Hercules Offshore (HERO)

Q1 2011 Earnings Call

April 28, 2011 11:00 am ET


John Rynd - Chief Executive Officer, President and Executive Director

Son Vann -

Stephen Butz - Chief Financial Officer, Senior Vice President and Treasurer


Robert MacKenzie - FBR Capital Markets & Co.

Ian Macpherson - Simmons & Company

Matthew Beeby - Global Hunter Securities, LLC

David Wilson - Howard Weil Incorporated

Geoff Kieburtz - Weeden & Co., LP

Christopher Butschek

Robin Shoemaker - Citigroup Inc

David Smith - Johnson Rice & Company, L.L.C.

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Good day, ladies and gentlemen, and welcome to the First Quarter 2011 Hercules Offshore Earnings Conference Call. My name is Tawanda, and I will be your coordinator for today. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes. I would now like to turn the presentation over to Mr. Son Vann, Director, Investor Relations and Finance. Please proceed, sir.

Son Vann

Thanks a lot, Tawanda. Good morning and welcome, everyone, to our first quarter 2011 earnings conference call. With me today are John Rynd, our Chief Executive Officer and President; and Stephen Butz, our Senior Vice President and Chief Financial Officer; along with members of our senior management staff including Jim Noe, our Senior Vice President and General Counsel; and Troy Carson, our Chief Accounting Officer.

This morning, we issued our first quarter results and filed an 8-K with the SEC. The press release is available on our website at herculesoffshore.com. John will begin today's call with some broad remarks regarding our quarterly performance and current outlook. Stephen will follow with a more detailed discussion on financial results, provide cost guidance and give an update on our liquidity. We will open up the call for Q&A.

Before we begin, please note that this conference call will contain forward-looking statements. Except for statements of historical facts, all statements that address out outlook for 2011 and beyond, activities, events, or developments that we expect, estimate, project, believe or anticipate may or will occur in the future are forward-looking statements. Forward-looking statements involve substantial risks and uncertainties that could significantly affect expected results. Actual future results could differ materially from those described in such statements. You can obtain more information about these risks and factors in our SEC filings, which can be found on our website and the SEC's website, sec.gov.

Now, it's my pleasure to turn the call over to John.

John Rynd

Good morning, everyone, and thanks for joining us today. This morning, we reported a first quarter 2011 net loss of $14.2 million or $0.12 per diluted share, compared to a net loss of $16 million or $0.14 per diluted share for the first quarter of 2010.

Before we get into the latest results, I want to quickly comment on yesterday's closing of the Seahawk transaction. We are very excited to take possession of these assets, which consist of 20 jackup rigs. Seven of these rigs are currently contracted at rates ranging 36,000 to 70,000 per day and carry over 700 days of total backlog.

The final breakdown of the consideration paid to Seahawk is approximately $25 million in cash and approximately 22.3 million common shares. As mentioned on our call announcing the deal, we expect to incur only an incremental $5 million of SG&A on an annual basis in operating our expanded and now more capable fleet.

Moving on to the review of each segment. Domestic Offshore results were hampered somewhat by required ABS survey work, which took the Hercules 120 and Hercules 204 down for a good portion of the quarter. We were able to keep most of our remaining rigs working throughout the quarter, and as a result, maintained solid utilization of 80% of our marketed fleet during the first quarter. The Hercules 120 will remain in the shipyard through to late May to complete its ABS survey and then return to Chevron. And we have ABS surveys for 2 other rigs, the Hercules 173 and 200, scheduled for the second quarter and the Hercules 214, the ex-Seahawk 2007, is scheduled for an ABS survey in November of this year.

Day rates for our domestic jackup fleet continue to rise. Average revenue per day rose to $42,900 in the first quarter. This is up $2,800 from the fourth quarter of 2010 and $7,700 from a year-ago levels. Average revenue per day for our current fleet status report issued last night is now $44,900. This shows just how quickly rates can move when market conditions shift.

If we look at overall landscape for jackups in the U.S. Gulf of Mexico today, there are a total of 84 jackups in the region, of which 35 are cold-stacked. We now own 24 or 2/3 of the cold-stacked rigs and will be a disciplined steward of these assets. Given market conditions, it is unlikely that any of these cold-stacked rigs will be reactivated this year. This leaves 49 marketable rigs. Of these, 5 will be leaving the U.S. Gulf of Mexico for other contracted work. Most of these rigs are going to PEMEX, and we could see at least 2 more rigs in the U.S. leaving for PEMEX in the coming months. So the actual number of marketable rigs available to operators in the U.S. Gulf of Mexico is closer to 42 in our opinion. Out of the 40 to rigs, we estimate that only 4 to 5 are currently idle and available for immediate work.

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