Hercules Offshore, Inc. (HERO)

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Hercules Offshore, Inc. (HERO)

May 21, 2013 2:05 pm ET


Son P. Vann - Vice President of Investor Relations & Planning


Unknown Analyst

Let's get started here. Our next presentation will be from Hercules Offshore, and today, we have Son Vann, Vice President of Investor Relations and Planning here today. Son joined Hercules Offshore in June 2010 and appointed to Vice President, Investor Relations and Planning In March of 2012. Along with heading up Investor Relations, he's involved in various financing and strategic planning aspects of the company's M&A and capital markets initiatives. And the Gulf of Mexico jackup market has been surprisingly strong, so this a good time for his presentation. With that, I'll turn it over to Son.

Son P. Vann

Thanks, Paul, and I want to thank UBS for inviting Hercules Offshore to their conference and I also want to thank you guys for listening in on Hercules Offshore. I know there's another conference going on right now or another presentation going on right now, but I appreciate your attendance here.

Before I start, let me just remind everyone that I will be making some forward-looking statements from time to time, and these statements are [indiscernible] with risks, so please refer to our SEC filings for a more robust discussions of those risks.

So today, I'll be talking to you about Hercules Offshore, give you a general overview, go into deeper dive of our core segments, talk about a few strategic opportunities, and hopefully, we'll have some time for Q&A.

So Hercules Offshore, we are a global provider of jackup rigs and liftboats. We're probably best known as the leading provider of jackups within U.S. Gulf of Mexico where we have 19 marketed rigs. There's roughly about 50% of the market share in the Gulf of Mexico. We also have an international footprint in West Africa where we have 2 rigs, 3 rigs in the Middle East and 1 rig in the Southeast Asian market.

We're also the largest liftboat provider, with the largest market share in the U.S. Gulf of Mexico, largest market share in West Africa, and we have a growing presence in the Middle East with 3 vessels there.

Our operational expertise really spans most of the shallow water regions in the world. And with our 32% ownership investment in Discovery Offshore, it's very possible that we'll expand our operational expertise to the North Sea.

Now, to talk about our 2012 report card when it's May of 2013 might sound a little bit outdated but I think it's important to talk about what we've done in 2012 because that really keys up what we need to do in 2013. So what are some of the things that happened in 2012? Well, probably the biggest thing is our core market, the U.S. Gulf of Mexico jackup space really took off in 2012. Leading-edge rates has about gone up a lot 60% year-over-year. That momentum continues to carry forward into 2013. Backlog basically doubled. We began 2012 with approximately 4 months of backlog per rig. Today, it's roughly about 8 months and we see that trending very similar to where we're at today. Even utilization kind of improved year-over-year by about 10.5 basis points.

In terms of our balance sheet, we refinanced about $500 million of term debt about this time last year. The important part about that is that it really opened up a lot of flexibility for us in terms of getting additional investments in place, and we'll talk about some of those investments that we've done since our financing.

Fleet optimization, we're always in the market for opportunities for kind of tuck-in acquisitions. We were able to get the Ocean Columbia last year, and we've since placed that rig on long-term contract with Saudi Aramco at about $117,000 a day. We also sold several cold-stacked and kind of what we call unproductive assets, generated about $73 million there. The important part about these assets sales is not only does it kind of prune non-core assets but we were able to redirect those proceeds to more attractive investment opportunities. And we also kind of moved around some assets to markets that were more attractively priced.

So in 2013, some of the strategic objectives that we need to do in 2013 aren't too dissimilar sort of from what we need to do on an ongoing basis but that's really to kind of optimize our fleet both externally and internally. Externally, we're always, again, in the market to look for kind of tuck-in acquisitions either on the jackup side or the liftboat side. Internally, we have the opportunities to reactivate rigs in the U.S. Gulf of Mexico. And also we're always looking for opportunities to pare down the other remaining cold-stacked fleet that we have, as well as assets that are not quite core to our long-term prospects.

Balance sheet, just like your health, there's always room for improvement there. With 2013, we have $300 million of senior notes that are callable in October. More likely than not, we'll look to refinance that. Based on where the current market is, I mean, we could probably be looking at about somewhere between a 400-or-so basis points improvement from the coupon rate to where the current rate is right now, so looking forward to that. We also, with the improvement in our underlying business, we got a credit-rating upgrade earlier this year from Moody's. We got one last year from S&P. We're currently rated, corporate rating is around a B, so always opportunities there to improve that as well.

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