e10vq
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
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þ |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2005
or
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o |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Transition Period From .........to........
Commission File No. 0-20310
SUPERIOR ENERGY SERVICES, INC.
(Exact name of registrant as specified in its charter)
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Delaware
(State or other jurisdiction of
incorporation or organization)
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75-2379388
(I.R.S. Employer
Identification No.) |
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1105 Peters Road
Harvey, Louisiana
(Address of principal executive offices)
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70058
(Zip Code) |
Registrants telephone number, including area code: (504) 362-4321
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of
the Exchange Act). Yes þ No o
The number of shares of the registrants common stock outstanding on August 1, 2005 was 77,962,060.
SUPERIOR ENERGY SERVICES, INC. AND SUBSIDIARIES
Quarterly Report on Form 10-Q for
the Quarterly Period Ended June 30, 2005
TABLE OF CONTENTS
2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
SUPERIOR ENERGY SERVICES, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
June 30, 2005 and December 31, 2004
(in thousands, except share data)
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6/30/05 |
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12/31/04 |
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(Unaudited) |
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(Audited) |
ASSETS |
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Current assets: |
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Cash and cash equivalents |
|
$ |
47,877 |
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$ |
15,281 |
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Accounts receivable net |
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169,383 |
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156,235 |
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Income taxes receivable |
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|
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2,694 |
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Current portion of notes receivable |
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2,867 |
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9,611 |
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Prepaid insurance and other |
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41,167 |
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28,203 |
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Total current assets |
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261,294 |
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212,024 |
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Property, plant and equipment net |
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510,756 |
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515,151 |
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Goodwill net |
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224,949 |
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226,593 |
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Notes receivable |
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28,639 |
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29,131 |
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Investments in affiliates |
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14,024 |
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14,496 |
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Other assets net |
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7,550 |
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6,518 |
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Total assets |
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$ |
1,047,212 |
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$ |
1,003,913 |
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LIABILITIES AND STOCKHOLDERS EQUITY |
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Current liabilities: |
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Accounts payable |
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$ |
34,975 |
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$ |
36,496 |
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Accrued expenses |
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55,788 |
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56,796 |
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Income taxes payable |
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10,497 |
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Fair value of commodity derivative instruments |
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12,043 |
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2,018 |
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Current portion of decommissioning liabilities |
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11,083 |
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23,588 |
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Current maturities of long-term debt |
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11,810 |
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11,810 |
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Total current liabilities |
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136,196 |
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130,708 |
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Deferred income taxes |
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97,354 |
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103,372 |
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Decommissioning liabilities |
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93,904 |
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90,430 |
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Long-term debt |
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239,001 |
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244,906 |
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Other long-term liabilities |
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4,243 |
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618 |
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Stockholders equity: |
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Preferred stock of $.01 par value. Authorized, 5,000,000 shares; none issued |
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Common stock of $.001 par value. Authorized, 125,000,000 shares; issued
and outstanding, 77,777,340 shares at June 30, 2005, and
76,766,303 at December 31, 2004 |
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78 |
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77 |
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Additional paid in capital |
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408,193 |
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398,073 |
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Accumulated other comprehensive income (loss), net |
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(6,865 |
) |
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2,884 |
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Retained earnings |
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75,108 |
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|
32,845 |
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Total stockholders equity |
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476,514 |
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433,879 |
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Total liabilities and stockholders equity |
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$ |
1,047,212 |
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$ |
1,003,913 |
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See accompanying notes to consolidated financial statements.
3
SUPERIOR ENERGY SERVICES, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
Three and Six Months Ended June 30, 2005 and 2004
(in thousands, except per share data)
(unaudited)
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Three Months |
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Six Months |
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2005 |
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2004 |
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2005 |
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2004 |
Oilfield service and rental revenues |
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$ |
160,522 |
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$ |
130,892 |
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$ |
307,814 |
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$ |
242,648 |
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Oil and gas revenues |
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29,478 |
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6,653 |
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55,433 |
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11,356 |
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Total revenues |
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190,000 |
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137,545 |
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363,247 |
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254,004 |
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Cost of oilfield services and rentals |
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79,561 |
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72,856 |
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153,174 |
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137,119 |
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Cost of oil and gas sales |
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11,091 |
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4,288 |
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23,896 |
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6,730 |
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Total cost of services, rentals and sales |
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90,652 |
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77,144 |
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177,070 |
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143,849 |
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Depreciation, depletion, amortization and accretion |
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23,580 |
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15,877 |
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45,977 |
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|
30,651 |
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General and administrative expenses |
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33,166 |
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25,796 |
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65,550 |
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49,988 |
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Gain on sale of liftboats |
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3,269 |
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3,269 |
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Income from operations |
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45,871 |
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18,728 |
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|
77,919 |
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|
29,516 |
|
Other income (expense): |
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Interest expense, net |
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(5,518 |
) |
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(5,523 |
) |
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(11,093 |
) |
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(11,073 |
) |
Interest income |
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|
407 |
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|
457 |
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|
731 |
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|
898 |
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Equity in income of affiliates, net |
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259 |
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281 |
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|
778 |
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|
304 |
|
Reduction in value of investment in affiliate |
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(1,250 |
) |
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(1,250 |
) |
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Income before income taxes |
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39,769 |
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|
13,943 |
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67,085 |
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19,645 |
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Income taxes |
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|
14,715 |
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|
|
5,229 |
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24,822 |
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|
7,367 |
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Net income |
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$ |
25,054 |
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$ |
8,714 |
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$ |
42,263 |
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$ |
12,278 |
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Basic earnings per share |
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$ |
0.32 |
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$ |
0.12 |
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$ |
0.55 |
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$ |
0.17 |
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Diluted earnings per share |
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$ |
0.32 |
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$ |
0.12 |
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$ |
0.53 |
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$ |
0.16 |
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Weighted average common shares used
in computing earnings per share: |
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Basic |
|
|
77,704 |
|
|
|
74,471 |
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|
|
77,544 |
|
|
|
74,342 |
|
Incremental common shares from stock options |
|
|
1,427 |
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|
|
727 |
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|
|
1,513 |
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|
723 |
|
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Diluted |
|
|
79,131 |
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|
75,198 |
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79,057 |
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|
75,065 |
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See accompanying notes to consolidated financial statements.
4
SUPERIOR ENERGY SERVICES, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
Six Months Ended June 30, 2005 and 2004
(in thousands)
(unaudited)
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2005 |
|
2004 |
Cash flows from operating activities: |
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Net income |
|
$ |
42,263 |
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|
$ |
12,278 |
|
Adjustments to reconcile net income to net cash provided
by operating activities: |
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|
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|
|
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Depreciation, depletion, amortization and accretion |
|
|
45,977 |
|
|
|
30,651 |
|
Deferred income taxes |
|
|
(98 |
) |
|
|
4,334 |
|
Equity in earnings of affiliates, net |
|
|
(778 |
) |
|
|
(304 |
) |
Reduction in value of investment in affiliate |
|
|
1,250 |
|
|
|
|
|
Gain on sale of liftboats |
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(3,269 |
) |
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|
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Changes in operating assets and liabilities, net of
acquisitions: |
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Receivables |
|
|
(6,542 |
) |
|
|
(2,435 |
) |
Other net |
|
|
(8,738 |
) |
|
|
(2,938 |
) |
Accounts payable |
|
|
(1,360 |
) |
|
|
(1,293 |
) |
Accrued expenses |
|
|
2,363 |
|
|
|
8,356 |
|
Decommissioning liabilities |
|
|
(8,199 |
) |
|
|
(5,250 |
) |
Income taxes |
|
|
16,789 |
|
|
|
400 |
|
|
|
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|
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Net cash provided by operating activities |
|
|
79,658 |
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|
43,799 |
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Cash flows from investing activities: |
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Payments for capital expenditures |
|
|
(60,112 |
) |
|
|
(32,488 |
) |
Acquisitions of businesses, net of cash acquired |
|
|
(5,273 |
) |
|
|
(11,794 |
) |
Cash proceeds from the sale of liftboats, net |
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|
19,313 |
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Other |
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(1,208 |
) |
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Net cash used in investing activities |
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|
(47,280 |
) |
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|
(44,282 |
) |
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Cash flows from financing activities: |
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Principal payments on long-term debt |
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(5,905 |
) |
|
|
(7,105 |
) |
Proceeds from exercise of stock options |
|
|
6,427 |
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|
3,269 |
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Net cash provided by (used in) financing activities |
|
|
522 |
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|
|
(3,836 |
) |
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Effect of exchange rate changes on cash |
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|
(304 |
) |
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|
7 |
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|
Net increase (decrease) in cash |
|
|
32,596 |
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|
|
(4,312 |
) |
Cash and cash equivalents at beginning of period |
|
|
15,281 |
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|
|
19,794 |
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|
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Cash and cash equivalents at end of period |
|
$ |
47,877 |
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|
$ |
15,482 |
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|
See accompanying notes to consolidated financial statements.
5
SUPERIOR ENERGY SERVICES, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements
Six months Ended June 30, 2005 and 2004
(1) Basis of Presentation
Certain information and footnote disclosures normally in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or omitted pursuant to
the rules and regulations of the Securities and Exchange Commission; however, management believes
the disclosures which are made are adequate to make the information presented not misleading.
These financial statements and footnotes should be read in conjunction with the financial
statements and notes thereto included in Superior Energy Services, Inc.s Annual Report on Form
10-K for the year ended December 31, 2004 and Managements Discussion and Analysis of Financial
Condition and Results of Operations.
The financial information of Superior Energy Services, Inc. and subsidiaries (the Company) for the
six months ended June 30, 2005 and 2004 has not been audited. However, in the opinion of
management, all adjustments (which include only normal recurring adjustments) necessary to present
fairly the results of operations for the periods presented have been included therein. The results
of operations for the first six months of the year are not necessarily indicative of the results of
operations that might be expected for the entire year. Certain previously reported amounts have
been reclassified to conform to the 2005 presentation.
(2) Stock-Based and Long-Term Compensation
The Company accounts for its stock based compensation under the principles prescribed by the
Accounting Principles Boards (Opinion No. 25), Accounting for Stock Issued to Employees.
However, Statement of Financial Accounting Standards No. 123 (FAS No. 123), Accounting for
Stock-Based Compensation permits the continued use of the intrinsic-value based method prescribed
by Opinion No. 25 but requires additional disclosures, including pro forma calculations of earnings
and net earnings per share as if the fair value method of accounting prescribed by FAS No. 123 had
been applied. No stock based compensation costs are reflected in net income, as all options
granted under those plans had an exercise price equal to the market value of the underlying common
stock on the date of the grant. Stock compensation costs from the grant of restricted stock units
are expensed as incurred. The pro forma data presented below is not representative of the effects
on reported amounts for future years (amounts are in thousands, except per share amounts):
6
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Three Months Ended June 30, |
|
Six Months Ended June 30, |
|
|
2005 |
|
2004 |
|
2005 |
|
2004 |
Net income, as reported |
|
$ |
25,054 |
|
|
$ |
8,714 |
|
|
$ |
42,263 |
|
|
$ |
12,278 |
|
Stock-based employee compensation
expense, net of tax |
|
|
(218 |
) |
|
|
(267 |
) |
|
|
(306 |
) |
|
|
(534 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma net income |
|
$ |
24,836 |
|
|
$ |
8,447 |
|
|
$ |
41,957 |
|
|
$ |
11,744 |
|
|
|
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Basic earnings per share: |
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings, as reported |
|
$ |
0.32 |
|
|
$ |
0.12 |
|
|
$ |
0.55 |
|
|
$ |
0.17 |
|
Stock-based employee compensation
expense, net of tax |
|
|
(0.01 |
) |
|
|
(0.01 |
) |
|
|
(0.01 |
) |
|
|
(0.01 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma earnings per share |
|
$ |
0.31 |
|
|
$ |
0.11 |
|
|
$ |
0.54 |
|
|
$ |
0.16 |
|
|
|
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Diluted earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings, as reported |
|
$ |
0.32 |
|
|
$ |
0.12 |
|
|
$ |
0.53 |
|
|
$ |
0.16 |
|
Stock-based employee compensation
expense, net of tax |
|
|
(0.01 |
) |
|
|
(0.01 |
) |
|
|
(0.01 |
) |
|
|
(0.01 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma earnings per share |
|
$ |
0.31 |
|
|
$ |
0.11 |
|
|
$ |
0.52 |
|
|
$ |
0.15 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Black-Scholes option pricing model assumptions: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk free interest rate |
|
|
3.85 |
% |
|
|
* |
|
|
|
3.85 |
% |
|
|
* |
|
Expected life (years) |
|
|
6 |
|
|
|
* |
|
|
|
6 |
|
|
|
* |
|
Volatility |
|
|
38.91 |
% |
|
|
* |
|
|
|
38.91 |
% |
|
|
* |
|
Dividend yield |
|
|
|
|
|
|
* |
|
|
|
|
|
|
|
* |
|
(*There were no stock option grants during the three or six months ended June 30, 2004.)
Long-Term Incentive Plan
In May 2005, the Companys stockholders approved the 2005 Stock Incentive Plan (2005 Incentive
Plan) to provide long-term incentives to its officers, key employees, consultants and advisers
(Eligible Participants). Under the 2005 Incentive Plan, the Company may grant incentive stock
options, non-qualified stock options, restricted stock, restricted stock units, stock appreciation
rights, other stock-based awards or any combination thereof to Eligible Participants for up to
4,000,000 shares of common stock. The Compensation Committee of the Board of Directors establishes
the term and the exercise price of any stock options granted under the 2005 Incentive Plan,
provided the exercise price may not be less than the fair market value of the common stock on the
date of grant. On June 24, 2005 the Compensation Committee awarded approximately 864,000
non-qualified stock options to Eligible Participants under the 2005 Incentive Plan.
On June 24, 2005, the Compensation Committee also awarded approximately 32,000 performance share
units (Units). The performance period for the Units runs from January 1, 2005 through December
31, 2007. The two performance measures applicable to all participants are the Companys return on
invested capital and total shareholder return relative to those of the Companys pre-defined peer
group. Participants can earn from $0 to $200 per Unit, as determined by the Companys achievement
of the performance measures. The Units provide for settlement in cash or up to 50% in equivalent
value in Company common stock, if the participant has met specified continued service requirements.
The Companys compensation expense related to the grant of the Units was not material for the six
months ended June 30, 2005.
(3) Earnings per Share
Basic earnings per share is computed by dividing income available to common stockholders by the
weighted average number of common shares outstanding during the period. Diluted earnings per share
is computed in the same
7
manner as basic earnings per share except that the denominator is increased
to include the number of additional common shares that could have been outstanding assuming the
exercise of stock options and restricted stock units that would have a dilutive effect on earnings
per share.
(4) Gain on Sale of Liftboats
During the quarter ended June 30, 2005, the Company sold 17 of its rental liftboats with
leg-lengths from 105 feet to 135 feet for $19.5 million in cash (exclusive of costs to sell). This
constituted all of the Companys rental fleet of liftboats with leg-lengths of 135 feet or less.
The Company recorded a gain of $3.3 million as a result of this transaction. The Company may
receive up to $0.5 million from the purchaser in the third quarter of 2005 subject to certain
provisions related to repair and maintenance costs of the vessels. Any amounts received will
increase the gain on the sale of the liftboats.
(5) Investment in Affiliate
The Company is currently considering the sale of its investment in an affiliate. Based on the
estimated sales price of the investment, the Company believes there was an other-than-temporary
decline in the value of the investment and reduced it by approximately $1.3 million during the
quarter ended June 30, 2005.
(6) Acquisitions
In 2004, the Companys wholly-owned subsidiary, SPN Resources, LLC, acquired additional oil and gas
properties through the acquisition of interests in 19 offshore Gulf of Mexico leases. Under the
terms of the transactions, the Company acquired the properties and assumed the decommissioning
liabilities. In the aggregate, the Company paid $10.7 million cash, net of amounts received. The
Company recorded decommissioning liabilities of approximately $83.0 million and notes and other
receivables of approximately $12.5 million, and oil and gas producing assets were recorded at their
estimated fair value of approximately $81.2 million.
In 2004, the Company acquired two businesses for an aggregate of $2.8 million in cash consideration
in order to enhance the products and services offered by its rental tools segment and well
intervention segment. These acquisitions were accounted for as purchases. The estimated fair
value of the net assets acquired was approximately $1.0 million in the aggregate, and the excess
purchase price over the fair value of net assets of approximately $1.8 million was allocated to
goodwill. The results of operations have been included from the respective acquisition dates.
Most of the Companys business acquisitions have involved additional contingent consideration based
upon a multiple of the acquired companies respective average earnings before interest, income
taxes, depreciation and amortization expense (EBITDA) over a three-year period from the respective
date of acquisition. As of June 30, 2005, the maximum additional consideration payable for the
Companys prior acquisitions was approximately $2.8 million, and will be determined and payable
through 2007. These amounts are not classified as liabilities under generally accepted accounting
principles and are not reflected in the Companys financial statements until the amounts are fixed
and determinable. The Company does not have any other financing arrangements that are not required
under generally accepted accounting principles to be reflected in its financial statements. When
the amounts are determined, they are capitalized as part of the purchase price of the related
acquisition. In the six months ended June 30, 2005, the Company paid additional consideration of
$5.3 million as a result of a prior acquisition, which had been capitalized and accrued in 2004.
Subsequent Event
In July 2005, the Companys subsidiary, SPN Resources, LLC, acquired additional oil and gas
properties through the acquisition of three offshore leases. Under the terms of the transaction,
the Company acquired the properties and assumed the related decommissioning liabilities, which have
a present value of approximately $12 million. The Company received $3.7 million in cash and will
invoice the sellers at agreed upon prices as the decommissioning activities (plug and abandonment
and structure removal) are completed.
8
(7) Segment Information
Business Segments
In 2004, the Company modified its segment disclosure by separating its oil and gas operations from
the well intervention segment. This change better reflects the impact of the Companys increased
oil and gas operations and service work created for the other segments, as well as how Company
management evaluates the Companys results of operations. The Companys reportable segments are as
follows: well intervention, rental tools, marine, other oilfield services and oil and gas. The
first four segments offer products and services within the oilfield services industry. The well
intervention segment provides plug and abandonment services, coiled tubing services, well pumping
and stimulation services, data acquisition services, gas lift services, electric wireline services,
hydraulic drilling and workover services, well control services, engineering support, technical
analysis and mechanical wireline services that perform a variety of ongoing maintenance and repairs to producing wells, as well as
modifications to enhance the production capacity and life span of the well. The rental tools
segment rents and sells specialized equipment for use with onshore and offshore oil and gas well
drilling, completion, production and workover activities. The marine segment operates liftboats
for production service activities, as well as oil and gas production facility maintenance,
construction operations and platform removals. The other oilfield services segment provides
contract operations and maintenance services, transportation and logistics services, offshore oil
and gas cleaning services, oilfield waste treatment services, dockside cleaning of items, including
supply boats, cutting boxes, and process equipment, and manufactures and sells drilling
instrumentation and oil spill containment equipment. The oil and gas segment acquires mature oil
and gas properties and produces and sells any remaining economic oil and gas reserves prior to the
Companys other segments providing decommissioning services. Oil and gas eliminations represent
products and services provided to the oil and gas segment by the Companys four other segments.
Prior period information has been reclassified to reflect the Companys current segments.
Summarized financial information concerning the Companys segments for the three and six months
ended June 30, 2005 and 2004 is shown in the following tables (in thousands):
Three Months Ended June 30, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
Oil & Gas |
|
|
|
|
Well |
|
Rental |
|
|
|
|
|
Oilfield |
|
|
|
|
|
Eliminations |
|
Consolid. |
|
|
Interven. |
|
Tools |
|
Marine |
|
Services |
|
Oil & Gas |
|
& Unallocated |
|
Total |
|
|
|
Revenues |
|
$ |
60,652 |
|
|
$ |
61,122 |
|
|
$ |
18,285 |
|
|
$ |
24,367 |
|
|
$ |
29,478 |
|
|
$ |
(3,904 |
) |
|
$ |
190,000 |
|
Cost of services, rentals and sales |
|
|
33,863 |
|
|
|
18,877 |
|
|
|
12,466 |
|
|
|
18,259 |
|
|
|
11,091 |
|
|
|
(3,904 |
) |
|
|
90,652 |
|
Depreciation, depletion,
amortization and accretion |
|
|
3,659 |
|
|
|
10,460 |
|
|
|
2,017 |
|
|
|
866 |
|
|
|
6,578 |
|
|
|
|
|
|
|
23,580 |
|
General and administrative expense |
|
|
12,667 |
|
|
|
13,027 |
|
|
|
2,107 |
|
|
|
3,781 |
|
|
|
1,584 |
|
|
|
|
|
|
|
33,166 |
|
Gain on sale of liftboats |
|
|
|
|
|
|
|
|
|
|
3,269 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,269 |
|
Income from operations |
|
|
10,463 |
|
|
|
18,758 |
|
|
|
4,964 |
|
|
|
1,461 |
|
|
|
10,225 |
|
|
|
|
|
|
|
45,871 |
|
Interest expense, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,518 |
) |
|
|
(5,518 |
) |
Interest income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
263 |
|
|
|
144 |
|
|
|
407 |
|
Equity in income of affiliates, net |
|
|
|
|
|
|
259 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
259 |
|
Reduction in value of investment |
|
|
|
|
|
|
(1,250 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,250 |
) |
|
|
|
Income before income taxes |
|
$ |
10,463 |
|
|
$ |
17,767 |
|
|
$ |
4,964 |
|
|
$ |
1,461 |
|
|
$ |
10,488 |
|
|
$ |
(5,374 |
) |
|
$ |
39,769 |
|
|
|
|
9
Three Months Ended June 30, 2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
Oil & Gas |
|
|
|
|
Well |
|
Rental |
|
|
|
|
|
Oilfield |
|
|
|
|
|
Eliminations |
|
Consolid. |
|
|
Interven. |
|
Tools |
|
Marine |
|
Services |
|
Oil & Gas |
|
& Unallocated |
|
Total |
|
|
|
Revenues |
|
$ |
48,549 |
|
|
$ |
43,831 |
|
|
$ |
17,692 |
|
|
$ |
22,869 |
|
|
$ |
6,653 |
|
|
$ |
(2,049 |
) |
|
$ |
137,545 |
|
Cost of services, rentals and sales |
|
|
30,130 |
|
|
|
14,156 |
|
|
|
12,660 |
|
|
|
17,959 |
|
|
|
4,288 |
|
|
|
(2,049 |
) |
|
|
77,144 |
|
Depreciation, depletion,
amortization and accretion |
|
|
3,409 |
|
|
|
7,820 |
|
|
|
1,831 |
|
|
|
965 |
|
|
|
1,852 |
|
|
|
|
|
|
|
15,877 |
|
General and administrative expense |
|
|
9,963 |
|
|
|
10,117 |
|
|
|
1,870 |
|
|
|
3,698 |
|
|
|
148 |
|
|
|
|
|
|
|
25,796 |
|
Income from operations |
|
|
5,047 |
|
|
|
11,738 |
|
|
|
1,331 |
|
|
|
247 |
|
|
|
365 |
|
|
|
|
|
|
|
18,728 |
|
Interest expense, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,523 |
) |
|
|
(5,523 |
) |
Interest income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
427 |
|
|
|
30 |
|
|
|
457 |
|
Equity in income of affiliates, net |
|
|
|
|
|
|
281 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
281 |
|
|
|
|
Income before income taxes |
|
$ |
5,047 |
|
|
$ |
12,019 |
|
|
$ |
1,331 |
|
|
$ |
247 |
|
|
$ |
792 |
|
|
$ |
(5,493 |
) |
|
$ |
13,943 |
|
|
|
|
Six Months Ended June 30, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
Oil & Gas |
|
|
|
|
Well |
|
Rental |
|
|
|
|
|
Oilfield |
|
|
|
|
|
Eliminations |
|
Consolid. |
|
|
Interven. |
|
Tools |
|
Marine |
|
Services |
|
Oil & Gas |
|
& Unallocated |
|
Total |
|
|
|
Revenues |
|
$ |
118,987 |
|
|
$ |
113,749 |
|
|
$ |
38,083 |
|
|
$ |
46,148 |
|
|
$ |
55,433 |
|
|
$ |
(9,153 |
) |
|
$ |
363,247 |
|
Cost of services, rentals and sales |
|
|
65,861 |
|
|
|
36,411 |
|
|
|
24,396 |
|
|
|
35,659 |
|
|
|
23,896 |
|
|
|
(9,153 |
) |
|
|
177,070 |
|
Depreciation, depletion,
amortization and accretion |
|
|
7,380 |
|
|
|
20,370 |
|
|
|
4,120 |
|
|
|
1,724 |
|
|
|
12,383 |
|
|
|
|
|
|
|
45,977 |
|
General and administrative expense |
|
|
24,505 |
|
|
|
25,621 |
|
|
|
4,215 |
|
|
|
8,146 |
|
|
|
3,063 |
|
|
|
|
|
|
|
65,550 |
|
Gain on sale of liftboats |
|
|
|
|
|
|
|
|
|
|
3,269 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,269 |
|
Income from operations |
|
|
21,241 |
|
|
|
31,347 |
|
|
|
8,621 |
|
|
|
619 |
|
|
|
16,091 |
|
|
|
|
|
|
|
77,919 |
|
Interest expense, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(11,093 |
) |
|
|
(11,093 |
) |
Interest income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
555 |
|
|
|
176 |
|
|
|
731 |
|
Equity in income of affiliates, net |
|
|
|
|
|
|
778 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
778 |
|
Reduction in value of investment |
|
|
|
|
|
|
(1,250 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,250 |
) |
|
|
|
Income before income taxes |
|
$ |
21,241 |
|
|
$ |
30,875 |
|
|
$ |
8,621 |
|
|
$ |
619 |
|
|
$ |
16,646 |
|
|
$ |
(10,917 |
) |
|
$ |
67,085 |
|
|
|
|
Six Months Ended June 30, 2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
Oil & Gas |
|
|
|
|
Well |
|
Rental |
|
|
|
|
|
Oilfield |
|
|
|
|
|
Eliminations |
|
Consolid. |
|
|
Interven. |
|
Tools |
|
Marine |
|
Services |
|
Oil & Gas |
|
& Unallocated |
|
Total |
|
|
|
Revenues |
|
$ |
89,180 |
|
|
$ |
82,563 |
|
|
$ |
31,303 |
|
|
$ |
42,727 |
|
|
$ |
11,356 |
|
|
$ |
(3,125 |
) |
|
$ |
254,004 |
|
Cost of services, rentals and sales |
|
|
54,098 |
|
|
|
26,769 |
|
|
|
24,289 |
|
|
|
35,088 |
|
|
|
6,730 |
|
|
|
(3,125 |
) |
|
|
143,849 |
|
Depreciation, depletion,
amortization and accretion |
|
|
6,721 |
|
|
|
15,237 |
|
|
|
3,554 |
|
|
|
1,894 |
|
|
|
3,245 |
|
|
|
|
|
|
|
30,651 |
|
General and administrative expense |
|
|
19,204 |
|
|
|
19,695 |
|
|
|
3,255 |
|
|
|
7,102 |
|
|
|
732 |
|
|
|
|
|
|
|
49,988 |
|
Income (loss) from operations |
|
|
9,157 |
|
|
|
20,862 |
|
|
|
205 |
|
|
|
(1,357 |
) |
|
|
649 |
|
|
|
|
|
|
|
29,516 |
|
Interest expense, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(11,073 |
) |
|
|
(11,073 |
) |
Interest income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
849 |
|
|
|
49 |
|
|
|
898 |
|
Equity in income of affiliates, net |
|
|
|
|
|
|
304 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
304 |
|
|
|
|
Income (loss) before income taxes |
|
$ |
9,157 |
|
|
$ |
21,166 |
|
|
$ |
205 |
|
|
$ |
(1,357 |
) |
|
$ |
1,498 |
|
|
$ |
(11,024 |
) |
|
$ |
19,645 |
|
|
|
|
10
Identifiable Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
Well |
|
Rental |
|
|
|
|
|
Oilfield |
|
|
|
|
|
|
|
|
|
Consolidated |
|
|
Interven. |
|
Tools |
|
Marine |
|
Services |
|
Oil & Gas |
|
Unallocated |
|
Total |
|
|
|
June 30, 2005 |
|
$ |
257,810 |
|
|
$ |
399,551 |
|
|
$ |
168,963 |
|
|
$ |
58,600 |
|
|
$ |
154,910 |
|
|
$ |
7,378 |
|
|
$ |
1,047,212 |
|
|
|
|
December 31, 2004 |
|
$ |
258,870 |
|
|
$ |
357,762 |
|
|
$ |
184,928 |
|
|
$ |
54,561 |
|
|
$ |
141,179 |
|
|
$ |
6,613 |
|
|
$ |
1,003,913 |
|
|
|
|
Geographic Segments
The Company attributes revenue to countries based on the location where services are performed or
the destination of the sale of products. Long-lived assets consist primarily of property, plant
and equipment and are attributed to the United States or other countries based on the physical
location of the asset at the end of a period. The Companys information by geographic area is as
follows (amounts in thousands):
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
|
|
2005 |
|
2004 |
|
2005 |
|
2004 |
United States |
|
$ |
168,087 |
|
|
$ |
116,280 |
|
|
$ |
319,955 |
|
|
$ |
217,379 |
|
Other Countries |
|
|
21,913 |
|
|
|
21,265 |
|
|
|
43,616 |
|
|
|
36,625 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
190,000 |
|
|
$ |
137,545 |
|
|
$ |
363,571 |
|
|
$ |
254,004 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-Lived Assets:
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
December 31, |
|
|
2005 |
|
2004 |
United States |
|
$ |
472,731 |
|
|
$ |
479,812 |
|
Other Countries |
|
|
38,025 |
|
|
|
35,339 |
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
510,756 |
|
|
$ |
515,151 |
|
|
|
|
|
|
|
|
|
|
(8) Debt
The Company has a bank credit facility consisting of term loans in an aggregate amount of $33.0
million outstanding at June 30, 2005, and a revolving credit facility of $75 million, none of which
was outstanding at June 30, 2005. The term loans require principal payments of $2.8 million each
quarter through June 30, 2008. Any balance outstanding on the revolving credit facility is due on
August 13, 2006. The credit facility bears interest at a LIBOR rate plus margins that depend on
the Companys leverage ratio. Indebtedness under the credit facility is secured by substantially
all of the Companys assets, including the pledge of the stock of the Companys principal
subsidiaries. The credit facility contains customary events of default and requires that the
Company satisfy various financial covenants. It also limits the Companys capital expenditures,
its ability to pay dividends or make other distributions, make acquisitions, make changes to the
Companys capital structure, create liens, incur additional indebtedness or assume additional
decommissioning liabilities. Subsequent to quarter-end, the Company amended the bank credit
facility to increase the capital expenditure limitation for 2005 from $60 million to $110 million,
and the lenders retroactively granted a waiver through 2005 allowing the Company to incur capital
expenditures exceeding $60 million. The Company also has letters of credit outstanding of
approximately $8.4 million at June 30, 2005, which reduce the borrowing availability under its
revolving credit facility. At June 30, 2005, the Company was in compliance with all such
covenants, as amended or waived.
The Company has $17.8 million outstanding in U. S. Government guaranteed long-term financing under
Title XI of the Merchant Marine Act of 1936, which is administered by the Maritime Administration
(MARAD), for two 245-foot class liftboats. The debt bears interest at 6.45% per annum and is
payable in equal semi-annual installments of $405,000, on every June 3rd and December 3rd through
June 3, 2027. The Companys obligations are secured by
11
mortgages on the two liftboats. In
accordance with this agreement, the Company is required to comply with certain covenants and
restrictions, including the maintenance of minimum net worth and debt-to-equity requirements. At
June 30, 2005, the Company was in compliance with all such covenants. This long-term financing
ranks equally with the bank credit facility.
The Company also has outstanding $200 million of 8 7/8% unsecured senior notes due 2011. The
indenture governing the notes requires semi-annual interest payments, on every May 15th
and November 15th through the maturity date of May 15, 2011. The indenture governing the
senior notes contains certain covenants that, among other things, prevent the Company from
incurring additional debt, paying dividends or making other distributions, unless its ratio of cash
flow to interest expense is at least 2.25 to 1, except that the Company may incur additional debt
in addition to the senior notes in an amount equal to 30% of its net tangible assets as defined,
which was approximately $192 million at June 30, 2005. The indenture also contains covenants that
restrict the Companys ability to create certain liens, sell assets or enter into certain mergers
or acquisitions. At June 30, 2005, the Company was in compliance with all such covenants.
(9) Hedging Activities
The Company enters into hedging transactions with major financial institutions to secure a
commodity price for a portion of future production and to reduce its exposure to fluctuations in
the price of oil. The Company does not enter into derivative transactions for trading purposes.
Crude oil hedges are settled based on the average of the reported settlement prices for West Texas
Intermediate crude on the New York Mercantile Exchange (NYMEX) for each month. The Company had no
natural gas hedges as of June 30, 2005. The Company uses financially-settled crude oil swaps and
zero-cost collars that provide floor and ceiling prices with varying upside price participation.
The Companys swaps and zero-cost collars are designated and accounted for as cash flow hedges.
With a financially-settled swap, the counterparty is required to make a payment to the Company if
the settlement price for any settlement period is below the hedged price for the transaction, and
the Company is required to make a payment to the counterparty if the settlement price for any
settlement period is above the hedged price for the transaction. With a zero-cost collar, the
counterparty is required to make a payment to the Company if the settlement price for any
settlement period is below the floor price of the collar, and the Company is required to make a
payment to the counterparty if the settlement price for any settlement period is above the cap
price for the collar. The Company recognizes the fair value of all derivative instruments as
assets or liabilities on the balance sheet. Changes in the fair value of cash flow hedges are
recognized, to the extent the hedge is effective, in other comprehensive income until the hedged
item is settled and recorded in revenue. For the six months ended June 30, 2005, hedging
settlement payments reduced oil revenues by approximately $3.0 million, and gains or losses
recognized due to hedge ineffectiveness were immaterial.
The Company had the following hedging contracts as of June 30, 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Crude Oil Positions |
|
|
Instrument |
|
Strike |
|
Volume (Bbls) |
|
|
Remaining Contract Term |
|
Type |
|
Price (Bbl) |
|
Daily |
|
Total (Bbls) |
7/05 - 8/06 |
|
Swap |
|
$ |
39.45 |
|
|
|
1,000 1,075 |
|
|
|
467,676 |
|
7/05 - 8/06 |
|
Collar |
|
$ |
35.00/$45.60 |
|
|
|
1,000 1,075 |
|
|
|
467,676 |
|
Based on the futures prices quoted at June 30, 2005, the Company expects to reclassify net losses
of approximately $7.6 million, net of taxes, into earnings related to the derivative contracts
during the next twelve months; however, actual gains or losses recognized may differ materially
depending on the movement of commodity pricing over the next twelve months.
(10) Decommissioning Liabilities
The Company records estimated future decommissioning liabilities related to its oil and gas
producing properties pursuant to the provisions of Statement of Financial Accounting Standards No.
143 (FAS No. 143), Accounting for Asset Retirement Obligations. FAS No. 143 requires entities to
record the fair value of a liability for an asset
12
retirement obligation (decommissioning
liabilities) in the period in which it is incurred with a corresponding increase in the carrying
amount of the related long-lived asset. Subsequent to initial measurement, the decommissioning
liability is required to be accreted each period to present value. The Companys decommissioning
liabilities consist of costs related to the plugging of wells, the removal of facilities and
equipment, including pipeline, and site restoration on oil and gas properties.
The Company estimates the cost that would be incurred if it contracted an unaffiliated third party
to plug and abandon wells, abandon the pipelines, decommission and remove the platforms and
pipelines and restore the sites of its oil and gas properties, and uses that estimate to record its
proportionate share of the decommissioning liability. In estimating the decommissioning liability,
the Company performs detailed estimating procedures, analysis and engineering studies. Whenever
practical, the Company utilizes its own equipment and labor services to perform well
abandonment and decommissioning work. When the Company performs these services, all recorded
intercompany revenues are eliminated in the consolidated financial statements. The recorded
decommissioning liability associated with a specific property is fully extinguished when the
property is abandoned. The recorded liability is first reduced by all cash expenses incurred to
abandon and decommission the property. If the recorded liability exceeds (or is less than) the
Companys out-of-pocket costs, then the difference is reported as income (or loss) within revenue
during the period in which the work is performed. The Company reviews the adequacy of its
decommissioning liabilities whenever indicators suggest that the estimated cash flows needed to
satisfy the liability have changed materially. The timing and amounts of these cash flows are
estimates, and changes to these estimates may result in additional (or decreased) liabilities
recorded, which in turn would increase (or decrease) the carrying values of the related oil and gas
properties. The following table summarizes the activity for the Companys decommissioning
liabilities for the six months ended June 30, 2005 and 2004 (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
June 30, |
|
|
2005 |
|
2004 |
Total decommissioning liabilities at December 31,
2004 and 2003, respectively |
|
$ |
114,018 |
|
|
$ |
38,853 |
|
Liabilities acquired and incurred |
|
|
|
|
|
|
14,436 |
|
Liabilities settled |
|
|
(8,200 |
) |
|
|
(5,250 |
) |
Accretion |
|
|
2,125 |
|
|
|
1,038 |
|
Revision in estimated liabilities |
|
|
(2,956 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total decommissioning liabilities at June 30,
2005 and 2004, respectively |
|
|
104,987 |
|
|
|
49,077 |
|
Current portion of decommissioning liabilities at June 30,
2005 and 2004, respectively |
|
|
11,083 |
|
|
|
16,292 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term portion of decommissioning liabilities at June 30,
2005 and 2004, respectively |
|
$ |
93,904 |
|
|
$ |
32,785 |
|
|
|
|
|
|
|
|
|
|
(11) Notes Receivable
Notes receivable consist primarily of commitments from the sellers of oil and gas properties for
the abandonment of the acquired properties. Pursuant to the agreement between the Company and a
seller, the Company will invoice the seller agreed upon amounts during the course of
decommissioning (abandonment and structure removal). These receivables are recorded at present
value, and the related discounts are amortized to interest income, based on the expected timing of
the decommissioning.
(12) Other Comprehensive Income
The following tables reconcile the change in accumulated other comprehensive income (loss) for the
three and six months ended June 30, 2005 and 2004 (amounts in thousands):
13
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
June 30, |
|
|
2005 |
|
2004 |
Accumulated other comprehensive income, March 31,
2005 and 2004, respectively |
|
$ |
(5,897 |
) |
|
$ |
3,692 |
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss): |
|
|
|
|
|
|
|
|
Other comprehensive loss, net of tax
Hedging activities: |
|
|
|
|
|
|
|
|
Adjustment for settled contracts, net of tax of $789 in 2005 |
|
|
1,343 |
|
|
|
|
|
Changes in fair value of outstanding hedging positions,
net of tax of ($650) in 2005 |
|
|
(1,105 |
) |
|
|
|
|
Foreign currency translation adjustment, net of tax of
($708) in 2005 and ($433) in 2004 |
|
|
(1,206 |
) |
|
|
(800 |
) |
|
|
|
|
|
|
|
|
|
Total other comprehensive income (loss) |
|
|
(968 |
) |
|
|
(800 |
) |
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive income (loss), June 30,
2005 and 2004, respectively |
|
$ |
(6,865 |
) |
|
$ |
2,892 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
June 30, |
|
|
2005 |
|
2004 |
Accumulated other comprehensive income, December 31,
2004 and 2003, respectively |
|
$ |
2,884 |
|
|
$ |
264 |
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss): |
|
|
|
|
|
|
|
|
Other comprehensive loss, net of tax
Hedging activities: |
|
|
|
|
|
|
|
|
Adjustment for settled contracts, net of tax of $1,103 in 2005 |
|
|
1,877 |
|
|
|
|
|
Changes in fair value of outstanding hedging positions,
net of tax of ($5,697) in 2005 |
|
|
(9,699 |
) |
|
|
|
|
Foreign currency translation adjustment, net of tax of
($1,131) in 2005 and $1,735 in 2004 |
|
|
(1,927 |
) |
|
|
2,628 |
|
|
|
|
|
|
|
|
|
|
Total other comprehensive income (loss) |
|
|
(9,749 |
) |
|
|
2,628 |
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive income (loss), June 30,
2005 and 2004, respectively |
|
$ |
(6,865 |
) |
|
$ |
2,892 |
|
|
|
|
|
|
|
|
|
|
(13) Commitments and Contingencies
From time to time, the Company is involved in litigation and other disputes arising out of
operations in the normal course of business. In managements opinion, the Company is not involved
in any litigation or disputes, the outcome of which would have a material effect on the financial
position, results of operations or liquidity of the Company.
(14) Accounting Pronouncements
In December 2004, the Financial Accounting Standards Board revised its Statement of Financial
Accounting Standards No. 123 (FAS No. 123R), Accounting for Stock Based Compensation. The
revision establishes standards for the accounting of transactions in which an entity exchanges its
equity instruments for goods or services, particularly transactions in which an entity obtains
employee services in share-based payment transactions. The revised statement requires a public
entity to measure the cost of employee services received in exchange for an award of equity
instruments based on the grant-date fair value of the award. That cost is to be recognized over
the period during which the employee is required to provide service in exchange for the award.
Changes in fair value
14
during the requisite service period are to be recognized as compensation cost
over that period. In addition, the revised statement amends Statement of Financial Accounting
Standards No. 95, Statement of Cash Flows, to require that excess tax benefits be reported as a
financing cash flow rather than as a reduction of taxes paid. The Company plans to adopt FAS No.
123R effective January 1, 2006. The Company is currently assessing the expected impact on its
consolidated 2006 financial statements.
In March 2005, the Financial Accounting Standards Board issued FASB Interpretation No. 47 (FIN No.
47), Accounting for Conditional Asset Retirement Obligations an interpretation of FASB Statement
No. 143. FIN No. 47 clarifies that FASB Statement No. 143, Accounting for Asset Retirement
Obligations, requires that an entity recognize a liability for the fair value of a conditional
asset retirement obligation when incurred if the liabilitys fair value can be reasonably
estimated. FIN No. 47 is effective no later than the end of fiscal years ending after December 15,
2005. The Company does not expect the adoption of FIN No. 47 to have a material impact on its
consolidated financial statements.
In May 2005, the Financial Accounting Standards Board issued Statement of Financial Accounting
Standards No. 154 (FAS No. 154), Accounting Changes and Error Corrections. This Statement
replaces APB Opinion No. 20, Accounting Changes and FASB Statement No. 3, Reporting Accounting
Changes in Interim Financial Statements and changes the requirements for the accounting for, and
reporting of, a change in accounting principle. This Statement applies to all voluntary changes in
accounting principle. It also applies to changes required by an accounting pronouncement in the
unusual instance that the pronouncement does not include specific transition provisions. When a
pronouncement includes specific transition provisions, those provisions should be followed. The
Statement is effective for accounting changes and corrections of errors made in fiscal years
beginning after December 15, 2005. The Company does not expect the adoption of FAS No. 154 to have
a material impact on its consolidated financial statements.
15
Item 2. Managements Discussion and Analysis of Financial Condition and Results of
Operations
Forward-Looking Statements
The following managements discussion and analysis of financial condition and results of operations
contains forward-looking statements which involve risks and uncertainties. All statements other
than statements of historical fact included in this section regarding our financial position and
liquidity, strategic alternatives, future capital needs, business strategies and other plans and
objectives of our management for future operations and activities, are forward-looking statements.
These statements are based on certain assumptions and analyses made by our management in light of
its experience and its perception of historical trends, current conditions, expected future
developments and other factors it believes are appropriate under the circumstances. Such
forward-looking statements are subject to uncertainties that could cause our actual results to
differ materially from such statements. Such uncertainties include but are not limited to: the
volatility of the oil and gas industry, including the level of offshore exploration, production and
development activity; changes in competitive factors affecting our operations; risks associated
with the acquisition of mature oil and gas properties, including estimates of recoverable reserves,
future oil and gas prices and potential environmental and plugging and abandonment liabilities;
seasonality of the offshore industry in the Gulf of Mexico; our dependence on key personnel and
certain customers; operating hazards, including the significant possibility of accidents resulting
in personal injury, property damage or environmental damage; the volatility and risk associated
with oil and gas prices; risks of our growth strategy, including the risks of rapid growth and the
risks inherent in acquiring businesses and mature oil and gas properties; the effect on our
performance of regulatory programs and environmental matters and risks associated with
international expansion, including political and economic uncertainties. These and other
uncertainties related to our business are described in detail in our Annual Report on Form 10-K for
the year ended December 31, 2004. Although we believe that the expectations reflected in such
forward-looking statements are reasonable, we can give no assurance that such expectations will
prove to be correct. You are cautioned not to place undue reliance on these forward-looking
statements, which speak only as of the date hereof. We undertake no obligation to update any of
our forward-looking statements for any reason.
Executive Summary
We posted our highest ever quarterly revenue, income from operations and net income due to
continued expansion of our rental tools business into domestic and international markets, higher
oil and gas production and commodity prices, and increased demand for rental tools,
production-related services and decommissioning services in our core Gulf of Mexico market area.
Our rental tools segment recorded another quarterly record for revenue and income from operations.
This segment benefited from increased demand in our core Gulf of Mexico market as a result of
increased drilling activity, which benefited rentals of drilling-related items such as drill pipe,
specialty tubulars and associated accessories, on-site accommodations, stabilizers and drill
collars. In addition, we continued to increase the scope of our operations domestically in Texas,
Oklahoma and Wyoming, and internationally in the North Sea, West Africa and Venezuela.
Revenue increased year-over-year and sequentially for our well intervention segment. Several of
our production-related services experienced improved operating performance over the first quarter
of 2005, including coiled tubing, data acquisition and hydraulic workover services. The operating
margin for this segment was lower sequentially due to some lower margin plug and abandonment,
wireline and well control work. A larger percentage of production-related work during the second
quarter of 2005 was performed for our traditional customer base and less for our oil and gas
subsidiary as compared to the first quarter of 2005. Revenue and income from operations grew for
our plug and abandonment services as seasonal demand increased in the shallow water Gulf of Mexico.
The second and third quarters typically experience higher activity levels for remedial and plug
and abandonment services due to improved weather conditions offshore.
Our marine segment revenue and income from operations (excluding the gain on sale of liftboats)
were higher than the second quarter of 2004, but slightly lower than the first quarter of 2005. The
year-over-year increase is attributable to higher dayrates. The sequential decline in revenue and
income from operations is primarily due to the sale of 17 of our small rental liftboats (leg
lengths of 105 feet to 135 feet), and increased shipyard time for several
16
liftboats. The second quarter of 2005 includes only two months of rental activity from the 105
foot class and 120-135 foot class fleet as these 17 liftboats were sold and removed from the fleet
effective June 1, 2005.
Revenue and income from operations in our other oilfield services segment were higher than the
second quarter of 2004 and first quarter of 2005 due in part to increased volumes of treated and
disposed non-hazardous oilfield waste and increased demand for offshore tank and vessel cleaning
and dockside and rig cleaning. Income from operations was higher due to an increase in our higher
margin environmental services revenue relative to our lower margin property management services
revenue.
Our oil and gas segment established a quarterly record for revenue and income from operations as a
result of record quarterly production of approximately 662,000 barrels of oil equivalent, net (boe)
and higher commodity prices. The record production levels accounted for more than 65% of the
revenue increase as compared to the first quarter of 2005.
Comparison of the Results of Operations for the Three Months Ended June 30, 2005 and 2004
For the three months ended June 30, 2005, our revenues were $190.0 million, resulting in net
income of $25.1 million or $0.32 diluted earnings per share. For the three months ended June 30,
2004, revenues were $137.5 million and net income was $8.7 million or $0.12 diluted earnings per
share. We experienced higher revenue and gross margin in all our segments, especially our oil and
gas and rental tools segments.
The following table compares our operating results for the three months ended June 30, 2005 and
2004. Gross margin is calculated by subtracting cost of services from revenue for each of our
five business segments. Oil and gas eliminations represent products and services provided to the
oil and gas segment by the Companys four other segments.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
|
Gross Margin |
|
|
2005 |
|
2004 |
|
Change |
|
2005 |
|
% |
|
2004 |
|
% |
|
Change |
|
|
|
|
|
Well Intervention |
|
$ |
60,652 |
|
|
$ |
48,549 |
|
|
$ |
12,103 |
|
|
$ |
26,789 |
|
|
|
44 |
% |
|
$ |
18,419 |
|
|
|
38 |
% |
|
$ |
8,370 |
|
Rental Tools |
|
|
61,122 |
|
|
|
43,831 |
|
|
|
17,291 |
|
|
|
42,245 |
|
|
|
69 |
% |
|
|
29,675 |
|
|
|
68 |
% |
|
|
12,570 |
|
Marine |
|
|
18,285 |
|
|
|
17,692 |
|
|
|
593 |
|
|
|
5,819 |
|
|
|
32 |
% |
|
|
5,032 |
|
|
|
28 |
% |
|
|
787 |
|
Other Oilfield Services |
|
|
24,367 |
|
|
|
22,869 |
|
|
|
1,498 |
|
|
|
6,108 |
|
|
|
25 |
% |
|
|
4,910 |
|
|
|
21 |
% |
|
|
1,198 |
|
Oil and Gas |
|
|
29,478 |
|
|
|
6,653 |
|
|
|
22,825 |
|
|
|
18,387 |
|
|
|
62 |
% |
|
|
2,365 |
|
|
|
36 |
% |
|
|
16,022 |
|
Less: Oil and Gas
Elim. |
|
|
(3,904 |
) |
|
|
(2,049 |
) |
|
|
(1,855 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
190,000 |
|
|
$ |
137,545 |
|
|
$ |
52,455 |
|
|
$ |
99,348 |
|
|
|
52 |
% |
|
$ |
60,401 |
|
|
|
44 |
% |
|
$ |
38,947 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following discussion analyzes our results on a segment basis.
Well Intervention Segment
Revenue for our well intervention segment was $60.7 million for the three months ended June 30,
2005, as compared to $48.5 million for the same period in 2004. This segments gross margin
percentage increased to 44% for the three months ended June 30, 2005 from 38% for the same period
of 2004. We experienced higher revenue for most of our services, especially well control, wireline
and coiled tubing services, as production-related activity improved in the Gulf of Mexico. These
increases were partially offset by lower hydraulic workover and recompletion service revenue in
Trinidad and Australia. The increases in production related activity levels, as well as the
increase in demand for higher margin well control services, also contributed to the improvement of
the gross margin percentage.
Rental Tools Segment
Revenue for our rental tools segment for the three months ended June 30, 2005 was $61.1 million, a
39% increase over the same period in 2004. The gross margin percentage increased slightly to 69%
for the three months ended June 30, 2005 from 68% for the same period in 2004. The increase in
revenue is primarily due to increased activity in the Gulf of Mexico, as well as our international
and domestic expansion efforts.
17
Marine Segment
Our marine segment revenue for the three months ended June 30, 2005 increased 3% over the same
period in 2004 to $18.3 million. The gross margin percentage for the three months ended June 30,
2005 increased to 32% from 28% for the same period in 2004. The second quarter of 2005 includes
two months of rental activity from the 105-foot and the 120 to 135-foot class liftboats. These 17
liftboats were sold effective June 1, 2005. The increases in revenue and gross margin percentage
were caused primarily by increases in the fleets dayrates. The fleets average dayrate increased 29% to
approximately $7,370 in the second quarter of 2005 from $5,730 in the second quarter of 2004. The
sale of the smaller liftboats also contributed to the increase in
average dayrates. The fleets average
utilization decreased to approximately 73% for the second quarter of 2005 from 76% in the same
period in 2004.
Other Oilfield Services Segment
Revenue from our other oilfield services segment for the three months ended June 30, 2005 was
$24.4 million, a 7% increase over the $22.9 million in revenue for the same period in 2004. The
gross margin percentage increased to 25% in the three months ended June 30, 2005 from 21% in the
same period in 2004. The revenue increase is primarily due to increased demand for our waste
disposal services. The increase in the segments gross margin percentage is due to this increased
demand as well as cost saving efforts in our waste disposal services.
Oil and Gas Segment
Oil and gas revenues were $29.5 million in the three months ended June 30, 2005, as compared to
$6.7 million in the same period of 2004. The increase in revenue is primarily the result of
production from South Pass 60, which was acquired in July 2004, and production from West Delta
79/86, which was acquired in December 2004. In the second quarter of 2005, production was
approximately 662,000 boe, as compared to approximately 161,600 boe in the second quarter of 2004.
The gross margin percentage increased to 62% in the three months ended June 30, 2005 from 36% in
the same period of 2004. This increase is primarily the result of higher commodity prices.
Depreciation, Depletion, Amortization and Accretion
Depreciation, depletion, amortization and accretion increased to $23.6 million in the three months
ended June 30, 2005 from $15.9 million in the same period in 2004. The increase is primarily the
result of additional depletion and accretion related to our oil and gas properties from both
increased production and acquisitions of oil and gas properties. The increase also results from
the depreciation associated with our 2005 and 2004 capital expenditures.
General and Administrative Expenses
General and administrative expenses increased to $33.2 million for the three months ended June 30,
2005 from $25.8 million for the same period in 2004. The
increase was primarily related to increased salaries and
performance-based incentive compensation and related expenses as a
result of our growth, oil and gas acquisitions, geographic expansion,
and improved operating performance. Additional increases included
higher insurance and Sarbanes-Oxley related compliance costs. General and administrative expenses decreased to 17% of revenue for the three
months ended June 30, 2005 from 19% for the same period in 2004.
Gain on Sale of Liftboats
Effective June 1, 2005, we sold all of our rental liftboats with leg-lengths from 105 feet to 135
feet for $19.5 million in cash (exclusive of costs to sell), which resulted in a gain of $3.3
million.
Comparison of the Results of Operations for the Six Months Ended June 30, 2005 and 2004
For the six months ended June 30, 2005, our revenues were $363.2 million, resulting in net income
of $42.3 million or $0.53 diluted earnings per share. For the six months ended June 30, 2004,
revenues were $254.0 million and net income was $12.3 million or $0.16 diluted earnings per share.
We experienced higher revenue and gross margin in all our segments, especially our oil and gas,
rental tools and well intervention segments.
18
The following table compares our operating results for the six months ended June 30, 2005 and
2004. Gross margin is calculated by subtracting cost of services from revenue for each of our
five business segments. Oil and gas eliminations represent products and services provided to the
oil and gas segment by the Companys four other segments.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
|
Gross Margin |
|
|
2005 |
|
2004 |
|
Change |
|
2005 |
|
% |
|
2004 |
|
% |
|
Change |
|
|
|
|
|
Well Intervention |
|
$ |
118,987 |
|
|
$ |
89,180 |
|
|
$ |
29,807 |
|
|
$ |
53,126 |
|
|
|
45 |
% |
|
$ |
35,082 |
|
|
|
39 |
% |
|
$ |
18,044 |
|
Rental Tools |
|
|
113,749 |
|
|
|
82,563 |
|
|
|
31,186 |
|
|
|
77,338 |
|
|
|
68 |
% |
|
|
55,794 |
|
|
|
68 |
% |
|
|
21,544 |
|
Marine |
|
|
38,083 |
|
|
|
31,303 |
|
|
|
6,780 |
|
|
|
13,687 |
|
|
|
36 |
% |
|
|
7,014 |
|
|
|
22 |
% |
|
|
6,673 |
|
Other Oilfield Services |
|
|
46,148 |
|
|
|
42,727 |
|
|
|
3,421 |
|
|
|
10,489 |
|
|
|
23 |
% |
|
|
7,639 |
|
|
|
18 |
% |
|
|
2,850 |
|
Oil and Gas |
|
|
55,433 |
|
|
|
11,356 |
|
|
|
44,077 |
|
|
|
31,537 |
|
|
|
57 |
% |
|
|
4,626 |
|
|
|
41 |
% |
|
|
26,911 |
|
Less: Oil and Gas
Elim. |
|
|
(9,153 |
) |
|
|
(3,125 |
) |
|
|
(6,028 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
363,247 |
|
|
$ |
254,004 |
|
|
$ |
109,243 |
|
|
$ |
186,177 |
|
|
|
51 |
% |
|
$ |
110,155 |
|
|
|
43 |
% |
|
$ |
76,022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following discussion analyzes our results on a segment basis.
Well Intervention Segment
Revenue for our well intervention segment was $119.0 million for the six months ended June 30,
2005, as compared to $89.2 million for the same period in 2004. This segments gross margin
percentage increased to 45% for the six months ended June 30, 2005 from 39% for the same period of
2004. We experienced higher revenue for almost all of our services as production-related activity
improved in the Gulf of Mexico, particularly for the well control, wireline and coiled tubing
services. These increases in activity levels, as well as the increase in demand for higher margin
well control services, also contributed to the improvement of the gross margin percentage.
Rental Tools Segment
Revenue for our rental tools segment for the six months ended June 30, 2005 was $113.7 million, a
38% increase over the same period in 2004. The gross margin percentage remained unchanged at 68%
for the six months ended June 30, 2005 and 2004. The increase in revenue is primarily due to
increased activity in the Gulf of Mexico, as well as our international and domestic expansion
efforts.
Marine Segment
Our marine segment revenue for the six months ended June 30, 2005 increased 22% over the same
period in 2004 to $38.1 million. The gross margin percentage for the six months ended June 30,
2005 increased to 36% from 22% for the same period in 2004. The six months ended June 30, 2005
includes five months of rental activity from the 105-foot and the 120 to 135-foot class liftboats.
These 17 liftboats were sold effective June 1, 2005. The increases in revenue and gross margin
percentage were caused primarily by increases in the fleets dayrates and utilization. The fleets average
dayrate increased 25% to approximately $7,140 in the six months ended June 30, of 2005 from $5,720
in the same period of 2004. The sale of the smaller liftboats also contributed to the increase in
average dayrates. The fleets average utilization also increased to approximately 75% for the six months
ended June 30, of 2005 from 70% in the same period in 2004.
Other Oilfield Services Segment
Revenue from our other oilfield services segment for the six months ended June 30, 2005 was $46.1
million, an 8% increase over the $42.7 million in revenue for the same period in 2004. The gross
margin percentage increased to 23% in the six months ended June 30, 2005 from 18% in the same
period in 2004. The revenue increase is primarily due to increased demand for our field
management and waste disposal services. The increase in the segments gross margin percentage is
due to this increased demand as well as cost saving efforts in our waste disposal services.
19
Oil and Gas Segment
Oil and gas revenues were $55.4 million in the six months ended June 30, 2005 as compared to $11.4
million in the same period of 2004. The increase in revenue is primarily the result of production
from South Pass 60, which was acquired in July 2004, and production from West Delta 79/86, which
was acquired in December 2004. In the six months ended June 30, 2005, production was approximately
1,263,000 boe as compared to approximately 293,000 boe in the same period of 2004. The gross
margin percentage increased to 57% in the six months ended June 30, 2005 from 41% in the same
period of 2004. This increase is primarily the result of higher commodity prices.
Depreciation, Depletion, Amortization and Accretion
Depreciation, depletion, amortization and accretion increased to $46.0 million in the six months
ended June 30, 2005 from $30.7 million in the same period in 2004. The increase is primarily a
result of depletion and accretion related to our oil and gas properties from both increased
production and acquisitions of oil and gas properties. The increase also results from the
depreciation associated with our 2005 and 2004 capital expenditures.
General and Administrative Expenses
General and administrative expenses increased to $65.6 million for the six months ended June 30,
2005 from $50.0 million for the same period in 2004. The
increase was primarily related to increased salaries and
performance-based incentive compensation and related expenses as a
result of our growth, oil and gas acquisitions, geographic expansion,
and improved operating performance. Additional increases included
higher insurance and Sarbanes-Oxley related compliance costs. General and administrative expenses
decreased to 18% of revenue for the six months ended June 30, 2005 from 20% for the same period in
2004.
Gain on Sale of Liftboats
Effective June 1, 2005, we sold all of our rental liftboats with leg-lengths from 105 feet to 135
feet for $19.5 million in cash (exclusive of costs to sell), which resulted in a gain of $3.3
million.
Liquidity and Capital Resources
In the six months ended June 30, 2005, we generated net cash from operating activities of $79.7
million as compared to $43.8 million in the same period of 2004. Our primary liquidity needs are
for working capital, capital expenditures, debt service and acquisitions. Our primary sources of
liquidity are cash flows from operations and borrowings under our revolving credit facility. We
had cash and cash equivalents of $47.9 million at June 30, 2005 compared to $15.3 million
at December 31, 2004.
We made $60.1 million of capital expenditures during the six months ended June 30, 2005, of which
approximately $34.2 million was used to expand and maintain our
rental tool equipment inventory.
We also made $12.2 million of capital expenditures in our oil and gas segment and $11.8 million of
capital expenditures (inclusive of progress payments made on the
crane as noted below) to expand and maintain the asset base of our well intervention, marine, and
other oilfield services. In addition, we made $1.9 million of capital expenditures on construction
and improvements to our facilities.
In March 2005, we contracted to construct a 880-ton derrick barge to support our decommissioning
operations on the Outer Continental Shelf. The contracts are for the construction of a 350-foot
barge and crane for a price of approximately $22 million. This amount does not include any future change orders, barge outfitting
or mobilization costs. Progress payments are made on the crane in
accordance with the terms set forth in the contract. Letters of
credit are due on the barge based on contract milestones. The
contract price will be payable on the barge upon delivery and
acceptance. We expect the barge to be available in the Gulf of Mexico late in the third
quarter of 2006. We intend to utilize it to remove platforms and structures owned by our
subsidiary, SPN Resources, LLC, and compete in the Gulf of Mexico construction market for both
installation and removal projects. At June 30, 2005, the total amount of progress payments made on
the crane was approximately $4.5 million.
We currently believe that we will make approximately $40 million of capital expenditures, excluding
acquisitions and targeted asset purchases, during the remaining six months of 2005 primarily to
further expand our rental tool
20
asset base and perform workovers on SPN Resources oil and gas
properties. We believe that our current working capital, cash generated from our operations and
availability under our revolving credit facility will provide sufficient funds for our identified
capital projects.
We also paid additional consideration for prior acquisitions of $5.3 million, all of which were
capitalized and accrued during 2004.
We have a bank credit facility consisting of term loans in an aggregate amount of $33.0 million
outstanding at June 30, 2005 and a revolving credit facility of $75 million, none of which was
outstanding at June 30, 2005. As of August 1, 2005, these balances were unchanged and the weighted
average interest rate under the credit facility was 5.6% per annum. Indebtedness under the credit
facility is secured by substantially all of our assets, including the pledge of the stock of our
principal subsidiaries. The credit facility contains customary events of default and requires that
we satisfy various financial covenants. It also limits our capital expenditures, our ability to
pay dividends or make other distributions, make acquisitions, make changes to our capital
structure, create liens, incur additional indebtedness or assume additional decommissioning
liabilities. On July 29, 2005, we amended the bank credit facility to increase the capital
expenditure limitation for 2005 from $60 million to $110 million, and the lenders retroactively
granted a waiver through 2005 allowing us to incur capital expenditures exceeding $60 million.
We have $17.8 million outstanding at June 30, 2005 in U. S. Government guaranteed long-term
financing under Title XI of the Merchant Marine Act of 1936, which is administered by the Maritime
Administration (MARAD), for two 245-foot class liftboats. This debt bears an interest rate of
6.45% per annum and is payable in equal semi-annual installments of $405,000 on every June
3rd and December 3rd through June 3, 2027. Our obligations are secured by
mortgages on the two liftboats. This MARAD financing also requires that we comply with certain
covenants and restrictions, including the maintenance of minimum net worth and debt-to-equity
requirements.
We also have outstanding $200 million of 8 7/8% senior notes due 2011. The indenture governing the
senior notes requires semi-annual interest payments on every May 15th and November
15th through the maturity date of May 15, 2011. The indenture governing the senior
notes contains certain covenants that, among other things, prevent us from incurring additional
debt, paying dividends or making other distributions, unless our ratio of cash flow to interest
expense is at least 2.25 to 1, except that we may incur debt in addition to the senior notes in an
amount equal to 30% of our net tangible assets, which was approximately $192 million at June 30,
2005. The indenture also contains covenants that restrict our ability to create certain liens,
sell assets or enter into certain mergers or acquisitions.
The following table summarizes our contractual cash obligations and commercial commitments at June
30, 2005 (amounts in thousands) for our long-term debt (including estimated interest payments),
decommissioning liabilities, operating leases and contractual obligations. The decommissioning
liability amounts do not give any effect to our contractual right to receive amounts from third
parties, which is approximately $30.9 million, when decommissioning operations are performed. We
do not have any other material obligations or commitments.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Remaining |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months |
|
|
|
|
|
|
|
|
|
|
|
|
Description |
|
2005 |
|
2006 |
|
2007 |
|
2008 |
|
2009 |
|
2010 |
|
Thereafter |
|
Long-term debt, including
estimated interest payments |
|
$ |
16,237 |
|
|
$ |
31,974 |
|
|
$ |
31,308 |
|
|
$ |
25,180 |
|
|
$ |
19,513 |
|
|
$ |
19,461 |
|
|
$ |
229,549 |
|
Decommissioning liabilities |
|
|
9,658 |
|
|
|
8,883 |
|
|
|
16,567 |
|
|
|
5,644 |
|
|
|
1,279 |
|
|
|
9,773 |
|
|
|
53,183 |
|
Operating leases |
|
|
3,023 |
|
|
|
5,506 |
|
|
|
3,802 |
|
|
|
1,922 |
|
|
|
1,221 |
|
|
|
1,008 |
|
|
|
14,588 |
|
Derrick barge construction |
|
|
4,005 |
|
|
|
13,656 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
32,923 |
|
|
$ |
60,019 |
|
|
$ |
51,677 |
|
|
$ |
32,746 |
|
|
$ |
22,013 |
|
|
$ |
30,242 |
|
|
$ |
297,320 |
|
|
|
|
We have no off-balance sheet arrangements other than our potential additional consideration that
may be payable as a result of the future operating performances of our acquisitions. At June 30,
2005, the maximum additional consideration payable for our prior acquisitions was approximately
$2.8 million. These amounts are not classified as
21
liabilities under generally accepted accounting
principles and are not reflected in our financial statements until the amounts are fixed and
determinable. When amounts are determined, they are capitalized as part of the purchase price of
the related acquisition. We do not have any other financing arrangements that are not required
under generally accepted accounting principles to be reflected in our financial statements.
We intend to continue implementing our growth strategy of increasing our scope of services through
both internal growth and strategic acquisitions. We expect to continue to make the capital
expenditures required to implement our growth strategy in amounts consistent with the amount of
cash generated from operating activities, the availability of additional financing and our credit
facility. Depending on the size of any future acquisitions, we may require additional equity or
debt financing in excess of our current working capital and amounts available under our revolving
credit facility.
New Accounting Pronouncements
In December 2004, the Financial Accounting Standards Board revised its Statement of Financial
Accounting Standards No. 123 (FAS No. 123R), Accounting for Stock Based Compensation. The
revision establishes standards for the accounting of transactions in which an entity exchanges its
equity instruments for goods or services, particularly transactions in which an entity obtains
employee services in share-based payment transactions. The revised statement requires a public
entity to measure the cost of employee services received in exchange for an award of equity
instruments based on the grant-date fair value of the award. That cost is to be recognized over
the period during which the employee is required to provide service in exchange for the award.
Changes in fair value during the requisite service period are to be recognized as compensation cost
over that period. In addition, the revised statement amends Statement of Financial Accounting
Standards No. 95, Statement of Cash Flows, to require that excess tax benefits be reported as a
financing cash flow rather than as a reduction of taxes paid. We plan to adopt FAS No. 123R
effective January 1, 2006. We are currently assessing the expected impact on our consolidated 2006
financial statements.
In March 2005, the Financial Accounting Standards Board issued FASB Interpretation No. 47 (FIN No.
47), Accounting for Conditional Asset Retirement Obligations an interpretation of FASB Statement
No. 143. FIN No. 47 clarifies that FASB Statement No. 143, Accounting for Asset Retirement
Obligations, requires that an entity recognize a liability for the fair value of a conditional
asset retirement obligation when incurred if the liabilitys fair value can be reasonably
estimated. FIN No. 47 is effective no later than the end of fiscal years ending after December 15,
2005. We do not expect the adoption of FIN No. 47 to have a material impact on our consolidated
financial statements.
In May 2005, the Financial Accounting Standards Board issued Statement of Financial Accounting
Standards No. 154 (FAS No. 154), Accounting Changes and Error Corrections. This Statement
replaces APB Opinion No. 20, Accounting Changes and FASB Statement No. 3, Reporting Accounting
Changes in Interim Financial Statements and changes the requirements for the accounting for, and
reporting of, a change in accounting principle. This Statement applies to all voluntary changes in
accounting principle. It also applies to changes required by an accounting pronouncement in the
unusual instance that the pronouncement does not include specific transition provisions. When a
pronouncement includes specific transition provisions, those provisions should be followed. The
Statement is effective for accounting changes and corrections of errors made in fiscal years
beginning after December 15, 2005. We do not expect the adoption of FAS No. 154 to have a material
impact on our consolidated financial statements.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Commodity Price Risk
Our revenues, profitability and future rate of growth partially depends upon the market prices of
oil and natural gas. Lower prices may also reduce the amount of oil and gas that can economically
be produced.
We use derivative commodity instruments to manage commodity price risks associated with future oil
and natural gas production. As of June 30, 2005, we had the following contracts in place:
22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Crude Oil Positions |
|
|
Instrument |
|
Strike |
|
Volume (Bbls) |
|
|
Remaining Contract Term |
|
Type |
|
Price (Bbl) |
|
Daily |
|
Total (Bbls) |
7/05 8/06 |
|
Swap |
|
$ |
39.45 |
|
|
|
1,000 1,075 |
|
|
|
467,676 |
|
7/05 8/06 |
|
Collar |
|
$ |
35.00/$45.60 |
|
|
|
1,000 1,075 |
|
|
|
467,676 |
|
Our hedged volume as of June 30, 2005 was approximately 52% of our estimated production from proved
reserves for the balance of the terms of the contracts. Had these contracts been terminated at
June 30, 2005, the estimated loss would have been $9.5 million net of taxes.
We used a sensitivity analysis technique to evaluate the hypothetical effect that changes in the
market value of crude oil would have on the fair value of our existing derivative instruments.
Based on the derivative instruments outstanding at June 30, 2005, a 10% increase in the underlying
commodity price, would increase the estimated loss associated with the commodity derivative
instrument by $3.1 million.
Interest Rate Risk
There have been no significant changes in our interest rate risks since the year ended December 31,
2004. For more information, please read the consolidated financial statements and notes thereto
included in our Annual Report on Form 10-K for the year ended December 31, 2004.
Item 4. Controls and Procedures
As of the end of the period covered by this quarterly report on Form 10-Q, our chief financial
officer and chief executive officer have concluded, based on their evaluation, that our disclosure
controls and procedures (as defined in rule 13a-15(e) promulgated under the Securities Exchange Act
of 1934, as amended) are effective for ensuring that information required to be disclosed by us in
the reports that we file or submit under the Securities Exchange Act of 1934 is recorded,
processed, summarized and reported within the time periods specified in the SECs rules and forms.
There were no material changes to our system of internal controls over financial reporting or in
other factors that have materially affected or are reasonably likely to materially affect those
internal controls subsequent to the date of the most recent evaluation by our chief financial
officer and chief executive officer.
23
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
|
(a) |
|
The annual meeting of our stockholders was held on May 25, 2005. |
|
|
(b) |
|
At the annual meeting, the stockholders elected Enoch L. Dawkins, James M. Funk,
Terence E. Hall, Ernest E. Howard, III, Richard A. Pattarozzi, and Justin L. Sullivan to
serve as directors until the next annual meeting of stockholders. |
|
|
(c) |
|
At the annual meeting, our stockholders: |
|
(i) |
|
Elected six directors with the following number of votes cast for and
withheld from such nominees: |
|
|
|
|
|
|
|
|
|
Director |
|
For |
|
Withheld |
|
Enoch L. Dawkins |
|
|
36,075,946 |
|
|
|
35,425,269 |
|
James M. Funk |
|
|
66,830,528 |
|
|
|
4,670,687 |
|
Terence E. Hall |
|
|
65,595,016 |
|
|
|
5,906,199 |
|
Ernest E. Howard, III |
|
|
63,045,046 |
|
|
|
8,456,169 |
|
Richard A. Pattarozzi |
|
|
65,337,172 |
|
|
|
6,164,043 |
|
Justin L. Sullivan |
|
|
66,348,088 |
|
|
|
5,153,127 |
|
|
(ii) |
|
Approved the 2005 Stock Incentive Plan. The number of votes cast for
and against this proposal, as well as the number of abstentions and non-votes, is
as follows: |
|
|
|
|
|
|
|
|
For |
|
Against |
|
Abstentions |
|
Non-Votes |
|
|
|
49,145,108 |
|
9,817,474 |
|
64,393 |
|
12,474,240 |
|
|
(iii) |
|
Ratified the appointment of KPMG LLP as our independent auditors for
the fiscal year ending December 31, 2005. The number of votes cast for and against
this proposal, as well as the number of abstentions and non-votes, is as follows: |
|
|
|
|
|
|
|
|
For |
|
Against |
|
Abstentions |
|
Non-Votes |
|
|
|
65,933,444 |
|
3,530,406 |
|
2,037,364 |
|
|
|
Item 6. Exhibits
|
(a) |
|
The following exhibits are filed with this Form 10-Q: |
|
3.1 |
|
Certificate of Incorporation of the Company (incorporated herein by reference to the
Companys Quarterly Report on Form 10-QSB for the quarter ended March 31, 1996). |
|
|
3.2 |
|
Certificate of Amendment to the Companys Certificate of Incorporation (incorporated
herein by reference to the Companys Quarterly Report on Form 10-Q for the quarter ended
June 30, 1999). |
|
|
3.3 |
|
Amended and Restated Bylaws of the Company (incorporated herein by reference to
Exhibit 3.1 to the Companys Form 8-K filed on November 15, 2004). |
|
|
31.1 |
|
Officers certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|
|
31.2 |
|
Officers certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|
|
32.1 |
|
Officers certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
|
|
|
32.2 |
|
Officers certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
24
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
|
|
|
|
|
|
|
SUPERIOR ENERGY SERVICES, INC. |
|
|
|
|
|
|
|
Date: August 5, 2005
|
|
By:
|
|
/s/
|
|
Robert S. Taylor |
|
|
|
|
|
|
|
|
|
Robert S. Taylor |
|
|
|
|
|
|
Executive Vice President, Treasurer and |
|
|
|
|
|
|
Chief Financial Officer |
|
|
|
|
|
|
(Principal Financial and Accounting Officer) |
25
exv31w1
EXHIBIT 31.1
CERTIFICATION PURSUANT TO
RULES 13a-14(a) AND 15d-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED
I, Terence E. Hall, Chairman of the Board and Chief Executive Officer of Superior Energy
Services, Inc., certify that:
1. |
|
I have reviewed this quarterly report on Form 10-Q of Superior Energy Services, Inc.; |
2. |
|
Based on my knowledge, this report does not contain any untrue statement of a material fact
or omit to state a material fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading with respect to the period
covered by this report; |
3. |
|
Based on my knowledge, the financial statements, and other financial information included in
this report, fairly present in all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the periods presented in this
report; |
4. |
|
The registrants other certifying officer and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the registrant and have: |
|
a) |
|
Designed such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure that material
information relating to the registrant, including its consolidated subsidiaries, is
made known to us by others within those entities, particularly during the period in
which this report is being prepared; |
|
|
b) |
|
Designed such internal control over financial reporting, or caused such
internal control over financial reporting to be designed under our supervision, to
provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally
accepted accounting principles; |
|
|
c) |
|
Evaluated the effectiveness of the registrants disclosure controls and
procedures and presented in this report our conclusions about the effectiveness of the
disclosure controls and procedures, as of the end of the period covered by this report
based on such evaluation; and |
|
|
d) |
|
Disclosed in this report any change in the registrants internal control over
financial reporting that occurred during the registrants most recent fiscal quarter
(the registrants fourth fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect, the registrants
internal control over financial reporting; and |
5. |
|
The registrants other certifying officer and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the registrants auditors and the
audit committee of registrants board of directors (or persons performing the equivalent
functions): |
|
a) |
|
All significant deficiencies and material weaknesses in the design or operation
of internal control over financial reporting which are reasonably likely to adversely
affect the registrants ability to record, process, summarize and report financial
information; and |
|
|
b) |
|
Any fraud, whether or not material, that involves management or other employees
who have a significant role in the registrants internal control over financial
reporting. |
Date: August 5, 2005
|
|
|
|
|
/s/ Terence E. Hall
Terence E. Hall |
|
|
Chairman of the Board and Chief Executive
Officer |
|
|
Superior Energy Services, Inc. |
exv31w2
EXHIBIT 31.2
CERTIFICATION PURSUANT TO
RULES 13a-14(a) AND 15d-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED
I, Robert S. Taylor, Executive Vice President, Treasurer and Chief Financial Officer of
Superior Energy Services, Inc., certify that:
1. |
|
I have reviewed this quarterly report on Form 10-Q of Superior Energy Services, Inc.; |
2. |
|
Based on my knowledge, this report does not contain any untrue statement of a material fact
or omit to state a material fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading with respect to the period
covered by this report; |
3. |
|
Based on my knowledge, the financial statements, and other financial information included in
this report, fairly present in all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the periods presented in this
report; |
4. |
|
The registrants other certifying officer and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the registrant and have: |
|
a) |
|
Designed such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure that material
information relating to the registrant, including its consolidated subsidiaries, is
made known to us by others within those entities, particularly during the period in
which this report is being prepared; |
|
|
b) |
|
Designed such internal control over financial reporting, or caused such
internal control over financial reporting to be designed under our supervision, to
provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally
accepted accounting principles; |
|
|
c) |
|
Evaluated the effectiveness of the registrants disclosure controls and
procedures and presented in this report our conclusions about the effectiveness of the
disclosure controls and procedures, as of the end of the period covered by this report
based on such evaluation; and |
|
|
d) |
|
Disclosed in this report any change in the registrants internal control over
financial reporting that occurred during the registrants most recent fiscal quarter
(the registrants fourth fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect, the registrants
internal control over financial reporting; and |
5. |
|
The registrants other certifying officer and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the registrants auditors and the
audit committee of registrants board of directors (or persons performing the equivalent
functions): |
|
a) |
|
All significant deficiencies and material weaknesses in the design or operation
of internal control over financial reporting which are reasonably likely to adversely
affect the registrants ability to record, process, summarize and report financial
information; and |
|
|
b) |
|
Any fraud, whether or not material, that involves management or other employees
who have a significant role in the registrants internal control over financial
reporting. |
Date: August 5, 2005
|
|
|
|
|
/s/ Robert S. Taylor
Robert S. Taylor
Executive Vice President, Treasurer and Chief
|
|
|
Financial Officer |
|
|
Superior Energy Services, Inc. |
exv32w1
EXHIBIT 32.1
CERTIFICATION PURSUANT TO
SECTION 1350 OF TITLE 18 OF THE U.S. CODE
I, Terence E. Hall, Chairman of the Board and Chief Executive Officer of Superior Energy Services,
Inc. (the Company), certify, pursuant to Section 1350 of Title 18 of the U.S. Code, adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Section 906), that:
1. |
|
the quarterly report on Form 10-Q of the Company for the quarterly period ended June 30, 2005
(the Report), as filed with the Securities and Exchange Commission on the date hereof, fully
complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of
1934; and |
2. |
|
the information contained in the Report fairly presents, in all material respects, the
financial condition and results of operations of the Company. |
This certificate is being furnished solely for purposes of Section 906 and is not being filed as
part of the Report or as a separate disclosure document.
Date: August 5 , 2005
|
|
|
|
|
/s/ Terence E. Hall
Terence E. Hall
Chairman of the Board and Chief Executive
Officer |
|
|
Superior Energy Services, Inc. |
A signed original of this written statement required by Section 906 has been provided to the
Company and will be retained by the Company and furnished to the Securities and Exchange Commission
or its staff upon request.
exv32w2
EXHIBIT 32.1
CERTIFICATION PURSUANT TO
SECTION 1350 OF TITLE 18 OF THE U.S. CODE
I, Robert S. Taylor, Executive Vice President, Treasurer and Chief Financial Officer of Superior
Energy Services, Inc. (the Company), certify, pursuant to Section 1350 of Title 18 of the U.S.
Code, adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Section 906), that:
1. |
|
the quarterly report on Form 10-Q of the Company for the quarterly period ended June 30, 2005
(the Report), as filed with the Securities and Exchange Commission on the date hereof, fully
complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of
1934; and |
2. |
|
the information contained in the Report fairly presents, in all material respects, the
financial condition and results of operations of the Company. |
This certificate is being furnished solely for purposes of Section 906 and is not being filed as
part of the Report or as a separate disclosure document.
Date: August 5, 2005
|
|
|
|
|
/s/ Robert S. Taylor
Robert S. Taylor
Executive Vice President, Treasurer and Chief
Financial Officer |
|
|
Superior Energy Services, Inc. |
A signed original of this written statement required by Section 906 has been provided to the
Company and will be retained by the Company and furnished to the Securities and Exchange Commission
or its staff upon request.