Hercules Offshore to acquire jack-up from Diamond Offshore

Written by Nick Blenkey

columbia 002Hercules Offshore, Inc. (Nasdaq: HERO) reports the execution of a definitive agreement to acquire the offshore drilling rig Ocean Columbia from a subsidiary of Diamond Offshore Drilling, Inc. (NYSE: DO – News). The purchase price is $40 million in cash. Ocean Columbia is a LeTourneau Class 82 SD-C self-elevating jack-up drilling rig registered and flagged in the Marshall Islands. It was built at Marathon Letourneau, Brownsville, Texas, in 1978. Hercules expects the acquisition to close in May 2012.

Hercules Offshore has entered into a three-year drilling contract with Saudi Aramco for the use of the Ocean Columbia. Over this three-year period, the company expects to generate total revenues of $160.0 million, including a lump-sum mobilization fee, assuming a utilization rate of 98 percent for the rig.

Under the drilling contract, Saudi Aramco has the option to extend the term for an additional one-year period.

Prior to commencing work under the contract, Hercules expects to spend approximately $45.0 million for repairs, upgrades and other contract specific refurbishments to the rig and to mobilize the rig from the Gulf of Mexico to the Middle East. The Company expects the rig to commence work under the contract in November 2012.

In separate announcements, Hercules said it plans a public offering of common stock and a private placement of senior notes.

Hercules plans to publicly offer up to 20,000,000 shares of common stock in an underwritten public offering. The underwriters for the offering will also have the option to purchase up to 3,000,000 additional shares of common stock on the same terms and conditions to cover over-allotments, if any.  Hercules intends to half the net proceeds from the offering to repay a portion of indebtedness outstanding under its term loan facility.  It expecst to use the remaining net proceeds to fund a portion of the purchase price of the Ocean Columbia as well as the costs associated with the repair, upgrade and mobilization of Ocean Columbia.

Hercules  intends to offer, in a private placement, up to $300,000,000 aggregate principal amount of senior secured notes due 2017, the “secured notes,” and up to $200,000,000 aggregate principal amount of senior notes due 2019, the “unsecured notes.”  Hercules Offshore expects to use the net proceeds from the notes offering to repay all of the indebtedness outstanding on its existing secured term loan.  As a result of the repayment of the term loan, itsoutstanding 10.5% Senior Secured Notes will become unsecured.  The company expects to use the remaining net proceeds for general corporate purposes, including to fund a portion of the purchase price of the drilling rig Ocean Columbia and the associated repair, upgrade and mobilization costs.

May 20, 2012

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