Parker Drilling Reports Third Quarter Results

HOUSTON, Nov. 3, 2010 /PRNewswire-FirstCall/ -- Parker Drilling (NYSE: PKD), a drilling contractor and service provider, today reported results for the 2010 third quarter and nine-month year-to-date periods ended September 30, 2010.  The Company’s results for the third quarter included net income of $0.5 million or $0.00 per diluted share on revenues of $172.0 million, compared with net income of $7.1 million or $0.06 per diluted share on revenues of $181.4 million for the 2009 third quarter.  Excluding the effects of non-routine items the Company reported net income of $1.2 million or $0.01 per diluted share compared with similarly adjusted 2009 third quarter net income of $4.4 million or $0.04 per diluted share.  Adjusted EBITDA, excluding non-routine items, was $36.4 million, compared with $38.1 million for the prior year’s third quarter.

“We had a record performance from our rental tools segment in the third quarter. The growth of directional drilling in the U.S., in both shale and conventional formations, has contributed to the increased demand for rental tools.  Parker’s rental tools operation continues to benefit from the strategic positioning of stores in the more active markets, reductions in price discounting, and timely investments in tubular inventory,” said Parker Drilling Chief Executive Officer David Mannon.  “In addition, drilling in the shallow-water Gulf of Mexico barge market has remained active despite seasonal influences.  Our barge rig fleet utilization has improved significantly from the prior year and average dayrates have edged up since the 2010 second quarter.  We also had solid results in our project management business, with revenues and gross margin contributions from our renewed activity on the Orlan platform and expanded content on the Arkutun-Dagi program,” said Mannon.  He went on to say, “The energy industry’s expected increase in international E&P spending has been slow to develop and has not been uniform across all regions.  In the international drilling markets we serve, demand has been lower overall, with results reflecting a slower spending environment.”  

Third Quarter Highlights

• The Company’s Rental Tools segment reported record levels of revenues, segment gross margin and segment gross margin as a percent of revenues.  (Segment gross margins exclude depreciation and amortization expense).
• Parker’s U.S. barge drilling business sustained its operating improvements as the Gulf of Mexico barge drilling market remained firm during the Gulf’s hurricane season.
• International Drilling extended contracts on four rigs in Mexico into 2012 and benefited from new contracts in the Asia Pacific region, one for a rig in Indonesia and another for a rig in Papua New Guinea.

“Our recent performance demonstrates the advantage of our business mix and the potential of our individual operations.  While we operate in a highly cyclical industry, our business diversity moderates the impact on Parker,” said Mr. Mannon.  “Oil-directed drilling in the U.S. on land and in the shallow waters of the Gulf of Mexico has offset the slowing interest in natural gas prospects.  As a result, demand for rental tools has been strong and barge drilling activity has improved and stabilized.  While international drilling has weakened overall, strength in the Americas region has somewhat offset softening demand in the CIS/AME region, and the Asia-Pacific region has begun to improve.  Our project management business continues to operate its portfolio of projects while also developing other programs. We are continuing to advance each of our businesses in line with a strategy to sustain their earnings and cash flow potential in uncertain times and leverage their growth when markets improve,” Mannon concluded.

Third Quarter Review

Results for the three months ended September 30, 2010, included the impact of $1.1 million, pre-tax, of non-routine expenses related to the ongoing Department of Justice and Securities and Exchange Commission investigations and Parker’s internal review regarding possible violations of the Foreign Corrupt Practices Act and other laws.  This reduced after-tax earnings by $0.7 million or $0.1 per diluted share.  The results for the 2009 third quarter included non-routine, net after-tax income of $2.7 million or $0.2 per diluted share.  Details of the non-routine items are provided in the attached financial tables.

Parker’s revenues for the 2010 third quarter were $172.0 million compared with 2009 third quarter revenues of $181.4 million.  The Company’s 2010 third quarter gross margin, before depreciation and amortization expense and non-routine items, was $42.3 million compared with 2009 third quarter gross margin of $45.5 million, while gross margin as a percentage of revenues was 25 percent, the same as for the 2009 third quarter.

• Rental Tools revenues increased 101 percent, to $48.1 million from $23.9 million, segment gross margin rose to $31.5 million from $11.7 million, and segment gross margin as a percent of revenues rose to 66 percent from 49 percent.  Recent investment in rental equipment inventory, higher utilization and less discounting all contributed to the segment’s success.  With facilities strategically located in all the major shale resource areas, the rental tools business has positioned itself to service the activity in the U.S. land drilling market.  In addition, the operation has continued to expand its international business with an increase in overseas equipment placements.
• U.S. Drilling revenues increased 21 percent, to $14.9 million from $12.4 million, and segment gross margin declined to $1.6 million from $2.3 million.  The benefit from higher utilization more than offset a lower average dayrate, while a $0.8 million sales and use tax expense and higher worker’s compensation expense reduced overall earnings.  For the quarter the business had an average of 3 more barge rigs operating under contract than for the comparable period of 2009.  The barge rig fleet’s average dayrate was $20,000 for the 2010 third quarter and $26,200 for the 2009 third quarter. The 2009 third quarter dayrate was impacted by one barge having operated at higher rates established in a 2008 contract.  
• International Drilling revenues declined 16 percent, to $53.6 million from $64.0 million, and segment gross margin declined to $2.3 million compared with $22.0 million.  Reduced average rig fleet utilization was the primary contributor to the decline in revenues.  Average rig fleet utilization for the 2010 third quarter was 49 percent, compared with 61 percent for the prior year’s third quarter.  For the quarter, the ten-rig Americas regional fleet operated at 86 percent average utilization, the eleven-rig CIS/AME regional fleet operated at 36 percent average utilization and the eight-rig Asia Pacific regional fleet operated at 27 percent average utilization.  (Additional rig fleet information is available on Parker’s Web site.) In addition, Parker’s Caspian Sea Arctic Barge Rig 257 earned a reduced average dayrate for the quarter, approximately $5.8 million less than for the prior year’s third quarter, as it completed a required overhaul and customer-requested upgrade and prepared for redeployment. Segment gross margin included a $6.4 million non-cash expense for the correction of the accounting for value added taxes in prior periods, and a $1.7 million property tax assessment, both in the Company’s Kazakhstan operations.
• Project Management and Engineering Services revenues increased 7 percent, to $27.6 million from $25.9 million, and segment gross margin rose to $7.2 million from $6.4 million.  The segment continued to benefit from the reactivation of the Orlan platform and the associated higher dayrate.  In addition, the continued development of the Arkutun-Dagi project contributed as it progressed further toward construction.  
• Construction Contract revenues declined to $27.8 million compared with $55.3 million and the recorded segment gross margin was a $0.3 million loss, compared to a $3.1 million gain in the prior year’s comparable period.  Segment revenues reflect the reimbursed costs of the construction activity on the Liberty rig.  The segment gross margin loss reflects an adjustment during the quarter of the fixed fee allocation for the project, resulting from increased costs and an extended construction timeline.  This adjustment represents a non-cash allocation of project earnings that will be recognized in future periods.

Nine Month Year-to-date Summary

The Company’s results for the 2010 first nine months included a net loss of $1.1 million or $0.01 per diluted share on revenues of $486.2 million, compared with net income of $13.6 million or $0.12 per diluted share on revenues of 577.1 million for the 2009 first nine months.  Excluding the effects of non-routine items the Company reported adjusted net income of $8.7 million or $0.07 per diluted share compared with similarly adjusted 2009 year-to-date net income of $17.0 million or $0.15 per diluted share.  Adjusted EBITDA, excluding non-routine items, was $116.0 million for the 2010 first nine months and $132.3 million for the prior year’s comparable period.

Results for the nine months ended September 30, 2010, included the impact of several non-routine items that decreased net income by $9.7 million or $0.8 per diluted share.  Included in non-routine items are $7.2 million, pre-tax, of debt extinguishment costs related to the redemption of the Company’s 9.625% senior notes; $6.1 million, pre-tax, of expense related to the ongoing Department of Justice and Securities and Exchange Commission investigations and Parker’s internal review regarding possible violations of the Foreign Corrupt Practices Act and other laws; and $1.1 million of tax expense for an assessment related to a prior year’s tax audit in Mexico.  

Cash Flow and Capitalization

Capital expenditures for the first nine months of 2010 were $181.6 million, including $91.1 million for the construction of Parker’s two newbuild arctic rigs for Alaska and $41.3 million for the purchase of tubular goods and other rental equipment.

Conference Call

Parker Drilling has scheduled a conference call for 10:00 a.m. CDT (11:00 a.m. EDT) on Wednesday, November 3, 2010, to discuss its reported results.  Those interested in listening to the call by telephone may do so by dialing (480) 629-9690.  The call can also be accessed through the Investor Relations section of the Company’s Web site at http://www.ParkerDrilling.com.  A replay of the call will be available by telephone from November 3 to November 10 by dialing (303) 590-3030 and using the access code 4375427# and for 12 months on the Company’s Web site.

Cautionary Statement

This release contains certain statements that may be deemed to be “forward-looking statements” within the meaning of the Securities Acts.  All statements other than statements of historical facts that address activities, events or developments that the Company expects, projects, believes, or anticipates will or may occur in the future, including earnings per share guidance, the outlook for rig utilization and dayrates, general industry conditions including demand for drilling and customer spending and the factors affecting demand, competitive advantages including cost effective integrated solutions and technological innovation, future technological innovation, future operating results of the Company’s rigs, rental tools operations and projects under management, capital expenditures, expansion and growth opportunities, asset sales, successful negotiation and execution of contracts, strengthening of financial position, increase in market share and other such matters are forward-looking statements.  Although the Company believes that its expectations stated in this release are based on reasonable assumptions actual results may differ materially from those expressed or implied in the forward-looking statements due to certain risk factors, including the volatility in oil and natural gas prices, which could reduce the demand for drilling services.  For a detailed discussion of risk factors that could cause actual results to differ materially from the Company’s expectations, please refer to the Company’s reports filed with the SEC, including the report on Form 10-K for the year ended December 31, 2009.  Each forward-looking statement speaks only as of the date of this release and the Company undertakes no obligation to publicly update or revise any forward-looking statement.

Company Description

Parker Drilling (NYSE: PKD) provides high-performance contract drilling solutions, rental tools and project management services to the energy industry.  Parker's international fleet includes 28 land rigs and two offshore barge rigs, and its U.S. fleet includes 13 barge rigs in the U.S. Gulf of Mexico.  The Company's rental tools business supplies premium equipment to operators on land and offshore in the U.S. and select international markets.  More information about Parker Drilling can be found at http://www.parkerdrilling.com.  Included in the Investor Relations section of the Company's Web site are operating status reports for Parker Drilling's rental tools segment and its international and U.S. rig fleets, updated monthly.

SOURCE Parker Drilling Company