HERO

Hercules Offshore, Inc. (HERO)

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Hercules Offshore, Inc. (HERO)

Capital One Southcoast 8th Annual December Energy Conference

December 12, 2013 12:40 PM ET

Executives

Craig Muirhead, Vice President and Treasurer

Son Vann - Vice President, Investor Relations and Planning

Analysts

Pierre Conner - Capital One Southcoast, Inc.

Presentation

Pierre Conner - Capital One Southcoast, Inc.

Well, thank you very much. We will continue on with the next presentation, Hercules Offshore. Hercules operates a large fleet of jackups in the Gulf of Mexico and is one of the largest liftboat operators in the world. Recently they streamlined their operations with divestiture of some of the barge rigs and their Gulf of Mexico liftboat fleet.

I am fortunate to have Son Vann, Vice President, Investor Relations and Planning, and Craig Muirhead, Vice President and Treasurer. We'll do about 20 minutes in here and then I think there will be breakout session. So, do you want to start us off? Very good, thank you. You got your monitor, forward backward, wherever and I will do that just to help you stay on time.

Son Vann

Great. Well, thanks, Pierre, and thanks everybody for joining us at the Hercules presentation. So as with everyone else please be mindful of our forward-looking statements disclosure.

Hercules Offshore is a leader in shallow water service provider to the E&P industry worldwide. We have 40 jackup rigs, which is the third largest fleet in the world. We have 24 liftboats, 21 in West Africa, 3 in the Middle East, and that's the largest fleet of liftboats outside of the Gulf of Mexico. If you look at the map, we have operations or have had operations in all of the major shallow-water regions in the world. We have a highly experienced management team with experience effectively managing through the cycles.

We have been busy in 2013, executing on a number of our strategic objectives. One is we’ve high graded our asset base by the acquisition of the two ultrahigh-spec jackups from Discovery Offshore. Those are new build Super A class rigs, high-temperature high-pressure, capable of working anywhere in the world outside of Norway. We are very excited to have those rigs as part of our fleet. Those are new assets for us that we’ll be able to work through the cycles for the next 30 years and we have also acquired our highest spec liftboat and the Bull Ray, which is currently working in West Africa, paid $42 million for that liftboat. It's our highest spec liftboat in the fleet, also a very good way to start high grading and renewing our fleet on the liftboat side.

Along with that, we sold our domestic liftboat business and our inland barge business earlier this year. Both of those businesses were about cash breakeven and we tried various things over the last couple of years to improve those businesses. We tried to consolidate the domestic liftboat business back in 2011 and we were unsuccessful in that effort. We could not see a clear path forward for growth in those businesses and so felt it was the best course to exit those businesses. The timing was convenient in that we were able to use the 110 million or so of proceeds from the sale of those businesses to complete the acquisition of Discovery without issuing any additional equity.

We have increased our earnings visibility through this year with the continued improvement in the Gulf of Mexico, increasing backlog as well as long-term five-year extensions on two of our rigs in Saudi Arabia working for Aramco. That has moved our revenue backlog to the highest level that we have recorded as a company at the end of the third quarter. And we continue to chip away at our balance sheet. We refinanced some higher coupon debt earlier this year extending the maturity and lowering our borrowing costs.

I mentioned the acquisition of the Discovery rigs earlier this year. These are now fully under the Hercules umbrella. Our first of those rigs went to work for Cairn in India, in November, and that is working at $215,000 a day, which is a very good rate comparable to the new fixtures for rigs of this class in the North Sea.

When you factor in the $13 million mobilization, and mobilization cost from Singapore to India is much less than mobilization cost from Singapore to the North Sea. Anyway, factoring in the $13 million mob fee over a four-month contract, given effective dayrate of $330,000 a day, which is an extremely attractive rate for a rig of this class.

A lot of people think that [North Sea] [ph] is the only place where you can get premium dayrate for rigs of this class. We've shown with this contract that there's opportunities in other areas, so this is a very good rate. We think there could be additional work behind this job with Cairn, but there's also opportunities in West Africa, in the Middle East, and in other regions.

We are targeting long-term work for both our Triumph and the Resilience, our other Discovery rig, but in the interim we will work on some short-term jobs like this. The Cairn job, obviously is at very attractive rate. Our Resilience, when it comes out of the yard may work in the Southeast Asia spot market just to pick some short-term gap filler work in advance of a longer-term contract. If it ends up in that market, the Resilience rate could be somewhere between 170 and maybe 200, depending on the type of work that's available at the time.

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