Hercules Offshore (HERO)
Q4 2012 Earnings Call
February 12, 2013 11:00 am ET
Son P. Vann - Vice President of Investor Relations & Planning
John T. Rynd - Chief Executive Officer, President and Executive Director
Stephen M. Butz - Chief Financial Officer and Executive Vice President
Todd P. Scholl - Clarkson Capital Markets, Research Division
Collin Gerry - Raymond James & Associates, Inc., Research Division
David Wilson - Howard Weil Incorporated, Research Division
Gregory Lewis - Crédit Suisse AG, Research Division
Byron K. Pope - Tudor, Pickering, Holt & Co. Securities, Inc., Research Division
Previous Statements by HERO
» Hercules Offshore Management Discusses Q3 2012 Results - Earnings Call Transcript
» Hercules Offshore Management Discusses Q2 2012 Results - Earnings Call Transcript
» Hercules Offshore's CEO Discusses Q1 2012 Results - Earnings Call Transcript
Son P. Vann
Thank you, Darcelle, and good morning, everyone, for our quarter and year end 2012 earnings conference call. With me today are John Rynd, Chief Executive Officer and President; Stephen Butz, Senior Vice President and Chief Financial Officer; and members of our senior management team, including Troy Carson, Chief Accounting Officer; and Beau Thompson, General Counsel.
This morning, we issued our fourth quarter results and filed an 8-K with the SEC. The press release is available on our website, herculesoffshore.com.
Following our usual format, John will begin the call with some broad remarks regarding our performance and current market conditions. Stephen will follow with a more detailed financial discussion and provide cost guidance for 2013. And we'll open up the call for Q&A thereafter.
Before we begin, let me remind everyone that our call will contain forward-looking statements. Except for statements of historical facts, all statements that address our outlook for 2013 and beyond, as well as 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 other factors in our SEC filings, which can be found on our website or the SEC's website, sec.gov
With that, let me turn the call over to John.
John T. Rynd
Good morning, everyone, and thanks for joining us today. This morning, we reported our fourth quarter and full year 2012 results. For the fourth quarter, we reported a net income from continuing operations of $4.3 million or $0.03 per diluted share, compared to a net loss from continuing operations of $21.5 million or $0.16 per diluted share in the fourth quarter of 2011.
For the full year 2012, we reported a net loss from continuing operations of $127 million or $0.83 per diluted share, compared to $66.5 million or $0.51 per share -- diluted share for 2011. The fourth quarter capped off what has been a very positive transitional year for the company. Business fundamentals in our Domestic business experienced significant gains throughout 2012, surpassing even our most bullish expectations. At no point during the last year did our customer show any hesitation on their desire to drill in the Gulf of Mexico, even when prices for WTI crude fell below $80 in June, and Henry Hub gas went well below $2 in the spring. As the drilling markets strengthened through the year, so did, too, our backlog. By year end, we had approximately 8 months of backlog per marketed rig, a record for our company, and almost double what we began the year with.
Our growing backlog, along with customers' increasing concerns about rig availability in 2013, gave us confidence to start the process of reactivating our first cold-stacked rig, which we announced last November. If current conditions for rig supply and demand persist, we see the possibility of further reactivations in the U.S. Gulf of Mexico, as we progress through 2013.
Our drilling operations on the international front faced a number of challenges in 2012, from the lag and spud can damage on the Hercules 185, which ultimately led to the vessel being declared a constructive total loss, to the extended downtime on 2 of our rigs in Saudi Arabia, as they completed their prior term contracts and prepared for the next 3-year contracts.
We expect our international drilling operations to rebound in 2013, with the bulk of the shipyard downtime behind us and the addition of the Hercules 266 through our contracted rig fleet in the second quarter.
I'm also proud to receive a clean bill of health on our FCPA investigation, a testament to our robust corporate compliance systems and unwavering ethical standards. In our liftboat business, we made some strategic asset repositioning and pricing moves, which we expect will translate to improved profitability going forward.
We continue to make significant progress on divesting of nonstrategic and idle assets. During 2012, we sold 11 cold-stacked rigs and our only asset in Mexico, Platform Rig 3, along with various other excess equipment, that generated $74 million in proceeds.
Finally, we removed a substantial overhang with our April debt refinancing. We ended 2012 with just shy of $260 million of unrestricted cash, almost double what we had a year ago. Given our contract backlog and the current industry environment, we expect to generate a growing amount of free cash flow in 2013. This gives us a lot of options going forward, to reinvest and grow our business, reduce debt or some combination of both.