Hercules Offshore Inc. last week emerged from Chapter 11 bankruptcy protection, but the hard work continues after CEO John Rynd said activity in the U.S. Gulf of Mexico (GOM) was "lower today than at any time since the early days of the offshore drilling industry."
The Houston offshore drilling contractor and 14 of its affiliates in August filed a restructuring plan, which among other things allowed it to fund delivery of the $200 million Hercules Highlander, a newbuild already contracted (see Daily GPI, Aug. 17).
It's "a new chapter for Hercules," Rynd said Friday. "With our new capital structure, we are much better positioned to compete successfully in the offshore drilling market...While we are excited to have this milestone behind us, the hard work of successfully turning around our company is just beginning."
During a conference call last week to discuss third quarter results, Rynd said the offshore drilling market continued to be challenging, "with too many rigs chasing too little work." Depressed commodity prices should continue, which means "activity levels are not likely to increase materially through 2016."
Activity in the U.S. GOM, where Hercules works in shallow water, is "lower today than at any time since the early days of the offshore drilling industry," Rynd said. "Year-to-date, the number of new drilling permits approved has declined by over 60% from the same time last year. This is consistent with the decline in the number of working days for our domestic rig fleet."
Hercules and several other drilling contractors have taken rigs off the market in the GOM over the past year, but "there is still excess capacity in the region." As of last week eight of the 19 marketed rigs were under contract, with Hercules holding the contracts for four jackups.
"We have been able to keep four to five domestic rigs working and will work hard to maintain activity levels. Dayrates have taken a leg down, reflecting the current market conditions and our desire to maintain market share in the region. We expect the GOM will continue to be a tough market until we see oil price improvement."
Worldwide, about 79% of the 474 marketed jackup rigs are contracted. Adding to the pressure of low demand is a "large order book of newbuild jackups yet to be delivered," Rynd said.
"Today, 127 newbuild jack ups are under construction, on order or planned. So far this year, 15 newbuild jack ups have been delivered, about one third of which are currently idle. We've seen some formal delays in jackup deliveries to 2018 and beyond, but 92 remain scheduled for delivery by the end of next year, only eight of which, including the Hercules Highlander, are contracted. Whether these newbuilds get delivered on the current schedule or not, the order book will be an overhang on the jackup rig supply for the next few years."
Hercules operates a fleet of 27 jackup rigs, including the newbuild Hercules Highlander under construction, as well as 19 liftboats. The company offers a range of oilfield services for drilling, well service, platform inspection, maintenance and decommissioning operations in several key shallow water provinces around the world.
During 3Q2015, Hercules reported a net loss of $95.4 million (minus 59 cents/share), versus a year-ago net loss of $88.3 million (minus 55 cents). Several one-time items impacted earnings, including restructuring related to the bankruptcy filing.
In its U.S. segment, Hercules reported an operating loss of $13.7 million, versus 2Q2015 income of $1.4 million, driven by lower dayrates and utilization. Average revenue per day fell to $76,100/day in the third quarter versus $92,500 in the second quarter. Utilization decreased to 44% from 2Q2015's 54%.