Hercules Offshore announces fourth quarter and full year 2011 results

Source: Hercules Offshore, Inc.

Hercules Offshore, Inc. (Nasdaq: HERO) today reported a loss from continuing operations of $21.5 million, or $0.16 per diluted share, on revenue of $162.8 million for the fourth quarter 2011, compared with a loss from continuing operations of $82.5 million, or $0.72 per diluted share, on revenue of $164.8 million for the fourth quarter 2010. As outlined in the Reconciliation of GAAP to Non-GAAP Financial Measures, fourth quarter 2010 results include a non-cash impairment charge on property and equipment of $122.7 million. On an after tax basis, this adjustment approximated $79.8 million, or $0.70 per diluted share.

For the twelve month period ended December 31, 2011, the Company reported a loss from continuing operations of $66.5 million, or $0.51 per diluted share, on revenue of $655.4 million, versus a loss from continuing operations of $132.1 million, or $1.15 per diluted share, on revenue of $624.8 million for the twelve month period ended December 31, 2010. When adjusting for the non-cash impairment charge on property and equipment, the Company reported a loss from continuing operations of $52.3 million or $0.46 per diluted share for the twelve month period ended December 31, 2010.

John T. Rynd, Chief Executive Officer and President of Hercules Offshore stated, "Several strategic objectives were accomplished in 2011 that have better positioned our Company to capitalize on the growth that we expect in our industry in 2012 and beyond. Notably, our acquisition of the Seahawk assets further strengthens our position in the U.S. Gulf of Mexico at a time when activity levels are experiencing a healthy rebound, while our formation and investment in Discovery Offshore is the initial step in our efforts to renew our drilling fleet and significantly high grade our marketed asset base.

"Our fourth quarter results were impacted by downtime on several of our international rigs as they completed projects and prepare for their new contract work. We expect this contract preparation work will continue into the second quarter 2012, before the rigs recommence operations on their new long term contracts in the second half of 2012.

"In our Domestic Offshore segment, we continue to see solid demand for jackup rigs in the U.S. Gulf of Mexico in 2012, driven by the shift to liquids-rich drilling by operators and robust crude oil prices. Industry capacity is at near full utilization, and our domestic jackup fleet is largely contracted through mid-year 2012. Given the tightness in our rig availability, coupled with the increase in leading edge dayrates, the economics of rig reactivations are becoming increasingly attractive."

Offshore

Revenue generated from Domestic Offshore for the fourth quarter 2011 increased to $74.8 million from $35.9 million in the same period in 2010, due to an improvement in dayrates and the acquisition of the Seahawk rigs. Average revenue per rig per day increased by 31% to $52,686 for the fourth quarter 2011 compared to $40,112 in the respective 2010 period. Operating days increased to 1,419 in the fourth quarter 2011 from 895 in the fourth quarter 2010, due to the addition of the Seahawk rigs, partially offset by fewer operating days for the legacy rigs. Operating expenses increased to $45.7 million in the fourth quarter 2011 from $32.6 million in the respective 2010 period, again due to the addition of the Seahawk rigs. Gains from asset sales reduced fourth quarter 2011 operating expenses by $15.0 million, compared to gains of $4.0 million in the fourth quarter 2010. Average operating expense per rig per day decreased to $27,622 in the fourth quarter 2011 compared to $32,246 in the respective 2010 period. Excluding the impact from gains, average operating expense per rig per day was $36,656 in the fourth quarter 2011, which was relatively flat compared to the respective 2010 period level. Domestic Offshore generated operating income of $9.0 million in the fourth quarter 2011 versus an operating loss of $99.7 million, which includes a non-cash impairment charge of $84.7 million in the fourth quarter 2010.

International Offshore revenue declined to $40.9 million in the fourth quarter 2011 from $70.2 million in the fourth quarter 2010, primarily as a result of the new, lower dayrate contracts secured on all of the working international rigs. Average revenue per rig per day decreased to $85,778 in the fourth quarter 2011 from $138,094 in the comparable prior year period. Operating days also declined to 477 days in the fourth quarter 2011 from 508 in the fourth quarter 2010, due to downtime on the Hercules 208 and Hercules 262 related to equipment certification and contract preparation work. Operating expenses increased to $34.6 million in the fourth quarter 2011 from $32.1 million in the fourth quarter 2010, primarily due to incremental expenses on the Hercules 208. International Offshore recorded an operating loss of $6.0 million in the fourth quarter 2011 versus an operating loss of $16.7 million in the fourth quarter 2010, which includes a non-cash impairment charge of $38.0 million.

Inland

During the fourth quarter 2011, Inland generated revenue of $6.9 million compared to revenue of $6.2 million in the prior year period, as a result of an increase in average revenue per rig per day to $30,524 from $27,515 in the same periods, respectively. Utilization was flat at 82.2%. Fourth quarter 2011 operating expenses decreased to $6.3 million from $7.3 million in the fourth quarter 2010. Inland recorded an operating loss of $3.1 million in the fourth quarter 2011 compared to an operating loss of $6.2 million in the fourth quarter 2010.

Liftboats

Domestic Liftboats revenue decreased to $12.4 million in the fourth quarter 2011 compared to $16.8 million in the fourth quarter 2010, primarily on fewer operating days. Average revenue per liftboat per day increased modestly to $7,662 in the fourth quarter 2011 from $7,591 in the same period of 2010. Operating days decreased to 1,614 in the fourth quarter 2011 from 2,208 in the fourth quarter 2010, due to lower activity levels and reduction in the number of marketed vessels. Operating expenses of $10.5 million in the fourth quarter 2011 were relatively flat compared to the same period in 2010. Domestic Liftboats recorded an operating loss of $2.5 million in the fourth quarter 2011 compared to operating income of $2.2 million in the fourth quarter 2010.

International Liftboats generated revenue of $27.8 million in the fourth quarter 2011 compared to $35.7 million in the fourth quarter 2010. The decline in revenue is largely a result of lower utilization, which decreased to 60.9% in the fourth quarter 2011 from 71.1% in the prior year period. Average revenue per liftboat per day declined to $21,595 from $23,738 in the same periods, respectively, largely as a result of drydock time on larger class vessels. Operating expenses increased to $15.0 million in the fourth quarter 2011 compared to $13.6 million in the fourth quarter 2010 due in part to higher labor costs. International Liftboats recorded operating income of $4.8 million in the fourth quarter 2011 compared to operating income of $16.0 million in the prior year period.

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 loss from continuing operations 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 for, or superior to, income (loss) from continuing operations, operating income (loss), 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. Please see the attached Reconciliation of GAAP to Non-GAAP Financial Measures for a complete description of the adjustments made to Operating Loss, Loss From Continuing Operations and Diluted Loss per Share from Continuing Operations.

Conference Call Information

Hercules Offshore will conduct a conference call at 10:00 a.m. CST (11:00 a.m. EST) on February 9, 2012, to discuss its fourth quarter and full year 2011 financial results. To participate in the call, dial 800-901-5241 (domestic) or 617-786-2963 (international) and reference access code 48457499 approximately 10 minutes prior to the start of the call. The conference call will also be broadcast live via the Internet at http://www.herculesoffshore.com.

A replay of the conference call will be available by telephone on February 9, 2012, beginning at 12:00 p.m. CST (1:00 p.m. EST), through February 16, 2012. The phone number for the conference call replay is 888-286-8010 (domestic) or 617-801-6888 (international) with access code 49282016. Additionally, the recorded conference call will be accessible through our Web site at http://www.herculesoffshore.com for 7 days after the conference call.



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