HERO

Hercules Offshore, Inc. (HERO)

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Hercules Offshore Inc. (HERO)

Q1 2010 Earnings Call Transcript

April 29, 2010 11:00 am ET

Executives

Steven Butz - VP of Finance and Treasurer

John Rynd - CEO and President

Lisa Rodriguez - SVP and CFO

Troy Carson - VP and Corporate Controller

Analysts

Christopher Buchek - Raymond James

Geoff Kieburtz - Weeden & Company

Presentation

Operator

Good day, ladies and gentlemen and welcome to the first quarter 2010 Hercules Offshore earnings conference call. My name is Marcia and I will be your coordinator for today's call. At this time, all participants are in listen-only mode. We will conduct a question and answer session toward the end of this conference. (Operator Instructions)

I would now like to turn the call over to Mr. Steven Butz, Vice President of Finance and Treasurer. Please proceed, sir

Steven Butz

Thank you, Marcia. Good morning. I would like to welcome everyone to our first quarter 2010 earnings conference call. Participating this morning from the Hercules Offshore management team are John Rynd, our Chief Executive Officer and President, Lisa Rodriguez, our Senior Vice President and Chief Financial Officer and Troy Carson, our Vice President and Corporate Controller.

This morning, we issued our financial results and filed an 8-Kwith 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 the 2010 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. They can significantly affect expected results and actual 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 at which can be found on our website and the SEC's website at SEC.gov.

John will begin the call with some general remarks and discussion regarding the outlook, and Lisa will discuss our first quarter 2010 financial results, and provide cost guidance for the remainder of the year. I will then provide an update on our cash flow, liquidity and capitalization before opening the call for questions and answers.

Now, my pleasure to turn the call over to John.

John Rynd

Good morning. Thanks for joining us today. First, I want to begin by expressing our heart felt sympathy for our many friends at Transocean. Many in the Hercules family have friends and associates at Transocean and our concerns and prayers are with them.

This morning, we reported our financial results for the first quarter 2010, which show a net loss from continuing operations of $16 million, or a $0.14 loss per diluted share compared with a loss of continuing operations of $4.5 million or $0.05 per diluted share for the first quarter 2009.

While the results were slightly behind our results from the year ago quarter, I am pleased that we have continued to narrow the operating loss from the fourth quarter 2009 in our domestic offshore inland and Delta Towing segments.

I will now discuss the outlook for each of our core segments. We have experienced a substantial improvement in demand in our domestic offshore business over the last two quarters. During the fall of 2009, shallow water bidding activity picked up significantly as did drilling plans filed with the minerals and management service.

To give some reference, shallow water drilling plans filed by the MMS have increased from 8 in June of 2009 to 27 last month. This increase in demand began while natural gas prices were still fairly weak in the $2 to $4 range for much of the fall, as gas prices improved into the winter and moved north of $6 the improving trend and activity and bidding continued.

Since that time, natural gas prices have come down under pressure and as many of you know, are now again in the low $4 range. However, as an industry, we have been able to maintain steady activity levels of backlog. There are currently 41 jackup rigs contracted in the U.S. Gulf of Mexico, up substantially from the July of 2009 low of 15 rigs contracted. But also up nicely from 28 at the start of the year, when natural gas prices reached their recent peak.

Market and supply stands at 48 for current market utilization of 85%. While 10 of our jackups are cold-stacked all 12 of our marketed jackups are now contracted. We find the resiliency of the shallow water rig count in the face of relatively soft natural gas pricing to be encouraging.

We believe there are a number of reasons for the recent relative stability in demand. First and foremost, 2009 was an aberration, while depressed natural gas prices certainly adversely impacted demand, there were many other external factors that play as a result of the financial crisis. Many companies in general were going to put the brakes on any programs that were not already committed regardless of gas price.

Due to the uncertainty in the capital markets and global economy, more simply put, we believe that a certain amount of activity is merely getting the industry back to a more normal base level demand that is not as price sensitive in the short-term.

Additionally, and as expected some customers are trying to take advantage of the lowest oil field service costs in years.

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