Shallow water drilling is taking slow steps forward, but it hasn't been enough to save Hercules Offshore
During the first quarter, Hercules' revenue fell 10% to $143.3 million and its loss from continuing operations nearly tripled to $38.3 million, or $0.28 per share. A massive drop in international revenue of shipyard projects for contract-specific items accounted for the decline. The utilization rate of these rigs is supposed to increase as the year goes on and earnings should pick up as a result.
Only the domestic offshore and international liftboat segments were able to generate positive operating income this quarter, a measly $1.8 million and $8.6 million respectively.
Companies with dependence on shallow water drilling have faced the same challenges as Hercules; namely, low utilization rates and low dayrates, leading to losses. Parker Drilling
Foolish bottom line
The shallow water market may in fact pick up as management predicted, but $771 million of debt still hangs over Hercules and that will keep the company from posting much of a profit in the near future. The company had $20 million in interest expense this quarter and a $28.6 million operating loss so it will take a big turnaround to swing into a profit. Even if Hercules does swing to a profit, I like ultra-deepwater drillers better because they are highly profitable and pay extremely high dividends.
For that thesis to change I will need to see dayrates and utilization improve dramatically, something to watch for in coming quarters.