Hercules Offshore Announces Third Quarter 2007 Earnings (1)

HOUSTON, October 30 /PRNewswire/ --

Hercules Offshore, Inc. (Nasdaq: HERO) today reported net income of US$48.4 million, or US$0.58 per diluted share, on revenues of US$294.4 million for the third quarter 2007, compared to net income of US$29.7 million, or US$0.91 per diluted share, on revenues of US$97.2 million for the third quarter 2006.

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The company's acquisition of TODCO closed on July 11, 2007, and the results from the acquired business are included from the date of the acquisition. Also included in the quarter ended September 30, 2007 are a loss of US$1.0 million related to the early retirement of debt, net of a US$0.4 million gain on interest rate derivatives, and US$2.6 million in severance costs and other costs related to the TODCO acquisition. On an after-tax basis, these items approximated US$2.3 million, or US$0.03 per diluted share. Excluding the effect of these items, net income for the third quarter 2007 was US$50.7 million, or US$0.61 per diluted share.

Randy Stilley, Chief Executive Officer and President, stated, "Our third quarter financial results clearly reflect a difficult market environment for shallow water drilling in the U.S. Gulf of Mexico. Despite this slowdown, we generated substantial cash flow during the quarter due to the increased diversity of the company's asset base and our continued focus on maintaining a low cost operating structure. Two-thirds of our operating income was generated by business segments other than our Domestic Offshore, which are currently experiencing stronger fundamentals. Furthermore, again during this quarter, our operating cost performance was exceptional across the fleet. While it is difficult to predict a recovery in our domestic offshore drilling business, there are some early signs of a moderate increase in demand as we enter the fourth quarter."

Mr. Stilley continued, "I am pleased with the way our entire team handled the integration of TODCO in a thorough yet expeditious manner. We are moving forward as one company with a focus on delivering exceptional services to our customers and industry leading returns to our shareholders."

Offshore Highlights

During the third quarter 2007, revenues from Domestic Offshore were US$99.6 million, a 115% percent increase over revenues of US$46.4 million in the third quarter 2006, which resulted from additional operating days as a result of the TODCO acquisition, somewhat offset by lower utilization and lower average daily revenue per rig. Third quarter 2007 utilization was 69.8% compared to 99.3% during the third quarter 2006, and average daily revenue per rig decreased by US$7,576 to US$77,200 in the third quarter 2007 as a result of reduced demand due to lower activity. Operating income increased to US$36.7 million in the third quarter 2007 from US$27.8 million in the prior year period.

International Offshore revenues were US$50.5 million, up from US$7.9 million in the third quarter 2006. The significant increase largely resulted from additional operating days from the TODCO acquisition as well as the full quarter impact of Hercules 258, which entered service in September 2006. This segment now includes the operating results of ten offshore rigs compared with three at the end of September 2006. Our average revenue per day increased by US$6,910 to US$85,735 during the third quarter 2007 compared with US$78,825 in the prior year period. Operating income increased to US$21.7 million in the third quarter 2007 from US$2.5 million in the prior year period.

Inland Highlights

With the acquisition of TODCO, we commenced operations in the Inland segment, which consists of 27 barge drilling rigs. During the third quarter 2007, we generated revenues of US$53.6 million and operating income of US$19.6 million. We generated average revenue per day of US$46,682 on utilization of 83.4%.

Liftboat Highlights

Domestic Liftboats revenues were US$35.7 million in the third quarter 2007, down from US$40.1 million in the third quarter 2006. Operating income decreased to US$12.5 million in the third quarter 2007 from US$21.0 million in the same period a year ago. The reduced revenue and operating income are partially the result of slightly reduced activity by our customers as we generated utilization of 67.5% during the third quarter of 2007 compared with 77.0% in the prior year period, as well as higher insurance and drydocking amortization expenses.

International Liftboats revenues were US$18.1 million in the third quarter 2007, up from US$2.8 million in the third quarter 2006. This increase was largely the result of increased operating days stemming from the acquisition of eight liftboats and the bareboat charter of an additional five liftboats in late 2006. As a result, our operating days increased to 1,383 in the third quarter of 2007 from 235 in the prior year period. Operating income increased to US$6.7 million in the third quarter 2007 from US$0.2 million in the third quarter 2006.

Other Highlights

Our Other segment consists of our wholly owned subsidiary, Delta Towing, and our fleet of nine onshore drilling rigs, both of which were assumed as part of the previously mentioned TODCO acquisition. During the third quarter 2007, this segment generated revenues of US$36.9 million and operating income of US$9.6 million.

Non-GAAP

Certain non-GAAP performance measures and corresponding reconciliations to GAAP financial measures for the company have been provided for meaningful comparisons between current results and prior operating periods. Generally, a non-GAAP financial measure is a numerical measure of a company's performance, financial position, or cash flows that excludes or includes amounts that are not normally excluded or included in the most directly comparable measure calculated and presented in accordance with generally accepted accounting principles. In order to fully assess the financial operating results, management believes that the adjusted net income figures included in this release are appropriate measures of the continuing and normal operations of the company. However, these measures should be considered in addition to, and not as a substitute, or superior to, net income, operating income, cash flows from operations, or other measures of financial performance prepared in accordance with GAAP. The non-GAAP measures included in this press release have been reconciled to the nearest GAAP measure in the table that follows the financial statements.

Conference Call Information

Hercules Offshore will conduct a conference call at 10:00 a.m. CDT (11:00 a.m. EDT) on Tuesday October 30, 2007 to discuss its third quarter 2007 financial results. The conference call will also be broadcast live via the Internet at http://www.herculesoffshore.com. To participate in the conference call by telephone, please call, 10 minutes prior to the scheduled start time, one of the following telephone numbers:

    
    +1-866-383-8108 (Domestic)
    +1-617-597-5343 (International)
    The access or confirmation code is 72716765

A replay of the conference call will be available by telephone on Tuesday October 30, 2007 beginning at 12:00 p.m. CDT (1:00 p.m. EDT), through Tuesday November 6, 2007. The phone number for the conference call replay is +1-888-286-8010 or internationally +1-617-801-6888. The access code is 79105164. Additionally, the recorded conference call will be accessible through our website at http://www.herculesoffshore.com for 28 days after the conference call.

Additional Information

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