Parker Drilling Charges Ahead in 'Sound Financial Condition'
Parker Drilling reported results for the year and three-month periods ended December 31, 2009. The Company's results for the year included net income of $9.3 million or $0.08 per diluted share on revenues of $752.9 million, compared with net income of $22.7 million or $0.20 per diluted share on revenues of $829.8 million for the prior year. Excluding the effects of non-routine items the Company reported 2009 net income of $16.5 million or $0.14 per diluted share, compared with similarly adjusted 2008 net income of $92.6 million or $0.82 per diluted share. Adjusted EBITDA, excluding non-routine items, was $166.8 million, compared with $285.6 million for the prior year.
For the three months ended December 31, 2009, Parker reported a net loss of $4.3 million or $0.04 per diluted share on revenues of $175.8 million, compared with a net loss of $40.2 million or $0.36 per diluted share on revenues of $212.4 million for the prior year's fourth quarter. Excluding the effects of non-routine items the Company reported a 2009 fourth quarter net loss of $0.5 million or $0.00 per diluted share, compared with similarly adjusted 2008 fourth quarter net income of $29.2 million or $0.26 per diluted share. Adjusted EBITDA, excluding non-routine items, was $34.5 million, compared with $75.6 million for the prior year's fourth quarter.
"As a result of our business balance and geographic diversity Parker was able to lessen the impact of the volatile conditions and difficult market forces of 2009," said president and chief executive officer David C. Mannon. "We delivered sound financial results despite significant market instability and uncertainty. Guided by our long-term strategy, we continued to invest for future growth during this industry down-cycle and to position ourselves for stronger performance in the years ahead. In 2009 we captured the lead position in the U.S. barge drilling market, expanded the presence of our rental tools operation and moved forward on our projects to begin drilling operations in Alaska, a growing market for us. We enter 2010 in sound financial condition with sufficient resources to provide for the needs of our current operations and to fund our growth initiatives."
Fourth Quarter Highlights
- Revenues of $175.8 million, though below the prior year's fourth quarter revenues, were better than the 2009 third quarter in all but the Construction Contracts segment;
- Gross margin for the Rental Tools segment increased, compared to the 2009 third quarter, due to improving demand and less price discounting;
- The U.S. Barge Drilling segment reported a positive gross margin for the 2009 fourth quarter. In doing so, it achieved a better-than-breakeven gross margin for the year, believed to be one of the best performances in that marketplace;
- The Company's Alaska projects continued to progress. The BP-owned Liberty rig is being commissioned on site in preparation to begin drilling operations in mid-2010. Construction continued on the two Parker-owned arctic land rigs scheduled for delivery to Alaska during the third quarter;
- Parker employees set a new company record for safety. The Company's Total Recordable Incident Rate (TRIR) for 2009 was 0.48, a better safety performance than our 2008 record-setting level and significantly better than the industry's average TRIR of 1.19.
Mr. Mannon added, "Our 2009 results reflect the impact of the decline in domestic drilling and slowdown of international activity and demonstrate the advantages of our focused strategy. In the difficult market conditions we faced we remained profitable and we made market gains in some key areas."
Commenting on the business outlook, Mr. Mannon said, "More recently, market declines have moderated and there are signs in some areas that improvements are underway. The utilization rate for the U.S. Gulf of Mexico barge drilling fleet has improved, though dayrates remain low. The domestic land rig count has recovered significantly, particularly in the shale plays where rental tool usage is more prevalent, leading to growing demand for rental tools and a lessening of price discounts. The number of international rig tenders has grown, yet commitments are slow to develop and pressure on dayrates remains. Our project engineering and project management opportunities are growing, indicating an expanded field for Parker's unique capabilities and offering the prospect of significant future growth from this business segment.
"Though we are encouraged by the recent direction of activity in some of our markets, we remain cautious about the immediacy of a broad upturn and the near term impact on our financial performance. We believe we are well positioned to deliver profitable growth as the markets improve. To enhance the potential of this, we will continue to focus on cost management within our operations, improvements in delivering efficient performance to our customers and maintaining a safe working environment for our employees," Mannon concluded.
Fourth Quarter Review
Results for the three months ended December 31, 2009, included the impact of several non-routine items that decreased net income by $3.8 million. At the end of 2009 Parker retired three unutilized and previously cold-stacked rigs – two workover barge rigs and one international land rig. The effect of these retirements was to reduce pre-tax income by $1.9 million or $0.01 per diluted share, after taxes. In addition, the Company received a settlement in connection with litigation over a Parker-owned rig damaged in 2005, resulting in pre-tax income of $3.8 million or $0.02 per diluted share, after taxes. Also included in non-routine expenses are the costs related to the ongoing Department of Justice and Securities and Exchange Commission investigations and our related internal review regarding services provided by a customs agent in certain countries and possible violations of the Foreign Corrupt Practices Act and other laws, in addition to a provision for other regulatory expenses. The fourth quarter pre-tax cost of these was $3.9 million or $0.02 per diluted share, after taxes. The Company also adjusted the expected impact of a previously recorded recovery of foreign tax credits. The fourth quarter impact of this was $2.5 million or $0.02 per diluted share. The results for the 2008 fourth quarter included non-routine, net after-tax expense of $69.8 million or $0.62 per diluted share. Details of the non-routine items are provided in the attached financial tables.
Parker's revenues for the 2009 fourth quarter declined to $175.8 million, or by 17 percent, from 2008 fourth quarter revenues of $212.4 million. The Company's 2009 fourth quarter gross margin declined to $43.0 million, or by 46 percent, from the 2008 fourth quarter gross margin of $79.6 million, while gross margin as a percentage of revenues decreased to 24.5 percent in the 2009 fourth quarter from 37.5 percent in the 2008 fourth quarter.
- International Drilling revenues declined to $72.7 million from $86.2 million, and gross margin declined to $21.9 million from $27.7 million. The decrease in revenues was the result of lower average fleet utilization, modestly higher average dayrates and the impact of Barge Rig 257 being in a shipyard for a scheduled overhaul and upgrade during part of the quarter. These effects were partially offset by lower operating costs throughout the segment.
Average fleet utilization for the 2009 fourth quarter was 64 percent, compared with 87 percent for the prior year's fourth quarter and 61 percent for the preceding third quarter. For the fourth quarter, the ten-rig Americas regional fleet operated at 80 percent utilization, the twelve-rig CIS/AME regional fleet operated at 68 percent utilization, and the eight-rig Asia Pacific regional fleet operated at 46 percent utilization. Rig 259 was retired at the end of 2009, reducing the Company's international fleet to 30 rigs and the CIS/AME regional fleet to eleven rigs. (Additional rig fleet information is available on Parker's website under "Investor Relations" at "Quarterly Support Materials").
- U.S. Barge Drilling revenues declined to $14.5 million from $33.6 million, while gross margin fell to $1.3 million from $14.7 million. The operation produced a better-than-breakeven gross margin despite the downturn in industry demand, lower fleet utilization and significantly reduced dayrates.
Average fleet utilization for the 2009 fourth quarter was 51 percent, compared with 61 percent for the prior year's fourth quarter and 33 percent for the preceding third quarter. The Company's barge fleet dayrates averaged $19,300 for the 2009 fourth quarter, compared with $39,400 for the prior year's fourth quarter and $26,200 for the preceding third quarter. At year-end 2009, Parker's Gulf of Mexico barge rig fleet was reduced to 13 rigs with the retirements of Rigs 6B and 16B. (Additional rig fleet information is available on Parker's website under "Investor Relations" at "Quarterly Support Materials").
- Revenues for Rental Tools declined to $25.1 million from $45.7 million, and the segment's gross margin declined to $13.8 million from $28.7 million, primarily due to the decline in U.S. land and Gulf of Mexico shelf drilling activity and the impact of price discounting. This was partially offset by increased demand for workover equipment, growing coverage in the U.S. shale drilling areas and additional offshore deep drilling and international placements.
- Project Management and Engineering Services revenues declined to $27.6 million from $37.9 million, and gross margin declined to $5.4 million from $8.1 million. The prior year included revenues associated with the relocation and upgrade of the "Yastreb" for ExxonNeftegas (ENL) on Sakhalin Island and operational revenues for ENL's Orlan platform which has since moved to a warm-stack rate with reduced crews.
- Construction Contract revenues increased to $35.8 million from $8.9 million while gross margin increased to $0.6 million from $0.5 million. These increases are primarily due to the expanded scope and content of reimbursables at this stage of the BP Liberty project.
Capital Spending and Capitalization
Capital expenditures for 2009 were $160.1 million, including $33.2 million for the 2009 fourth quarter. The 2009 spending included $62.2 million for the construction of Parker's two newbuild arctic land rigs for Alaska and $36.8 million for tubular goods and other rental equipment.
At December 31, 2009, total debt was $423.8 million and the Company's total debt-to-capitalization ratio was 41.6 percent, compared with 43.1 percent at the end of 2008. The Company's term loan is being amortized through 2013. The remaining components of the Company's debt do not mature until 2012 and 2013.