HERO

Hercules Offshore, Inc. (HERO)

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Hercules Offshore, Inc. (HERO)

Q4 2009 Earnings Call Transcript

March 2, 2010 11:00 am ET

Executives

Steven Butz – VP, Finance and Treasurer

John Rynd – CEO and President

Lisa Rodriguez – SVP and CFO

Analysts

Collin Gerry – Raymond James

Rob MacKenzie – FBR Capital Markets

Jeff Tillery – Tudor Pickering Holt

Ian Macpherson – Simmons & Company

Pierre Conner – Capital One Southcoast

Mike Urban – Deutsche Bank

Robin Shoemaker – Citi

Geoff Kieburtz – Weeden

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the Q4 2009 Hercules Offshore earnings conference call. My name is Veronica and I will be your operator for today. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. (Operator Instructions) As a reminder, this conference is being recorded for replay purposes. I would now like to turn the presentation over to your host for today, Mr. Steven Butz, Vice President Finance and Treasurer. Please proceed.

Steven Butz

Thank you, Veronica. Good morning. I would like to welcome everyone to our fourth quarter 2009 earnings conference call. Participating this morning from Hercules Offshore management team are John Rynd, our Chief Executive Officer and President and Lisa Rodriguez, our Senior Vice President and Chief Financial Officer. This morning we issued our financial results and filed an 8-K with the SEC. The press release is available on our website at herculesoffshore.com.

We will follow our normal format today, but before John begins his remarks, I'd like to remind everyone that this conference call will contain forward-looking statements. All statements other than statements of historical fact that address our remaining outlook for 2009 and beyond, activities, events or developments that we expect, estimate, project, believe or anticipate will or may occur in the future are forward-looking statements.

Forward-looking statements by their nature involve substantial risks and uncertainties that could significantly affect expected results and actual future results could differ materially from those described in such statements. You can obtain more information about these risks and factors in our filings with the SEC which can be found on our website and the SEC's website, sec.gov.

John will begin the call with some general remarks and discussion regarding the outlook and Lisa will discuss our fourth quarter 2009 financial results and provide cost guidance for the full year 2010. I will then provide an update on cash flow, liquidity and capitalization before opening the call for questions and answers. Now, it's my pleasure to turn the call over to John.

John Rynd

Good morning. Thank you for joining the call today. As previously mentioned, we reported our financial reports before the market opened today. After excluding certain items, we recorded a net loss from continuing operations of $25.8 million or $0.23 per diluted share for the fourth quarter 2009 compared with income from continuing operations of $36.2 million or $0.41 per diluted share in the fourth quarter of 2008.

For the full year 2009, also after excluding certain items, we recorded a net loss from continuing operations of $75.2 million or $0.77 per diluted share versus income from continuing operations of $92.9 million or $1.04 per diluted share in 2008. The fourth quarter decrease in our earnings per share from the comparable quarter in 2008 was due to the depressed activity levels that had impacted our domestic segments coupled with our establishment of an accounts receivable reserve and related expenses associated with the Hercules 185. Otherwise, our international business segment produced solid results that have helped offset the weakness in our domestic segments.

Now, I would like to provide a little more detail regarding the Hercules 185 and its impact on our results. On January 26, we announced that we were establishing an accounts receivable reserve of $29.8 million related to the customer of the Hercules 185.

We also announced that we would be taking a non-cash charge of $7.3 million to fully impair the related deferred mobilization and contract preparation costs, somewhat offset by a $2.6 million reduction in previously accrued contract related operating cost that are not expect to be settled if the receivable is not collected.

Taken together, these items were expected to reduce our fourth quarter 2009 results by a net of $34.4 million. Since that time, we received a payment of $3 million and have recently established a helpful dialogue with the customer regarding receivable. Therefore, accounts receivable reserve at December 31 associated with this customer is $26.8 million rather than the previously announced $29.8 million.

Including the effect of the other two items mentioned, the net impact of this event on fourth quarter 2009 results is 31.6 million, rather than the previously estimated 34.4 million. Despite the recent payment, which is encouraging sign, the collectibility of the receivable remains uncertain, thus far we have established the reserve.

At this point, for accounting purposes, we are not recognizing any revenue related to the Hercules 185 from this particular customer until collectibility is reasonably assured. The rig recently mobilized from Angola to Port-Gentil, Gabon and is currently jacked up adjacent to the Hercules 156 and continues to wait on instructions from our customer. However, we have the right to market the Hercules 185 during the time the rig is waiting on instructions.

And we will be able to substitute another rig for the Hercules 185 if it receives a contract during the idle time. We remain hopeful that this situation will be resolved in a timely manner. I would like now to reflect -- take a moment to reflect on our accomplishments during the year when most of the world was engulfed in a deep economic downturn and we saw benchmark crude oil prices drop to low of approximately $34 per barrel and her you have natural gas prices drop to a low of $1.83 per MMBtu.

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