GulfMark Offshore Announces Second Quarter 2010 Operating Results

HOUSTON, July 28 /PRNewswire-FirstCall/ -- GulfMark Offshore, Inc. (NYSE: GLF) today announced the results of operations for the three- and six-month periods ended June 30, 2010. For the three months ended June 30, 2010, revenue was $92.8 million. Net income for the same period, before special items, was $11.9 million, or $0.47 per diluted share. Reported net income for the quarter ended June 30, 2010 includes two special items: the previously discussed accrual for Norwegian taxes ensuing from a change in tax law and an impairment of goodwill resulting from the increased uncertainty in the Gulf of Mexico.

Total contracted future revenue increased to $663 million as of June 30, 2010, an increase of 55% over the prior quarter and its highest level since the first quarter of 2009. Cash flow from operating activities was $17.4 million for the quarter. Subsequent to June 30, 2010, the Company completed its new-build construction program and a final construction payment of $3.7 million was made upon completion.

As previously announced, the Norwegian government declared in February 2010 that revisions made in 2007 to its tonnage tax regime were unconstitutional. As a result, the Company recorded a $15.0 million benefit, or $0.59 per diluted share, including a cash refund of approximately $3.0 million in the first quarter. In June, the Norwegian government enacted new legislation, and as a result the Company recorded a $4.9 million charge, or $0.19 per diluted share, in the second quarter.

The Company periodically reviews its intangible assets for impairment. In the second quarter, the Company concluded that the portion of goodwill relating to its Americas operating segment was impaired in its entirety. The after-tax goodwill impairment charge recognized in the second quarter was $97.7 million, or $3.82 per diluted share. This non-cash charge does not impact the Company's liquidity position or its debt covenant compliance.

Results of Operations

Revenue for the second quarter of 2010 was $92.8 million, an increase of 10% over the first quarter of 2010. Utilization and revenue were up in all three operating regions.

In the Americas, revenue was up $5.2 million. Utilization in the Americas was 92% in the quarter, a 12 percentage point increase from the first quarter rate. Within the region, utilization in the Gulf of Mexico continued to increase, up 10 percentage points to 91% in the second quarter of 2010. The average day rate for the quarter was up approximately 1%.

In the North Sea, revenue increased $1.9 million. The average day rate increased 4% before the foreign currency effect of continued strengthening in the U.S. dollar, which when factored in, resulted in a 2% decrease in the average day rate.  Utilization in the North Sea increased 1% from the prior quarter.

Revenue was up $1.0 million in Southeast Asia. Quarterly utilization increased in Southeast Asia to 93%, a 10 percentage point increase, but the quarterly average day rate decreased approximately 7%.

Drydock expense was approximately $6.2 million in the second quarter, a decrease of $0.8 million from the first quarter of 2010. Full-year drydock expense is still expected to be approximately $22.3 million.

Direct operating expenses for the second quarter were $42.7 million, down slightly from the first quarter of 2010. Operating costs decreased $0.9 million due to currency effects, but increased approximately $500,000 due primarily to the inclusion of a full quarter of operating expenses for a new vessel that was delivered in the North Sea midway through the first quarter.

Operating income before special items was $18.5 million, up 108%, or $9.6 million, from the first quarter of 2010. The increase was driven by $8.1 million of additional revenue, complemented by approximately $1.5 million of lower costs. Net loss after special items for the quarter was $90.7 million, or $3.55 per diluted share.

Commentary

Bruce Streeter, President and CEO, commented, "The second quarter was better than we expected, with strong market conditions developing in the North Sea and, prior to the incident in the Gulf of Mexico, continuing positive signs in the Americas. The outlook for the remainder of 2010 and 2011 in the Gulf of Mexico is very uncertain. We currently have a significant portion of our U.S. fleet involved in the cleanup effort in the Gulf of Mexico.  As the cleanup begins to wind down, these vessels are likely to be released into a very competitive market in the Gulf of Mexico. We will continue to look at selectively relocating vessels to other markets within the Americas as more profitable opportunities arise outside the Gulf of Mexico. The number of deepwater drilling rigs that end up leaving the Gulf of Mexico to pursue profitable opportunities during the drilling moratorium, combined with the uncertainty of the future regulatory environment, makes us less optimistic than we were last quarter.

"On the brighter side, our international locations, particularly the North Sea, have increased our optimism over the past quarter. Spot rates in the North Sea have been particularly strong, and we have seen a marked increase in long-term tender activity and related projects. Southeast Asia has experienced lower average rates recently, but has shown its resilience as utilization and total revenue have rebounded sharply from the dip we saw in the first quarter of 2010.

"We took delivery of the Sea Valiant and the Sea Victor since our last conference call. The delivery of these two medium-sized anchor handlers completes our new build construction program. The vessels are destined for the Southeast Asia market, where they will complement our existing fleet of profitable medium-sized anchor handlers in that region. The completion of the program is advantageous because it releases us from capital commitments during this phase of the energy commodity cycle, but our intention is not to stagnate. We will continue to pursue those capital projects that add to long-term shareholder value as well as disposals in line with our fleet management objectives."

Mr. Streeter continued, "We are optimistic about the future, although the near term is difficult to predict with any certainty. Our outstanding utilization in the second quarter occurred despite the events in the Gulf of Mexico and a number of contract changeovers in international markets. Forward contract cover, which has always been viewed as part of our strength, increased in Asia and the Americas, but was particularly strong in the North Sea. We executed a long-term contract with Petrobras to move four of our Gulf of Mexico vessels to Brazil, which we will do sequentially as they complete their existing contracts and planned drydocks. The vessels will be delivered to Brazil throughout the second half of 2010 and potentially into early 2011. We will continue to focus on other areas in the Americas where we have had recent success, including Mexico and Trinidad.

"Although the present environment demands constant attention, we will also focus on the future. Keeping our vessels working in tough times is due in part to ensuring throughout the cycle that we maintain a young, technologically advanced fleet. We will continue to work to meet our customers' expectations and to look for opportunities that allow us to maintain and improve our fleet value, mix, and earning capacity."

Liquidity and Capital Commitments

Cash flow from operations totaled $17.4 million in the second quarter. Cash on hand at June 30, 2010 was $49.8 million, and as of that date, the $175.0 million revolving credit facility was undrawn. Total debt at June 30, 2010, was $343.1 million, and debt net of cash on hand was $293.3 million.  Quarterly principal amortization on the remaining debt is $8.3 million per quarter. There are no remaining capital commitments under the recently completed new-build program.

Conference Call Information

GulfMark will conduct a conference call to discuss the Company's earnings with analysts, investors, and other interested parties at 9:00 a.m. Eastern time on Thursday, July 29, 2010. Those interested in participating should call 877-317-6789 (international callers use 412-317-6789) 10 minutes in advance of the start time and refer to the GulfMark Second Quarter Earnings conference call. A telephonic replay of the conference call will be available for six days, starting approximately two hours after the completion of the call. The replay can be accessed by dialing 877-344-7529 (international callers should use 412-317-0088) and entering conference # 442782. The conference call will also be available via audio webcast and podcast download, accessible from the Investor Relations section of our website at www.GulfMark.com. A transcript of the call will be furnished to the SEC on Form 8-K as soon as practicable.

GulfMark Offshore, Inc., provides marine transportation services to the energy industry through a fleet of offshore support vessels serving every major offshore energy market throughout the world.

This press release contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, which involve known and unknown risk, uncertainties and other factors.  Among the factors that could cause actual results to differ materially are:  the price of oil and gas and its effect on industry conditions; industry volatility; fluctuations in the size of the offshore marine vessel fleet in areas where the Company operates; changes in competitive factors; delay or cost overruns on construction projects and other material factors that are described from time to time in the Company's filings with the SEC, including the registration statement and the Company's Form 10-K for the year ended December 31, 2009. Consequently, the forward-looking statements contained herein should not be regarded as representations that the projected outcomes can or will be achieved.

SOURCE GulfMark Offshore, Inc.

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