July 31, 2008
HOS reports record OSV earnings
Hornbeck Offshore Services, Inc. (NYSE: HOS) reports that record OSV earnings helped propel second quarter 2008 revenues to $104.5 million compared to $75.1 million for the second quarter of 2007, an increased of 39.1% .
Operating income was $40.8 million, or 39.0% of revenues, for the second quarter of 2008 compared to $33.9 million, or 45.1% of revenues, for the prior-year quarter.
Net income for the second quarter of 2008 was $25.5 million, or $0.94 per diluted share, compared to $22.6 million, or $0.85 per diluted share in the year-ago quarter.
EBITDA for the second quarter of 2008 was $53.8 million compared to second quarter 2007 EBITDA of $41.8 million.
The company says the primary reasons for the increase in revenues, operating income, net income and EBITDA were the incremental contribution of vessels acquired or newly constructed since June 2007 and favorable market conditions for the company's new generation offshore supply vessels.
Revenues from the OSV segment were $79.0 million for the second quarter of 2008, an increase of 62.6% from $48.6 million for the same period in 2007. OSV operating income increased 43.7% to $38.8 million for the second quarter of 2008 from $27.0 million for the second quarter of 2007.
OSV revenues and operating income were boosted by the full-quarter contribution from 20 OSVs (the "Sea Mar Fleet") acquired in August 2007, and, to a lesser extent, by a market-driven increase in new generation OSV dayrates and a partial-quarter contribution from one new generation OSV delivered in May 200.
Average new generation OSV dayrates for the second quarter of 2008 improved to $22,168 compared to $21,358 for the same period in 2007. New generation OSV utilization was 96.6% for the second quarter of 2008 compared to 96.7% during the same period in 2007.
The increase in dayrates was primarily due to favorable market conditions for new generation OSVs in the deepwater and ultra-deepwater U.S. Gulf of Mexico ("GoM").
Effective, or utilization- adjusted, dayrates for the company's conventional OSVs for the second quarter of 2008 were $8,300, or $3,400 higher than the first quarter of 2008.
This 69% sequential increase was primarily due to stronger market conditions associated with the seasonal pick up in offshore construction in the shallow water areas of the GoM.
Revenues from the tug and tank barge ("TTB") segment of $25.5 million for the second quarter of 2008 decreased by $1.0 million, or 3.8%, compared to $26.5 million for the same period in 2007.
The decrease in revenues was primarily the result of a softening in demand for the company's single-hulled vessels, which the company believes is primarily attributable to high petroleum product inventory levels resulting from weak consumer demand driven by record-high commodity prices.
The decrease in revenues was partially offset by the full-quarter contribution from three newbuild double- hulled tank barges, placed in service on various dates during the latter half of 2007 and the first quarter of 2008. The company's double-hulled tank barge average dayrates were $22,449 for the second quarter of 2008 in-line with the same period in 2007. Utilization for the double-hulled tank barge fleet was 93.6% for the second quarter of 2008 compared to 99.2% for the same period in 2007, primarily due to a market-related shift in contract mix from time charters to contracts for affreightment. Single-hulled tank barge average dayrates were $20,491 for the second quarter of 2008, an increase of $5,794, or 39.4%, from $14,697 for the same period in 2007.
The increase in single-hulled tank barge average dayrates came from a contract performed for upstream services in the GoM during the second quarter of 2008. Excluding the impact of this upstream job, dayrates for single-hulled tank barges for the second quarter of 2008 would have been $16,303.
Single-hulled tank barge utilization was 37.0% for the second quarter of 2008 compared to 86.7% for the same period in 2007. Recent soft market conditions for this type of equipment led to the decision to stack four single-hulled vessels and one lower-horsepower tug on various dates during the second quarter of 2008. These cost-cutting measures, along with the non-renewal of three in-chartered tugs, should partially mitigate the near-term effect of demand weakness, which is expected to continue through the second half of 2008.
Effective single-hulled tank barge utilization, which excludes the impact of stacked tank barges, was 50.2% for the three months ended June 30, 2008. As reported on June 6, 2008, the company has retained J.P. Morgan Securities Inc. to act as its financial advisor in a thorough review of strategic alternatives for its downstream TTB business, which is now well underway.
Capital Expenditures Outlook
The company expects total maintenance capital expenditures for fiscal 2008 to be approximately $71.7 million. Included in the 2008 projection of other vessel capital improvements is approximately $14.7 million related to the acquisition of revenue- generating modular equipment, such as remotely operated vehicles ("ROVs"). Included in the 2008 projection of non-vessel related capital expenditures is approximately $22.6 million related to the recent expansion of and improvements to HOS Port.
The MPSV program consists of two U.S.- flagged coastwise sulfur tankers that are being converted at domestic shipyards into 370 class DP-2 new generation MPSVs and two newbuild T-22 class DP-3 new generation MPSVs that are being constructed in foreign shipyards.
The first converted DP-2 MPSV is expected to be delivered from the shipyard in the fourth quarter of 2008, while the second converted DP-2 MPSV is expected to be delivered in mid-2009.
The first newbuild DP-3 MPSV is now on sea trials and is expected to be delivered from a foreign shipyard during the fourth quarter of 2008, while the second newbuild DP-3 MPSV is expected to be delivered during the fourth quarter of 2009.
Based on internal estimates, the aggregate cost of this program is expected to be approximately $450.0 million. From the inception of this program through June 30, 2008, the Company has incurred $296.9 million, or 66.0%, of total expected project costs, including $43.1 million incurred during the second quarter of 2008.
OSV Newbuild Program No. 4. During the second quarter of 2008, the company negotiated to increase the size and/or capabilities of eight of the 16 vessels currently planned or under construction under its fourth OSV newbuild program, including the upgrade of two previously announced 250 EDF class OSVs into two new proprietary 290 class OSVs, one of which is already committed to a multi-year charter for well-stimulation service in the GoM.
While the company has not experienced any significant cost overruns on this program, it has increased the total project budget by approximately $87 million to reflect the recent change in vessel mix and additional customer-driven, revenue- generating mission equipment and/or design enhancements required by multi-year specialty service time charters already awarded to six other vessels in this program.
Examples of incremental new vessel components include a 40-ton crane, a dynamically positioned offshore access system ("OAS"), a cable-reel system for deep-mooring support services and modular units for expanded crew accommodations. Examples of customer-required design-modifications include changes to ready certain vessels for ROV support and military specialty services.
In addition, the increased project budget includes pre-positioning costs for mobilization of each military vessel to its initial on-charter location and demonstration testing associated with the on-charter exercise following shipyard delivery.
This newbuild program is now comprised of vessel construction at three domestic shipyards to build six 240 ED class OSVs, seven 250 EDF class OSVs and three 290 class OSVs, respectively.
Twelve of these 16 new generation DP-2 OSVs have been awarded contracts prior to their shipyard delivery.
The company accepted delivery of the first two of the 240 ED class OSVs under this program, the HOS Polestar and the HOS Shooting Star, in May 2008 and July 2008, respectively. These vessels were immediately chartered to customers in Brazil and in the GoM. In addition, the first of the 250 EDF class vessels, the HOS Mystique, was delivered from the shipyard in April 2008 to undergo conversion for ROV support services under a multi-year charter commencing in the third quarter of 2008.
The company has secured long-term commitments ranging from two to ten years for nine of the remaining 13 vessels, which are expected to be delivered at a rate of about one to two per quarter through 2010.
Based on internal estimates, the aggregate cost of this program is expected to be approximately $480.0 million. From the inception of this program through June 30, 2008, the company has incurred $177.8 million, or 37.0%, of total expected project costs, including $53.7 million incurred during the second quarter of 2008.
Update on TTB Newbuild Program No. 2. The company's second TTB newbuild program consisted of vessel construction contracts with three domestic shipyards to build three 60,000-barrel double-hulled tank barges and retrofit four 3,000 horsepower ocean-going tugs that were purchased in July 2006. The final vessel to be delivered under this program, the rebuilt ocean-going tug, Erie Service, was placed in service in July 2008. The aggregate cost of this now completed program is approximately $77.0 million.