#$hero

The oil services provider suffered a $57.1 million net loss in the first quarter as its CEO cautions that 2015 will be a very challenging year for the energy industry.

by Jamie Mason

Hercules Offshore Inc. (HERO) is cutting costs, reducing spending and shutting down rigs given the lament of the company's CEO on a conference call Wednesday that "this is the lowest level of demand we have seen since the early days of the offshore industry."

The CEO and president, John T. Rynd, released the first-quarter results for the Houston-based provider of offshore contract drilling, liftboat and inland barge services to the oil and gas exploration and production industry and disclosed a $57.1 million net loss on $122.6 million in revenue for the three months ending March 31.

"2015 is shaping up to be a very challenging year for our industry, in general, and our company in particular," Rynd said in a statement issued before the call. "Demand for jackup rigs remains weak in every region of the world and the market is still scheduled to deliver a significant number of new build rigs over the next several years. In response to these conditions, we have implemented a number of cost-saving measures, including cold stacking several rigs, which have made a significant impact on our first quarter results and should show additional benefits in future quarters."

Cold stacking a rig is a lot like closing down an industrial plant, as workers are let go and the rig is completely shut down and stored. In providing more detail during the call, Rynd said that Hercules Offshore cold-stacked five domestic rigs during the first quarter, giving it a total of nine total cold-stacked rigs.

The company has also reduced its workforce by 40% and reduced its spending in an effort to right-size its capital structure, Rynd said during the call.

Rynd and Hercules Offshore's senior vice president and CFO, Troy L. Carson, couldn't be reached for comment.

In March, The Deal reported that the company had hired Lazard's Daniel Aronson to advise it on a restructuring.

Aronson couldn't be reached for comment.

The Deal previously had Hercules Offshore on its activist watch list because even before oil prices started to slide, the offshore rig provider was having problems. Most of its rigs are old, which is fine for shallow water Gulf of Mexico drilling but not for the high-specification, harsh environment rigs competitors have built in recent years. The company has been removed from the activist watch list as it has become more distressed.

Hercules Offshore has $1.2 billion in outstanding debt, including a $150 million senior secured revolving credit facility, with Deutsche Bank AG as the administrative agent, due on July 8, 2018. The revolver is priced at either an alternative base rate plus 150 basis points to 300 basis points or a Eurodollar rate plus 250 basis points to 400 basis points. The alternative base rate is the highest of a base rate, 50 basis points over the Federal Funds rate or 100 basis points over a Eurodollar rate.

During the conference call, Hercules said that it has $143 million in availability on the revolver and $180 million in cash on its balance sheet.

Hercules also has $200 million in 10.25% senior unsecured notes due April 1, 2019; $400 million in 8.75% senior unsecured notes due July 15, 2021; $300 million in 7.5% senior unsecured notes due Oct. 1, 2021; and $300 million in 6.75% senior unsecured notes due April 1, 2022.

Finra's Trace said that the 8.75% notes last traded at 39.82 on Wednesday, while the 7.5% notes last traded at 32.5 on April 24.

According to SEC filings, there are currently $7.41 million outstanding on Hercules Offshore's $250 million in 3.375% convertible senior unsecured notes due June 1, 2038, and $3.51 million outstanding on the company's $250 million in 7.375% senior unsecured notes due April 15, 2018.

The $200 million in 10.25% notes were issued on April 3, 2012; the $400 million in 8.75% notes were issued on July 8, 2013; the $250 million in 3.375% notes were issued on May 28, 2008; the $300 million in 7.5% notes were issued on Oct. 1, 2013; the $300 million in 6.75% notes were issued on March 26, 2014; and the $250 million in 7.375% notes were issued on Oct. 15, 1998.

The company had $1.93 billion in assets and $1.37 billion in liabilities as of March 31.

Hercules Offshore currently operates a fleet of 33 jackup rigs, including one rig under construction, and 24 liftboat vessels.

Jackup rigs are mobile, self-elevating drilling platforms equipped with legs that can be lowered to the ocean floor until a foundation is established to support the drilling platform. Once a foundation is established, the drilling platform is jacked further up the legs so that the platform is above the highest expected waves, according to the company's financial statements.

The company's stock, which trades on the Nasdaq, closed at 70 cents on Tuesday and was trading at 78.6 cents midday Wednesday, up roughly 13%.

Hercules Offshore's vice president of investor relations and planning, Craig M. Muirhead, couldn't be reached for comment on Wednesday.