exploration success should lead to a growing base of deepwater development programs throughout the next decade. The technically advanced features of many new deepwater rigs, including our four ultra-deepwater drillships currently under construction, include dynamic positioning systems and provide our clients with more efficient well construction capabilities and field development options. We believe these new deepwater rigs represent an increasingly appropriate match for a number of the exploration and development programs, such as those found in the Brazil pre-salt formation and the lower tertiary trend in the U.S. Gulf of Mexico and will provide a competitive advantage in these attractive and expanding regions.
Conventionally moored deepwater rigs, generally units with the capability of operating in water depths of 5,000 to 6,000 feet, have seen a pronounced decline in dayrates during 2009, relative to average dayrates experienced in 2008, due in part to the client's preference for high specification, dynamically positioned rigs.
Revenues from the Midwater Segment, consisting of six semisubmersible rigs, totaled $98.2 million in the third quarter of 2009, compared to $113.7 million during the second quarter of the year. Segment utilization during the third quarter declined to 67% compared to 82% in the preceding quarter of 2009 due mainly to the Sea Explorer, which was out-of-service for 40 days following the completion of a drilling program offshore West Africa. The rig entered a shipyard to prepare for mobilization and the commencement in November of a two-year drilling assignment offshore Brazil. Also, the Pride South Seas completed a drilling program on August 31 offshore South Africa and was idle for the remainder of the third quarter. The lower third quarter utilization contributed to a decline in earnings from operations to $25.7 million from $36.9 million during the second quarter of the year. EBITDA in the third quarter declined to $37.0 million from $48.1 million in the preceding quarter of 2009. Average daily revenues in the third quarter improved to $264,100 from $253,800 during the preceding quarter in 2009, due principally to a favorable dayrate adjustment on the Pride South Seas and deferred revenue recognized on the Pride South Atlantic, and higher performance bonus payments. At September 30, 2009, the company had 65% of the available rig days under contract in the final quarter of 2009, 67% in 2010, 64% in 2011 and 35% in 2012.
Midwater rig availability continues to build globally, with an estimated 22 units idle, or almost twice the level from one year ago. The current list of idle units includes the Pride South Seas and Pride Venezuela, with both rigs expected to remain idle through the first half of 2010. Contracting opportunities remain limited and are characterized by short durations, while a number of client programs have been postponed into 2010 or later. Dayrates for the midwater fleet have steadily declined in 2009 as a result of the growing list of available rigs and competition with a limited number of more capable conventionally moored deepwater rigs with narrow near-term contract coverage. Most rigs are not expected to migrate to other regions as they experience inactivity due to the cost of mobilizing and increased competition for work. Rather, they are expected to be stacked by the owners.
Independent Leg Jackup Segment
The company's Independent Leg Jackup Segment, composed of seven units, reported revenues of $72.8 million during the third quarter of 2009 compared to $70.2 million during the preceding quarter of the year. Earnings from operations improved to $32.6 million in the third quarter, while EBITDA totaled $39.9 million. The results compared favorably to earnings from operations and EBITDA of $30.3 million and $37.3 million, respectively, during the second quarter of 2009. Increased activity on the Pride Tennessee, which experienced out-of-service time during the second quarter of the year to complete a standard inspection, contributed to the slight improvement in results, including an increase in average daily revenues to $123,100, up from $119,400 over the same comparative period. Third quarter 2009 segment utilization was unchanged from the second quarter of the year as the increased activity on the Pride Tennessee was partially offset by fewer days worked on the Pride Wisconsin and Pride Cabinda.
Although a modest increase in tendering activity has been seen in certain international regions during the second half of 2009, jackup sector fundamentals remain strained as existing rigs complete contracts and new, uncontracted capacity enters the market. Dayrates for all classes of jackup rigs continue to decline, with global fleet utilization now below 80%. An additional 53 jackup rigs are expected to be added to the fleet between 2010 and 2012, with better than 80% of the new units presently without contracts. Similar to the midwater sector, a number of jackups have been stacked by the owners, helping to support dayrates. Incremental jackup rig needs in Mexico, which had been anticipated throughout 2009, appear to have been delayed indefinitely. The Pride Wisconsin and Pride Tennessee completed contracts with PEMEX in August and September, respectively, with no follow-on drilling programs identified by the client. The Pride Wisconsin has since been mobilized to the U.S. Gulf of Mexico and stacked, while the Pride Tennessee is in the process of completing a relocation to the U.S. Gulf of Mexico.