Hercules Offshore Making Headway in Shallow Water

Despite strong trends in the shallow water drilling market, Hercules Offshore (NASDAQ: HERO  ) still reported a loss in the second quarter. Of course, that was partly due to the sale of the domestic liftboats and inland segment in July, which resulted in a $44.0 million loss from operations. At the end of the day, the company's shallow water business is improving, just not as well as many other parts of the offshore industry.

The numbers
Hercules's revenue jumped 37% in the quarter to $211.5 million, driven by both higher utilization and higher day rates. International offshore saw the biggest improvement with utilization up to 78.1% from 51.6% a year ago, and average revenue per day up from $91.4 million to $116.1 million.

Without the $44 million loss from discontinued operations the company would have made a $16.6 million profit, or about $0.10 per share. That's a big turnaround from a $55 million loss a year ago.

A challenge keeping up in drilling
The question for investors to consider is whether or not the strong trends will continue. Seadrill (NYSE: SDRL  ) , Transocean (NYSE: RIG  ) , and Noble (NYSE: NE  ) have seen improvements in shallow water as well, and it looks like industry trends will stay strong. But in the long term the drilling trends are working against Hercules.

Ultra-deepwater offshore drilling is where most of the major oil finds are now, and that's where Seadrill, Transocean, and Noble are putting most of their resources. Meanwhile, Hercules is stuck in shallow water where demand isn't high and drilling contracts are much shorter and more volatile.

While Hercules' management was touting visibility for most of its jack-up fleet into 2014, ultra-deepwater contracts extend into 2017 and beyond, even for rigs that aren't finished yet.

Better values out there
Hercules Offshore has generated $0.35 per share in earnings from continuing operations over the past six months. If that continues the stock would be reasonably priced at just over 10 times earnings, but there are better values in drilling.

Seadrill trades at 12 times forward earnings and pays an 8.4% dividend yield, Transocean is eight times forward estimates and pays a 4.7% dividend, and Noble is going for nine times forward estimates and pays a 2.6% dividend yield. Each of these three companies also has exposure to the growing and profitable ultra-deepwater market. Hercules is improving but these three companies still offer a better value to investors.

There are many different ways to play the energy sector from explorers to service providers. The Motley Fool's analysts have uncovered an under-the-radar company that's dominating its industry as a leading provider of equipment and components used in drilling and production operations, and poised to profit in a big way from it. To get the name and detailed analysis of this company that will prosper for years to come, check out the special free report: "The Only Energy Stock You'll Ever Need". Don't miss out on this limited-time offer and your opportunity to discover this under-the-radar company before the market does. Click here to access your report -- it's totally free.


Read/Post Comments (0) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2576964, ~/Articles/ArticleHandler.aspx, 10/23/2014 2:44:56 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Apple's next smart device (warning, it may shock you

Apple recently recruited a secret-development "dream team" to guarantee its newest smart device was kept hidden from the public for as long as possible. But the secret is out. In fact, ABI Research predicts 485 million of this type of device will be sold per year. But one small company makes Apple's gadget possible. And its stock price has nearly unlimited room to run for early-in-the-know investors. To be one of them, and see Apple's newest smart gizmo, just click here!


Advertisement